Intellectual Capital Development through Soft Systems Thinking - Essay Example

Intellectual Capital development through Soft Systems Thinking The unsystematic disposal of anything with intellectual content is seen as an asset to a financial endeavour since the ancient times. This concept is based upon the worth of funds and manual labour and in the modern times are seen in the from of gathered worker trainings to the disposal of obsolete hardware and software. Behind all this is the idea that eliminating the old and obsolete methods and equipment in a company increases employee productivity. Some may see that a business thrives only through its capital, even though many factors are attributed to the financial success of a business. In truth, all of the components of a business are essential in the systematic flow of finances (Strassman, 1998). This paper discusses the importance and significance of 'intellectual capital' and its impact to a business endeavour through the application of soft systems thinking methods. Intellectual capital can be defined in many ways and its definition usually depends on the economic theory applied to it. The most common definition of intellectual capital states that it is a combination of both instructional (e.g. training materials coming from the employers) and individual capital (e.g. enthusiasm and mindset of an employee) in a financially-productive enterprise. Another common definition is that it is a form of capital that generates intellectual rights. 'Intellectual capital' is assumed to be intangible but is nevertheless significant in any enterprise. It has no monetary value and is not include in the actual accounting but it generates products that are considered to be intellectual in nature (Wikipedia, 2006a). Economic theorists apply the term 'intellectual capital' in most modern financial sectors such as information technology (IT), innovative research, technological protocols and many more fields which are associated because of their use of modern technology. This definition may be due to the emphasis of modern economic theorists to industrial concepts. These definitions may have also originated from the Internet boom of the mid-nineties and the early years of 2000. During this period in history, professionals working on the information and computer technology sectors banded together to form several computer companies, some of which has achieved monumental success which continues up to today. This notion relates to the 1970's-80's 'tulip boom', where the whole world seemed to be entranced with tulips and their complimentary products. During that time, manufacturers and distributors of came up with various permutations of their products as they assigned different prices for each of the combination of tulips and their complimentary products such as pots. In the same way, computer professional constantly repackage and revise their products to market them in some other price group. Many consumers consider this as a sly ploy done by manufacturers for them to buy their products (Wikipedia, 2006a). Leonard-Barton (1992 -1995) emphasised on the significance of knowledge in the formation of creative and innovative ideas on brainstorming activities done by most companies. Her studies reveal that the distribution and dissemination of knowledge to persons that are involved sparks innovation. She believes that the added social interactions done in the brainstorming activities are crucial and proves to be very effective in the creation of new ideas and knowledge for the firm. When persons contribute their own ideas to each other, organisational knowledge is formed thereby increasing the firm's knowledge base and creative capacities. These capabilities are innate to the participants and are not easily copied, obtained or stolen by others forming the so-called 'competitive edge' of the company (Gao et al, 2002). The management of (restricted) knowledge among employees now becomes an actual part of intellectual capital which will provide the necessary 'push' or leverage needed for the production of more intellectual or financial assets. Intellectual capital is also often referred to as a 'hidden' asset, with the proper management and various other methods can boost a company's financial asset. The value of intelligence/intellectual capacity was pointed out by Boisot (1998) although it believed that the organisation and dissemination of knowledge is affected by environmental and cultural factors. It must always be remembered that the most important component in the generation of intellectual assets are people and that technological advantages, overall competitiveness and capabilities are just representations of knowledge. Therefore, the proper management of knowledge is an important activity in every company's repertoire of activities (GAO Et Al, 2002). There have been some efforts to find methods on how to put a certain value on intellectual assets in the last 20 years. Sweden's Skandia Insurance Company may be the only firm in existence that has put some value on intellect and other intangible factors. The company makes this possible by publishing a complementary report which has no relation to the main financial statement (Myers, 1996; Strassman, 1998). This supplement includes, among other things, experience with work processes, trademarks, customer lists, and an assessment of employee competence, items which are not commonly placed with a quantitative value. There has been a problem in the placement of value to these items (experience with work processes, trademarks, customer lists, and an assessment of employee competence) though and it is now generally accepted that the valuation of these intangible items alongside with more quantifiable, tangible items is impossible. The utility of intellectual capital is its own value and may not be given any further quantitative value. Another way of looking at the failure of assigning values to intellectual properties is through an analogy: if a movie was made with the same budget, plot script and location was made into to version featuring two different sets of actors and actresses would be made, the general public is expected to have different notions about the two versions of the movie (Strassman, 1998). One of the probable reasons on why businessmen would like to put monetary values on intangible elements like intellectual capital is that they want to include it in the computation of risk-related factors. Investors feel a little more secure with their expenses and earnings if everything is assigned a monetary value. With much thought, a simple equation is devised to at least put some value on intellect as an asset. It goes like this: Knowledge Capital = management value-added / price of capital This equation can make the inclusion of intellectual capital on a properly revised balance sheet putting 'Intellectual capital' under its own heading and adjusting the value of the equity from the shareholder or investor with the same amount (Strassman, 1998). The concept behind this is that intellect and other mental aspects are more than just abstract terms. Knowledge as a whole ha sits own context and harmony. Knowledge and other mental functions can also be referred to as 'universal truths', these concepts are extremely fundamental and context driven. In essence, mental functions can be grouped as follows: information; which relates to the description, definition, or perspective of a concept (the 'what', 'who', 'when', and 'where'), knowledge which takes care of the possible strategies, methods, approaches (the 'how' of things), while wisdom represents principles and morals (the 'why' of things) (Bellinger, 2004). Soft Systems thinking Commonly a soft systems approach is used to tackle problems which involve the use of quantitative factors in situations where a group of persons interact with each other or with another system. This technique is very useful in understanding the drives of each individual, their viewpoints and ways of interaction but does not provide quantitative solutions itself (Wikipedia, 2006b). The soft systems approach was the result of efforts to apply a systems based problem solving method (commonly used in engineering and other field that use a lot of quantitative data) to business-related problems. It was developed at the Lancaster University by a certain Peter Checkland. Checkland discovered in his application of soft systems, several unquantifiable factors were involved. He had enumerated some of these factors among them are the spread of rumours and hearsay around the workplace. Also included in these factors is the belief of the majority of employees that the policies given to them by their superiors are part of these conspiracies. Checkland had a term for activities where men work in a single environment. He called these as 'human activity systems' where problems usually stem from the assumptions of the persons involved. Checkland also discovered that by solving the problem(s) a little too early suing conventional methods, the persons that are engrossed in the activity in question will not see the small problems that were laid out in the first place. Also conventional methods usually hide the facts from the persons involved as the problem solving process goes on (Effecting Change in Higher Education, n.d.). As an alternative, Checkland applied soft systems approach in the problem-solving process. As the problem solving proceeds, Checkland adhered to the following: first he kept in mind that problems do not exist separately from the people that created them. Second, the solutions laid out in the problem solving process are as good as the persons who are trying to solve them. This due to the fact that each person involved in the problem has a different view of the problem because of their different points of view and expectations on how these problems should be tackled. The third assumption is that the problems are related to a 'pre-made mess' (Ackoff, 1974) the last assumption is that the problem-solver(s) is directly a part of the solution. (Effecting Change in Higher Education, n.d.). There have been different versions and variations of soft-systems approach that were patronised and applied in different scenarios such as environmental management and rural development projects. Realisation of the need for such a system of problem solving often results from the evaluation of the predicament at hand in relation to future results. In a short system method (SSM) of problem solving (a version of short systems approach), the predicament at hand is viewed as a 'rich picture' because it takes into account a variety of different viewpoints. In this method, the evaluation of the predicament comes first and only after thorough discussion does a discussion of how the predicament should be solved happens. Learning proceeds as each cycle of SSM phases goes around. The most important characteristic of SSM is that learning is emphasised as is the advent of new and enhanced methods of solving problems (International Centre for development oriented Research in Agriculture, n.d.). The SSM approach is divided in to distinct phases. The first phase is the statement of the problem. In actuality, the people who are involved in the problem are uncertain on what the problem is or how is it going to proceed. The analysis of the problem and several representations and regular analytic methods are applied to the problem. After the problem has been stated, what follows is situational analysis. The visualisation of a rich picture is done at this phase which is composed of the different elements that came from the people involved, which may also include details from outside the problem. In this stage, all of the thoughts, ideas insecurity and uncertainty of each person are manifested. One can picture the other's thoughts by visualising 'thought balloons' to represent what each person thinks about the situation. 'Thought balloons' can also include how each person thinks about the problem, their methods of analysis and their agreement and disagreement on some issues concerning the problem. The next phase is the definition of terms and systems determination phase. In this phase, the problem is again stated and the roles and responsibility of each member are given out. The rich picture developed from the previous phases is used as a basis for the solution in this phase. It is similar to the dissemination of objectives ('briefing') before a 'mission' starts in a military operation. The focus in this phase is in the defined problems and all other insignificant figures are discarded. When everybody has agreed as to what the problem is all about, then the next phase can be executed after that the conceptual model is laid down and all the ideas on how to solve the problem from each person involved is addressed and heard by everybody. There are certain criteria that are to be followed in this phase. And these are: efficacy ( "will it ever work at all"), efficiency ( "will it work with minimum amount of resources"), effectiveness ( "does it contribute to the enterprise"), ethicality ( "is it moral") and elegance ( "is it beautiful"). These criteria are also known as the "5 E's of Soft systems thinking" which poses questions on how the problem should really be executed. Steps 2 and 4 are then compared in the next phase. The tentative solution is tried against the other set of solutions. At this stage each person involved thinks on what things could hinder their arrival to a conclusion. Aperson also checks whether his or her solution fits into the 5 E's of SSM. In this phase, the results from each solution are compares to its actual application. The data gathered at this phase is compared to those which re previously planned and these are used as guides to the effects of the suggestions of the people involved. What follows next is an argument of how feasible are the solutions are summed up at this phase and the choices regarding the problem are discussed at this time. The final phase is the execution of the solution. This is where the plan of action is finalised and executed. It is said that the execution of the solution is 'new' according to Checkland. Deviation from the plan of action is the common route which often leads back to the first step or the statement of the problem. This way, new conflicts arise and more often than not the conclusion that the person have arrived at will not be the same with the set of solutions that are agreed upon. SSM to tend to improve the learning capacities of the persons involved and most of the time, failed solutions are never brought up again. Over time, the speed and effectivity of the problem-solving abilities of each person involved increases (Effecting Change in Higher Education, nod.). SSM is a very social method of solving problems and it gives way to the diversity of interests and points of view of the problem solvers. SSM is now becoming more common recently, however criticism about the use of such methods are numerous. Some critics have said that the liberated nature of this system makes it difficult to manage, and evaluation of this system is quite difficult due to this. The interactions involved in the execution of this system encourage the people involved, although it is sometimes obvious that the presence of politics and power are issues. Questions about the welfare of those who are solving the problem and whether this system really benefits them or not is not avoidable. Intellectual Capital and Soft Systems Thinking Intellectual capital also entails real financial costs but is accumulated from the years of operation of the company. As a company operates in the long term, its knowledge base from its employees also grows. Meetings are a good example of activities that bolster the knowledge base of a firm and they also contribute greatly to the company awareness of employees. Training is another good method of expanding the knowledge base of employees as well as boosting their efficiency and productivity. Software on the other hand can be continually upgraded or replaced so it might be considered as a constant source of knowledge for companies. Usually, these forms of intellectual capital counts as overhead expenses even though some of these are considered intangible (Return-on-Management is a registered trademark of Strassmann, Inc). Superiors should therefore monitor their sales, general, and administrative (SG&A) expenses, plus research and development (R&D) costs involving intellectual capital. As an example, Abbot Laboratories the case of whether to account for intellectual rights in their ledgers is a significant question. Abbot laboratories include intellectual capital in the computation of their profit-capital computations (Strassman, 1998). Soft systems approach (SSA) is a very productive way of studying particular human activities These systems based on the human participants themselves do benefit a lot from the use of intellectual capital (Patel, 1995). SSA can also have some other applications, such as in education for example. SSA is very effective especially in the secondary education level. This method is not only applicable to student but also to educators themselves. Teacher/instructors will be able to execute self-evaluated teaching methods in their practice. SSA is an excellent system and may be treated as an intellectual capital not only for the intellectual stimulation it provides but also for the social skills it imparts to its participants (Patel, 1995). Intellectual capital can be a very useful resource to any company given any predicament and circumstance given to them. Intellectual capital like any other resource though must be managed well. Knowledge dissemination must be done properly and must be controlled knowledge management is a very delicate process and great care must be undertaken in the storage and presentation of this asset. The one that manages these pieces of intellectual capital must be aware of idiosyncratic ethical values, managerial philosophy, personal subjectivity or cultural behaviour of their employees. Sensitivity to these factors will avoid future conflicts between the company and employees that have racial, religious or some other ethical or social issue attached to them. Sometimes the dissemination of knowledge from the employer to the employee entails good relations between the two, since the distribution is seen as a 'blessing' by a majority of employees (Gao et al, 2002). Intellectual capital must be treated well just like any other asset in a company. This point could not be stressed well enough. With the combination of intellectual capital with soft systems thinking, problem solving was never this much easy or much socially gratifying. It may not be tangible or quantifiable, but results have shown that it indeed contributes to the financial gains of a company. The social benefits of soft systems thinking should not be disregarded either, as a happy employee is an efficient and productive employee. Social skills such as cooperation, teamwork and brainstorming must be fostered and promoted at all times. Intellectual capital on the other hand must also be accumulated and developed over the lifetime of a company. This accumulation of knowledge in companies is like putting coins in a coin bank. It may not be big at first but all those coins will have a big monetary value if combined together. The synergy between the two concepts, intellectual capital and soft systems thinking must be as much as possible promoted and enhanced as to give a company the greatest amount of financial benefits possible with the least amount of expenditures (Gao et al, 2002). Bibliography Aronson, Daniel. (n.d.). TARGETED INNOVATION. Daniel Aronson. Available from: www.thinking.net/Systems_Thinking/st_innovation_990401.pdf [Accessed April 19, 2006]. Aronson, Daniel. (1998). Introduction to Systems Thinking. Daniel Aronson. Available from: http://www.thinking.net/Systems_Thinking/Intro_to_ST/intro_to_st.html [Accessed April 19, 2006]. Bellinger, Gene. (2004). Knowledge Management-Emerging Perspectives. System-thinking.org. Available from:http://www.systems-thinking.org/kmgmt/kmgmt.htm [Accessed April 19, 2006]. Boisot, M.H. (1998), Knowledge Assets: Securing Competitive Advantage in the Information Economy, Oxford University Press, New York, NY. Effecting Change in Higher Education. (n.d.).Systems Thinking. Effecting Change in Higher Education. Available from: http://www.effectingchange.luton.ac.uk/approaches_to_change/index.phpcontent=systemsthinking [Accessed April 19, 2006]. Forrester, Jay W. (1994). System Dynamics, Systems Thinking, and Soft OR. System Dynamics Review Summer, Vol. 10, No. 2 Gao, Fei, Meng Li and, Yoshiteru Nakamo. (2002). Systems thinking on knowledge and its management: systems methodology for Knowledge management. Journal of knowledge management, Vol 6, No. 1. p 7-17 International Centre for development oriented Research in Agriculture. (n.d.). Defining the system-system thinking. International Centre for development oriented Research in Agriculture. Available from: from http://www.icra-edu.org/objects/anglolearn/Systems_Thinking-Approaches.pdf [Accessed April 19, 2006]. Leonard-Barton, D. (1992), Core capacities and corerigidities: paradox in managing new product Development. Strategic Management Journal, Vol. 13, pp. 363-80. Leonard-Barton, D. (1995), Wellsprings of Knowledge: Building and Sustaining the Sources of Innovation, Harvard Business School Press, Boston, MA. Myers, R. (1996). Getting a Grip on Intangibles," CFO Magazine , September, p. 50. Patel, Nandish V. (1995). Application of soft systems methodology to the real world process of teaching and learning. International journal of educational management Vol 9, No. 1., pp. 13-23. Stewart, T. A. (1999) Intellectual Capital: The New Wealth of Organizations. Currency/Doubleday, New York, NY. Stewart, T. A. (2001). The Wealth of Knowledge Intellectual Capital and the Twenty-First Century Organization. Nicholas Brealey, London. Strassmann, Paul A. (1998). The Value of Knowledge Capital. American Programmer, March. Sveiby, K. E. (1997) The New Organizational Wealth: Managing & Measuring Knowledge-Based Assets. Berrett-Koehler Publishers, San Francisco. Wikipedia. (2006a). Intellectual capital. Wikipedia Foundation Inc. Available from: http://en.wikipedia.org/wiki/Intellectual_capital [Accessed April 19, 2006]. Wikipedia. (2006b). Systems thinking. Wikipedia Foundation Inc. Available from:http://en.wikipedia.org/wiki/Systems_thinking [Accessed April 19, 2006]. Wilson, K. and G.E.B. Morren Jr. (1990). Systems approaches for improvement in agriculture and resource management. Macmillan Publishing Company, New York. This learning resource was prepared by Richard Hawkins, using material from Annemarie Groot. Read More