What is the opportunity for software vendors in the intellectual capital management (ICM) application market?
The ICM application market is rapidly growing as knowledge-driven enterprises seek to leverage expertise for the purpose of increasing corporate value. If software providers are to offer products with the capability to minimize the impact of time and resource constraints on knowledge worker-dependent businesses, they will need to incorporate ICM functionality into their applications.
ICM applications enable users to transfer know-how into corporate policy and procedure, and therefore leverage expertise by making this know-how available in support of business practices when it is needed. Understanding where expertise resides is only the first step towards managing a firms intellectual capital. Skills and competency management software vendors offer the capability for an enterprise to understand the contribution of its resources to the value of the organization. ICM application vendors, on the other hand, offer the capability to actually coach knowledge workers through decision processes, and capture their contributions.
Knowledge management defined
Knowledge management is a formal "process" that evaluates a company's people, organizational processes and technology, and develops a solution to capture knowledge and deliver information to the right people at the right time.
Knowledge management solutions consist of software and services in support of that process. The software can be classified into knowledge management infrastructure and knowledge management access
Knowledge management infrastructure is the base or platform upon which knowledge management solutions are built. It consists of the population and management of the repositories for unstructured data (document and content management) and structured data (data warehousing generation and management). Also part of the infrastructure is groupware to provide the support for collaboration (needed for knowledge sharing) and messaging (including e-mail and other forms of interpersonal communication). The portion of total software investments in those categories associated with a KM solution comprises knowledge management infrastructure.
Knowledge management access software builds on the KM infrastructure to provide individual and group access to a knowledgebase. It consists of information portals with advanced searching (providing access to both structured and unstructured data, augmented by KM tools), and intellectual capital management (reusable business process capture and sharing).
The market for knowledge management software is forecasted to grow from $1.4 billion in 1999 to $4.2 billion in 2004 at a compound annual rate of 24.2%. Knowledge management access software, including intellectual capital management, is forecasted to grow from $.5 billion in 1999 to $3.4 billion in 2004 at a compound annual rate of 46.4%. IDC (idc.com) demand side research in Table 1 suggests that the professional services industry has a higher adoption rate for knowledge management software than other industries and that large employer sites will consume more than smaller sites. IDC examined how the professional services industry would adopt knowledge management software as an indicator of ICM demand, because the professional services industry has one of the highest concentrations of knowledge workers and is an industry whose capacity is constrained in large part by time and human resources.
It is these constraints that ICM applications seek to address. Large companies must leverage expertise to maintain consistency and quality of practices, and rapidly incorporate innovative or best practices within their business model if they are to increase corporate value.
Knowledge management in and of itself fails to deliver on its grandiose promises. When knowledge is used to directly support a business process, it succeeds. In the professional services application (PSA) market, for example, intellectual capital management capabilities are increasingly incorporated as standard functionality.
PSAs must be able to enable organizations to provide decision support to their knowledge workers. As projects are successfully completed, best-practice templates need to be created and stored. Media in support of projects should be stored and accessed as needed. Making process guides and supporting content available in the context of projects improves time-to-deliver and consistency of deliverables among users of PSA software. The value in capturing project-related knowledge is realized as knowledge workers participate in ongoing business activities.
Intellectual capital management captures human capital (know-how) and makes it available as structural capital (business process). Simply taking inventory of resource skill sets and competencies, a feature in professional services applications, gives the organization an idea of what its employees are capable of contributing to the organization. ICM coaches and then captures employee contributions and makes successful practices available across the enterprise. Experts or groups with consistent or market-leading methodologies can pass their know-how on to the professional services organization, fusing the business with best practices.
Expanding corporate value
As professional services organizations use PSAs to proactively manage their intellectual capital, total corporate value will increase. By capturing human capital and making it a component of the structural capital and relationship capital of a firm, the organization’s value expands (see Figure 1 Source IDC 2000).
Structural capital refers to the repeatable business processes of an enterprise. If those processes are improved and adopted by employees, the value of the corporation’s business structure increases and contributes to the total value of the organization. Capturing human capital is challenging but can be done. The know-how of an individual or group has value that is constrained by the amount of time in the work day. When that human capital is captured and incorporated into the structural capital of an enterprise, the constraint is greatly removed. Other resources can begin to perform in a consistent manner with the organization’s best practices.
Know-how of project processes is captured with intellectual capital management functionality and incorporated in the structural capital of an organization. This increases the consistency, and quality of deliverables increases. With reuse of deliverable content, project plans and proposals, the relationship capital of a firm expands, contributing to total corporate value. The value of a corporation’s relationship with employees, partners, suppliers and customers improve as content and process know-how is transferred from people to the organization.
Intellectual capital management functionality will increasingly be demanded by professional service organizations seeking to scale their businesses. This software can impact the organization in several positive ways by:
- transforming the contributions by human resources into repeatable processes,;
- transforming the contributions by human resources into reusable content,;
- reducing the impact of time and resource constraints on professional services organizations,;
- improving consistency and quality of deliverables,;
- speeding time to market of business practices,;
- enabling resources across the organization to leverage expertise, and;
- facilitating decision making.
PSA software is a good example of an application suite that incorporates intellectual capital management. However, the concept can be applied to any group of knowledge workers in any industry. Examples of standalone ICM application vendors include Cerebyte, Advantiv and GroupSystems.
Standalone ICM applications are used to support user-defined enhancements to nearly any business process from procurement to sales and operations to new product development. Those applications capture the process that knowledge workers use to obtain a desired result. That know-how may not even be available until users work through the problem or project. As knowledge workers use an ICM to support a project, their contributions are captured and made available to others as a process guide.
Knowledge used to directly support and improve the business practice of the professional service organization is gaining in demand. ICM functionality meets the requirements of those organizations to better leverage expertise, reduce the impact of time and resource constraints on their business models, and ultimately increase the value of their corporation. While the professional services industry may be early adopters of this functionality, IDC believes that other industries with business functions dependent on the collaborative contributions of knowledge workers will increasingly adopt ICM applications. Vendors such as Advantiv, Cerebyte, and GroupSystems.com currently provide standalone ICM applications to a broad range of industries. While the market is still in its initial stages of adoption, ICM functionality will increasingly be offered within a variety of business applications, and standalone ICM applications will be deployed to support corporate goals across industries.
Brian McDonough is the Research Manager, Knowledge Management and Intranet Strategies