Leif Edvinsson

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theknowledgeTo read more profiles visit the archive at www.kmmagazine.comLeif Edvinsson’s reputation in thefield of intellectual capital isunsurpassed. The first person in theworld to hold the title of director ofintellectual capital, Edvinsson iscredited with transforming howorganisations perceive and valuetheir intangible assets. He talks toSimon Lelic about his career andwhat he regards as a growing needto apply knowledge-managementprinciples on a societal level.Leif EdvinssonLeif Edvinsson is widely acknowledged to be the world’s leadingexpert on the theory of intellectual capital (IC). His involvement inthe field dates back to the 1980s, but it was after Edvinsson joinedSkandia in 1991 and became the first person to be appointeddirector of intellectual capital that he began the work that wouldcement his reputation. It was in this role that he began his searchfor a new sense of logic for the renewal and development of theStockholm-based firm, and his research in this area has sincefundamentally altered the way companies, and entire countries,measure and utilise the resources at their disposal.At the time, Edvinsson was aware that islands of interest inintellectual capital had emerged; in particular, as he says, TomStewart had begun writing about the value of knowledge in the UnitedStates, while Edvinsson’s Swedish compatriot, Karl-Erik Sveiby, hadalso started to research the importance of intangible assets in acorporate setting. Yet Edvinsson was the first person in the world tocombine intellectual-capital theory with a specific organisationalfunction, and he credits Skandia’s CEO at the time, Bjorn Wolrath, forhis foresight and belief in what Edvinsson was trying to achieve.It was while working alongside Wolrath and deputy CEO Jan Carendithat Edvinsson took part in the two projects in his career of which he ismost proud. The first was his success in defining a new paradigm for themeasurement of intellectual capital. The methodology Edvinsson put inplace in Skandia to refine how the firm accounted for its hidden assetshas been replicated and adapted all over the world, by corporations andnations alike. The Danish government, for instance, published thesecond version of its IC accounting guidelines in December last year,while the Association of Financial Analysts in Norway released a similardocument the month previous to that. Both initiatives were based on thework Edvinsson began at Skandia more than a decade ago.The second, says Edvinsson, was the creation of the SkandiaFuture Centre, a type of laboratory for research into the future oforganisational development. The centre attracted some 20,000visitors during the two years after it opened in 1996 and, again, representeda unique model that others have since looked to copy. Forexample, the Ministry of Finance in Denmark has developed a similarlaboratory, called Mindlab, as has Eon/Sydkraft, a major Europeanenergy company. “In that sense, we became a prototype for the rest ofthe world, as we had been for accounting,” Edvinsson says.After a happy and hugely productive association with the firm,Edvinsson left Skandia in 1999. The same year he founded UniversalNetworking Intellectual Capital, a networking organisation devotedto the application of IC-based tools and methods. 1 Currently,Edvinsson also holds two prestigious academic positions related toIC: a professorship at the University of Lund and, from the beginningof this year, at the Royal Institute of Technology in Stockholm. Assuch, his work in the area of organisational development andintellectual-capital theory continues unabated.Most recently, Edvinsson has concentrated on a number ofinterrelated topic areas. One side of his research has focused onmeasurement/accounting indicators and how to visualise the relationshipbetween human capital and structural capital. This led to thecreation of the IC Multiplier 2 methodology, which explains how anorganisation, through what Edvinsson refers to as the “springboard”or “multiplier” effect, is able to realise the full value of the talent andindividual skills it has at its disposal. “Depending on which organisationan individual is connected to, that person will have a differentvalue-creating impact,” Edvinsson says. “That is what the IC Multiplieris all about: how good talent combines with structural capital.”Closely related to this is Edvinsson’s research into the concept ofwhat he has called ‘knowledge care’. As he explains, “Knowledge caredeals with such issues as, how do we, the employer, prevent you asan employee from burning out? How do we provide you with the rightcontext in order for you to benefit from the springboard effect? How dowe create an organisational architecture that is appealing to your mind(also called ‘mind satisfaction’), and how do we cultivate and nourishyour brain so that you can reach a higher level of intelligence?”As Edvinsson says, a major component of this is the impact of theworking environment on an employee’s productivity and capacity toinnovate. It is a subject he first began to consider while working at the8March 2003
““Edvinsson points to the huge costs absenteeism is inflicting on businesses,and to the failure of firms to recognise this phenomenon as a threat.Skandia Future Centre, where his team designed and tested differenttypes of workspace for the company’s diverse operational sectors. Andwhile Edvinsson believes a certain amount of worthwhile research iscurrently being done in this area, he has yet to see it have any directimpact either in a corporate setting or, for instance, in city planning.Indeed, the whole concept of knowledge care is one Edvinsson feelsdeserves a great deal more attention. “Roughly 20 per cent of a worker’shealth is related to the surrounding environment,” he claims. 3 “Todaywe are seeing a growing importance in the health of the knowledgeworker. It’s roughly the same situation we were in 100 years ago whenwe were approaching the industrial society – now, as we leave theindustrial society, we have the same types of illnesses affecting people,just manifested in a different way, specifically stress and burn outs.”By way of example, he points to the massive costs absenteeismis inflicting on businesses right across Europe, and to the failure offirms to recognise this phenomenon as a threat, despite its effect onprofits. And on a societal level, companies are facing a wave ofimpending retirements, as Dorothy Leonard pointed out in lastmonth’s Knowledge Management. But so far, says Edvinsson,businesses are not ready to cope with the shortfall in talent theywill find themselves facing within a matter of years.The answer to both these issues, Edvinsson continues, liesin our ability to innovate on the borderline that joins the businesscommunity with its surrounding society. This could involve, forinstance, a re-assessment of how the typical working day andemployment contract is structured to accommodate more part-timeworkers (in particular those over 55 or at the start of their careers).The big question, says Edvinsson, is not how businesses retainworkers, but rather how they attract them, and finding a suitableanswer to this problem could involve a fundamental re-evaluationof how the modern corporation is organised.In fact, while Edvinsson’s work is currently focused on theseparticular topics, they actually form a subset of what he feels will, orat least should, become a dominant concern for both knowledgemanagementpractitioners and society as a whole. He believesthat, for all the progress that has been made since knowledgemanagement first emerged as an organisational discipline, there isstill a tremendous ignorance of how value is created and how weleverage value on a societal level. “For example,” he says, “valuecreation in Europe is probably less than 50 per cent of what it couldbe, which means we are suffering the growing pressures of highertaxes and higher work burdens than we would if we were able to takeproper advantage of the multiplier effect.”Knowledge management, he adds, was originally focused at anenterprise level, but it is gradually moving outside of private businessnetworks and into society, manifesting itself in the provision ofhealthcare, schooling and so on. “The next level involves practitionersthinking about the IC of entire nations,” says Edvinsson. “If you startto combine a deeper insight of KM as being outside the firm, beingin-between people, being tacit, being culturally driven, you will seesome interesting challenges emerging for Europe and the US,particularly from Asia. The IC of nations is going to be the newpolitical agenda, not just the industrial one.”He points, for instance, to Singapore as a country that hasembraced this agenda perhaps more quickly than any other. It is anation with very few people and limited natural resources, yet one thathas been hugely successful in harnessing the assets it has at itsdisposal. Edvinsson believes there is a greater understanding of thisconcept elsewhere in Asia, too, and points to China – a primeexample of a country that has so far failed to fulfil its potential – as aneconomic superpower in waiting. In the west, on the other hand, R&Dbudgets are falling and education levels are suffering; only very fewcountries seemed to have grasped this emerging economic imperative.If Edvinsson is right, this situation should change, at least ifindividual nations are keen to protect and develop their competitiveadvantage. A shift in focus for the knowledge agenda may alsoherald a shift in the associated terminology. But as Edvinssonsays, regardless of what knowledge management is called – be it‘knowledge care’, ‘knowledge cultivation’ or even ‘knowledgenavigation’ – the important point is that practitioners start to lookbeyond existing tools and methodologies and focus on how toleverage the value and knowledge of society as a whole. KMhas already come a long way, but the journey, it seems, is onlyjust beginning. !References1. For more information, visit www.unic.net2. For more information, visit www.intellectualcapital.se orwww.corporatelongitude.com3. See, for example, www.designandhealth.comMarch 2003 9
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Leif Edvinsson

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