Human capital is the single most important asset that a knowledge company can access. It is the combined knowledge, skills and experience of a company's employees and the single most important asset a company has access to. By definition it cannot be copied by other companies and can therefore be a source of sustainable competitive advantage.

Human capital, is the source of innovation and renewal for the enterprise. The enterprise does not own or control its human capital. Instead, individual employees offer the enterprise an opportunity to cultivate and extract business value from their personal creativity, experiences, expertise, knowledge and associations. The role of the business culture is critical to effectively extracting ongoing business value from human capital.

Basic Concept

In every company, a massive proportion of the knowledge is held by the employees. It is effectively 'leased' to the company for the term that that person is an employee. In order for a company to put that knowledge to optimal use, it must recognize the rapidly changing environment in staff requirements, work motivation and management structures

Sharing :
It is important that employees share knowledge and learn from others so that the human capital becomes more valuable. Sharing occurs at many levels: between employees within the company, between the company and its customers and suppliers and even between the company and its competitors.

Knowledge :
It requires knowledge to put human, structural, financial and relationship capital to generate revenues. A company needs people with knowledge but also needs to invest in developing that knowledge.

Community :
A community is a group of people with a binding factor. In a community, each individual feels responsible for the functioning of the community as a whole. A company itself is a professional community but within this community there are many, many other smaller communities.

Leadership : A community can steer itself. It does not need a boss but a leader who provides a common goal without necessarily telling how to get there. Empowered staff do not need 'controlling'. They can think for themselves and need leadership far more than supervision and control.

Risk :
Knowledge will grow where risk is taken. Taking calculated risks will result in innovation. Trying something new means that it is uncertain whether the outcome will be a success or failure and is therefore a risk. In case of failure, the community still gains knowledge if the lessons learned are shared so that others don't repeat the mistake.

Human capital has a downside for a company in that people are increasingly more portable and may leave, taking their knowledge with them. It is therefore important to retain as much of their knowledge as possible. In other words, it is necessary to convert human capital into structural capital in order to increase a company's 'owned' knowledge.

Information age companies don't hire people for their physical abilities but for their knowledge. These companies don't hire a person, they hire that person's knowledge and skills. For many, many people in the West, long gone are the days of manual work on a production line or in a mine where just about anyone could do any job. Now, most jobs are knowledge jobs. Even a farmer is a knowledge worker, because he will get a better yield by using his brain than by using his hands.

This is a very different concept to the majority of employment in previous eras which was dependent upon a persons strength or endurance. Intelligence was not a major issue when the work involved producing widgets on a factory conveyor belt or digging coal from a mine. Managers were employed to further refine the production process and most employees were easily replaced. Employees typically lived very close to their employment as it was necessary to physically be present at the factory or mine.

Nowadays, knowledge workers must continuously strive to increase their knowledge. Technologies, concepts and standards come and go at a far greater pace than before, with the result that one can virtually guarantee to completely change the professional skills required to perform a job every five or so years.

Together with companies, the most rewarded people are those who are able to adapt quickly by accepting and understanding new concepts and technologies. People must continually challenge themselves to try different jobs and thus learn different skills. Experiences gained in one area which are applied to a completely different area results in innovation.

Therefore it is disheartening to often hear recruitment and human resource consultants looking for 'direction' in knowledge workers' career paths. In the information age, no-one, especially someone in a high-tech company, should aim for a long term career path. It is far better to find something different to add to their skill set which will give them more experience and context to use the knowledge they gained over the years. They will become more flexible and adapt to their changing environment more quickly, thus being of far greater value to themselves and their company.

Not only have personnel requirements in companies changed in the Information Age but the majority of knowledge workers have different work objectives than before. Employees in the Industrial Age sought different values from today's knowledge workers. Job security (a job for life rewarded with a gold watch), a good pension and other (secondary) conditions were driving forces, but personal growth, challenge and innovation are the prime motivation factors for today's knowledge workers.

With changing work objectives for both the company and it's employees, new management styles are needed to more effectively use human capital as the company's prime asset. New companies will be headed by strategists who decide strategy and not get bogged down with operational issues. There will then be a layer of project managers with good horizontal skills to distribute the different jobs and projects throughout the company. The actual work will be given to a layer of people with more vertical skills. We can expect to see management conference companies to start cashing in on Intellectual Capital concepts soon, targeting the ever growing market of managers looking for a 'better screwdriver'. One could view the management of knowledge and information worker's minds as using a 'virtual' screwdriver.

The strategists and senior project managers will be the ones who are able to oversee as many areas as possible, 'jacks of all trades' rather than 'masters of one'. This is opposite to the way it was in the Industrial Age, where specialism was considered to be the most important. It was sufficient to be a 'blacksmith' or a 'welder' when the output of physical goods was the most important factor. Now it is far better to have a smaller amount of experience in as many varied positions as possible.

It is essential to invest in a company's human capital, not by simply taking on more people but by investing more in the existing community. This can be achieved in two ways, by adding skills to the workforce (training) and by providing the workforce with the necessary means to perform in a pleasant working environment.

People should be encouraged to add to their own knowledge and explore new areas of interest, even if that knowledge is of little apparent use to their company. Every employee should receive training in basic project management skills so that they have an understanding of the difficulty in managing projects. If they gain this basic knowledge early in their careers, they will be able to add to that knowledge over time. The most valuable employees will be those who have a broad knowledge base including the ability to put that knowledge to practical use through experience.

Sickness absence costs US$ 17 billion/year and a large proportion of that absence is caused by stress. Still, many companies try to overcome the lost production capacity by putting more pressure on the healthy employees which will, in the long run, only lead to more sickness absence. Pressure brings out the best in people but not in stressful situations. Stress can be reduced by creating a stimulating working environment where people take collective decisions within a community.

Staff are owed a duty of care which includes safe and pleasant working conditions. It obviously includes implementing safety regulations and providing necessary tools to work but also involves creating inspirational work areas, perhaps like American campus style common rooms.

It is more important for new employees to fit in with the existing team based on their social abilities rather than on their skills. It is relatively easier to train an intelligent person to use a new professional skill than it is to expect them to change their personality. Moreover, being part of a team with worthwhile goals will be much more of a stimulus for intelligent people to excel at their job.

The knowledge of its employees is one the largest assets of an information age company so it is essential to look at ways to best utilize that knowledge. It is necessary to constantly increase knowledge and to capture that knowledge as structural capital thereby putting it into use. However first we will show just how important knowledge is to all companies.

• What is knowledge and why is it important

• Increasing knowledge

• Putting knowledge to work

To show just how important knowledge is to an information age company, look at Borland who were crippled when Microsoft recently enticed away their entire 30 person R&D team, taking a vast part of the company's' knowledge with them and crippling the chances to generate more wealth by taking away the creative side of the corporate brain.

Knowledge, which a company owns include databases, libraries, patents, trademarks and intellectual property. Although this is all structural capital, it is not increased by buying more equipment, building larger factories, etc. It is increased by its employees thinking more, using their inherent reasoning, logic and creative skills and by capturing employees' knowledge and sharing it - in a way independent of the person or persons who first possessed that knowledge.

So, if we agree that the most important asset that a company owns is its knowledge, we should look further at the types of knowledge to see how they can be better used and thus improved. We must look at both human and structural capital to see how knowledge can be used to positive effect for a company. In this chapter however, we will mostly discuss the human capital side of knowledge.

Knowledge is a perishable commodity. In our ever changing society, what is valuable knowledge at one time is virtually certain to be worthless a few years later. About 7 years ago, the word processor software WordPerfect for DOS had more than 80% market share in the Netherlands. A secretary who knew all the commands in WordPerfect by heart, held valuable knowledge at that time. However these days, if you know WordPerfect for DOS, but you cannot work with Word for Windows, it's not likely that you will get a job as a secretary anywhere.

It is one thing to keep your knowledge up-to-date with new developments, it's another to actually increase your knowledge, and learn more things.

It is generally accepted that as individuals, we must continuously strive to increase our own knowledge. As with companies, the most rewarded are those who are able to adapt quickly by accepting and understanding new concepts and technologies.

This is why it is necessary for people to continually challenge themselves to try different jobs. A disheartening example is that of a recruitment consultant stating to an applicant that he/she "saw no clear direction yet" in the applicant's 'career path' and wasn't it time to do something about it? The applicant was in his early 20's. How can anyone these days, especially someone in a high-tech company, start looking for direction at such a relatively young age? That person should have been advised to find something different to add to his/her own skills. A knowledge worker will try to gain as many varied skills as possible in as many different environments as possible, in order to be able to react rapidly to change and put that knowledge to use.

Increasing knowledge can be achieved by studying theory, by learning from experience, or by learning from other people who may share their knowledge and experiences. Therefore, if one is looking to increase knowledge in a company, it is not enough to just hire people who know a lot about a certain subject

The reason for this is that, broadly speaking, people have two different types of skills or knowledge: general and specific. General knowledge and skills include communication, language, driving, etc. Specific skills include a knowledge of employment law (lawyer), knowing the streets of London (black cab driver), knowing how to create a computer application (programmer) etc. It is the balance of these two elements, which makes a person employable. A fantastic programmer who is socially inept does not necessarily give added value; by lacking the ability to communicate with colleagues, he/she may create inter-personal barriers which are counter productive to the group. This individual most likely is not able to share his knowledge with his colleagues, which means that they will not be able to learn from them. It is also questionable whether this person will be able to learn anything from his colleagues.

In other words: it is great if you are very knowledgeable about something, but if you cannot share that knowledge with your colleagues by turning it into structural capital, then your company would be unwise to invest in you.

A knowledge worker will endeavour to gain as many varied skills as possible (both general and specific) in as many different environments as possible, in order to be able to react rapidly to change and put their combined knowledge to use.

We've seen that human knowledge is so valuable to a company that every company must convert that knowledge into the permanent structural capital of the company. This is important for every company but especially for information age companies.

An extension of this argument would be for a company to hire new people, 'pick their brains', put their knowledge into structural capital and then get rid of them. Or is it?

There are a number of reasons why this plan will not work. Even the best structural capital can never replace the human capital. For one thing, part of knowledge is learned by experience and 'experience is largely non-transferable' (Cyrus H.K. Curtis). If you want to stay ahead of the competition, you have to increase your company's knowledge constantly, and that means that you must be able to learn from human experience.

The other reason is that you may be able to capture your employees' knowledge, but it's unlikely that you will be able to capture their skills. If knowledge is defined as 'a body of facts acquired by study and/or experience', than skills are 'the knowledge of any art or science and dexterity in the practice of it'. It is not enough to simply know things, to be successful you must be able to put your knowledge into practice, i.e. practice skill.

Finally, you can only put someone's knowledge into structural capital if that person is in agreement and co-operates. After reading the other parts in the 'Human Capital' chapter, about communities, leadership, risk and sharing, you'll know what kind of environment it takes for people to do be willing to do that.