Intangibles Are the New Raw Materials

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Raw Materials
In the tangible economy, raw materials are combined and sometimes transformed to make finished goods. It is often impossible to see the different raw materials in the finished product—together, they make something completely new. In fact, there is often a progression of processes that lead to a final product. Stalks of wheat, for example, are processed and ground to make flour which then goes into making bread. Grains of sand become silicon in computer chips and oil becomes a high tech plastic.
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The raw materials of the knowledge era are knowledge-based intangibles. You may be nodding your head as you read this. But do you really know what it means? If not, you are not alone. Knowledge continues to be seen as an amorphous, misunderstood part of business. This widespread ignorance isn’t helped by the vocabulary. The word intangibles itself is troubling because its very definition implies that an intangible is invisible, untouchable, and unknowable. The word knowledge is also very general and lacks a specific connotation for business value creation. Yet knowledge is the core asset of this century.

Last week, I talked about how to get paid for knowledge because I wanted you to understand the central importance of knowledge to your business. It is not a “nice to have” luxury of upscale companies. Knowledge is a critical resource for every business from the most humble service and product companies to the highest of the high tech. You can probably think of a million examples of how your own workplace has changed in the last 10 to 20 years thanks to computers. But you may not have realized how the accumulated effect of all these changes has fundamentally altered your business.

What do this kind of computerization and the resulting growth of knowledge mean to your business? There are four basic types of knowledge assets that become the raw material for your value creation: human, relationship, structural and strategic capital. None of these are new categories of assets. People, customers, production processes and strategies have always been the building blocks of business. What has changed is that these knowledge intangibles have moved from a supporting to a star role in business models.

Even the future of manufacturing is dependent less on tangibles and more on intangibles such as a trained workforce, a culture that supports continuous improvement, a network that maximizes the quality and cost of your total production process and structural knowledge that ensures consistency as well as serving as a launch pad for innovation. Buying equipment is not the hard part—getting all the intangibles right is.

From Intangible Capital: Putting Knowledge to Work in the 21st Century Organization