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Tag: Intangible assets

Does a knowledge worker need a knowledge manager?

Here’s a thought: in a matter of years, the worker and the manager positions will be reversed in the organisational hierarchy.

There are three parts to the economics of pay and hierarchy:

1. Control of assets.

Workers have little control and authority over assets and are paid to ‘just work’.  At the low end, managers are given some control over the assets used in daily operations including stock and rosters.  Each promotion and pay rise recognises the expanding scope of assets under the manager’s control.  At the extreme high level is the CEO salary such as Charif Souki, CEO of Cheniere Energy who, according to Bloomberg, tops the list in 2014 with his $142 million salary package.

2. Contribution to results

The greater a person contributes to results, the higher the reward, such as the sales manager whose efforts directly impact the bottom line.  On the other hand, the human resources manager at the same level manages workforce costs and is generally less well rewarded.

3. Demand

As the law of supply and demand dictates, the more available or replaceable the skill or ability, the lower the pay.

In the industrial economy the hierarchical model was straightforward.  Because managers controlled more assets including the people who provided the labour, they command a higher position in the hierarchy and were paid more commensurate with that level of seniority.

Ricky Gervais in The Office

Everyone’s favourite nightmare manager, David Brent, played by Ricky Gervais

The dominance of the knowledge worker since the 1990s has been effecting a significant change for enterprises which could drastically alter how the manager position fits in the organisation.

In 1966, management guru, Peter Drucker, had already envisaged the knowledge worker disrupting the standard order of progression from worker to manager.  He wrote, “Every knowledge worker in the modern organization is an “executive” if, by virtue of his position or knowledge, he is responsible for a contribution that materially affects the capacity of the organization to perform and to obtain results.” (The Effective Executive 1966).

Wealth creation in the industrial economy came from the control of physical assets.  Industries such as mining, manufacturing and agriculture created the list of the wealthiest countries and companies.  As the knowledge economy’s growth accelerated in the 1990s, spurred on with the widespread adoption of the internet and technology, the value of enterprises has been changing in a way that most organisations are yet to fully realise.

Assets

Physical assets are owned by the enterprise, even physical labour which a company has bought the right to control through the employment contract.  The above chart shows how significantly this has changed.  While companies continue to promote and remunerate managers for their ability to control the enterprise’s assets, the majority of the company’s value is no longer in those assets.

Intangible assets are a product of knowledge work.  They include such things as brands, organisational culture, core competences, customer relationships, designs and inventions.  The fundamental difference with knowledge work is the assets do not belong to the enterprise therefore managers cannot control the greatest contribution to the company’s value.

Companies no longer need managers to sit over workers because the company does not own the knowledge.  Whether the ‘knowledge’ is a contact in the government, the knack for spotting the next big fashion trend, the ability to close a sale, or a manner that brings a team together, it will always belong to the person that provides it.  The company that maximises the value of its intangible assets will be the one that has an infrastructure developed to lease the knowledge it needs from the owners, such as through freelancing assignments, strategic alliances or employment systems that tap into the knowledge it needs when it needs it.

Taking Apple for example, a company valued at $400 billion of which intangible assets account for 96 per cent, and one of the most successful companies in history.  Innovation, design and a commitment to placing technology into the hands of people, is how the company achieved such an outstanding result.  It was not achieved through managers installed to keep the knowledge coming, checking whether the ideas were meeting KPI targets so that another market-changing concept like an iPad would emerge by the deadline set by the business plan.

So whatever managers do now, it must be something more than overseeing workers like pickers and packers, who process the company’s physical assets (and even these are being increasingly automated).  It must be something that enhances the organisation as far richer places than a collection of workers mechanically completing tasks.  A bright future would be one where the richness of people collaborating, creating and doing is allowed to happen without the oppression of pre-determined positions monitored by people who are there to manage actuality rather than possibility.  Otherwise in this world the prospect of being given a manager job might be one seen as a demotion.

Rethinking downsizing

Fans of the hugely popular Dilbert comic strips will recognise Catbert, the Evil Director of Human Resources, whose sole aim is to torment the comic strip company’s employees.

http://www.dilbert.com/

Downsizing, or mass redundancies, is used by organisations to improve their financial position particularly when they are under pressure from shareholders, competition and/or shifting consumer trends.  Downsizing has become one of, if not the most, preferred option for reducing costs and increasing efficiency, yet evidence points to the fact that the results of downsizing are often illusory (this Ivey Business Journal article, Downsizing isn’t what it’s cracked up to be gives a great summary).  With more attention generally given to implementing the redundancies than to the disruptions to workflow, morale, loss of organisational knowledge and the need to recreate the social structure to reflect the reduced personnel, the cost of downsizing is often underestimated and its ability to positively impact on profit often overestimated.  Thus firms often find that one round of downsizing is not enough.

The real reason that downsizing does not work is that organisations do not work the way in which downsizing needs them to if it is to be effective.  One of the outcomes of the industrial revolution (late 1800s/early 1900s) was a system in which work could be mechanised.  Creating standardised jobs allowed labour to be treated as a commodity; workers could be easily replaced, trained, measured and directed, and scales of economy could be achieved.   The organisation charts, divisions and hierarchies became part of the cost overhead needed for the organisation to manage its labour.  Managing well meant not only finding ways to keep the labour needed as low as possible, but also keeping the management overhead as lean as possible.

In this labour-is-a-commodity context, downsizing is logical: as demand changes and processes can be made more efficient, organisations can (or must) make do with fewer bodies.  People are a consideration only so far as downsizing has unfortunate human cost.  Interestingly downsizing began to become more commonplace and accepted in the 1970s, a time when a firm’s value was mostly comprised of physical assets: buildings, equipment, machinery, stock, and so on and labour was needed primarily to power production.  Only 17% of a firm’s value was made up of intangible assets, such as brands and designs.

Markets have been changing steadily since the 70s.   What is produced now extends far beyond the physical goods only to a long list of non-physical attributes: style, reputation, service, environmental concerns, social responsibility, prestige, brand associations, lifestyle affinities, technological advancement,  to name but a few.  In 2010 a firm’s physical assets typically made up only 20% of its total value.   And what delivers these intangible assets to the firm is the non-labour component of work.  It comes from people’s different human inputs: experiences, their endeavours, sense of pride, desire to achieve, curiosity, creativity, camaraderie, and many more, some so fleeting they are barely noticed, but all adding up to significant value for their employer.

Unlike mechanical labour these intangible assets are not the result of the organisation structure managing output.  Managers do not elicit inspiration, innovation, inventions, ideas, a desire to pursue a vision, a dedication to a purpose, interactions that create sparks or spur enthusiasm, through the setting of a roster, or tick of a clock, nor through a list of competencies, or data that can be used for comparative measures.  The infrastructure that produces the far greater component of the organisation’s value is not a cost but an asset, and it is not scalable at all.

Work is and never was a mechanical process.  Treating it as one worked for a time, when demand for mass produced goods drove the economy.  Today’s knowledge economy however demands that work is a human process.  It requires people to interact, collaborate, solve problems, create and use networks, learn, share, and participate in the workplace physically, socially and emotionally in countless ways.

Downsizing is only relevant to the scalable, labour side of work – the side that addresses the organisation’s 20% value in physical assets.  It lays to waste the social and knowledge-based inputs that generate value.  The real failing of human resources is not so much in its failure to plan a workforce to meet the forces that lead to downsizing, but to continue to treat labour as a commodity and management as an overhead that, by downsizing these, are expected to improve an organisation’s performance.

Even if organisations are unconcerned about the human cost of downsizing, the senselessness of using an approach that is so mismatched to the purpose it is meant for, that it is as likely as not to fail, is only to be expected.  And human resource Catberts will continue to play with them before downsizing them.

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