Conference on Intangibles – Innovation in the Performance Making
by Debra M. Amidon
It was the Third Conference on Intangible Assets sponsored by the Vincent C. Ross Institute of Accounting Research at the Stern School of Business, New York University (USA). Under the leadership of Professor Baruch Lev - now an icon in the field of performance measures – an overflow crowd of 200+ enjoyed a diverse set of presentations from university faculty, authors and industry practitioners. They articulated progressive concepts of knowledge strategy, Internet value-drivers, corporate IQ, and intellectual property protection and leverage.
The conference was sponsored by PriceWaterhouse Coopers and brought together several other icons, such as Gordon Petrash (formerly from Dow Chemical). Several representatives on our Global Knowledge Leadership Map - http://www.entovation.com/kleadmap/index.htm - joined the dialogue. This included Leif Edvinsson (Sweden), Ante Pulic (Austria), Edna Pasher (Israel), Teboho Moja (former advisor to the Prime Minister of South and now a visiting scholar at NYU) and Karl-Erik Sveiby (Australia) - notably one of the first to write about managing intellectual capital in the 1980’s. This was the same time in the United States (1987) that we wrote about ‘harnessing the intellectual capital of a nation.’
The closing panel, moderated by Robert H. Herz (PwC) in a Phil Donahue style, catalyzed a conversation between David Norton (architect of the Balanced Scorecard), Tom Stewart (Fortune), Larry Prusak and David Perry Green (IBM), Jean Mayhew (United Technologies), Yochai Benkler (NYU), Susan O’Neill (PwC) and yours truly. Although we all came from significantly different vantagepoints, there were some agreements about where the field might be going:
There were a few other insights that were not necessarily the consensus of the group but provide considerable fodder for future dialogue on the topic:
And so, what was so special about this particular conference? It was a conference on "Knowledge: Management, Measurement and Organization." It focused on Intangible Performance Measures; but so have others. It featured a variety of tools, methodologies and examples of best practice; but so have others. What were significant and rather unique were the continual, consistent references to the innovation process – regardless of how it may have been labeled. Remember Peter F. Drucker said that "Innovation is the one competence needed for the future – and the ability to measure the performance thereof (HBR 1994).
Michael Zach (Northeastern University) in a presentation on Knowledge Strategy described how a strategic resource (i.e., knowledge) must be context specific, embedded in organization systems, and the scope of impact can "enable major innovation" and "enable new business" (which we consider also innovation.) Finally others are seeing that the knowledge focus is integral to business strategy!
David C. Mowrey (U of C/Berkeley) described alliances as vehicles for acquiring new knowledge or capabilities via acquisition or specialization. Citing the relationship between patent citation in one another’s’ portfolios is an indication of ‘stakeholder innovation’ that may be virgin territory for researchers.
Wesley Cohen (CMU) cited that patents might not be the central mode of Intellectual Property (IP) protection. Instead, secrecy is the dominant means, which seems to be contradictory to the apparent values in a knowledge economy, such as knowledge-sharing. Further, he suggested that this research finding casts doubt on the supposed role of patents in stimulating innovation. In the end, the focus on IP protection might actually ‘add’ to the cost of innovation!
Ashish Arara (CMU) provided an examination of the ‘markets for knowledge.’ In describing the interdependence of knowledge and technology, he outlined how knowledge is becoming an ‘economic commodity.’ He sized the market according to (1) the ‘annual royalty flow estimates’ and (2) annual value deals.’ Limiting factors include the Not-Invented Here (NIH) Syndrome – usually the topic of innovation discussions. He challenged the group – "Does research productivity decline as innovative firms become large and lose their ‘creative edge?’
Rashi Glazer (U of C/Berkeley) led a discussion on Customer Knowledge Management describing the ‘creation, measurement, deployment and maximization’ of customer assets. What else might I ask are the phases of the process of innovation?! Identifying a new methodology for tracking customer, he described InfoValue – a systematic process designed to measure the economic value of customer information and associate transactions between the customer and the firm. His research cites a dramatic increase in the degree to which customers participate in product design and creation that results in the breakdown between ‘producer’ and ‘consumer.’
Baruch Lev (NYU) and his associate, Elizabeth Demers (University of Rochester) have performed analyses of Internet companies and their economic performance, especially book/market ratios. However, there in depth analysis of 284 Internet companies that are publicly-traded on U.S. stock exchanges suggests that there are intangible variables that play a significant role, namely the ‘cash burn rate’ and ‘alliances.’ Citing amazon.com as an example, they indicate that there may be innovation variables that can impact business performance with as little as a 6-month window. They are just beginning to extend these results to more Internet companies and other strategic and managerial issues. Again, stay tuned…
Johan de Kleer (Xerox PARC) suggested that we view organizations as ‘ecologies,’ not machines. Citing EUREKA as an example, he described the potential value of technician knowledge in the overall strategy of the firm. Of course, the system is not the ‘expert;’ it helps technicians to be (better) experts. He articulated the ‘invent, submit, validate and use’ spiral that, in essence, represents the innovation process. Further, he described the learning loop cycles for Field Service, Engineering and Manufacturing – all functions in the innovation value-system. He suggested further that sales, service and call centers (Editor’s Note: again, parts of the innovation value-system] "provide well over 50% of customer contact where most knowledge lies."
Martha Amram (Navigant Consulting) has been building an IP-sustainable model by balancing the complexity factors together with the need for a rigor in valuation. This will lead to a form of "IP insurance." By assessing considerations for the business implications of IP, she described the terms and conditions of IP transfer necessary throughout the [innovation] system. With a series of best/worse case scenarios, one might determine the technical performance needed to guarantee sustainable margins. The, capital outlays can be determined.
Eric von Hipple (MIT) – well known for his ground-breaking research on the role of lead-users in the innovation process - provided his recent research findings on the variables affecting sources of innovation (e.g., profitability, cost of "sticky" information, agency costs, coordination cost). His recent analysis of the use of APACHE system indicates that both information seekers and information providers are using USEnet to learn. However, early results indicate that people asking the questions and those who are supplying responses are NOT the same communities. Bottom line: user-to-user innovation systems can be efficient. People are willing to share when certain conditions exist.
Arie Y. Lewin (Duke University) described the co-evolution of a firm, its industry and the environment. Conventional wisdom suggests that managers are challenged to match their internal rate of rejuvenation and self-renewal to the external environmental rate of change – something Jack Welch (GE) noted in 1982. Today, we call it managing the simultaneous rates of exploitation (innovation) and exploration (self-renewal). Lewin’s model for wealthy-creation includes a balance of a passion for efficiency, a passion for innovation and renewal together with something called the legacy (i.e., reflecting the returns on reputation, market position, scale and historical adaptability to change).
All roads lead to innovation:
My own conclusion of this conference was that it was one of the better conferences on innovation with which I have been affiliated. Although the theme was definitely targeting the value of the intangibles, the quality and scope of the presentations indicated that Drucker is right. If we can determine a way to manage the innovation process – and measure the performance thereof – we will reach the sustainable prosperity sought in enterprises around the world.
© 1996-2000 ENTOVATION® International. All rights reserved.