I’ve just been reading Intangible Capital, by our own Mary Adams and Michael Oleksak. Yes, it’s out and available! In this book they formulate an interesting thought framework that they call the knowledge factory (KF). They visualize the components of this factory as color-coded Lego pieces that represent structural capital, human capital, relational capital, and the business recipe. This makes a nice mnemonic device to think about how combinations of these elements make up Google’s KF vs. the KF of a medical device company, in their example.

I would like to offer a complementary visualization of the KF. The image I have in mind is the shop floor in a manufacturing firm. The manufacturing factory starts with some raw materials or assemblies, and then runs through various processing steps, operating on work in progress to create finished goods inventory. Processors, composed of various automated and non-automated equipment and tools, perform these steps.

The Theory of Constraints (TOC) provides a good way of analyzing manufacturing operations. As developed by Eli Goldratt, TOC focuses on identifying the one bottleneck in a plant (or firm) that “constrains” the flow of revenue-producing throughput. Goldratt originally developed this theory for the manufacturing industry, and it has since been applied very widely in a variety of situations.

Each of the aspects that the TOC addresses has its counterpart in the knowledge factory. As Mary and Michael suggest, knowledge-based intangibles are the raw materials of the KF. This includes tacit and structuralized IC, and it also includes well-articulated problems, which are the feed that drives the factory. Finished goods inventory of the KF (its intended results) comprise the capabilities required to perform intelligent and well-informed activities that produce the firm’s products and services, maintain relationships with customers and partners, etc. Work in progress of the KF are half-solved problems, improvement projects underway, inventions that have yet to become market-ready innovations, etc.

In the knowledge factory there are tools, such as databases, search engines, and simulators, but the real processors are human minds. In the manufacturing world automated processors are programmed and adjusted based on what’s being produced. The humans of the KF might object to an implication that they are programmed, but there is no escaping the fact that the KF requires dependable problem solving, which involves a balance between talent and protocols.

Just to complete this cursory analogy between the KF and TOC factories, there is the issue of the KF constraint. TOC practitioners know that the one bottleneck at any given time could be any processor or process step, or it could be market demand when the factory too easily processes its orders with spare capacity. In the KF a few examples of possible constraints include cognitive functions such as sensing, sense-making, logical inferencing, domain knowledge, specific experience, the ability to articulate a valuable problem to solve, etc. The lack of capacity of any one of these can be the constraint at any point in time.

As in manufacturing, the constraint shifts from one place to another, as bottlenecks are remedied and as conditions change. So this kind of analysis of the knowledge factory provides a continuous feedback loop that applies a virtuous circle of improvements to the KF and to business performance.

Many thanks to Mary and Michael for their good work, which inspired this thought.

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Comment by Mary Adams on June 7, 2010 at 8:26am
Doug and Galen- Thanks to both of you.

About VNA: yes, we have a great case that I am currently writing up that shows how we used traditional IC perspectives to help a company get an understanding of the strategic alternatives for an organization's growth--then used VNA to talk about specifics of how the IC works. IC as a stock. VNA as a flow.
Comment by Doug McDavid on June 4, 2010 at 7:24pm
@Galen -- Great to find a person who can help make these connections. I have a few more things to say about this, but thought I'd lay the groundwork. I think this perspective (IC in general) is the trend for business in the 21st Century, and those (individuals, companies, even countries) who think it is merely a fad will fall behind competitively.
Comment by Galen McPherson on June 4, 2010 at 10:40am
Doug- I appreciate your "connecting" of TOC and KF. I am an avid believer in both concepts, and it is very gratifying to see all the connections that many others are articulating in this emerging field. I believe that the more we can explicitly describe relationships of KF to better known [and more readily accepted] manufacturing practices, the sooner we will achieve more widespread recognition of our own "Holy Grail" quest, the recognition and acceptance of intangibles management and intellectual capital as legitimate management practices and not the faddish alchemy of a select few on the edge.

Mary- congrats on the publication of the book; I know it has been a labor of love for a long period, and I sensed both the pride and relief in your voice when you told me it was out.
Comment by Doug McDavid on June 1, 2010 at 1:14pm
Thanks, Mary. I did notice in the book that you use Verna Allee's method of Value Networks. I greatly appreciate her work, because she's one of the few that see organizations as living systems (autopoietic), with all that implies.
Comment by Mary Adams on June 1, 2010 at 10:55am
Thank you Doug - I'm glad the knowledge factory (KF) image is helpful! I absolutely agree that we should think of the KF as a candidate for continuous learning and improvement. Knowledge is not some abstract concept--it is the bread and butter of corporate operations in every company today.

In our work with companies, we find that after they understand the high-level view of their intangible capital as represented by the knowledge factory, they are ready to dig deeper. Then we take the knowledge era equivalent of process analysis by mapping the work of the organization using the Value Networks approach. One client calls this "optimizing" their IC.

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