Intellectual Capital: The New Wealth of Organizations

Purpose:
What is happening in our world today?
What is Intellectual Capital?
How do you leverage Intellectual Capital for a company?

Central Messages:
Information rather than manufacturing and natural resources is becoming the most important source of wealth.
Much like the changes that took place when manufacturing supplanted agriculture, the technology revolution is dramatically changing our world. What will the world be like when manufacturing is only 2 percent of our economy and information is the rest?

Validations:

Applications:

Ten Principles for Managing Intellectual Capital (Paraphrased)
1. You can’t own, you can only share Intellectual Capital. People choose to share it when there is incentive and a company recognizes that it’s shared.
2. Companies can create capital that can be used when the capital doesn’t leave at 5pm with the brains. This means developing communities of practice and other social forms of learning can make the knowledge less dependent on any one individual. The company should provide the locus of learning so that it will be the chief beneficiary of the learning. It doesn’t matter if it makes it to other organizations.
3. Organizational wealth is created around the skills that are (1) proprietary because no one does them better and (2) strategic because they create value for the customers that pay. Invest in the people that need these skills and minimize or automate other skills.
4. Structural capital is intangible assets that companies own. Systems for communicating knowledge and information within the company. Be careful not to let structural capital get in the way of the value to the customer. The goal is to make it as easy as possible for your customers to work with your people.
5. Structural capital serves two purposes. First to stockpile useful knowledge that will add value to the customer. Two is to speed up the flow of that information inside of the company. Make sure to have at least Yellow Pages, Lessons Learned and Competitor Intelligence.
6. Can intangibles do the work of costly physical assets?
7. Knowledge work is custom work. Mass-produced solutions won’t yield high margin profits. Special relationships are the key.
8. Every company needs to analyze the value chain of the industry it participates in and see which information is the most crucial. The closer to the customer the better.
9. Focus on the flow of information, not on the flow of materials.
10. Human, structural and customer capital work together.

Net Gain: Expanding Markets Through Virtual Communities

Purpose:
How will virtual communities change the business world?
How can companies faciliate the organization of communities and extract value?

Central Message:
The Internet changes the power from the vendor to the customer because the customer has access to more perfect information.
Owners of the customer will be champions of the customer.
Companies that avoid the virtual community market may find their business is seriously threatened by small upstarts willing to learn and change.
Companies help a community grow by focusing on membership acquisition and the stickiness of the site (which is largely fueled by member-generated content).
Companies extract value through subscription services and member fees, advertising and transactions within the network.

Validations:
Amazon was using book reviews to build member generated content.
Motley Fool was beginning to gather a large membership able to attract the interests of investment and brokerage companies. Attracts any investment oriented individual, group or business.

Applications:

Value:
The author feels very strongly that membership fees and subscriptions should be very carefully weighed against the need to grow membership and gain marketshare. They encourage extracting value from transactions and advertising.

Key Lists and Summary of the chapters:

Part I: the real value of virtual communities

Chapter 1 – The Race Belongs to the Swift
Power to the customer
1. Distinctive Focus
2. Capacity to integrate content and communication
3. Appreciation of member-generated content
4. Access to competing publishers and vendors
5. Commercial orientation
Profit to vendor
1. Reduced search costs (find customers)
2. Increased propensity for customers to buy (less risk in the virtual environment)
3. Enhanced ability to target (profiles)
4. Greater ability to tailor and add value to existing products and services
5. Lower capital investment
The Challenge of Change
1. Members must be given tools necessary to wield their new power.
2. Members must be given ample opportunity to wield their new power (competing vendors info).
3. Members must be given the chance to maximize the value they receive from information about themselves.

Chapter 2 – Reversing Markets
Virtual communities arise from need for interests, relationships, transactions and fantasies. The power of the virtual community is that they can all build into one powerful brew. There is a fundemental shift in power in the community as consumers…
1. aggregate their purchasing power
2. receive the information advantage (no longer are vendors the wielders of information)
3. vendor choice
4. a reward for the intermediary who puts together the first three (speeds the process)
The vendor’s dilemma is why help make the shift in power?
Well, first of all it’s going to happen even if one fights it. The time will come when vendors can’t afford not to participate. Those who participate early will have lower costs in building the community and will have number of members on their side.

The positive outcome is that lowering of prices to the consumers advantage in the shift in power could push the supply and demand up, increasing the size of the entire market. Traditional vendors and business men would see the community more as the value that comes to the competing vendors and their profits. The community organizer sees the opportunity in the transaction and advertising opportunities. The community itself is more valuable than the products and services of the competing vendors.

Chapter 3 – The new economics of virtual communities
The community organizer who understands virtual communities and their potential see them in the economics of increasing returns. Like Microsoft and Federal Express, the community struggles to grow quickly in the revenues early on, but when the ball gets rolling the growth can be more exponential than flat. Static spreadsheets don’t work. Communities will not make the real profits until they reach a critical mass of members, member profiles, advertisers and vendors, transaction profiles and transactions. When these critical masses are met, then the new business opportunities emerge.

Sources of Revenue for Virtual Communities:
1. Subscription Fees – Fixed price for participation
2. Usage Fees – Charge based on number of hours or pages
3. Member Fees – Content delivery fees for downloads and Service fees for automatic reminders, etc.

Four Dynamics of Increasing Returns
1. Content Attractiveness (marketing and churn) -> hours online -> member relationships -> more content -> more attractive
2. Member Loyalty (customized interaction and relationships) -> hours online -> lower churn -> more content -> more members
3. Member Profiles (data gathering capabilities) -> targeted transaction opportunities -> more transactions -> more profiles
4. Transaction Offerings (bring vendors to community) -> member willingness to spend -> more attractive to vendors -> more vendors
Each of these has a dynamic loop that builds value into the community and increases the returns. Organizers should focus on facilitating these loops.

Organizing Stages
1. Attract Members (marketing, free, great content)
2. Promote Participation (engaging member-generated content, editorial or published content, guest speakers)
3. Build Loyalty (member-to-member relationships, member-to-host relationships, customized interaction)
4. Capture Value (transaction opportunities, targeted advertising, fees for premium services)

“In a nutshell, the dilemma for the virtual community organizer is that the most accessible revenue sources in the near term will be the least attractive from the viewpoint of driving growth. On the other hand, the revenue sources that are most attractive are likely to be beyond the reach of the community organizer in the early years of community formation. The result will be limited revenue generation from the virutal community in the near term.”

However, the costs are just going to get higher for those who wait to enter the market and build the community in the beginning.

Chapter 4 – The Shape of Things to Come

Stages of Evolution	Description	Key Assumptions
Virtual Villages	Communities are highly fragmented but profitable businesses, each containing multiple small subcommunities.	Low barriers to entry. Many entrants Vendors participate across multiple communities. Network users sample across multiple communities.
Consentrated constellations	Concentration of core communities, and development of affiliate relationships with niche communities.	Increasing returns lead to concentration within core topics, such as travel. Niche communities benefit from affiliating with core communities.
Cosmic Coalitions	Core communities aggregate across complementary core topic areas.	Members find value in formation of coalitions, around common user interface and billing, for instance. Coalition organizers realize economic value by integrating marketing programs and member/vendor profiles across topic areas.
Integrated infomediaries	Communities and coalitions evolve into agents for members, managing their integrated profiles to maximize value to members.	Members themselves represent the most efficient location for the capture of profiles. Members assert ownership over their profiles. Specialized infomediaries can organize and maximize value of member profiles.

Part II: building a virtual community

Chapter 5 – Choosing the way in
First thing to do is examine the type of community that will generate the most value as well as your organization’s ability to execute on building the community.
Indicators of economic potential
1. Size potential: means taking the demographics, the size of related associations and estimating how big a community will become.
2. Relative value of being on-line: How many people how begun exploring online in the previous group? Why?
3. Value of being in a community: The need among the demographic to build relationships, explore their interest, transact and experience fantasies will determine the value of being in a community. New parents are intensely interested in community to learn about how to raise children.
4. Likely intensity of commerce: what is the transaction volume of the existing demographic in your interest area?
5. Fractual depth: How much can you segment the community as it expands?

Community Types
Consumer-focused communities
1. Geographic: Total New York: where new york hits the net.
2. Demographic: parents
3. Topical: interests
B2B communities
1. Vertical Industry: Physicians online, Agriculture online, etc.
2. Functional: Built around a specific business function. For example, marketing or purchasing. (MarketingSherpa.com)
3. Geographic
4. Business Category: small businesses community
Indicators of Long-Term Expansion
The fractal breadth is the most important indicator of long-term expansion as the community needs to be able to subdivide into powerful subcommunities as it grows. Topical communities may provide less fertile ground for long-term growth.
Assessing your ability to execute
Brand, existing customers and content are a good start but assets aren’t enough. Skills are as important.

Chapter 6 – Laying the foundation.
Community must be in place before commerce can begin. Speed and preemption are the key as getting ahead in growth will give the leaders an advantage. The stages to successful entry are:
1. Generating traffic: Enter quickly, get people to pass through, use the power of network to get started, generate awareness and partner for preemption (consider distribution partnerships, commercial partnerships, a content partnership and potential competitors before they become competitors). Start with a great directory or resources. Traffic is more important here than return visits.
2. Concentrating traffic: Engage the members. Ask them what they want. Track their usage. Enhance the offerings to the community. Make it easy and attractive for vendors to approach and participate in the community. Extract value.
3. Locking in traffic: Foster personal relationships between members. Accumulate and organize member-generated content. Improve the community functionality. Tailor resources to individual members’ needs.

Chapter 7 – The Gardener’s Touch
It is important to make the community scalable as it grows. This means
1. that people will not loose the sense of community even though there are millions of members. However, the organizer must maintain the benefits of scale because the economies of scale give the membership added value.
2. that you let go and create franchises and empower the members to shape the future of the community. Take an organic management model.
There are various positions to be filled in a community:
Hosts, archivists, community editors, customer service managers, information systems managers, community developers and community architects. However the two most important are the Information analyst and the community merchandiser. Their work extracts the value.
Even though organic management is better, it’s crucial to set and capture key metrics.

Chapter 8 – Equipping the community
Don’t worry about technology. Just focus on the needs of members of the community in choosing technology. This chapter focuses a lot on the challenge to choose between proprietary and standard technologies. This is not as much of an issue today.

Part III – positioning to win the broader game

Chapter 9 – Rethinking functional management
Management is turned on its head because customers have more power. It’s crucial to think about their increased power in marketing. Marketing becomes individually tailored in a virtual community. Focus on product not brand.
Implications for marketers
–
1. Reduce emphasis on value of vendor’s branding
2. Facilitate price comparisons
3. Allow comments to be made on product/service in public, not in confidence.
4. Increase volume of information to be analyzed.
5. Change the rules of advertising and promotion to leverage the customer’s ideas in promoting them.
+
1. Expand demand for product or service.
2. Increase word of mouth promotion of product or service.
3. Stimulate customer feedback.
4. Generate richer information on customers, markets.
5. Eliminate separation of advertising and transactions.
6. Allow advertising to be seen as helpful, not intrusive.

Chapter 10 – Reshaping markets and organizations
“Virtual communities redefine markets by expanding demand. They also redefine markets by focusing on customers rather than on traditional producer-driven notions of ‘industry.'” (page 204)

Purpose:
How can one add value to a career or industry in an economy where things and values change so quickly?

Central Message:
1. Showing love, or sharing your intangibles for the benefit of others, makes you valuable in our rapidly changing world!
2. Intangibles are your knowledge, network and compassion.

Validations:
Knowledge and understanding of the world around us through good books makes us walking libraries. We become valuable in many settings and accross multiple companies.
People matter more than corporations. Corporations used to be a stronghold but folks change jobs so many times in life today that corporations are no longer a stronghold. Relationships transcend organizations. They become a stronghold.

Applications:

Value:
Nice guys don’t finish last. They rule!

Google Hacks: 100 Industrial-Strength Tips & Tools
I enjoyed this book but it had no overriding theme except finding better ways to extract info from the world’s largest search engine.
Searches
Some searches I’d never used:
inurl:
intitle:
* (wildcard for words)

SEO Content and Suggestions:
Search Engine Optimization Template
26 Steps to 15k per day (visitors)

The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It

Purposes:
1. Why Don’t Most Small Businesses Work?
2. How do you make them work?

Central Messages:
1a. People work IN their business rather than ON their business mostly as Technicians and as a result their businesses cannot grow.
1b. Most small businesses do not make it past Infancy and even fewer past adolescence and those that make it to maturity do so because they do things differently.
2a. People who work ON their business make their business work for them rather than work for the business.
2b. A business succeeds by balancing the Technician, Manager and Entreprenuer in each of us and balance comes naturally when we envision and work towards a Turnkey business – otherwise known as the Business Development process.

Validations:

• The E-Myth is that Americans think that small business are started by Entreprenuers even though most Small Business are started by technicians, people thinking that they can run a business because they have a skill, they can do something.
• The businesses don’t work because when the owner finds him/herself balancing the Managerial (order based on the past), Entreprenuerial (forsight and planning for the future) and Technical (Doing what needs to be done in the present) aspects of the business, the technician in them usually wins out. They get caught up in doing, doing until they become a slave to their business and can never move the business into maturity, usually dying in infancy or maybe adolescence.

Applications:
This book was written to be an example of application as it follows the “All About Pies” experience of a friend. “All About Pies” is a business that grew, tried to move from infancy to adolescence and then fell back. The owner learns from Gerber principles that get her excited about working on her business rather than working in it.

Value:
Entreprenuers who succeed do so because they have an insatiable desire to know and get it right. This nation needs a new group of entreprenuers who don’t allow a curtain to fall between themselves and the world. We need to see ourselves as who we really are. We are usually the problem. But if we find the courage to lift the curtain and really engage the world, we will grow and adapt to the world as well as make our business work for our primary aim in life.

When I read Linked: How Everything Is Connected to Everything Else and What It Means, I felt strongly that I am to work towards being a “connector” or a “hub,” one who brings people and organizations together. I’m beginning to look at my life differently after reading this book.
Purpose:
How is everything connected to everything else?
What does it mean for science, business and everyday life?

Central Message:

The Nature of Networks

Barabasi, a physicist, discovered that networks use logarithmic distribution, highly-linked nodes grow faster, and networks undergo phase transitions.

• Logarithmic Distribution: Instead of random distribution or bell curve distributions, the distribution of links in a network is determined by logarithmic power laws. If you remember log tables from math, log numbers increase by powers of ten. 2 is ten times larger than 1, 3 is 100 times larger than 1, and so on. This means some nodes have all the links and most nodes only have a few links.
  Earthquakes are measured by log numbers: A magnitude 2.0 is ten times more severe than a magnitude 1.0, a 3.0 is 100 times stronger, and so on.
  On the web, the top websites have ten times more links than the next set, 100 times more links than the third set, and 1,000 times more links than the fourth set. Google’s Page Ranking technology is based on log distribution. A website with Google PageRank 5 (PR5) is ten times bigger than a website with PR4, 100x a PR3, 1,000X a PR2, and 10,000X a PR1 website.
  This means the third link at Google is only going to get 1/1,000th the number of visits compared to #1. If you continue down the list, it’s extremely unlikely that #25 will get any traffic at all. This works with practically everything on websites: a few pages of a website get most of the visits, most of the searches are based on a few keywords, and so on. They are all based on log number distributions.
  For example, if you are using Google Adwords for advertising, then you must bid enough to be in the top three positions. Lower than that, you will get very little traffic.
• Big Nodes Grow Faster: As new nodes enter the network, they are more likely to link to highly-linked nodes than low-link nodes, because the highly-linked nodes are easier to reach, because they are highly linked. This feedback loop gives preference to the large nodes. Namely, the rich get richer. Networks grow according to the 80/20 rule. Barabasi calls this “preferential linking.”
• Networks undergo phase transition. This means that when a critical threshold (the tipping point) is crossed, the all of the nodes undergo a phase transition and starts acting as a single entity. The property of the network is shared among all nodes in the network. For example, when you boil water, the water acts like ordinary water as it heats up. But at some point, all of the water suddenly starts to boil. There is no “low temperature boiling” or localized boiling. In terms of web markets, there can be a number of dotcoms that are selling dogfood, and at first, the various websites will be different. But when the market niche crosses a certain size, a few of the dotcoms become very large (the 20%) and the remainder (80%) stay same. But they all take on the properties of the group: they all adapt the same general standards.

http://www.andreas.com/faq-barabasi.html

Validations:

Applications:

• Companies that pursue a “business is war” model will be at a self-inflicted disadvantage. They create few links, newcomers don’t link to them, business cycle downturns leave them stranded, and so on.
• Companies that embed themselves into the social network of an industry by creating lots of contacts (links) to other companies, suppliers, industry magazines, customers, government, and workers will grow, because the node with the most links will get more links. At some point, the industry (the network) will undergo a phase transition from “just a bunch of separate companies” into an industry. The core companies become institutionalized and they own the industry. Their internal standards become the industry’s standard. Pareto’s 80/20 Rule applies and the 20% will get 80% of the revenues. Due to the law of preferential linking, newcomers will be effectively locked out of the industry.

Value:
Barabasi feels like Networks will be the central science of the 21st century.

I just purchased Love Is the Killer App: How to Win Business and Influence Friends and I’ve noticed many good books to read that are not listed in Tim Sanders’ appendix. I’m going to list them here so that I remember to read them:

The Love Cat Way

• The Brand Mindset: Five Essential Strategies for Building Brand Advantage Throughout Your Company

• Information Masters: Secrets of the Customer Race
• Net Gain: Expanding Markets Through Virtual Communities
• Co-Opetition : A Revolution Mindset That Combines Competition and Cooperation : The Game Theory Strategy That’s Changing the Game of Business
• Customers.Com : How to Create a Profitable Business Strategy for the Internet and Beyond
• Customer Capitalism: The New Business Model of Increasing Returns in New Market Spaces

Knowledge

• The Innovator’s Dilemma
• eBrands: Building an Internet Business at Breakneck Speed
• The Tipping Point: How Little Things Can Make a Big Difference
• The Anatomy of Buzz: How to Create Word-Of-Mouth Marketing
• Getting into Your Customer’s Head: The Eight Roles of Customer-Focused Selling
• Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life
• The Art of Happiness: A Handbook for Living
• Toward a Psychology of Being (An Insight Book)
• Brandwidth
• Who Moved My Cheese?
• Built to Last

The 4 steps of Application:

1. Own the book’s Big Thought
2. Visualize a Discussion

Ten Must Read Books for “Lovecats”

• 
  The Experience Economy

• 
  Corporate Religion

• 
  The Innovator’s Dilemma

• 
  What the CEO Wants You to Know

• 
  Simplicity: The New Competitive Advantage

• 
  The Tipping Point: How Little Things Can…

• 
  The Circle of Innovation

• 
  The Art of Happiness

• 
  Love

• 
  Leading the Revolution

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