NADD Bulletin Volume V Number 1 Article 2

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Discovering and Building Intellectual Capital: Strengthening the Foundation of Services for Persons with Dual Diagnosis

Frances Owen, Ph.D., Carol Sales, Ph.D., Dorothy Griffiths, Ph.D., Louis Lindenbaum, D.Ed.

Among the most challenging issues facing managers of human services, especially services as complex as those providing programs for persons with dual diagnosis, is the problem of “replacing” key staff members. It is at these times, when managers realize that they can never truly “replace” a key staff member, that they become acutely aware of the intangible resources on which organizations rely, the intellectual capital that is at the heart of each dual diagnosis service.

In these times when clinical services rely increasingly on psychotropic medications, computer-assisted training, and high-tech assistive devices, managers and clinical supervisors run the risk of taking for granted the core resources on which their organizations are built: the intellectual capital that resides in the professionals who provide their services. Managers tend to take intellectual capital for granted until they undertake to fill the vacancy left by that key staff member.

Defining Intellectual Capital

Stewart (1997) says that “ intellectual capital is intellectual material – knowledge, information, intellectual property, experience – that can be put to use to create wealth” (p. X). In the service world, intellectual capital can create wealth in terms of program development, the creation of new therapeutic approaches, the development of creative linkages that break down service barriers and interventions that enrich the lives of persons with dual diagnosis. Edvinsson and Malone (1997) have described intellectual capital as the roots of an organizational tree with the more obvious assets, such as the annual reports, and financial statements, being the leaves, branches and the trunk for the tree.

As with a real tree, an organization’s roots determine its overall health. Edvinsson and Malone have developed a two-part approach to intellectual capital that differentiates between human capital and structural capital. Human capital includes assets such as culture, innovation and knowledge that an organization cannot own. Structural assets include databases, programs and software that contribute to employee productivity and are owned by the organization. Others (Stewart, 2001a; Greenberg, Baron, Sales, & Owen, 2000) have identified three factors associated with intellectual capital, namely: human and structural capital as in the Edvisson and Malone model, and add customer capital which is the strength of the consumer base served by the organization. Human capital in services for persons with dual diagnosis includes the knowledge and skills of clinical professionals; structural capital includes programs and software developed to support those programs; and customer capital includes the working relationship that clinical and management professionals develop with service consumers.

While intellectual capital is central in service organizations, it cannot be accessed or measured until it is harnessed. “Intelligence becomes an asset when some useful order is created out of free-floating brainpower – that is when it is given coherent form &ldots;; when it is captured in a way that allows it to be described, shared, and exploited; and when it can be deployed to do something that could not be done if it remained scattered around like so many coins in a gutter. Intellectual capital is packaged useful knowledge” (Stewart, 1997, p. 67). Stevenson (2000) has proposed a methodology for capturing knowledge and information about best practices in education and ways that these can be shared so that these practices can be adapted and applied in a wide variety of schools. In services for persons with dual diagnosis, intellectual capital is evidenced in such diverse activities as the development of a creative approach to programming, in a phone call that develops or strengthens a key intervention partnership, or in an idea that is shared in a peer training session.

The Importance of Intellectual Capital

 “Building intellectual capital means unleashing a company’s full capacity for development” (Greenberg et al., 2000, p. 97). New economy organizations have realized that they must compete actively to attract and retain the best and the brightest to give them their competitive edge. The CEO of Cisco Systems, John T. Chambers, described the key role of intellectual capital in his business:

“ ‘The New Economy is heavy on intellectual capital. The sharing of knowledge is what makes it go. In the New Economy, you expect lifelong learning, not necessarily lifelong employment’ ” (Byrne, Reinhardt, & Hof, 1999, p. 109). Intellectual capital is of no less importance to services for person with dual diagnosis.

It is becoming increasingly clear, even to accounting professionals, that traditional balance sheets do not adequately capture an organization’s true value. Petty and Guthrie (1999) point out that, especially in the “dot com” high tech sector “book values correlate poorly with market capitalisation” (p. 18). It seems reasonable to make a similar argument in other sectors, such as dual diagnosis services, that rely heavily on specialized knowledge. Petty and Guthrie (1999) report on a document produced by the Organization for Economic Co-operation and Development (OECD) which emphasized that “&ldots;there is a growing awareness that know-how [intellectual capital] adds significantly to the value of a business and, in some cases, represents almost the entire value base.” (p. 18). A survey conducted by the Canadian Institute of Chartered Accountants of senior level executives in the Canadian Financial Post 300 companies and the US Fortune 500 companies found that the respondents saw “&ldots;knowledge resources as critical for a firm’s success” (Dzinkowski, 2000, p.32). Microsoft is often used as a dramatic example of the difference between recorded and unrecorded value. The company’s market value in 1996 was 11.2 times that of its tangible asset value. “This ‘missing value’, to a large degree, represents the market’s estimation of Microsoft’s stock of intellectual capital that is not captured in its financial statements” (Dzinkowski, 2000, p. 32).

A key factor for organizations serving people with dual diagnosis is the building of human capital. Knight (1999) stresses that “human capital increases in value when organizations hire, develop, and retain the best people” (p. 25). This starts with the selection process. Too often organizations use more resources to manage their hiring mistakes than they do to develop a good hiring process. If the resources were reversed then organizations would invest in careful selection that would result in the hiring of the best people for each job. People who are well matched to their job use fewer management resources in the long run than those who are not well matched thereby adding to the value of the organization through direct building of intellectual capital and through reducing the demand on management resources.

Measuring Intellectual Capital

To date, the focus of research in the area of intellectual capital has focused on business and industry rather than on human services. Business and industry have been working on ways to quantify intellectual capital. While various examples exist there is no one standard of practice in the field. Instead, organizations have experimented with various strategies to address this challenge. Managers in services for persons with dual diagnosis may find that these efforts can be translated to the clinical sector.

An innovative measurement approach being used at Bates Gruppen, the Norwegian operation of Bates Worldwide, an advertising agency, is the CompanyIQ system (Stewart, 2001b). Bates uses three steps to compare its assets with those of other organizations. Step one is to identify why customers (consumers) choose to purchase services from the company rather than from a competitor. Managers identify attributes that they feel may be factors that attract consumers. In advertising and other services, such as in services for people with dual diagnosis, these factors may include issues such as response time, innovativeness, and range of services. This list is then sent to consumers and employees who rate each item based on its uniqueness and its value for consumers. These data are compiled to identify the three or four that are high on both uniqueness and value to consumers.

Step two of the Bates Gruppen system is to identify the intellectual assets that result in these advantages. These assets fall into the three categories of intellectual capital: “human capital (talent), structural capital (knowledge artifacts like intellectual property, methodologies, and software), and customer capital (client relationships)” (Stewart, 2001b, p. 188). Each organization emphasizes particular aspects of intellectual capital over others. As Stewart (2001b) illustrates “a three-star restaurant emphasizes the chef’s human capital; Burger King relies on the structural capital of recipes and processes; a local diner thrives thanks to customer capital - the [server] who&ldots;knows you like your coffee with milk, no sugar” (p. 188). In services for persons with dual diagnosis the emphases are on human capital in the talent, creativity and skill of professionals, and on customer capital through the relationships that are built with service consumers.

Step three of the Bates Gruppen system involves calculating the CompanyIQ using the profit impact of market strategy formula developed by General Electric. This process allows the company to compare its ratings with those of other organizations. Unfortunately such a standard does not currently exist specifically for clinical services. However it may be informative for services for persons with dual diagnosis to consult the business standards used by Bates Gruppen.

A last lesson from the experience at Bates Gruppen is that the company found that in one of its divisions the human capital was strong but the structural capital was weak. This particular operation relied too heavily on a few star performers. The CompanyIQ process helped the company’s management to recognize that processes must be put in place to develop structural capital that would allow the skills of the stars to be translated into processes that other people could use. This scenario may be familiar to those in the dual diagnosis service sector. How often do managers become overly reliant on individual star professionals rather than assisting these stars to develop systems that capture their knowledge and make it available to others?

Developing and Managing Intellectual Capital Despite the Barriers

The intellectual capital that resides in the professionals in dual diagnosis organizations is no less valuable than that identified by high tech companies, advertising agencies and banks. In a previous presentation (Owen, Sales, Griffiths, & Lindenbaum, 2000), we emphasized the critical importance of building learning organizations as a means of strengthening teams serving persons with dual diagnosis. Learning organizations, organizations that promote learning and are open to internal and external input, provide fertile ground in which the intellectual capital roots of dual diagnosis services can grow.

In examining the trends in European and North American research in the area of intellectual capital, Petty and Guthrie (1999) report that all organization members must be involved in developing and measuring intellectual capital and that this is best accomplished “&ldots;when a senior and respected member of the organisation sponsors the measurement initiative.” (Petty & Guthrie, p. 20). There may be a tendency to turn to technology as the answer to capturing knowledge. However, as Coates (2001) emphasizes, no networks or equipment can replace the central role of a supportive and reinforcing manager. Coates explains that managers who tend to be judgmental are likely to create an atmosphere of mistrust that constricts the communication that is central to the building of intellectual capital. Instead, managers need to have good social skill, especially conversation skills, that help staff to feel safe enough at work to “stick their necks out” in making suggestions that could be considered critical of the organization’s administration. Coates warns that this means that organizations must work to reverse the usual trend that “&ldots; in large organizations intellectual and behavioral deviants are squeezed out from day one” (Coates, 2001, p. 10) which contributes to the homogenization in management thinking.

The management of professionals adds a special twist to the issue of building intellectual capital. As Coates points out, professionals are used to making decisions unilaterally. He was focusing on research scientists, yet the pressure to work alone is not peculiar to the laboratory. In an area of practice as challenging as providing services for persons with dual diagnosis, there is a vital need for professionals not only to be able to work independently but also to work effectively as members of clinical teams. Even more important to the development of intellectual capital, professionals must be willing to examine that which has not previously been studied or tried. Professionals need to have the courage to be creative risk takers who are prepared to learn from their mistakes in an atmosphere that includes managerial support for this kind of learning. Intellectual capital is nurtured in a “community of practice” which consists of “&ldots; groups that emerge around a discipline or problem – a work-related subject &ldots; . They have no agenda; they are defined by the subject that engages them, not by project, rank, department, or even corporate affiliation. They are where learning and innovation occur&ldots; ” (Stewart, 2001a, p. 192).

Dzinkowski (2000) has identified some key functions that managers can play to develop an organization’s intellectual capital, namely: “building an inventory of employee competencies; scanning the environment and determining competencies which will need to be developed or acquired to meet strategic objectives; developing a system to deliver the needed knowledge, skill, or intellectual upgrade as needed; developing an evaluation and reward system tied to the acquisition and application of competency that aligns with the organisation’s strategic objectives” (p. 35). Further, Daniel Knight (1999) has suggested strategies for undertaking some of these functions. Knight discusses the importance of creating a “virtuous cycle” that includes investment in human capital which results in increasingly competent people who develop better structural capital. The growth in human and structural capital results in improved service delivery and consumer relations. These factors combine to produce increased profits some of which can be turned back into efforts to build human capital thus creating the virtuous cycle. In some service organizations, there has been a tendency to cut back on the investment in training to save money. Knight’s virtuous cycle challenges this practice as a potential threat to organizational development.

Capturing the knowledge and skill developed through training and organizational learning can present technical challenges, especially in team based enterprises such as services for persons with dual diagnosis. Knowledge management professionals are addressing the challenge of “knowledge harvesting” (Duffy, 2001, p. 59) with the development of a variety of software such as Cerebyte’s Infinos System that “is designed specifically to enable an organization to harvest and share the best thoughts and ideas of its employees” (Duffy, 2001, p. 61). This program coaches employees by asking a series of questions to help the respondent to work through a business process. Another program, Kickfire, “is an online platform providing workflow, collaboration, and integration” (Duffy, 2001, p. 62). This program is designed to facilitate the work of teams. Managers in services for persons with dual diagnosis may be inspired by these technical innovations to consider ways that similar technology can be used to harvest information in human services.

Conclusion

It is important for managers of services for persons with dual diagnosis to be aware of the central role intellectual capital plays in the ultimate effectiveness of organizations. Careful selection of the right person for each job, creation of a culture that is open and supportive of innovation at all organizational levels, establishment of systems that invest in and support ongoing learning, all contribute to building the core resources needed by dual diagnosis services. While technology can be a great help, especially in building structural capital, it is supportive and open managers who must foster and champion the growth of their organization’s intellectual capital.

References

Byrne, J., Reinhardt, A., & Hof, R. D. (1999, Oct. 4). The search for the young and the gifted. Business Week, 108-112.

Coates, J. (2001, May/June). Knowledge management is a person-to-person enterprise. Research Technology Management, 9-13.

Duffy, J. (2001). Managing intellectual capital. Information Management Journal, 35, 59-63.

Dzinkowski, R. (2000). The measurement and management of intellectual capital: An introduction. Management Accounting, 78, 32-36.

Edvinsson, L. & Malone, M. S. (1997). Intellectual capital: Realizing your company’s true value by finding its hidden brainpower. New York: Harper Business.

Greenberg, J., Baron, R. A., Sales, C. A., & Owen, F. A. (2000). Behaviour in organizations (2nd Canadian ed.). Scarborough, ON: Prentice Hall Canada Inc.

Knight, D. J. (1999). Performance measures for increasing intellectual capital. Strategy & Leadership, 27, 22-27.

Owen, F., Sales, C., Griffiths, D., & Lindenbaum. L. (2000). Developing learning organizations: A key to building effective teams providing services to persons with dual diagnosis. Proceedings of the 17th Annual NADD Conference, 169-172.

Petty, R. & Guthrie, J. (1999). Managing intellectual capital: From theory to practice. Australian CPA, 69, 18-21.

Stevenson, J. M. (2000). A new epistemological context for education: Knowledge management in public schools. Journal of Instructional Psychology, 27, 198-201.

Stewart, T. A. (2001a). Intellectual capital: Ten years later, how far we’ve come. Fortune, 143, 192-193.

Stewart, T. A. (2001b). You think your company’s so smart? Prove it. Fortune, 143, 188.

Stewart, T. A. (1997). Intellectual capital: The wealth of organizations. New York: Doubleday/Currency.

For further information:

Frances Owen, Ph.D.
Department of Child and
Youth Studies, Brock University
500 Glenridge Avenue
St. Catherines, ON L2S3Al, Canada
e-mail: fowen@spartan.ac.brocku.ca