The Intellectual Capital Concept And Network-Based Innovation
The high demand for new ideas and new product concepts in the knowledge economy posed a major challenge to the organizational innovative ability—a challenge that can be tackled only by liberating innovation from being the function of one department (R&D or NPD) to an activity to which everyone in the organization contributes. Increasingly, IM progressed into managing an innovation portfolio across a set of dispersed internal and external networks. Internally, IM entails knowing the competencies and skills of employees across the whole organization (human capital) to form the right team according to the needs of the innovation project. It also involves knowing the skills of existing or potential partners (customer capital), to forge the alliances that facilitate the innovation process.
In addition to spreading inside, the innovative activity overflowed to encompass networks of suppliers, distributors, customers, and sometimes competitors. In addition to the move from the department-based (Model A in Exhibit 7.2) to network-based (Model B) innovation, the innovative activity spread out through the various levels of the organization as well. Hence, innovation did not only spread sideways and outside the organization but also downward to the frontline levels. With all this activity, organizations found they had to use cross-functional teams to manage what is otherwise a chaotic activity over widely dispersed networks. Cross-functional teams are formed by bringing people together from across the organization with multi-disciplinary skills, experience, and qualifications that best fit the needs of the innovation project at hand. Cross-functional teams serve the innovation process under the network-based model in two ways. First, by bringing people from all the concerned departments together (R&D, legal, marketing, manufacturing, etc.), time to market is reduced. Second, the cross-pollination of ideas and experiences of people from different business units, and sometimes from outside the organization, increases the market orientation of the product and hence increases market success rates.
Effective IM amidst the prolific innovative activity, and hence intellectual process, is impossible without ICM. The IC concept redefined IM in the knowledge economy by stressing the role of IC in the innovation process. To yield successful results, an IM model should enable the organization to tap into the employee brainpower (human capital) and that of external parties (customer capital), while at the same time effectively utilizing the business processes of the organization (structural capital). Under the Comprehensive Intellectual Capital Management (CICM) approach a number of changes on the strategic and operational levels are needed to make IM the job of everyone.
On the strategic level, it became much more important than ever to decide on innovation strategies to lead the pulsating innovative activity spreading in the whole organization. The role of top management in IM shifted, with idea generation being pushed down to the operational level and out to partners, to deciding on innovation strategies for competitive positioning. In addition, network-based innovation meant that top management needed to manage innovation projects as a portfolio over the dispersed networks and across the whole organization. The innovation portfolio serves two crucial IM needs. First, it enables the management of risks associated with innovation by diversifying the portfolio mix to include projects of varying levels of innovative-ness. Second, it facilitates cultivation of the ability to get to market fast by presenting a snapshot of all the innovation projects across the organization, enabling allocation and shifting of human and financial resources to meet strategic priorities.
On the operational level, network-based IM entails effecting a number of changes to the organization's structure, culture, processes and tools. Not only does structure have to be flexible enough to facilitate formation of cross-functional innovation teams from people within and outside the organization but it should also allow the formation of competence centers where competencies are grouped, developed, and later accessed. The structural changes should also address the R&D function, and how it will be organized to operationalize the innovation strategies. Certain changes must also take place to engrain innovation in the culture of the organization, and thus motivate employees to innovate and customers to contribute. A number of methods and tools devised for that purpose will be outlined. We will first examine the changes required at the strategic level.
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