In the knowhow company the key resource is not the financial capital or the production process but the human being. In this respect the knowhow company is quite different from the traditional manufacturing company. The difference
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can be described in terms of a distinctive knowhow company language. The left- hand column represents the vocabulary of the knowhow company and the right- hand column the vocabulary of the industrial company:
Knowhow company Industrial company
Information Revenues, flow of goods
Human being Machine
Knowhow Capital, fixed assets
Education Maintenance
Recruitment Investment
Departure Disinvestment
Data production Production
Time Raw material
N.B. These are extreme categories. For most companies and in most cases the words will have intermediate meanings.
INFORMATION - REVENUES, FLOW OF GOODS The output of the knowhow company is knowhow-enriched information rather than tangible goods.
It sometimes takes the form of words on paper but usually the main manifestation of knowhow output is an improvement in the performance of the knowhow company's customer or client.
HUMAN BEING - THE KNOWHOW MACHINE The human being is the 'machine' of the knowhow company. The greater the number of able people there are in an organisation the greater its productive capacity.
The human being is the only productive resource in such companies. The journalist, the research engineer, the programmer, the consultant and the physician, the knowhow professionals, all work by exploiting their knowhow. If the doctors fall ill there are no robots to replace them. It is impossible to automate their work. And in addition to being the machines of their companies these people are also the machine managers. We shall return to the theme of self-management later. For the present it is sufficient to note that it is characteristic of the knowhow company and one of the most important keys to understanding the new management problems such companies present.
KNOWHOW - CAPITAL, FIXED ASSETS Knowhow, or, more correctly, knowledgeable human beings, constitute the most important and sometimes the only capital of the knowhow company. Financial capital is seldom a significant contributor to profitability. To be sure there are knowhow companies which use financial capital such as brokers, finance companies and fund managers but even in these organisations it is the knowhow of the human beings which determines the profitability of the financial capital. (For a detailed discussion of the capital- intensive knowhow company, see Chapter Eleven, pages 139 - 61).
Many knowhow companies have strong financial balance-sheets but the equity represented by such strength is usually a result of high profits rather than
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MANGING KNOWHOWa requirement of the business. The surplus cash is seldom used in the operation.
A company's knowhow capital grows as a matter of course each year as its employees become more experienced. The rate of growth can be increased by educational programmes and other measures designed to encourage persona]
development. On the debit side of this invisible balance-sheet, knowhow capital is lost when experienced people leave the company or when they under-perform because of poor leadership or an otherwise uncongenial environment.
EDUCATION - MAINTENANCE Education is one way of improving and main- taining a knowhow company's 'machines' in good working order. Each employee needs a certain amount of education just to keep up with developments in
his or her field. The knowhow company must spend money on educating its employees. It is as essential to the preservation of knowhow capital as a maintenance budget is essential to the preservation of the value of plant and equipment. Successful knowhow companies put far more resources than mere maintenance requires into education. They may even have their own schools, run their own courses and set up their own training programmes. They use education as a management tool. For them it is more than just a maintenance cost - it is a positive investment in knowhow capital.
RECRUITMENT - INVESTMENT Recruitment decisions are among the most important a knowhow company makes. Ensuring the applicant's professional qualifications are up to scratch is just the beginning. Personal 'chemistry' is equ- ally important if not more so. The traditional company takes great pains when investing in new machinery to ensure the equipment's specifications are adequate and that it can do the job required of it. Knowhow companies can afford to be no less thorough when adding to their own inventory of 'machinery'.
And of course recruitment is also a crucial management tool, particularly at times of strategic change when the next recruit must contribute to and, in a sense, exemplify the new direction. We shall return to the 'recruitment idea' later.
DEPARTURE - DISINVESTMENT The threatened or actual departure of a good employee is the worst problem the leader of a knowhow company can face. It is a predicament comparable to that of a dairy manager watching a cow 'disin- vesting' a new milking machine under her hooves.
INFORMATION - PRODUCTION The only product of the knowhow company is the processing and distribution of information.
TIME - RAW MATERIAL Time is the knowhow company's most precious raw material whether it be its own time or bought time. Depending on the situation time can be either a cost or a.n investment. Time put into a properly organised R&D programme is an investment. This is very obvious in R&D-intensive in- dustries. Computer programmers and development engineers often describe
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the competitive position of their company in terms of their lead. 'We are at least two years ahead' means the competition needs at least two years of R&D to reach the same level of knowhow. Time is thus a competitive weapon. The pioneers of a new market or niche always have a competitive advantage by vir- tue of being first. The earlier into the field the more knowhow can be accumula- ted before the competitors catch up. A large competitor can sometimes put more man years into R&D and thereby overhaul an early entrant. That is why managers in these industries judge their competitors not by the volume of their output but by the size of their R&D departments.