In response to recent forum posts I have delved into the realm of risk management to explore potential diagnostic and treatment tools that would drive the adoption of IC decision making in mainstream business. Coincidentally, as the following story unfolds to describe how an understanding of IC has assisted me to both recognise and prepare for the potential high costs of system wide led organisational reform, I find it hard to ignore the potential of risk management in promoting a greater appreciation of IC for business survival and success.
I have been involved in the management and leadership of a not for profit, primary health care organisation that forms part of a National network that receives the majority of their funding from Federal Government – over the years I have heard the all too familiar catch cry from Government representatives at National forums ‘that they do not know or cannot see what they are getting back from the sector as a return on investment’ – while this call challenges the sector to do more to demonstrate ROI it also provides an insight into a sense of genuine frustration shown by our funders (purchasers) that they simply do not know what they are paying for – the intangible capital that drives and accounts for most of their investment.
While the onus has been placed upon our particular health sector to prove its worth, it appears that a relative paucity of value and performance measures set by the funders may have contributed to this limited ability to ‘visualise’ or measure the actual IC contribution the network has provided and retained over the years. It appears that a lack of clarity of what the purchaser actually wants for their investment (their key interests) and how this translates into measurable IC is reflected in the assigned performance measures.
Our particular health sector is now immersed into a national health reform process where a high degree of uncertainty on future form and function has arisen from shortfalls in communication, coordination and preparation processes that appear to overlook the nature and value of Intangible Capital – accordingly Human and Relationship Capital may be amongst the first casualties of the transition process.
Coincidentally, it is the objective of the reform process to facilitate a more integrative primary care sector - an approach that I consider to be heavily reliant upon the development and preservation of Intangible Capital. To me, the challenges and responses associated with this reform process are not too dissimilar to the obstacles and requirements facing most organisational change processes, including mergers and acquisitions where a lack of appropriate due diligence (risk management) and preparation undermines success.
I believe that awareness and understanding of IC has strengthened my negotiation, strategic planning, and risk management approaches as I position my organisation to better manage the transition as part of the current reform process. Accordingly, I have given thought to the following issues that may ensure our management of early reform will result in gains and not losses to the local health system:
· Unrealistic or uncoordinated timelines: Pressing timelines (and lack of alignment in the shift from ‘old’ to ‘new’) that have been set by the reform architects indicate that they may not have accounted for nor have sufficient understanding of the IC our network members have developed. IC awareness and knowledge is essential to protect against loss of value and the subsequent slowing and underperformance (particularly in the early stages) of the reform process. The communication and timing of this process appears to be deficient of appropriate due diligence measures (risk management) to identify existing organisational value along with strategies to militate against losses – does this scenario appear all too familiar to the merger and acquisition field? The lesson here appears to be that organisational change/reform timelines need to build in a sufficient timeframe for preparatory (including due diligence) work that enables the identification and transfer of IC.
· The need to strike a balance between what we are seeking to achieve and preserving what we already have: this appears to be a recurring theme in the field of negotiation where parties seem to be so focussed upon what they are seeking to gain that they tend to lose sight of what they may lose in reaching an agreement. It is also appears to be a consistent message arising from the very high rate of failure (over 70%) of strategic alliances and mergers that take place worldwide. The exuberance of early adopters toward being part of (occupying territory within) the new health reform process may overshadow the importance of preserving existing territory (what is already there). While many of the current organisations have developed a range of diverse and innovative activities heavily laden with IC, we find that awareness and accounting for this (intangible) capital remains relatively unknown outside of the organisation – the challenge here is to develop strategies that will enable the clear identification and transfer of this capital across to any new organisation (again preparation).
· Structural Capital and Knowledge Management: with the proposed consolidation of existing organisations and network structures into larger integrative organisations, it is important to ensure sufficient structural capital has been established or will be developed to capture the tacit knowledge existing within the founding organisations Human and Relationship capital. In the absence of this consideration, it is highly likely that considerable leakage of knowledge and organisational value will occur during the transition to new organisational. Inconsistent development of structural capital across the present health network places at risk current knowledge and relationship capital – accordingly, further development and alignment of structural capital across the ‘merging’ organisations will be necessary to preserve and build upon current knowledge and IC.
· Human Capital: The value that the organisation’s human capital (HC), and those key people within HC who contribute the most value to the organisation remains relatively unknown outside of the organisation – it is imperative to visually map HC and those who contribute most to the development and flow of ‘value’ in the organisations as part of the HC retention and development strategy for the new organisation. Organisational network analysis and perhaps Value Network Analysis may assist in this endeavour (this also highlights the need for further development of ONA). Additionally, strategies to capture the knowledge and other IC strengths (i.e. relationship capital) the key members have appears essential to preserve and build upon the current IC base.
· Succession Planning: Aligning current organisations key HC network structures to any new organisational form will be essential if we are to minimise the disruptive impact upon HC that could lead to loss in (IC) value when key personnel leave during the transition phase. Unfortunately, poor change management processes (lack of communication and preparation) contribute to uncertainty over future employment, resulting in increasing staff retention and succession planning challenges. For this reason, it appears essential that an appropriate Risk Management processes be adopted, including succession planning strategies that address IC risks – driving IC succession planning, investment and development.
· Relationship Capital: Again, many of the existing primary health care ‘network’ organisations have developed considerable relationship capital over the past 16 years, including strong branding (regional profile), customer loyalty, collaborative/partner networks, etc. This is one aspect of IC that the organisation’s primary funder places a premium value upon yet appears to have either under estimated or is largely unaware of in preparing for change. For many existing organisations, the development of relationship capital has been their strength (and large part of overall organisational capital value), particularly those heritage relationships that take time to develop. Relationship capital cannot be simply ‘purchased’ – it requires considerable analysis and mapping (i.e. network analysis, interviews etc) as part of due diligence/pre merger preparation (identification), as well as significant post merger integration work -negotiation and collaboration work/development, brand development etc (preserve and build).
· Investment: Decisions in relation to investments in IC preservation and future development appear to be absent in this reform process. Identification of IC strengths will guide investments to capitalise upon these strengths. At the same time, IC weaknesses documented in the risk management plan will assist with investment decisions to mitigate potential losses, while developing strategies to build IC value.
It appears to me that should the above mentioned IC considerations not be taken into account or implemented as part of the current health reform process we may well find a clear answer to the often repeated question ‘What have we got in return for our investment?’ Unfortunately, the answer may arrive far too late, as it appears that the ‘networks’ IC value would only then become apparent in absentia.
So for me, the key theme emerging from this story is the importance that Risk Management has in promoting a more systemic approach to identifying, preserving and building IC within existing and ‘reforming’ organisations.