The Jury is In: Intellectual Capital is Superior to Financial Capital

An Introduction to Knowledge Age Economy Thinking

Opening statement:

Before I get to the heart of this article let me state that I firmly believe there are only two fundamental forms of capital in business:

1. Intellectual Capital

2. Financial Capital 

Without these two forms of capital any and all other available resources and assets will gather dust waiting for their arrival.

I also firmly believe that the most valuable of these two forms of capital is Intellectual Capital…...by a very wide margin. Especially in lieu of the economic meltdown we are experiencing. But even without factoring in current economic conditions I think a presentation of facts and logic can show how your Intellectual Capital is of much more value to your organization than your Financial Capital.

Let me state my case:

Below are some examples that I think will help prove the case but first let me offer this:

If you have a dollar and I have a dollar and we each give one another our dollar what will each of us have? We each still have 1 dollar.

But, if you have an idea and I have an idea and we each give one another our idea what will each of us have? We each will have two ideas!

This begins to show how thinking, collaborating and creativity, each pieces of the Intellectual Capital puzzle, are not bound by physical limitations.

Now then, if I put $40,000.00 of Financial Capital in a room and left it there for a year when I came back I would still have $40,000.00; no more, no less. Except it would have less value due to inflation.

However, if I gave someone the same $40,000.00 who had an idea and the proper Intellectual Capital to make something of it when I came back in a year that money could easily double or triple or more.

The point? Money doesn’t make more money by itself. It requires human intervention.

For instance, in 1987 Ihad a vision for a new type of telecommunications contractor. So I pulled together $17,500, incorporated and went to work. Over the next 10 years I assembled a team of sharp and motivated individuals and together we built that idea into a $4.5 million business. 

Even though the company seemed to never have enough Financial Capital, we had a lot of Intellectual Capital and we used it diligently to improve our competitiveness and our product lines in order to improve our bottom line. With a strong bottom line we were then able to get the financing we needed to build a nice company.

Today that company is 21 years old and still going strong. But we always knew the company’s most valuable asset was it’s Intellectual Capital. We also knew that with the proper investment of that capital the Financial Capital would naturally follow. Another attractive aspect of Intellectual Capital is that we could always increase it on our own by studying, through experience and by improving our internal personal communications.

 BUt wait there’s more!

In case you are a tough juror to persuade let me try another example on a larger scale.

Anyone who has ever sought venture capital has first hand knowledge of the importance of having vast amounts of Intellectual Capital behind you as you seek funding. Venture Capitalists always look at the management team before they fund an idea. Even if the idea really excites them they want to make certain there is a superior level of intelligence, experience and wisdom on the management team before they put their money behind an idea.

They want your Intellectual Capital pool to be both wide and deep. Even VC’s place a higher value on Intellectual Capital.

I saw this up close and personal when I spent two years with a group in Manhattan working on a Smart Building concept during 1999 and 2000 in the midst of the Hi-Tech boom. Although we had generated a lot of seed money and had assembled a stellar group of industry professionals the deal never bore fruit because we lacked experienced people who knew the VC world as thoroughly as we knew IT. That meant that we were not able to speak their language or present things in a manner that attracted them into a deal that had a sound business model. So even though our Intellectual Capital on the industry level was deep it was not wide enough to cover the complex area of venture funding. If we would have had more Intellectual Capital in that area getting the money would have been no problem. Simply put, we were missing a piece. 

Yet during this same time we saw scores of deals get funded to the tune of hundreds of millions of dollars where the idea excited; the management team was stellar but the company went bust anyway for two reasons, both involving a lack of Intellectual Capital:

 1. Foolish Funding (Everyone believed their idea was the next "Google")

2. No One Knew the Market (E-Commerce was just emerging) 

This “Dot.Com” era ended with one of the biggest financial collapses of an industry in history. Second, perhaps only to the one we are currently experiencing. It cost investors and corporations billions!

The “Dot.Com” bust proved that no matter how much money you had you still needed to thoroughly understand your market and follow disciplined business practices regardless of how much insanity is going on around you if your plan is to build a viable and sustainable business.

Closing argument:

But in case you are really hanging onto the standard way of thinking that Financial Capital has more clout than Intellectual Capital in business let me offer this one last argument. Look at what is happening today.

At the core of the current financial collapse is a misuse of, and/or an absence of, intellect around sub-prime mortgages. This lack of intellect also infected Wall Street giants, international banking conglomerates and global insurance companies. As a resultof a lack of properly applied intellect we are witnessing a financial collapse of epic proportions that is impacting national governments and elections…..and beyond

Such is the case when a complex adaptive system begins to collapse. It impacts everything else in its network of networks.

But all is certainly not lost because as in any collapse of an existing structure there is always a rise of a new one to replace the old one.

And with the new structure comes many opportunities. Those who are able to release their grip on the past; who learn the causes of, and the lessons from, the true reason for the collapse and who adapt by adopting the new, improved and disciplined thinking for the new environment are not only going to survive but they are going to prosper handsomely.

But with all of the uncertainty about what the future holds one thing is for certain: We have left the Industrial Age and the organizational structures and thinking that dominated it. We are now in the Knowledge Age.

And I believe the first rule of this new Age is: Intellectual Capital is Superior to Financial Capital.  

This means we will be challenged to seek, learn and implement new management paradigms that understand that Diverse Employee Networks are more responsible for getting work done in a company than Org. Charts. and which explain how to find the balance between the need to lessen dominant power structures and encourage employee engagement while still maintaining order and holding people responsible and accountable.

While this new world may seem counter intuitive to much of what you have learned about how to structure a business the good news is that once you begin to expose yourself to it I believe you will find it comes quite natural. More good news is that while this may be new to you as the reader there has been a lot of work done in this area and you can begin to familiarize yourself with the thinking in a variety of ways.

To help you along your journey I recommend you visit my website which is designed as a both a resource and a gathering place for like minded thinkers who are on the journey to find and define “what’s next”. Go to www.capabilityaccelerators.com/resources.aspx to get right to the resources and tour the site to get some ideas. Feel free to contact me with questions too.

You can also get an excellent understanding of “Workplace Democracy” and how it unleashes the Intellectual Capital of your organization by visiting WORLDBLU and Traci Fenton at www.worldblu.com. And then there is Peter de Jager. You can access this internationally known change management expert who is very insightful and humorous by going towww.technobility.com

But at the end it will all work itself out. We just have to remember that in today’s world it is Mind over Money that will rule the day.

Jeff