The knowledge: Leif Edvinsson

Leif Edvinsson’s reputation in the field of intellectual capital is unsurpassed. The first person in the world to hold the title of director of intellectual capital, Edvinsson is credited with transforming how organisations perceive and value their intangible assets. He talks to Simon Lelic about his career and what he regards as a growing need to apply knowledge-management principles on a societal level.

Leif Edvinsson is widely acknowledged to be the world’s leading expert on the theory of intellectual capital (IC). His involvement in the field dates back to the 1980s, but it was after Edvinsson joined Skandia in 1991 and became the first person to be appointed director of intellectual capital that he began the work that would cement his reputation. It was in this role that he began his search for a new sense of logic for the renewal and development of the Stockholm-based firm, and his research in this area has since fundamentally altered the way companies, and entire countries, measure and utilise the resources at their disposal.

At the time, Edvinsson was aware that islands of interest in intellectual capital had emerged; in particular, as he says, Tom Stewart had begun writing about the value of knowledge in the United States, while Edvinsson’s Swedish compatriot, Karl-Erik Sveiby, had also started to research the importance of intangible assets in a corporate setting. Yet Edvinsson was the first person in the world to combine intellectual-capital theory with a specific organisational function, and he credits Skandia’s CEO at the time, Bjorn Wolrath, for his foresight and belief in what Edvinsson was trying to achieve.

It was while working alongside Wolrath and deputy CEO Jan Carendi that Edvinsson took part in the two projects in his career of which he is most proud. The first was his success in defining a new paradigm for the measurement of intellectual capital. The methodology Edvinsson put in place in Skandia to refine how the firm accounted for its hidden assets has been replicated and adapted all over the world, by corporations and nations alike. The Danish government, for instance, published the second version of its IC accounting guidelines in December last year, while the Association of Financial Analysts in Norway released a similar document the month previous to that. Both initiatives were based on the work Edvinsson began at Skandia more than a decade ago.

The second, says Edvinsson, was the creation of the Skandia Future Centre, a type of laboratory for research into the future of organisational development. The centre attracted some 20,000 visitors during the two years after it opened in 1996 and, again, represented a unique model that others have since looked to copy. For example, the Ministry of Finance in Denmark has developed a similar laboratory, called Mindlab, as has Eon/Sydkraft, a major European energy company. “In that sense, we became a prototype for the rest of the world, as we had been for accounting,” Edvinsson says.

After a happy and hugely productive association with the firm, Edvinsson left Skandia in 1999. The same year he founded Universal Networking Intellectual Capital, a networking organisation devoted to the application of IC-based tools and methods.[1] Currently, Edvinsson also holds two prestigious academic positions related to IC: a professorship at the University of Lund and, from the beginning of this year, at the Royal Institute of Technology in Stockholm. As such, his work in the area of organisational development and intellectual-capital theory continues unabated.

Most recently, Edvinsson has concentrated on a number of interrelated topic areas. One side of his research has focused on measurement/accounting indicators and how to visualise the relationship between human capital and structural capital. This led to the creation of the IC Multiplier[2] methodology, which explains how an organisation, through what Edvinsson refers to as the “springboard” or “multiplier” effect, is able to realise the full value of the talent and individual skills it has at its disposal. “Depending on which organisation an individual is connected to, that person will have a different value-creating impact,” Edvinsson says. “That is what the IC Multiplier is all about: how good talent combines with structural capital.”

Closely related to this is Edvinsson’s research into the concept of what he has called ‘knowledge care’. As he explains, “Knowledge care deals with such issues as, how do we, the employer, prevent you as an employee from burning out? How do we provide you with the right context in order for you to benefit from the springboard effect? How do we create an organisational architecture that is appealing to your mind (also called ‘mind satisfaction’), and how do we cultivate and nourish your brain so that you can reach a higher level of intelligence?”

As Edvinsson says, a major component of this is the impact of the working environment on an employee’s productivity and capacity to innovate. It is a subject he first began to consider while working at the Skandia Future Centre, where his team designed and tested different types of workspace for the company’s diverse operational sectors. And while Edvinsson believes a certain amount of worthwhile research is currently being done in this area, he has yet to see it have any direct impact either in a corporate setting or, for instance, in city planning.

Indeed, the whole concept of knowledge care is one Edvinsson feels deserves a great deal more attention. “Roughly 20 per cent of a worker’s health is related to the surrounding environment,” he claims.[3] “Today we are seeing a growing importance in the health of the knowledge worker. It’s roughly the same situation we were in 100 years ago when we were approaching the industrial society – now, as we leave the industrial society, we have the same types of illnesses affecting people, just manifested in a different way, specifically stress and burn outs.”

By way of example, he points, to the massive costs absenteeism is inflicting on businesses right across Europe, and to the failure of firms to recognise this phenomenon as a threat, despite its effect on profits. And on a societal level, companies are facing a wave of impending retirements, as Dorothy Leonard pointed out in last month’s Knowledge Management. But so far, says Edvinsson, businesses are not ready to cope with the shortfall in talent they will find themselves facing within a matter of years.

The answer to both these issues, Edvinsson continues, lies in our ability to innovate on the borderline that joins the business community with its surrounding society. This could involve, for instance, a re-assessment of how the typical working day and employment contract is structured to accommodate more part-time workers (in particular those over 55 or at the start of their careers). The big question, says Edvinsson, is not how businesses retain workers, but rather how they attract them, and finding a suitable answer to this problem could involve a fundamental re-evaluation of how the modern corporation is organised.

In fact, while Edvinsson’s work is currently focused on these particular topics, they actually form a subset of what he feels will, or at least should, become a dominant concern for both knowledge-management practitioners and society as a whole. He believes that, for all the progress that has been made since knowledge management first emerged as an organisational discipline, there is still a tremendous ignorance of how value is created and how we leverage value on a societal level. “For example,” he says, “value creation in Europe is probably less than 50 per cent of what it could be, which means we are suffering the growing pressures of higher taxes and higher work burdens than we would if we were able to take proper advantage of the multiplier effect.”

Knowledge management, he adds, was originally focused at an enterprise level, but it is gradually moving outside of private business networks and into society, manifesting itself in the provision of healthcare, schooling and so on. “The next level involves practitioners thinking about the IC of entire nations,” says Edvinsson. “If you start to combine a deeper insight of KM as being outside the firm, being in-between people, being tacit, being culturally driven, you will see some interesting challenges emerging for Europe and the US, particularly from Asia. The IC of nations is going to be the new political agenda, not just the industrial one.”

He points, for instance, to Singapore as a country that has embraced this agenda perhaps more quickly than any other. It is a nation with very few people and limited natural resources, yet one that has been hugely successful in harnessing the assets it has at its disposal. Edvinsson believes there is a greater understanding of this concept elsewhere in Asia, too, and points to China – a prime example of a country that has so far failed to fulfil its potential – as an economic superpower in waiting. In the west, on the other hand, R&D budgets are falling and education levels are suffering; only very few countries seemed to have grasped this emerging economic imperative.

If Edvinsson is right, this situation should change, at least if individual nations are keen to protect and develop their competitive advantage. A shift in focus for the knowledge agenda may also herald a shift in the associated terminology. But as Edvinsson says, regardless of what knowledge management is called – be it ‘knowledge care’, ‘knowledge cultivation’ or even ‘knowledge navigation’ – the important point is that practitioners start to look beyond existing tools and methodologies and focus on how to leverage the value and knowledge of society as a whole. KM has already come a long way, but the journey, it seems, is only just beginning.

References

1. For more information, visit www.unic.net
2. For more information, visit www.intellectualcapital.se or www.corporatelongitude.com
3. See, for example, www.designandhealth.com