In my workshop at the XPX Summit 2013, I’ll be leading some exercises to teach exit planners how to help their client create realizable value from their intangibles. Today 80% of the value of the average business is intangible so we’re not talking about a trivial thing. In fact, making intangibles visible and understandable is onebest ways to increase the exit value of a company. Here are some thoughts on one of the key components of intangible capital: structural knowledge. 

If you understand human and relationship capital, you can start of the  a business. If your business creates value for your customers, you can earn a good living. But you will never grow large or particularly rich with just these two kinds of knowledge assets. This is because the real promise of the knowledge economy comes in the creation of structural capital, that is, knowledge that gets captured and institutionalized in an organization. 

When people say that “all our assets walk out the door at night” they are showing their ignorance of structural capital. A really successful business has standardized processes and shared knowledge that stay in the company when people go home at night. Finding ways to capture, replicate and re-use shared knowledge is the Holy Grail of businesses today. 

There are three basic forms of structural capital: 

Processes – This is the collection of knowledge of how to do what you do every day. It may be highly documented and highly automated or just a good set of shared habits about how to get things done in the most efficient way. Clear processes provide a baseline for everyone. The easy stuff is routine—freeing everyone’s time and mindshare to solve the unique problems on the margin.

Organizational knowledge – This includes everything from product designs to process maps, training manuals, formulas, data, documents, email, knowledge management systems and data of all kinds. This kind of knowledge is key to the operations of many companies—and a source of incredible innovation opportunities. 

Intellectual Property - Intellectual property (IP) is a term that is usually used to refer to specific types of structural knowledge that enjoy special legal status. These include patents, trademarks, copyrights, and trade secrets. Each of these categories has a specific body of law associated with it. Patents have to be approved by a national authority. Other categories do not require registration but are still protected under the law. 

Please know that there is a lot of overlap between these forms. Organizational knowledge, for example, can be converted to process and may even be protected as IP. We make the distinction mainly to be able to talk about specific characteristics of the individual forms even though all structural capital is, at its roots, captured knowledge of one form or another. 

The trick to making these real (and more valuable) is to be able to show a high level inventory of what the company owns. It’s one of the things we are going to do in the Make It Real session at the 2013 XPX Summit. Hope you can join us!

About the Author: Mary Adams is the founder of Smarter-Companies, a marketplace of learning and consulting tools to optimize returns on the intangible capital that makes up 80% of corporate value in companies today. She is the co-author of Intangible Capital: Putting Knowledge to Work in the 21st Century Organization. Previously she spent 14 years as the founder of Trek Consulting and 14 years as a high-risk lender at Citicorp and Sanwa Business Credit. 

This post is part of a series of posts that the upcoming speakers of the 2013 XPX (Exit Planning Exchange) Summit are contributing. The theme of this year’s summit is The Art and Science of Collaborative Innovation. The event will be widely attended by business owners and trusted advisors to privately-held companies which are preparing for a successful exit. 

Originally posted by Mary Adams on Originally posted by Mary Adams on April 16, 2013 at 5:00pm