The two Waves of knowledge management
Knowledge across boundaries
Conclusion and Discussion
Systematic Intellectual Capital management applied to the case of Gore Tex
This synopsis aims at applying a number of Intellectual Capital (IC) theories and respective models to the company Gore Tex. Gore Tex, as discussed in the INSEAD case study by Franco et al. (2003), is a company that was founded in 1969 by Bob Gore after the discovery of the isolating properties of expanded polytetrafluoroethylene (ePTFE) materials. This micro porous polymeric film is bonded to a wide range of shell fabric in the textile, cable isolating and medical industry. Liquid water cannot penetrate these pores, but moisture from perspiration can escape.
First, the synopsis draws on the paper by Marr (2008) on managing IC to identify key intellectual resources following the five-step management approach. The competitive advantage that can be generated through the use of social capital as stated in the paper by Rumelt (2011) continues the analysis of theoretical concepts and models applied to the Gore Tex case. The key concepts of the Rumelt (2011) paper are further investigated by applying it to the VRIO model by Barney (1995) and the discussion of it by Probst et al. (1998). Furthermore this synopsis uses the SECI model as originally introduced by Nonaka (1991), which is taken up, by Mouritsen and Larsen (2005) in their paper on the two waves of knowledge management. One example from the Gore Tex case was then implemented in the Kaplan and Norton (1996) Strategy Maps framework to illustrate its practical implications. The learning ladder model by Ciborra and Andreu (2002) completes the analysis of this particular case and synopsis. At the very end this paper concludes with a discussion of limitations and practical implications of applying the previously analyzed theories
All these models, frameworks and theories emphasize their practical relevance respectively and support the notion of a systematic approach towards the management of IC.
IC as defined by Marr (2008) includes „all non-tangible resources that (a) are attributed to an organization and (b) contribute to the delivery of the organizations value proposition“ (Marr, 2008). Concentrating on IC and leaving aside physical and financial capital, three primary categories of IC can be used to cluster IC in three abstract baskets to substitute complex processes and phenomena. These categories being: Human Capital, Relational Capital and Structural Capital. Other authors use slightly different category clusters but the general notion remains comparable.
The subsequent section describes the three identified baskets of IC as defined by Marr (2008). Also it exemplifies practical implications using the case of Gore Tex by Franco et al. (2003):
- Human Capital denotes to IC that is ingrained in the human mind such as skills, competencies, routines and experience. In the case of Gore Tex, an entrepreneurial spirit is supported by the formation of small teams that are given a high degree of independence and autonomy. This leads to employee satisfaction and loyalty. Moreover, employees are energized into creativity in order to maintain an edge over competition.
- Relational Capital describes assets that arise from human interaction. Gore Tex fosters close relationships with key customers such as Patagonia and Norrøna, which builds loyal network of key B to B customers. Co-branding and joint advertising of the Gore Tex brand, similar to Intel processor chips in the PC industry, enhances brand value and recognition it also creates win-win situations to Gore Tex and key partners.
- Structural Capital
- Organizational Culture is the context a company provides and within which interactions are embedded. Gore Tex won the Fortune’s Award “100 Best Companies to work for”, for maximizing individual potential and a unique culture that enables small teams with no superiors but sponsors. The overall motto “make money and have fun” further supports this culture.
- Processes and routines are approaches developed by the workforce within the cultural context set to meet the business objectives. Gore Tex focuses on core competencies such as product development and R&D while following a rigorous exit strategy in all other segments and markets.
- Intellectual property denotes to IC that can be protected legally. Gore Tex’s key intellectual property is the brand name, followed by its B-to-B customer relations network as well as an extensive amount of patents, (650 in the US alone) for superior product features in clothing, medicine and cable isolation.
Subsequently, to identifying the key intellectual resources five steps are proposed by Marr (2008) that are exemplified in the following section:
1st step: Identify your IC
IC can be elicited through ordinary interviews, surveys, workshops and discussions that facilitate an open brainstorming environment. Since strategy and IC interact dynamically main IC value drivers can be defined according to their importance and relevance in achieving the organization’s strategic objective. The identification of IC at Gore Tex is primarily done by following the logic of the previous section.
2nd step mapping the IC Value drivers
Mapping the stakeholder value proposition, enabling strategic elements, all resources, and core activities such as R&D or the unique process of applying ePTFE and their contribution to the value proposition builds and extensive and illustrative understanding of the working of internal IC.
illustration not visible in this excerpt
3rd step measuring IC
In the third step IC value drivers of strategic importance are selected and connected to data and KPIs in order to track them and observe changes over time. Therefore, the meaningfulness of data and the effort to obtain it has to be assessed carefully.
In the case of Gore Tex one strategically important value driver would be customer loyalty; and whether customers such as Patagonia and Norrøna add competitors’ products, such as NeoShell or OmniDry to their product portfolio. Relative purchasing frequency and absolute volumes of orders are indicators for customer loyalty.
Patents are one of the highest valued intangible assets when it comes to Gore Tex. To yield relevant insights, Gore Tex would need to address issues such as the ease of patent circumvention. Measruing the extent to which customers are willing to pay a premium for Gore Tex products over competing goods indicates the monetary value of its competitive advantage. Lastly, it has to be identified whether newly invented technologies provide complementary assets to existing products or processes.
4th Managing IC
The measurement is necessary for management in order to make the right choices with regards to their decision making. Gore Tex enables their managers by providing a toolbox for transparent and structured decision making and risk management.
IC has to be reported in order to provide a holistic insight to internal and external stakeholders. This enables a better information flow and shows the company in a more accurate picture as through its focus on intangibles it provides a better understanding of the long term value while tangible assets tend to provide a short-term bias. As Gore Tex is a privately held company, it is hard to find evidence to what extent the IC reporting is conducted but certainly there is a strong awareness of it as it is the key value driver of Gore Tex that has no production of its own.
In order to best utilize competitive advantages, it is required to increase the focus on core activities, while retaining from areas which do not fit to the corporate strategy of the company. Gore Tex excellently uses this approach by developing patents and processes that are highly complementary to the established ones. On the other hand, they exit non-core activities such as the circuit packing in 2000 and the fiber optic operations in 2002.
Since “competitive advantage is rooted in difference”, as stated by Rumelt (2011), companies need to carefully assess where their competitive edges lie and how to sustainably guard them. The example of Gore Tex is described in the following table.
illustration not visible in this excerpt
This model neatly fits into the context of the VRIO model developed by Barney (1995) and further utilized by Probst et al. (1998). It assesses whether a key resource is valuable in the sense that it adds substantial value to the customer; rare in that competitor products do not posses the same value; hard to imitate through the legal protection of it; fully utilized in the organization which means that it is accompanied by complementary processes, products and services.