Book review

Geoffrey Darnton reviews Thomas Stewart’s Intellectual Capital

Title: Intellectual Capital (updated paperback edition)
Author: Thomas A. Stewart
Publisher: Nicholas Brearley Publishing (1998)
ISBN: 1857881834

There is no specific audience identified as the target of this book; therefore likely readership needs to be inferred from its content and approach.

The book contains 12 chapters structured into three parts. Part one (The information age: context): 1. The knowledge economy; 2. The knowledge company; 3. The knowledge worker. Part two (Intellectual capital: content): 4. The hidden gold; 5. The treasure map; 6. Human capital; 7. Structural capital I: knowledge management; 8. Structural capital II: the danger of over-investing in knowledge; 9. Customer capital: information wars and alliances. Part three (The net: connection): 10. The new economics of information; 11. The network organization; 12. Your career in the information age.

This book appears in the midst of some clearly emerging topics of debate, such as the information age and treating knowledge and information as assets. Many writers suggest that we have now entered an information age, and that a key characteristic of this is an increasing use of knowledge to leverage profits and competitiveness. The underlying technology implicated in all of this is contemporary computer-based information and communications technology. Beyond the technical dimension, knowledge is central to new economic activity.

Attempting to review this book is a sobering experience, because I am aware that by now it has received a great deal of acclaim and is well-respected among many eminent readers.

I always found Stewart’s articles in Fortune to be interesting and stimulating, and they often increased my levels of knowledge and curiosity. It is pleasing to see this book emerge as a substantial collection of thinking about intellectual capital and related topics.

Can this book be easily positioned? It does not have an accessible list of references. There are endnotes for each chapter, but surprisingly the text does not indicate where each endnote is to be applied. This makes the identification and use of relevant notes particularly irksome and it is very puzzling why the publisher, author, and editor would decide to present the material in such a user-unfriendly way. The index is useful, but it points to the main text and not the endnotes, so collating information relevant to a particular point requires a lot of excessive work to bring all the relevant material together. On the other hand, the book contains a wealth of references and pointers to important literature. It is ironic that a key book about intellectual capital should be so deficient in the way it fails to tie together all its own intellectual wealth.

I shall return to style and substance later, but essentially the style is journalistic. This positions the book by my reckoning as a trade book aimed at senior managers, with an added depth of references and notes thus giving a sense of greater authority. As we shall see, it is certainly not rigorous enough to be an academic book, and perhaps it is not even academically respectable, but it does have considerable merit as a resource.

Does the book pass some simple tests concerning its grounding in earlier relevant thinking? Fritz Machlup is represented and explained with reference to his groundbreaking work from 1962 onwards, measuring the knowledge part of the US economy. But there is no reference to the equally important work of Paul Levinson, who takes a very long-term look at the information revolution. Similarly, radical thinkers about the information revolution, such as Ted Roszak, are not represented.

So what is intellectual capital? It is “intellectual material – knowledge, information, intellectual property, experience – that can be put to use to create wealth”. This is qualified as “packaged useful knowledge”.

“Thanks to research into high-yielding hybrid grains, farmers produce about five times more corn per acre than they could in the 1920s; put another way, today’s ear of corn is 80 per cent knowledge.” I suppose journalistic licence is a valid concept but statements like this quote discredit the whole approach to discussing intellectual capital or knowledge. It reminds me of a case I came across a few years ago claiming an 836,000 per cent return on investment by attributing all gains to the purchase of a database management system, forgetting everything else that is needed to produce the final result – more corn in the case of the quotation.

“It is nevertheless clear that spending for equipment that creates, codifies, manipulates, and distributes information has become more productive than investment in equipment that makes and moves material goods.” This, too, is an astonishing assertion. I wish it were this clear, and probably so do Strassmann and Landauer, who have looked at these issues in some depth. Indeed, Stewart himself presents data suggesting that perhaps the greatest productivity gains have been from agricultural equipment rather than information machines (consider for a moment the relative consequences of declaring to be illegal agricultural equipment or information machines). Stewart gives many examples of knowledge companies whose intermediation involves low levels of tangible asset ownership, but this somewhat devalues the need for symbiosis for the whole system to work. Throughout the book there is a distinct aroma of high market value to tangible assets ratios being expressed as a demonstrable value of intellectual capital. Of course, there have been similar examples throughout history (such as the South Sea Bubble). High values for Tobin’s Q may merely indicate market expectations of possible high future profits and much more evidence is needed to sustain an argument that such high ratios are evidence of intellectual capital.

There are many more examples such as these. This, I’m afraid, has set my warning bells ringing about this book. I find a great deal of material in the book stimulating and interesting, but there seem to be too many cases of dubious assertions. This indicates that the book and its key themes still need a great deal of thought and research for Stewart’s approach to the question of intellectual capital to mature.

The bottom line is that this book is important, but its subject matter and presentation need far more research and development. It is key reading for anyone concerned with the economic and organisational impact of information and knowledge. However, it has also left me with a very deep sense of disquiet. The world seems to be suffering a great deal now under the tremendous weight of an addiction to money (and most of the captains of industry seem to be equally afflicted – a serious concern, because those with it seem to be indifferent to their impact in terms of local and global poverty or environmental degradation). Is the question of intellectual capital really to be reduced to achieving greater concentrations of wealth by a small number of individuals and enterprises that wax and wane under competitive pressures? Surely knowledge management has much more to offer for the achievement of human goals? There seems to me to be a serious risk that this book is part of a money addiction manifesto. If so, then may the information age please pass by quickly so we may enter a new age of wisdom.

Geoffrey Darnton is a senior lecturer at Bournemouth University Business School, and director of Knowledge Management Consultants Ltd. He can be contacted at: gdarnton@kmcl.com