9
Celemi
Headquartered in Malmo, Sweden, Celemi creates learning processes that enable people to quickly understand the changing needs of the business and react accordingly to improve the performance of the company. Celemi has North American operations, and subsidiaries in Stockholm, Sweden, Brugge, Belgium and Guildford, UK. Celemi's learning tools and simulations are distributed around the world through a network of associates in more than twenty countries. Margareta Barchan, Chief Executive and President of Celemi, shares her experience in a recent interview with the authors of this book.
Importance of knowledge management for organizations
Question: Why do you think knowledge management is actually important for organizations?
Celemi: Because the customers do not belong to you, the people do not belong to you, so the challenge really is to capture the inflow of knowledge that they have in them, the competence that the people have, its individuals, and turn it into something that remains in the company. So even if the people were to leave, their knowledge has been transformed into something that becomes an asset for the organization.
Question: Would you say that all companies have to look at managing their knowledge with the same intensity or should different companies view knowledge management differently?
Celemi: I would say that you have service companies on one axis and knowledge companies on the other. For the service companies they have developed services that can repeatedly be served like the airline business for when you buy your ticket. It's nothing very complicated. And its like what is being done in manufacturing where a service is packaged. Much the same goes for insurance where they need volume for low prices and repeated sales of similar products (so to speak). On the other axis you have a knowledge company where you are confronted with a high-intensity problem requiring a customized and often unique solution. This requires the knowledge company to be on a constant learning curve to solve new problems. However, there is also room for ‘short cuts’ in a knowledge company.
Example: Lawyers would have standard templates for certain clients such as divorce clients and clients who want to make out a will.
This allows the knowledge company to apply similar templates or solutions to more clients without having to ‘reinvent the wheel’. However, depending on the type of problem, it also depends on who serves the client, as individual competencies do play a part in providing solutions. If you were to place individuals with similar competencies to solve a problem you may not learn much in terms of producing and providing the client with a unique solution.
Question: The notion of knowledge works for a knowledge-based organization like yourself, which provides advice, and also for lawyers and other professional people. But does this notion of apply to organizations that actually produce a branded item and which people pick up from shelves?
Celemi: If you were to take the R&D [research and development] department, the client may not be with you, per se, but the client in this instance is made up of market researchers who convey the demands of the end-client. This provides the knowledge link between the R&D and the end-customers.
Handling tacit knowledge
Question: (Celemi has come up with a range of products to help organizations manage their knowledge) In Tango, you highlight a measurement method that allows you to look at the organization. What do you think that kind of measurement or that kind of visualization plays in knowledge management? Is it an important part or should we just rely solely on stories or things like that?
Celemi: Stories are a good way of capturing tacit knowledge, to capture the values of the organization and to keep the values consistent. But I think you have to always link everything to the business. It has to be the business that drives. Otherwise it becomes too soft and too vague. And the best way to do that is to think in terms of, for example, ‘how many percent of our turnover did this activity contribute’. Even though I may not be able to concretely count and say conclude, I can at least say that ‘OK, is this good enough?’ It also enables us to bridge any gaps that may be identified.
Question: We have heard that tacit knowledge is often lost through standardization. Does that happen in Celemi? If so, how do you overcome it?
Celemi: That is a tricky thing to do and I think you can never ever capture all tacit knowledge. Tacit knowledge has to do with experience and age. What we're trying to do is to capture as much as possible through writing up cases on them, telling the stories, putting all these up on the intranet. So you have these cases that somebody who has been involved in something says: ‘This is what I did. This is what happened. This is what went wrong. This is what is positive. This is how clients reacted.’ These cases helps Celemi understand how did we solve this particular problem. By reading this and other things that the company is developing, you would develop your own knowledge based on your own conclusions.
Measuring intangibles
Question: Why did Celemi decide to measure and manage its intangible assets?
Celemi: As a developer of learning processes, we had been involved in the creation of a new simulation that we call Tango, which helps people identify the key intangible assets in their own company. Tango participants discover how to measure these assets and how to manage them in co-ordination with the standard tangible assets.
As we worked on this simulation internally, we began naturally to adopt some of the terminology and methodology for ourselves, as we are a typical knowledge-based company. In 1994, at the same time we introduced Tango to the market, our board of directors made the decision to formally adopt the approach, and we reported our first intangible assets figure in our 1995 annual report.
Question: To report your intangible assets, you have developed a special matrix or monitor. How do you determine which categories to include?
Celemi: We took the advice of business consultant Dr Karl Erik Sveiby, a member of our product advisory board, who has been studying intangible assets for more than fifteen years. We started with the basics – how many clients do we have? What types of clients do we have? Do they enhance our image? Then we looked directly at the knowledge value of our company. This is broken into two distinct categories. First, the knowledge owned by our company; our research and development and innovative learning products that can be adapted and reproduced for our clients. But we are also concerned with the individual knowledge of each person who is working in or with Celemi. While we cannot own this knowledge, we can take proactive steps to transfer this knowledge directly into the business by making sure that everyone is working to improve the business in his or her own particular niche. And, when people feel challenged and fulfilled they will stay longer. If you want to ensure the growth of your business you must invest in the competence development of your workforce.
Celemi's Intangible Assets Monitor
Based on the work of Dr Karl Erik Sveiby, the Intangible Assets Monitor organizes Celemi's intangible assets into three categories and along three dimensions (Buckowitz and Williams, 1999).
External structure, internal structure and competence are the three categories of intangible assets in Celemi's monitor. External structure is reflected in Celemi's relationships with customers. Internal structure is the organization minus its people who go home each night and return on a voluntary basis each day. Competence is brought to the organization by its people. Celemi does not own its external structure or its competence. It must convert these intangibles into internal structures that remain with the organization despite the comings and goings of customers and employees. Growth and renewal, efficiency and stability are the dimensions along which Celemi measures its intangible assets (Table 9.1). These add a time dimension to its framework, moving along a continuum from future, through present to past.
The company is also beginning to report a picture of overall value that is derived by combining the growth and renewal, efficiency and stability metrics from all of its intangible as well as its tangible asset categories and calculating a ‘monitor value’ for each of these dimensions. The resulting graph would be able to show performance relative to plan as the company strives to exceed its target for creating overall business value.
Table 9.1 Celemi's Intangible Assets Monitor, 1997
|
Tangible assets |
Intangible assets |
||
|
Our financial |
Our customers |
Our organization |
Our people |
Growth/renewal |
Equity growth Net investment ratio |
Revenue growth Image-enhancing customers |
Organization-enhancing customers Revenues from new products |
Average professional years Competence-enhancing customers Growth in professional competence Experts with postsecondary degrees |
Efficiency |
Profit margin Net return on equity Profit/value added |
Revenues per customer |
Promotion of administrative staff Revenues per administrative staff |
Value added per expert Value added per employee |
Stability |
Liquid reserves Solidity |
Repeat orders Five largest customers |
Administration staff turnover Administration staff seniority, years Rookie ratio |
Expert turnover Expert seniority, Expert seniority, Median age all employees, years |
Question: How do you place value on your intangible assets?
Celemi: We study them from different levels. First, we have growth and renewal. Then we have efficiency and finally, stability of different parameters in the company.
Question: What are the key factors for growth and renewal?
Celemi: We monitor growth and renewal in two areas; the company and the clients. For example we made large investments in technology in 1994 when we opened several new subsidiaries around the world. While it cost us a substantial amount of money at the time, it also indicated a burst of growth for the company, something we are reaping the benefits from now. But I firmly believe the most important factor in the growth of our company, or any knowledge company, is the client base. It is not just income. If you are able to attract and retain the right clients, you automatically increase the knowledge base of your company. Here's why: when you take on a client with a challenging or new assignment and you complete it successfully, your company has gained image value, your employees have developed a new competence or skill, and your business now has a new solution that it owns which may be adaptable to other client's situations. One of the greatest benefits of monitoring our intangible assets is that it has helped us identify who these ‘right’ clients are.
Question: How are these measures linked to your overall corporate strategy?
Celemi: We use these measures to make sure that the company is on course, moving in the right direction. In addition, we can attach a concrete number to these intangible assets to help our own employees understand our overall business strategy. Right now, we value the awareness that these factors bring more than the specific figures they represent.
Question: In a few areas, your intangible assets figures this year do not appear to be as strong as they have been in the past. Does this concern you? And, does it change the way you will manage the business?
Celemi: Some of these figures indicate areas that need to be taken care off. But these areas are negatively affected by design. For example, a large number of newly employed people could be a sign of instability in a company and shows up as a weak rating on the Intangible Assets Monitor. However, we did not hire new people to replace people who have left, we hired new people because our business grew so fast. You will also notice that our ‘rookie ratio’ has been high in the past. This is the percentage of new employees in relation to long-term employees and it takes into account skills and seniority. Generally you want to have a low rookie ratio. However, it is part of our strategy to hire young qualified people because we want to invest in training them and developing their skills according to our corporate values and philosophy. This figure will improve over time as they develop competence and seniority. I have no problem with intangible assets ratings that indicate areas of weaknesses as long as I know that the figure is a direct result of our strategy, and that we are in control of these areas, and that they will improve. And that is the point. It is not so much the value of the number as it is the understanding of what it is driving the future performance of the company.
Question: Do you use these measures to evaluate and reward people?
Celemi: Not individually. No. The focus now is to monitor these figures on the overall strategic level of our global company. But I can use these figures to track issues and trends at the operational level – for the individual offices in the US Sweden, the UK and Belgium. For example, I can use the intangible assets information we monitor to let a general manager know that his or her office needs to attract a certain type of client to enhance the overall image of our company. But I cannot use these figures to say to an individual that he or she is personally doing a good job, I would say that being aware of intangible assets provides general guidelines to employees that help them understand where the focus of their jobs should be.
Question: Has measuring intangible assets made any impact on Celemi's financial performance?
Celemi: It probably has, but that is not our concern right now. We look at our investments in intangible assets as a long-term strategy that will pay off later. The investments we are making today in our organization's internal structure, the competence of our people and attracting and retaining the right clients are part of a well-planned strategy to increase our profitability in the future. Even though we are new at this and are making some large investments up front, I am still very pleased with out financial performance. While the balance sheets indicates a reduced profit, which is directly related to the investments in our intangible assets, we continue to enjoy a healthy growth in sales.
Broader applications
The consolidated figures presented in the Intangible Assets Monitor provide insights into the company at an organizational level, but to be useful to each employee, we had to first develop a universal understanding of intangible assets.
Before we started measuring our intangible assets, we had to help everyone understand what our intangible assets are, and what impact they have on the performance of the company. With this knowledge of the ‘big picture,’ employees can begin to see how individual performance affects organizational performance. For example, our managers understand the importance of assigning a new employee to a competence-enhancing client rather than an image-enhancing client.
We have devised a systematic method of measuring intangible assets critical to the success of our own consulting organization, but the model is relevant to any business, with slight modifications in the specific measures, based on each business's own drivers of success.
A company like Coca-Cola may wish to monitor the value of its brand names and distribution channels. Patents and R&D portfolios may represent a significant intangible value to a pharmaceutical company like Pfizer, so numbers and ages of patents would be logical categories to monitor. But franchise operations, like McDonald's, would likely value their brand names as well as their network of outlets.
Retail is another example of an industry undergoing revolutionary change, and business leaders must be careful to identify the most relevant intangible assets. Typically in this industry, sales are generated by the personal interaction between sales associates and customers, so the intangibles would logically be found in the competence of the sales staff. However, at a retailer like IKEA, where sales are generated by enhancing the customers’ ability to help themselves, the intangible assets are found in the systems and processes that IKEA has created: how the IKEA catalogue is set up, the store displays, the customer's opportunities to ‘do it yourself’ and keep costs down, and so on.
Source: Barchan, 1998.
Final word
Question: What advice would you give to business leaders who are beginning to think about the role intangible assets play in their organization?
Celemi: Don't just jump in and start measuring your intangible assets. First create and understanding internally of what intangible assets are and what they mean to the overall performance of your company. Everyone needs to understand the role of intangible assets in order to change their own performance. Without internal buy-in, it doesn't matter whether you measure your intangible assets of not – no positive changes will be made. Also don't select intangible assets categories indiscriminately or just because that's what someone else is measuring. Start with an assessment of your company's big picture, and make sure everyone shares this vision. Then you can step back and determine which intangible assets are the most applicable to your business operation.