_____________________________________________________________________

According to Sveiby, there are three key elements to intangible assets, which allow knowledge flows to be exploited to their maximum. These three components are individual competencies, internal structures, and external structures (your customers and competition).

The external structure refers to the image and relationship that the company has with its customers or even past employees. Microsoft has developed this into a fine art, employing hackers to test software or beta testers to try out new releases of the latest applications. They have managed to integrate their customers closely into their development work.

Other companies like McKinsey never actually fire anyone – rather, past employees become part of an elite alumni. National Bicycle in Japan allows customers to walk in and create a fully customised bicycle delivered in the next 24 hours to the customer. The Ritz Carlton is famous for personalising service. Ritz Carlton staff record every encounter with a guest, from complaints to preferences such as their favourite wine. When the customer returns to the Ritz Carlton, this information is at the fingertips of the staff. Benetton set up a "mass customised" system 12 years ago that captured the buying trends from all their clothing stores globally, delivering competitive advantage to the store.

The internal structure encompasses the patents, brand names, systems and procedures, as well as the culture of knowledge management. This is where IT systems fit in for knowledge management and sharing – for example, intranets or proprietary databases like those found in Andersen Consulting. The internal structure includes online manuals and groupware, which are part of the internal processes or ways of sharing information. According to Sveiby the internal processes should improve services for customers or increase the quality of knowledge about customers.

Individual competence describes the educational level of staff and their collective skills. The initiatives here vary from job swapping to creating teams to mentor new staff. HP has constructed an open office with few partitions to encourage sharing and other companies are addressing gender imbalances or giving their staff more information than they need to know to broaden their responsibilities.

Sveiby points out that the flows of knowledge from staff and from customers are important. Companies that only think about rands and cents disregard issues like learning, referrals, new product ideas, competitive intelligence, and research and development products – all of which provide intangible revenues.

"You also have to build a knowledge-sharing culture. You can build offices for knowledge creation." According to Sveiby, if your office environment has rooms with doors, cubicles with doors, no windows, with the office coffee machine in the far corner, you have an office that is not conducive to knowledge sharing. Ironically, in most companies the best offices with the most light are given to those that are never there.

Rather, a space that puts the coffee machine in the centre of the office space would probably do more to enhance knowledge creation. "You're likely to get your staff to stay there - it is more like home then." If you create your space to broaden the bandwidth of communication then things like company newsletters can fall away. "You can see people in the far corner, see who has come in today, hear the shuffle shuffle of papers, the distant birthday party. If you want to you can sink below to work in your own space." Sveiby believes that while you can manage space - it is impossible to manage people. "The goal is to leverage all your intangible assets."

To see the world from a different perspective is very, very, very hard. This is the hardest thing that you can do in a business - change the way that you do business. This is what companies tell me all the time and I know it myself from my own experience as a manager. Generally, methodologies to change are very resource intensive because they have to involve people actually changing their behaviour and activities - their actions. You don't do that by listening to lectures, you have to apply it in practice. Applying this in the real world is dangerous obviously. This is new and you don't know quite how to apply it and it is risky. This is precisely why many change programs tend to fail. People are worried to take action, to make the wrong decision. To help this we simulate this [process of change] - make the mistakes in a simulated world.

What I think is so impressive with MTN is that they are soliciting advice from all their staff. The questions that they are asking their staff are: What can we do to create a flow of competence? How can we do that? They are asking their own staff those questions. They will do it themselves, I won't do it. What I help companies with is to ask the questions. Those that see this as a quick fix solved by applying a checklist, they fail - always. You don't learn anything from reading the book - is this on record?

Internationally, committees are being established [to investigate this new accounting]. For example, the American Securities Exchange Commission (SEC), and the European Union are both giving out money to their member countries to test out these principles. Denmark's industrial ministry is currently running a major research project with European Union money to set up a number of companies accounting and presenting their intangibles this way. Business is now getting the support from government, and this means that it is finally taking off. But this has taken so long. It was in the 1980s that I first started thinking about this.

Educational institutions are the last ones to adopt this. I find this appalling. But what I do find encouraging about this movement is that it is being done by practitioners who recognise that theories fail. To run a business is a practice and you can't invent it in an ivory tower somewhere. You don't see the academic world coming up with theories about this yet. The practice comes first, and then the theory. This is a practice in search of a theory.

I am not sure that they are successful, just that some of them have been quick to adopt these principles, but only some of them. This movement is spread across all industries - insurance, government, manufacturing, telecommunications, various kinds of consulting industries. IT companies have been the first ones to take it [Tango] up. Most of the companies playing Tango are IT companies. MTN is the first South African company to play Tango. It is early days here for knowledge-focused companies.

How you can use a knowledge strategy depends on what kind of industry you are in, the application will be different for different industries. When you have changed the mindset, you will ask different questions, that is the main thing. That may sound as though someone is going to tell you how to ask questions and then want money for it. The fact is that every activity starts with a question, even if you don't see the question, or if you didn't ask it explicitly, it is in the writing, reports, and other plans.

There are more companies engaging in the knowledge focus issues in Australia than in South Africa. Obviously I have been there a few years and that helps.

I only work with companies that are fun to work with - I have worked with the National Australian Bank for example, BHP, LendLease and CSIRO. This is a government-owned research organisation with around 7 000 employees all doing research. They do research on everything. CSIRO is a remnant from the old days when government was involved in everything - research in all industry sectors. Now they are under pressure and have to find ways of leveraging their intangibles. They have enormously valuable intangibles, very skilled people and no idea how to make money out of it.

Scepticism about knowledge management? Yes, quite rightly so. What you see often is an information technology version of knowledge management. I don't like the words "knowledge management". I prefer "knowledge strategies" or "knowledge-focused strategies". And it is not about information technology, it is about people.

The way we have gone about this in MTN is that we give as many as possible a run down of the framework - that takes no more than two hours. There is a combination of lectures and small exercises. After that we start generating some activities - things which lead to a company which is more aligned with these principles. Then we take these to the executive level and go through them there and they generate the questions.

The questions are things like: How do we increase the competence of our people? How do we leverage the relationships with our customers so we get more intangible revenues? How do we apply our people's competence in R&D? What kind of processes can we design that we give to our customers and to knowledge flows?

You can ask very specific questions like: How do we reduce the leakage of competence? It is about people leaving, so we could try to reduce the staff turnover.

Other questions: Which customers give us more than money? Which customers give us intangible revenues, such as learning for our people, RD projects, competitive intelligence, referrals, and testimonials? Those are all intangible revenues. We don't measure them, nor do we rank our customers according to those Intangible revenues are flows of knowledge. Leveraging is based on one trivial principle that knowledge grows when shared; each time we share knowledge it doubles. If you have a very large proportion of intangibles, then it makes sense to try and leverage those - the money will come once you have the order. It’s all very simple actually.

Tango - this is Latin meaning "I touch". The principle of the learning tool is to make the invisible visible so that we can touch it. And that is where it becomes so powerful. When we learn from the book we only have information from the book. When we participate in Tango then we use all five senses – touch, smell, feel, hear, see – plus a sixth sense. You can feel the despair of people losing on the board. And most importantly, have fun. When we have fun we get more energy; we are prepared to work longer hours just for having fun. It is impossible to change anything through books or lectures - you have to sit down and try it out.

I started at Unilever and then went on to start my own publishing firm - a publishing company specialised in finance. I was supposed to be the manager, the others were supposed to do the financial analysis. I realised that everything that I had learnt at university and as a manager in a manufacturing company was of no use. Well, I developed an acute lack of self-confidence [about what I was doing]. I was lucky because there were lots of people around who knew these things better than I did. Each one had a gut feel about how to manage. I was doing the first research into knowledge-intensive firms in the world. I put everything together, started writing articles... management went more into a combination of writing and managing.

The basic objective in Tango - essentially a board game that Sveiby played with MTN - is to build up a strong company with a high market value. Every company starts from the same base point - with level playing fields, similar staffing and the same level of debt. The rule is that this is not a game - but reality. And that was probably the first rule that my group broke. We also became enmeshed in money issues rather than focusing on the strategy we had defined in the beginning for our company. Up to six teams can play Tango at a time and you follow different years with the assistance of the manual, "Tango: business from knowledge".

From the outset it was clear that my Tango team was doomed. Sveiby's reassurance was that those in the companies that went bust were probably the ones that learnt the most from the simulation - and boy was it a hard lesson to learn. My company, Epsilon, went bust but we had some fun later on as we were resurrected as a black empowerment group to the chagrin of the other companies. Sveiby commented on all the wheeling and dealing during the game, and this was definitely one of the fun aspects of the game.

Managing intangible assets is a skill, something that requires focus and a mindset different to the ordinary everyday business approach. After all, as someone in the group pointed out, cash is king. Or is it? This is one of the shifts in mindset that Sveiby's exercises, co- facilitated with James van der Westhuizen, encourages. Cash is more important than profits and by focusing on intangible assets all else follows. It isn't an easy mindset to adopt at first, and all the teams - with names like Alpha, Epsilon, Zeta, and Beta - struggled with this in the first few "years" of their existence. But once we had shifted that mindset it was amazing how quickly the companies grew and how successful they became.

Each company has to manage its image capital (external networks and reputation) and know how capital (concepts, procedures, and computer programs) makes up R&D while competence includes education, personality and intelligence of the staff in the company.

An important point that emerged is that your know-how can very easily depreciate and if you don't do anything it can disintegrate. To prevent this it is important to invest in both R&D and in the key people in an organisation.

Some companies, like Macdonald’s, have invested heavily in their processes so a staff turnover of 300 to 400 percent doesn't floor the company. However, this sort of staff turnover could kill a company like McKinseys.

In one of the Tango "years" companies must go to market and bid for new contracts – bearing in mind that price is the only differentiating issue - and then bid for new staff to get through that year. This is scary the first time, and emphasises the importance of having a year plan to guide decisions. Sveiby is fairly strict about the market - it opens on time, and closes a few minutes later - so there is no time for dilly-dallying. This makes it exciting and close to real life.

Then you play out the year, and each year following, adding new clients or contracts or adding new staff by using the headhunter who roams around the room. There are also staff representatives and customer representatives, who you have to keep happy lest you start slipping in terms of your image. The companies rated most highly by the customers were those that integrated their customers into their decision making - they received a tulip for that. Those that had poor customer relations received a lemon. The same applied to staff - those that looked after their staff paid attention to their needs, fears and their personal development. Each staff card had a development goal - if those were exceeded during the year then you could expect to do fairly well.

One of Sveiby's opening comments was one around the chemistry of customers and staff. This chemistry had to match if you wanted to win on the "clogs" - basically random cards that could cost you dearly if you had the wrong team on a job. Sveiby’s principle is that if your team doesn't have the right mix you might land up with a lower capacity. The ideal situation is to have a team where one-plus-one makes three.

Tango is co-developed with training and consulting company Celemi, based in Malmo, Sweden.

 Web Links