Originally published November 20, 2019

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This is the 50th article in the Profiles in Knowledge series featuring thought leaders in knowledge management. The 50th KM thought leader in this series is Karl-Erik Sveiby, one of the first to define the fundamental concepts of knowledge management. According to Dave Snowden, “Karl-Erik Sveiby is one of the two or three founding fathers of KM, who has engaged in one of the more interesting journeys.”

Here is Karl-Erik’s history in his own words:

“My working life has been a journey of unlearning. My first job was as an auditor, unlearning what I had learnt about accounting at the university. It took two years 1972–1974. I also learned that auditing was not for me. It took me six years as a manager at Unilever to unlearn the accountant experience. In 1979 I joined the Affärsvärlden Group as Partner and member of the management team. It was something of a culture shock. It took fifteen years to unlearn my experience at Unilever. It was during this time I “discovered” the Knowledge Organization. Over the years I held various executive positions within the Group and its subsidiaries; both managerial and editorial. During this period, I was the co-founder and editor of Sweden’s first management magazine, Ledarskap, and Sweden´s first newsletter for the professional services industries, Konsultvärlden, in which I encouraged Swedish managers and consultants to unlearn what American management gurus were trying to teach us.

We did well. When we sold the company, which had by then grown into 160 people employed, we were one of Scandinavia’s biggest publishing companies in the trade press and business press sector. I left my position as executive chairman and finished my PhD in 1994. Then my family and I left Sweden for the unlearning experience of our lives: We moved to Australia. The intended two-year family project became a nine-year life-changing experience.

During our years in Australia I was engaged in consulting, research and teaching (Honorary Professor at Griffith Graduate School of Management, Brisbane, and at Macquarie Graduate School of Management, Sydney). In Australia I also got the opportunity to work with the Aboriginal Elder, Tex Skuthorpe of the Nhunggabarra People. In 2006 our collaboration yielded the book, Treading Lightly. It changed my world view and it became the inspiration for much of my research and writing since then.

Since 2004 I have been based in Helsinki, Finland, first as professor in KM, these days as professor emeritus at Hanken Business School. My consulting work and research interests can be summarized as helping organizations become better for people. They are knowledge management, collective and distributed forms of organizing and leadership, and the dark unintended consequences of innovation.

I have written about knowledge and knowledge organizations since the early 1980s, which makes me a bit of a veteran in the rapidly emerging research field, nowadays called Knowledge Management. Having managed this kind of business myself, my approach is practical and hands-on, rather than theoretical. I do not believe much in lectures as means of transferring knowledge. I prefer experiential learning and I am actively engaged with partners in developing tools to support it.”

Background

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  • Stockholm University: Doctor of Science in Economics and Business Administration, 1994

Sveiby Knowledge Associates (SKA) helps corporations and other organizations to transform themselves from traditional industrial era organizations to businesses that create high value from their Intangible Assets. SKA teaches clients to implement knowledge-based strategies and to use their unique portfolio of tools and methods, which support them in the process. These tools and methods include business simulations such as Tango™ and TangoNet™, planning processes such as KMAP, assessment tools such as the Collaborative Climate Index CCI, and a management information system for measuring intangible assets: the Intangible Assets Monitor IAM.

Content

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This article is seeking to explore the practical implications of an epistemological approach to strategy formulation. In doing so it tries to expand the field of knowledge management and intellectual capital beyond its operational and often inwardly technological focus to a new theory of the firm. A resource-based perspective is suggested, using autopoietic epistemology to guide strategy formulation.

The theory suggests that people use their capacity-to-act in order to create value in mainly two directions; by transferring and converting knowledge externally and internally to the organization. The value grows each time a knowledge transfer or conversion takes place. The strategy formulation issues are concerned with how to utilize the leverage and how to avoid the blockages that prevent sharing and conversion. Activities that form the backbone of a knowledge-based strategy are to be aimed at improving the capacity-to-act both inside and outside the organization.

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  • “Knowledge can mean information, awareness, knowing, cognition, sapience, cognizance, science, experience, skill, insight, competence, know-how, practical ability, capability, learning, wisdom, certainty, and so on. The definition depends on the context in which the term is used.”
  • “Don’t just embark on one route without thinking about it. That’s the worst thing to do. You have to start by changing mindset. You need to see your organization as if it consists of nothing but knowledge strategies and knowledge flows.”
  • “Trust is the bandwidth of communication.”
  • “Knowledge management is the art of creating commercial value from intangible assets.”
  • “As yet there is no software that can transfer knowledge in a way that makes use of the human ability to learn with all senses.”
  • “If we measure the new with the tools of the old, we will not “see” the new. Knowledge flows and intangible assets are essentially non-monetary. We need new proxies.”
  • “The main problem with measurement systems is that it is not possible to measure social phenomena with anything close to scientific accuracy. All measurement systems, including traditional accounting, have to rely on proxies, such as dollars, euros and indicators that are far removed from the actual event or action that caused the phenomenon. This creates a basic inconsistency between managers’ expectations, the promises made by the method developers and what the systems can actually achieve, and makes all these systems very fragile and open to manipulation.”
  • “Human beings have an infinite ability to create knowledge. Add the convenient fact that unlike conventional assets, knowledge grows when it is shared, and you have the most powerful features which will change how we manage in the Knowledge Era.”
  • “Long dismissed as children’s stories or ‘myths’ by Westerners, Australian Aboriginal stories have only recently begun to be taken seriously for what they are: the longest continuous record of historic events and spirituality in the world.”

Questions and Answers

Philippe Perez Welcome to Prof Karl-Erik Sveiby, our guest speaker today. Of course Karl-Erik needs no introduction from me. He is famous enough in KM. But just a few words: Prof Karl-Erik Sveiby is principal of his own consulting company, Sveiby Knowledge Associates, and professor in Knowledge Management at the Hanken Business School in Helsinki. The objective of this online workshop is to let you submit your questions about the main KM concepts, to improve somehow your knowledge of the KM area. We are running an unmoderated session today, so you can post your question directly. Who wants to start?

Helen Baxter Hi Karl-Erik. I’d like to know how you define KM.

Karl-Erik Sveiby The Art of Creating Value by Leveraging Intangible Assets

Anne Jubert Should we still talk about KM?

Karl-Erik Sveiby Well, KM is an oxymoron. K cannot be managed, but we are stuck with the term, I guess.

Paul Hearn Hi Karl-Erik, trust is important for knowledge sharing. How can organizations become more trustable/trustworthy?

Karl-Erik Sveiby Trust is a huge issue, actually not a KM issue per se, but crucial because trust determines the level of knowledge sharing. Trust has to start from the Top by giving trust and empowering people. Then Trust has to be built from bottom up.

Philippe Perez Karl-Erik, could be more precise about what an oxymoron is?

René Stach Isn’t “a living dead” an oxymoron?

René Stach KM definition: Karl-Erik, your definition does not cover any activities that are a prerequisite to manage knowledge such as “getting to know what people know”. Is that not a part of KM from your point of view?

Karl-Erik Sveiby KM definition is a perspective a way of “seeing” the organization as a value creating system only consisting of intangibles, K being the most important intangible. Within the perspective we then define the activities. The foundation in my thinking is that value is created in the “flows”, i.e., when K is converted from one form to another or transferred or created. The KM activities are then based on how to improve the flows.

Philippe Perez Could you provide a list of these intangibles?

Karl-Erik Sveiby Intangibles are: brand, customer relationships, employee relationships, systems, processes, individual competence, attitudes, collaborative climate, etc.

Paul Hearn In your view, are organizations taking trust seriously enough?

Tobias Keim Hi everyone, I think that trust is to some degree transitive, that is if A trust B and B trusts C, then A might also trust C.

Anne Jubert As times are getting more and more turbulent (market changes, flexible partnerships etc.) I wonder how trust could be kept upright under such conditions. Do you have an answer to that?

Karl-Erik Sveiby Trust. I wish I had a good answer to Anne’s question! But I don’t. All I know is that in times such as these, trust is tested and those that have built trust can now “cash in” by experiencing less customer loss, less motivational loss, etc.

Toby Richt Hi Karl Erik, how do you believe we can overcome the cultural and language barriers and build trust when sharing knowledge on an international scale?

Sveiby SKA is a global network of consultants from 14 countries from all continents. We never discuss cultural differences. We need to meet face to face a lot more. There is really no substitute for F2F (Face to Face) meetings.

Ben Heald Indeed the growth of KnowledgeBoard, has been based on a series of F2Fs

Anne Jubert Hi Karl Erik, we have piled questions up for you during your absence> Could you give us advice about KnowledgeBoard

Tobias Keim Can online video conferencing partly replace face to face?

Ben Heald Tobias, online stuff supports F2F, or at least it will have to until you can have a beer with someone online!

Helen Baxter I find hearing someone’s voice can help to strengthen a relationship too.

Jeroen Kemp Hello Karl-Erik, where do you see KM in five to ten years from now?

Sveiby Why? Because we have been self-selected based on our values and our interests. We also meet at least once a year F2F. This meeting is mandatory. See F2F meetings as an investment in bandwidth. The emails become much simpler to understand after a F2F.

Audran Sevrain Karl Erik will you be ready to test your approach based on a virtual and knowledge focused strategy — organization … I mean Knowledgeboard?

Sveiby I’d love to test my approach on the KBoard!

Ben Heald Karl-Erik, one of the things we’ve found is that some people say that they can tell on KB, which links are based on F2F stuff, and others where it’s just online

Anne Jubert Karl-Erik lets go ahead with this. KB should be a service provider

Sveiby So let’s discuss KB for a while. Questions please!

Sveiby KnowledgeBoard needs F2F meetings too, otherwise the discussions will be superficial and travel in circles, never become actions.

Anne Jubert KB is 5000 people from 104 countries. Which potential can you see for this community?

Sveiby Well, such large numbers are scary!

René Stach Why scary?

Georg Schoeler In my opinion, KB needs a vision and aims.

Ben Heald Not just meetings, what about KB journals and conferences

Jeroen Kemp Karl-Erik, if you had a million euros to spend on KB, where would you start?

Anne Jubert How would you like to use KB for your work?

Sveiby KB’s vision can only be what the members wish and since they are not selected based on values you will need something that functions as a leading light.

Anne Jubert What might that something be?

Sveiby Scary from a management view!

Anne Jubert Not a problem, we have distributed management, and can evolve.

Georg Schoeler Is it possible to initiate an IP (Integrated Project) or NoE (Network of Excellence) by the KnowledgeBoard community?

Sveiby KnowledgeBoard for my work? I don’t know. What was the vision of the founders of KB?

Ben Heald I think the vision was to create exactly what we’ve got — a dynamic community of KM professionals. The question is where does it go now??

Anne Jubert To promote KM Made in Europe, to make Europe the leading Knowledge Economy by 2010

Tobias Keim Aren’t there shared values between KnowledgeBoard members from your perspective?

Anne Jubert Of course there are

Sveiby I can only talk from experience. In SKA we are very careful to build the community of Values, Shared knowledge base (i.e., Tools) and a shared Mission. In our case the mission is “to create better organizations for People”.

Jeroen Kemp The vision of the founders of KnowledgeBoard is also to build up a vibrant and pan European community, and promote the principles of KM …

Anne Jubert And to be part of a wider community

Helen Baxter It’s a truly global community now which is exciting

Sveiby To make Europe lead in KM we need a European KM knowledge base that we build ourselves, not import from the US.

Georg Schoeler Are there existing evaluations about the different SIGs? Is there a list or coming up with solutions, e.g., best practices in the different fields of KM? Perhaps we could use them to initiate a business service for SMEs?

Sveiby I think we do have a European touch to KM. We are much more people oriented, less IT fixated.

Audran Sevrain Exactly.

Philippe Perez Please, the initial objective is to enable people to ask question about KM concepts.

Chris Macrae I believe we need to create a language and platform for the mother of all benchmarking — changing system quality in 80s was minor compared with changing system knowledge in a networking world so all human disciplines can participate

Philippe Perez This discussion about KnowledgeBoard is interesting, but we are drifting away from the initial objective.

René Stach Karl-Erik, the pros are people oriented. Laymen are still thinking KM is 100% IT. :-( But we’re working on it.

Sveiby Sigh. I know. US IT vendors hijacked the KM language.

Chris Macrae European touch can include diversity of innovation most of all…

Ben Heald Is it possible to be just European about all this? Surely we need to be global?

Chris Macrae We need to connect the knowledge society construct of 25 nations’ social capitals with that of KM BUT

Ben Heald And most of the KM practitioners work for global companies

Philippe Perez If you want to talk about KnowledgeBoard, please run another session. Can we try to come back to the workshop initial objective?

Sveiby KM made in Europe can have an existence only if we are able to show Value Creation in business terms!

Chris Macrae KM and KSOC are under 2 different commissioners’ wings and prime ministers convergence interests are linked to society while KM, K’board and KAngels have the open capital tools to make this all network

Sveiby and I believe we can! It is “only” a matter of seeing the intangible value flows. An example: We all know customers bring more than money to us: learning, ideas, referrals, etc. Still we measure the value creation only in euros! Why?

Anne Jubert It’s ok if others want to ask questions, of course. While there are no others, let’s talk about KnowledgeBoard

Ben Heald We could always talk about the war!! Maybe KB should get more political?

Georg Schoeler In the SENEKA project, we had developed all products strictly on HOT- concepts (Human-Organization-Technical). I think that is “THE” European way of KM.

Chris Macrae yes value multiplying of 5 knowledge productivities — Drucker’s K-worker, the network of the k-worker, only then the organization at level 3, the network of organizations as the collaboration unit in world markets, and infrastructure knowledge places and spaces including NoEs that policy makers can architect openly/democratically

Philippe Perez On the forum there were questions about the “importance of trust in KM”; Is there any process to develop this trust?

Audran Sevrain Karl Erik which are for you are the key drivers of networks of companies in order to develop intangible assets

Sveiby Intangibles are nested in Clusters of People, Processes and Customers.

Jeroen Kemp Karl-Erik, how do you perceive the role of corporate strategy in knowledge companies?

Audran Sevrain how to develop them in a cluster oriented strategy and organization?

Sveiby The key drivers are in improving the K flows between them

Helen Baxter What about for companies starting up. How can they create intangibles?

Sveiby Startups above all need intangibles. Too much is focused on how to give money to SMEs.

Helen Baxter So how would you advise a company who wanted to start from scratch?

Sveiby The generic intangibles SMEs need are: Management competence, Admin back-up systems, strategic thinking, customer contacts and help to navigate government

Chris Macrae startups need to get their first 5 biggest relationships right and open network information could help them navigate that but only if NoE is deeply trustworthy and not structured around big-organization interests

Chris Macrae Trust depends first on changing organizational governance — current accounting is the great trust-breaker especially whilst all people are counted as costs not as investments and while professions are rivals in business case budgeting. Trustflow is about relationships, the best use of people’s time and seeing collaborative integration visions in ways that numbers cannot show- numbers currently overtrump all other knowledge-sharing

Sveiby Agree with Chris!

Chris Macrae what tool do you use for navigating or visualizing clusters?

Sveiby Cluster tools: social network analysis, see i.e Valdis Krebs work on www.knowinc.com

Chris Macrae SNA (Social Network Analysis) depends on having a common language? The trouble is big terms of KM ought to permit meta-disciplinary ways in which to participate — what a big word like trust means depends on so many approaches.

Georg Schoeler I think having a network of customer, experts and senior experts, giving knowledge to start-ups could be very helpful for new SMEs.

Chris Macrae Georg sound s like great idea but how to build trust for that — many consultants have often facilitated something rather the opposite

Sveiby Trust and Culture are too BIG to be operational. I try to work with narrower concepts, such as Collaborative Climate.

Audran Sevrain How to apply your approach (Intangible assets management) in a cluster (of people, companies)?

Chris Macrae perhaps we need a keyword dictionary to great bookmark discussion s — collaborative climate sounds like a culture many people could help build given one clear verbal base to start imagining it with

Georg Schoeler By senior experts, who are out of working but still in business — why not go back to former concepts like family-organization: grandfather — father — son so on? We could develop this into an innovative European network of senior experts to help young businessmen.

Helen Baxter A community of Knowledge Elders — I like that. I think in many ways we do have to look backwards to move forwards.

E. Smith Do you believe the practice of KM will make companies better places to work in?

Sveiby Put the actors in a room together and facilitate a conversation. The conversation is based on questions on how to identify the flows. The result is a “map” plus a number of activities that are aimed at improving the K flows.

Chris Macrae Georg again that sounds great but actually I can only see who I feel I can trust by having pen conversations with them first — that’s the huge under the surface value of KnowledgeBoard

Sveiby Practice of KM will make companies better places? Absolutely!! But not the IT-focused version of KM!

Chris Macrae almost all virtual community spaces have value that cannot be measured from the surface- I hope the EU judges know that

E. Smith can you give examples of effective KMAP tools?

Georg Schoeler E. Smith, we have developed a personal focused KMAP (see under www.seneka.de -> Wissenslandkarte).

Sveiby Well, KMAP is the name of a SKA tool, which facilitates strategic conversations based on a K-perspective. KMAP is aimed at identifying the flows.

Chris Macrae I’m not sure all our 5000 participants realize that it’s the best use of K’board

Chris Macrae is there an open KMAP anywhere we can go and play with?

E. Smith Thanks Georg, I will look into that

Sveiby Isn’t there a risk that K’Board becomes hijacked by the consultants who have something to sell?

E. Smith Why would people find it difficult to communicate?

Chris Macrae consultants give themselves away in open community conversations — its easy to read between the lines — perhaps that’s the first skill you need in virtual community participation and also why so many people lurk to check people before spending virtual time in their conversations

E. Smith But Chris, we then run the risk of lost opportunities from having been restricted by our own perceptions

Audran Sevrain how can we define strategic partners within a network?

Chris Macrae traditional organizational structures make it very hard to openly collaborate, which is precisely where the greatest innovation network value could be focused

Sveiby Have you done a check on the KBoard members? How many are “sellers”, i.e., consultants and researchers? How many are “buyers”, i.e., organizations, and companies?

Chris Macrae it’s fun that of K’boards 5000 members few look like sellers when I browse them but equally the sellers are so easy to spot I don’t need to read more than a line of their bio.

E. Smith That sounds like an exciting idea — can you clarify

Georg Schoeler I think we have to initiate a culture where we ex-change ideas without only looking for our own profit but for the vision of European KM solutions!?

Sveiby I notice that KM people taking part in the public conversation are more likely to be sellers than buyers. This is problem.

Chris Macrae At Angels our idea is no more new research lets integrate research people want to share

Sveiby If you have a large community with sellers wouldn’t it be in the best interest of buyers to be part of it? So something like the marketplaces for B2B (Business to Business)?

Chris Macrae I think that goes close to Georg’s culture-construct but if there’s a better way to build what Georg is saying I would love to hear it.

Georg Schoeler That’s right Chris!!!

René Stach Chris: What? I did not understand that?

Chris Macrae Rene — what line didn’t you understand?

René Stach You said “At Angels our idea is no more new research — let’s integrate research people want to share”

Chris Macrae Rene — Networks of Excellence are supposed to integrate research already done

Philippe Perez Time is running out. There are a lot of different issues that have been addressed here.

E. Smith Hmmm..difficulties with tacit into explicit come to mind — I think there is a difficulty that lurkers may interpret the dialogue of others against their personal backgrounds, and may consciously exclude themselves from participating, believing they cannot add anything ‘new’ — but all experiences are ‘new’ and ‘unique’

Chris Macrae That’s also what I mean by getting all sorts of people to benchmark around human KM and the new capital measures of KM like those page 26 of Sveiby where managers must integrate old and new. Along 17? paradoxes starting with seeing a person as both a cost and their greatest resource

Audran Sevrain Karl Erik, do you have a key message for the whole community … one we will remember during 10 years?

Sveiby A large community with sellers. Maybe buyers are interested, but I don’t know. All I know is that we (that includes me too) are the majority of sellers talking. What do the companies need? We can guess and we are very good at developing concepts, but the debate becomes a discussion about concepts and theory, not practice.

Georg Schoeler.. not only focused on cost or money?

Chris Macrae time not money is biggest flow of knowledge?

Georg Schoeler I agree, but time is same to all 24 hours ;-)

E. Smith Karl, Chris — do you feel IT (Information Technology) may in fact be detrimental to knowledge sharing — as we rush to keep pace with technology?

Philippe Perez Karl-Erik could you answer to last questions as a conclusion? Then I will conclude this workshop.

Chris Macrae it is detrimental if people usability and trust cannot keep up before you go to next structural-organizing technology- there’s so much value that could be created with the internet because its a mega-freedom for every person as producer — learn that before trying to create a higher tech net

Sveiby We can only share information via IT! Whether the information becomes Knowledge and ACTION is much further down the line. When we focus on IT solutions we forget the simple cheap K sharing that takes place when people work together. Mentor — apprenticeships for instance.

Sveiby Conclusion: Don’t lose sight of the fact that Knowledge is ACTION. Without action there is no value creation!

Audran Sevrain info > actions > impacts

Sveiby Thank you all. It was a quite an experience to try and keep up with the lightning speed pace!

E. Smith Thank you Karl-Erik, Chris, Georg and others — a very interesting discussion and much food for thought — it’s fascinating that what we know can change things, if only we knew what we know (a borrowed idea)

Question: What is Knowledge Management?

KES: The “movement” is based on two divergent streams of thought:

A. Knowledge focused, something like: “the value in knowledge comes out when it’s many forms are leveraged.” This stream is influenced by Nonaka’s and my works. Read more in my article.

B: Information focused, that is: “the value in knowledge comes out when it is made explicit in the form of information”. I’d say 80% of KM investment is made under this assumption; it is US led and heavily promoted by IT firms.

Question: In your book you write that if the strategy focus is on information, the increasing benefits are derived from efficiency? Why?

KES: Managers implementing information focused strategies tend to invest in computer systems, databases, search engines, document handling, etc. and their primary justification for doing so is cost reduction and re-use of existing knowledge “avoid re-inventing the wheel”. This is to seek efficiency.

Question: And what about the strategy focus on knowledge?

KES: Managers implementing knowledge focused strategies tend to invest in people, training, trust, management education and to make the office environment more attractive and conducive to communication. Because the primary focus is on creating better environment for people the effect will be improved creativity, innovation, knowledge creation. This is to seek effectiveness.

Question: Why should knowledge be managed?

KES: I don’t believe knowledge can be managed. Knowledge Management is a poor term, but we are stuck with it, I suppose. “Knowledge Focus” or “Knowledge Creation” (Nonaka) are better terms, because they describe a mindset, which sees knowledge as activity not an object. A is a human vision, not a technological one.

Question: Is KM only the latest fad?

KES: KM defined as B. above: yes definitely a fad, because the returns on the enormous investments now made under the label “KM”, will not be justified.

KM defined as A. above: No, we have not even scratched the surface!

Question: What is the purpose of Knowledge Management?

KES: There are many purposes and particularly the hidden agendas are worth exploring; the IT-companies want to sell more IT-systems, many managers want more control over their employees, for instance. I believe that KM — properly applied — can leverage the human potential to create to new unprecedented levels. The human potential to create knowledge is unlimited but constrained by Tayloristic mindsets in our organizations today.

Question: Are there similarities between Taylorism and KM?

KES: The information focused KM: Absolutely! It is Taylorism dressed up in silicon!

The knowledge focused KM: Not at all! It is a new way of seeing the firm, as if it consists of nothing but knowledge and knowledge flows.

The trouble for KM is that it’s agenda has been hijacked by the US IT-companies and consultants, who make their living from selling IT advice. For instance, since Business Process Re-engineering has turned into an ugly word, the earlier BPR advocates seem to have hit the Find-Replace button on their word processors and are now telling the world how to “manage knowledge”.

Question: Do you consider there are any major differences between Knowledge Management & Intellectual Capital Management?

KES: No, they are like two branches of the same tree. I created a theory about “Knowledge Capital” in 1988, dividing it into three categories: Customer Capital, Structural Capital and Human Capital. In 1989 it was published together with the results of a working group, called “KONRAD”. The book can be downloaded as a pdf file The Invisible Balance Sheet. When Skandia adopted the theory for their use around 1993 they called the total “Intellectual Capital” instead and that label caught on. Skandia keeps the other three labels in their Navigator, but I have become concerned that the word “capital” is not a very good one to use in connection with knowledge, because the two concepts are so different and because Capital has so very powerful connotations with “money”. Explore the difference yourself in this little exercise!

The people in the field emphasize slightly different things. Leif Edvinsson, Hubert St Onge and the others using the “IC-label” focus more on how to transfer human capital into structural capital. This focus is true also for a large number of those using the “KM-label”. I am a bit different in that I focus on how to leverage all the flows between the three assets. For a more comprehensive explanation of my approach, please visit my on-line Knowledge Management Course.

Question: Why should knowledge be measured?

KES: I don’t believe we will ever be able to measure knowledge, and I am not sure it is needed either. Many managers are very good using just “gut feel”, which generally suffices very well. The work I am doing in measurement is based on the assumption that we MIGHT be able to measure SOME of the outcomes or flows of knowledge via INDIRECT means. Mathematics is wonderful language, which can give us new insights in how to leverage knowledge. Measurements thus may enrich the strategic dialogue and add a lot of insight. So I see the purpose of measuring as learning — not control.

Question: Are there any differences between the Skandia Navigator, Kaplan & Norton’s Balanced Scorecard and your Intangible Assets Monitor, or are they just variations on the same theme?

KES: The approach of all three is the same: To create indicators that measure aspects of a business. But there are only two unique theories: The “KONRAD” theory as I described it above and the Balanced Score Card. The two were developed independent of each other. Although BSC is a later development, they did not know about my earlier work, because it was published only in Swedish language. The Skandia Navigator came in 1993. It is a combination of the “KONRAD” theory + the presentation format of the Balanced Score Card. The Intangible Assets Monitor came 1994 and is the “KONRAD” theory + its own presentation format. See more info about the differences and similarities.

There is also a third theory, Human Resource Costing and Accounting, pioneered by the Dutch researcher Flamholtz in the 1970s and developed further by Swedish researchers J-E Gröjer, Ulf Johansson and Marianne Nilson of Personnel Economics Institute at Stockholm University. This theory helps to calculate costs that can be attributed to staff turnover, alienation, recruitment etc. These calculations can be used to amend the traditional Profit & Loss Account. See:

Question: I think that the concept of an Invisible Balance Sheet seems quite complicated. How do you create such a balance sheet for a company, generally speaking? I think that the concept of an Invisible Balance Sheet seems quite complicated. How do you create such a balance sheet for a company, generally speaking?

KES: I like to think that the concept is simple, but that the practical application of it is hard. Again the best way to learn is to test it in practice. I have created a little exercise for you. Gather a couple of friends and do the exercise for your own business unit and discuss the results. When you have done that go to the web conference with your findings and more questions!

Question: Has any statistically validated linkage between performance and knowledge management initiatives been identified? Has any statistically validated linkage between performance and knowledge management initiatives been identified?

KES: No, only anecdotal evidence so far. The anecdotes we hear from consultants and practitioners are generally very positive, often citing huge savings in costs, but they are of course partial. Several PhD theses are exploring the issue and we can expect findings in the next years.

Question: Tacit knowledge is about our awareness of, how to hit the nail with a hammer or how to scratch your nose without really concentrating as I have understood it. How can tacit knowledge be an important issue for a big global corporation?

How can such knowledge be of use when we rather need to be better designers, engineers, etc.? Tacit knowledge is about our awareness of, how to hit the nail with a hammer or how to scratch your nose without really concentrating as I have understood it. How can tacit knowledge be an important issue for a big global corporation? How can such knowledge be of use when we rather need to be better designers, engineers, etc.?

KES: Well :-), Tacit knowledge is much more! I only use the nose exercise (test it yourself!) to illustrate a point. Why don’t you do a little research project? Ask the ten best designers, engineers or experts in your company this question: What is your most valuable knowledge? Is it the knowledge you find in books or something else? Well :-), Tacit knowledge is much more! I only use the nose exercise (test it yourself!) to illustrate a point. Why don’t you do a little research project? Ask the ten best designers, engineers or experts in your company this question: What is your most valuable knowledge? Is it the knowledge you find in books or something else?

I do not want to preempt your research project, but what you most likely will find is that they say something like: “Of course books are worth something, but my really valuable knowledge is the ability to come up with creative solutions to a problem,” or perhaps “my ability to ask the right question.”

If you then ask: “OK, where does that knowledge come from?” They will probably answer: “I do not know!”

This is another example of tacit knowledge, this mysterious wonderful human ability to create new solutions in all kinds of contexts. ALL knowledge is tacit, there is no difference between an engineer, a physician, a carpenter or a nose scratcher. We can only articulate a fraction of it in words. And the oldest way to transfer tacit knowledge is still the best way: on the job working with experienced colleagues. This is why it is so important for juniors to work alongside seniors. The seniors’ tacit knowledge “rubs off” on the juniors. No formal courses are needed.

Question: In The New Organizational Wealth p30 you say that Polanyi describes knowledge as both personal & individual. I’m unclear about the meaning for these terms & the distinction between them. How is something that is “formed in a social context” be personal? In The New Organizational Wealth p30 you say that Polanyi describes knowledge as both personal & individual. I’m unclear about the meaning for these terms & the distinction between them. How can something that is “formed in a social context” be personal?

KES: “Personal” and “Individual” both mean “my own”, that my knowledge can never be the same as yours. This is very obvious in sports. Suppose I admire your skill in tennis. I have to create the skill myself, painstakingly. I can start by observing how you play and then try and imitate you. Then reflect on what I did wrong, and try again. But — and this is Polanyi’s point — I will never be able to play tennis as you do, even if I beat you eventually. Your tennis will always be your tennis. I have learned how to play in a “social context” — by interacting with you. But my skill is “personal” and it is “individual”, because knowledge can never be a collective. It is hard to argue against this, because tennis is a physical “skill”. But Polanyi argues that also scientific knowledge and scientists obey the same principles. There is thus no difference in principle between a tennis player and a scientist in how they learn the principles of their crafts. You may ask any of your researcher colleagues and they will tell you that some knowledge can be found in books and articles, but it what he or she brings into it in the form of tacit knowledge that makes the difference. Incidentally, this also in one stroke of pen does away with science as “objective knowledge”.

Question: You quote Polanyi as saying that there is no such thing as objective knowledge. What then is explicit knowledge? I had always thought of it as (tacit) knowledge that had been articulated & made public. Is this a misleading description? Is an encyclopedia full of knowledge or merely of information? Is E=MC2 Einstein’s knowledge or merely hieroglyphics? In general, can any knowledge exist independently of the mind of a knower? On p.44 you refer to “the vast accumulations of knowledge in libraries” so presumably it can. I’m confused!

KES: Don’t worry that you are confused. So am I! These things are hard to grasp. I try to understand Polanyi’s notion this way. All knowledge has a tacit dimension, a minute part of it can be made explicit. (I’d say 1%, although I have no means of ascertaining it). Explicit knowledge is the way we express ourselves and it can take many forms:

  • Information, the most common these days.
  • Art, like paintings, acting or sculpture
  • Theater, role play, body language
  • Simulations. Tango, for instance, is my tacit knowledge on how knowledge organizations “behave”, the “business logic” of making business from knowledge packaged into the forms of “rules”. Those rules are in physical form (Tango is not computerized) and they are unbundled by each individual player when they play it.
  • One might even argue (as Marshall McLuhan) that everything out there is an expression of our selves. So, following his notion, also houses, cars, roads, your suitcase, a soccer ball, are knowledge made explicit.

The trouble is that each one of us must reinterpret the explicit knowledge ourselves in order to create our own knowledge. I can read Einstein’s formula and I can repeat it as a monkey, but it does not make any sense to me; it is not knowledge until I can do something with it until it changes my “Capacity to Act,” which is my notion of what knowledge is. Polanyi’s epistemology is very action oriented and practical, that’s why I like it.

Question: You state that … “information is meaningless & of low value.” That’s a very sweeping statement and I’m not sure what your evidence is, other than that given in the article and that’s very partial. However, it’s a good rhetorical statement!

KES: This notion of information as being meaningless is very hard for most people to fathom, because we have been indoctrinated all our lives to believe the opposite. As an example: Consider this piece of information:

Jag mår bra.

Unless you know Swedish, it is meaningless information for you. But all who know Swedish, know what it means. It means “I feel fine” in English. This follows from my answer above: Information is someone’s tacit knowledge conveyed as symbols via some kind of medium. Information is meaningless in itself. Each piece of information has to be interpreted by the reader. You do the interpretation of it, not I. My argument about value of information is not that it is wrong to regard information as valuable, merely that we should reconsider our mindsets about the value. I suggest that a lot of money is wasted because we allow un-reflected notions about this fundamental concept guide our actions.

Question: Can the difference between market value and book values really be explained as the value of intangible assets? (Particularly with various stock market experts asserting that company value is overstated, and that the patterns look very much like those just prior to the last major stock market crash.) Could one state that the difference is based upon both investor emotions, AND intangible assets ? If so, is there some way of demonstrating that even without extremely high market indices, that there would still be a difference between book and market value, and that Intangible Asset value is not merely hype to justify over-inflated markets?

KES: There are several explanations for the difference:

Financial advisors will tell you that the difference is due to expected future profits and profit growth over and above “normal”. (normal tends to be bank interest + a risk adjustment factor of a few %).

James Tobin, the economist who was the first person to point out the difference, attributed the difference to a generally healthy economy and positive sentiments among the nation’s people about the future. His “Tobin’s q” is the difference between the replacement value of the stock market’s net tangible assets and the market value. Although often quoted, Tobin’s q is thus not quite the same.

Accountants will tell you that if a company buys another company at a price above net tangible assets, the buyer will have to allocate the difference to a separate account, call it “Goodwill” and write it off during a period of up to 40 years, depending on country specific tax rules.

Which is the correct notion? They all seem plausible. But are they correct?

We don’t know.

All we can say is that the prices paid for shares have been increasing during the 1990s and that the difference between what the companies are publishing in their annual reports and the market value have increased dramatically, probably due to a lot of factors. Thus, I see the difference the investors’ PERCEPTION of the value of a company’s intangible assets, no more. In a company such as Microsoft there are obviously assets unaccounted for, which contribute most of the profits. We cannot say for sure what these assets are, because of the accounting profession’s failure to create an information system attuned to the demands of today. If the companies were reporting properly all their assets on a daily basis there would be no difference. This is utopia, so there will always be a difference, positive or negative.

However, what is a “price” if not ALL “sentiment”?!!

Consider an example with resources of a negative intangible value. The house prices have deteriorated considerably in the inner city of Johannesburg, South Africa. Why? The tangible resource — the houses — are still there! But the INTANGIBLE resources have a negative value, because the houses in J-burg cannot be used properly for lots of intangible reasons, fear of crime, lack of proper infrastructure, lack of attractive environments, etc. Thus the total house prices are far below what could be achieved in a more favorable environment.

My view is sometimes referred to as a “resource-based” view. The resource-based notion comes from the idea that organizations use resources to produce results. In industrial companies resources are tangible, such as land, factories, equipment and power. People are regarded as just another resource. The resources are used to produce tangible goods, such as cars or soaps. In the old days we tended to perceive all companies as INDUSTRIALS (even if they were not). The industrial company was the ROLE MODEL also for other organizations, which did not produce goods. (cf. the terrible label “Human resources”, which reveals the role model).

In the new companies formed since the 1980s the resources tend to be INTANGIBLE, such as knowledge workers’ competence, customer relationships and the tools and processes in the organization. The outcomes are also often intangible, such as advice, advertising, entertainment, software, internet portals, etc.

Today the companies based on intangible resources are in majority on the developed world’s stock exchanges so the debate has shifted focus. The industrials are no longer the “role model”. Instead, the new role model is gradually becoming the companies I call Knowledge Organizations.

Articles by Others

We can begin with one of the ‘founding fathers’ of the idea — perhaps the founding father — Karl Erik Sveiby, who wrote the first book on the subject in 1990 under the Swedish title, ‘Kunskapledning’. Sveiby is now a consultant and his web site contains a great deal of information on the subject, although his main concern is now with the measurement of ‘intangible assets’ and other aspects of ‘intellectual capital’. A paper originally written in 1996 notes that ‘knowledge management’ consists of two ‘tracks’: the ‘IT- track’, which is information management, and the ‘people track’, which is the management of people. Elsewhere on the site, in the Frequently Asked Questions file, Sveiby answers the question, ‘Why should knowledge be managed?’, to which the response is:

I don’t believe knowledge can be managed. Knowledge Management is a poor term, but we are stuck with it, I suppose. “Knowledge Focus” or “Knowledge Creation” (Nonaka) are better terms, because they describe a mindset, which sees knowledge as activity not an object. A is a human vision, not a technological one.

Introduction

We are honored to have Karl-Erik Sveiby as guest moderator for the AOK STAR SERIES for the month of November, 2001.

Working Life — an Unlearning Experience

Karl-Erik Sveiby is principal of his own consulting company, Sveiby Knowledge Associates, in Brisbane, Australia, and professor in Knowledge Management at the Swedish School of Economics and Business Administration in Helsinki (Hanken).

He was formerly Executive Chairman and co-owner of Ekonomi och Teknik Förlag AB, one of Scandinavia’s biggest publishing companies in the trade press and business press sector. Among the publications are Sweden’s most prestigious business weekly Affärsvärlden and the country’s only technical weekly Ny Teknik. In 1994 he and his partner sold the company and Karl-Erik formed his own consultancy around the concept of The Knowledge Organization.

He has researched management of knowledge and knowledge organizations since the early 1980s, which makes him a veteran in the rapidly emerging field of Knowledge Management. He has published several books on the subject, the first in 1986. You find a list further down. Having been a manager in a knowledge-based business himself, his approach is practical and hands-on, rather than theoretical. He does not believe much in lectures as a means of transferring knowledge, so he develops tools for people to apply and experiment with. Perhaps the STAR SERIES is like that — not a lecture, but a place for interactive discovery.

An example of Karl-Erik’s more sophisticated tools is Tango, the world’s first business simulation of the Knowledge Organization, that he developed with Klas Mellander, and Celemi; and, Tangonet — the online version.

Karl-Erik says his working life has been a journey of unlearning. “My first job was as an auditor, unlearning what I had learnt about accounting in the university. It took two years 1972- 1974 and I also learned that I was not fit to be an auditor. It took me six years as a manager in Unilever to unlearn the accountant experience.”

In 1979 he joined the Affärsvärlden Group as Partner and member of the management team. “It was something of a culture shock,” Karl-Erik says, “so I needed fifteen years to unlearn my experience at Unilever. It was during this time I ‘discovered’ the Knowledge Organization. Over the years I held various executive positions within the Group and its subsidiaries; both managerial and editorial.”

During that period he was co-founder and editor of Sweden’s first management magazine, Ledarskap, and Sweden’s first newsletter covering the consulting industries, Konsultvärlden, in which he supported Swedish managers unlearning what the American management gurus tried to teach.

Then he and his partners sold the company that had by then grown into 160 people and he became a consultant to knowledge organizations and professor in KM in Helsinki (Hanken). He continues his lifetime passion for “unlearning.”

Karl-Erik and his wife Kati Laine-Sveiby, Doctor in Ethnology and his daughter Karolina live in Australia. Karolina is busy in her new career as a drama teacher in Australia and Kati and Karl-Erik now share their time between Sweden and Australia.

Published Books

Background information on discussion topics

To help us prepare for his two-week visit as guest moderator of the AOK STAR SERIES, in which he intends to explore the question “Why Measure Intangibles: To Learn or to Control?” Karl-Erik Sveiby has directed us to three articles.

  • Measure for Learning!

The first was written in February, 1998. In it he remembers his childhood in Sweden where a natural spring furnished drinking water for his family. The wellspring was a limitless resource that continues to produce a valuable family asset to this day.

Karl-Erik uses this metaphor to describe the unlimited resource of knowledge. “The visible surface is the explicit knowledge, the deep dark dynamic constantly renewing pool beneath is the tacit. The visible surface of the water, explicit knowledge, is a very small proportion of the total — maybe one percent . . . .”

He goes on to consider how the water engineer would measure this resource — how much water there is in the pond and how it develops over a year. The economist would measure the commercial value of the wellspring. Karl-Erik would measure its long-term potential.

Which measure makes sense for KM? See what Karl-Erik Sveiby decides in Measuring the Wellspring of Knowledge.

  • Methods for Measuring Intangible Assets

This article was first published in January 2001 and updated in April. This paper provides a brief overview of 21 approaches of proposed methods and theories for measuring Intangible Assets which have been advanced over the last few years.

The approaches fall into at least four categories of measurement:

  1. Direct Intellectual Capital Methods (DIC). Estimate the $-value of intangible assets by identifying its various components. Once these components are identified, they can be directly evaluated, either individually or as an aggregated coefficient.
  2. Market Capitalization Methods (MCM). Calculate the difference between a company’s market capitalization and its stockholders’ equity as the value of its intellectual capital or intangible assets.
  3. Return on Assets Methods (ROA). Average pre-tax earnings of a company for a period of time are divided by the average tangible assets of the company. The result is a company ROA that is then compared with its industry average. The difference is multiplied by the company’s average tangible assets to calculate an average annual earning from the Intangibles. Dividing the above average earnings by the company’s average cost of capital or an interest rate, one can derive an estimate of the value of its intangible assets or intellectual capital.
  4. Scorecard Methods (SC). The various components of intangible assets or intellectual capital are identified and indicators and indices are generated and reported in scorecards or as graphs. SC methods are similar to DIS methods, expect that no estimate is made of the $-value of the Intangible assets. A composite index may or may not be produced.

Karl-Erik goes on to analyze each approach in Methods for Measuring Intangible Assets:

  • Measuring Intangibles and Intellectual Capital ­ An Emerging First Standard

In this analysis, written in August, 1998, Karl-Erik looks at stock prices as one of the indications of an emerging new Knowledge Economy.

The parallel development of theories and practice in Sweden and in the US have now laid the ground for a first standard for accounting in the Knowledge Economy, featuring three categories of Intangible Assets plus a fourth category, financial assets. The Swedish concepts have been tested in practice in some cases by up ten years. The practical results suggest that it is useful to measure Intangible assets and that it is possible for managers to create shareholder value, without relying primarily on the traditional financial indicators.

Here is the index from this paper:

  • Have we entered a “New Economy” with “invisible” values?
  • The Commercial Value of Knowledge
  • Make the Invisible Visible
  • Investment in Intangible Assets
  • Why Non-Financial Measures?
  • The Intangible Assets Monitor Framework
  • WM-data: Monitoring Intangible Assets for Financial Success
  • An Emerging Standard
  • A Possible Standard Approach to Measuring and Presenting Intangible Assets
  • Wanted — New Systems for A New Economy
  • References

The lesson from this article is goes beyond measuring to how to make the invisible visible. Measuring Intangibles and Intellectual Capital — An Emerging First Standard

As Quoted by Me

1. The New Organizational Wealth: Managing and Measuring Knowledge-Based Assets

A summation of nearly 15 years of work and experience by one of the best authors on the subject of managing the intangible, knowledge-based assets of a company. Sveiby’s division of these intangible assets into three main categories (employee competence, internal structure, and external structure) is a useful approach. His book is packed with ideas and is clearly written.

2. Measuring Intangible Assets

3. Methods for Measuring Intangible Assets

“The main problem with measurement systems is that it is not possible to measure social phenomena with anything close to scientific accuracy. All measurement systems, including traditional accounting, have to rely on proxies, such as dollars, euros, and indicators that are far removed from the actual event or action that caused the phenomenon. This creates a basic inconsistency between managers’ expectations, the promises made by the method developers and what the systems can actually achieve and makes all these systems very fragile and open to manipulation. Therefore, the first question for any one embarking on a measurement initiative must be: What is the purpose of our measuring initiative?”

4. Methods for Measuring Intangible Assets

Rarely is the question asked, why measure intangibles? The answer is not self-evident. Intangibles are difficult and expensive to measure and the results are so uncertain, so the reason had better be a good one.

The main problem with measurement systems is that it is not possible to measure social phenomena with anything close to scientific accuracy. All measurement systems, including traditional accounting, have to rely on proxies, such as dollars, euros, and indicators that are far removed from the actual event or action that caused the phenomenon. This creates a basic inconsistency between managers’ expectations, the promises made by the method developers and what the systems can actually achieve and makes all these systems very fragile and open to manipulation.

The first question for any one embarking on a measurement initiative must be: What is the purpose of our measuring initiative?

  • Management Control purpose — Don’t!
  • PR purpose — Watch out!
  • Learning Motive — Why so few?

The Four Approaches for Measuring Intangibles

  1. Direct Intellectual Capital methods (DIC)
  2. Market Capitalization Methods (MCM)
  3. Return on Assets methods (ROA)
  4. Scorecard Methods (SC)

5. Toolkit

The Sveiby Toolkit is a support system for consultants, CKOs and individuals who wish to create a knowledge-focused strategy within organizations. The tools and methods included in the Toolkit are developed for conceptually agile people who are practical in their knowledge management approach.

6. Surveys

7. Knowledge Management: Lessons from the Pioneers

8. Inspired by Knowledge in Organizations: Essays in Honor of Professor Karl-Erik Sveiby on his 60th Birthday edited by Guy Ahonen

Videos

1. Interview of Dr. Karl-Erik Sveiby on Knowledge Management

2. Gurteen Mini-Interview with Karl-Erik Sveiby

3. The Future of Innovation

Books

1. Kunskapsledning

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  • Knowledge Management
  • Leading with Knowledge — 101 tips for leaders in knowledge-intensive organizations
  • The book’s title is the first in the world with the concept, which later came to be called “Knowledge Management”. The purpose of this book is practical: To give you as a leader in a knowledge-intensive organization a number of ideas, thoughts and tools that make life a little easier. Your biggest problem is that the type of business that you are trying to lead really belongs to a different age than the one we are currently living in. It belongs to the future.
  • However, the problems that you face in your daily life are very much the problems of the day. Many of those discussed in this book are not even new — but very old problems that always concerned leaders in organizations. They are about how leaders should bring people with them, how to motivate and reward employees, about creating sustainable business ideas, about choosing strategy, about investing right.
  • It is not the problems that are new or belong to the future — it is the solutions that must look different in the future society than they have done in the industrial society. If you can use at least some of the tips in this book to succeed in your entrepreneurial role, my purpose with it has been achieved.

2. Kunskapsflödet

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3. The Invisible Balance Sheet

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  • This book originally published in Swedish 1988 sparked the early “Swedish movement” in measuring intangible assets by inspiring a large number of Swedish companies to start publishing their intangible assets. It outlined the theory that underlies the three “families” of Intangible Assets and it also coined the labels. Both the categorization and the labels have since become close to a standard both in Scandinavia and world wide.

4. The New Organizational Wealth: Managing and Measuring Knowledge-Based Assets

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5. Treading Lightly: The Hidden Wisdom of the World’s Oldest People with Tex Skuthorpe

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6. Managing Knowhow: Increase Profits by Harnessing the Creativity in Your Company with Tom Lloyd

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7. Challenging the Innovation Paradigm edited with Pernilla Gripenberg and Beata Segercrantz

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8. Knowledge Management: la nouvelle richesse des entreprises

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9. Next Generation Knowledge Management

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Chapter 10: Soft Assets; Measuring the Immeasurable

  • Moving KM from cost to asset
  • Tension between collaboration and intellectual property
  • Hypocrisy, hidden messages in valuing intellectual assets
  • Justifying projects based on projected outcome
  • Using communities of practice to expand knowledge assets
  • Highlights of world activity
  • Valuing KM by financial institutions
  • Measure for learning, not control
  • Impact of TANGO on ‘Knowledging’

10. Knowledge Management: Classic and Contemporary Works

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Chapter 15: Measuring Intangibles and Intellectual Capital

Written by

Knowledge Management Author and Speaker, Founder of SIKM Leaders Community, Community Evangelist, Knowledge Manager https://sites.google.com/site/stangarfield/

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