Internal affairs
What Yet2.com and some of its users discovered was that the network can do more than just help license patents and sell technologiesâ€"it can uncloak the hidden assets that clients already have.
"Companies have this enormous need to understand what they have within their own walls," says Yet2.com's Langenhagen. "At Siemens they say, 'If only Siemens knew what Siemens knows, we'd be a great company.' " Indeed, says Dennis Grubbs, Proctor & Gamble's associate director of global licensing and external ventures, "one of the introduction requests we got through Yet2.com was from a P&G person." That's not shocking. Proctor & Gamble has 19 R&D centers around the world.
"How is somebody going to know if somebody else in Japan just invented what he needs?" asks Procter & Gamble's Murray. "That's not an unusual situationâ€"you get that in any company that's global. When R&D was all in one place, they used to meet in the lunchroom and exchange ideas. We've used the Internet to reconnect these people we've scattered all over the world. It's 12,000 people strong and they've re-created that global lunchroom over the Internet."
Yet2.com may build an intranet version of its software that its members can use. Procter & Gamble in January formed a new company, in partnership with Magnifi, to market enterprise software that will help companies collaborate and develop ideas. Other companies have built their own internal knowledge networks. Using digital connections to nurture and exploit internal knowledge offers huge new opportunities to find revenueâ€"entering the territory of another information-age buzzword: knowledge management. Just as spiffy new factory equipment can bolster profits by making a process more efficient and less costly, so can an intangible asset like knowledge, if harnessed.
Lately Xerox hasn't been held up as a model for good business (the company's sagging earnings and stock price recently sent it to the brink of bankruptcy), but the company has done one thing right. Xerox has aggregated the expertise from its global force of 25,000 copy-machine repair engineers and agents, saving about $12 million last year, according to Dan Holtshouse, Xerox's director of corporate business strategy. How? Xerox service engineers make about 1 million repair visits each month to customer sites. About one in 1,000 service calls presents a new problem that isn't in the technical manual. Groping for an answer can put service engineers hours or days behind and escalate labour and parts costs. Xerox built an online knowledge base called Eureka that lets engineers submit repair solutions they discover on the job and share them with others around the world. The database, available via the Web and downloaded to technicians' laptops every day, is translated by software into five languages and lets the engineers search by symptom.
Sam Evans, a 30-year Xerox veteran, says he recently used Eureka to fix a broken high-volume reprographics system that was supposed to be running around the clock for an important customer. Every 50,000 copies or so, the machine would print pages with a grayish background. He typed background into Eureka and found the answerâ€"a reset of some internal softwareâ€"which had been submitted by another longtime repairman in the state of Washington. "That very easily could have taken a week" of trial and error without the database, Evans says.
Eureka is certainly an assetâ€"and it's intellectual capital the company retains even when veteran service technicians leave. How much is it worth? "From one point of view," Holtshouse says, "you could say without the knowledge base we wouldn't be able to solve 300,000 problems and save $12 million a year. Over several years of savings, it could easily be worth over $100 million."
IBM, whose world-leading portfolio of patents and other technology licenses brought in $1.5 billion of its profit last year, has a formalised system that encourages collaboration among global employees to turn ideas into those valuable patents. IBM used its own product, Lotus Notes workgroup software, to build the Worldwide Patent Tracking System. "It takes an invention from its birth right through the issuance of the patent," explains Jerry Rosenthal, IBM vice president of intellectual property and licensing. "It's probably one of the reasons that we're getting more patents these days. We've made it easier for our inventors to do it. Inventors like to spend their time inventing the next thing; they don't like to spend a lot of time on paperwork. They're more willing to use the system and file their inventions."
Indeed, getting people to use such a systemâ€"squeezing potential intellectual capital out of people's minds and into Net-connected databasesâ€"can be a challenge. "How do you get experts to share what they know when there's a mindset that knowledge is powerâ€"and they want to hoard that?" asks Susan Leandri, a partner at Arthur Andersen and managing director of the company's Global Best Practices knowledge database.
Xerox initially tried to induce harried service technicians to type their solutions into Eureka by offering perksâ€"even cash. But that didn't work. The answer? Busy service engineers take pride in being problem-busters, and they gladly type their repair techniques into the knowledge base now that their names are included as authors of the fixes. Eureka, first seeded with 50 repair solutions, now contains nearly 22,000.
Other companies have found that money can be a good incentive. IBM has a patent reward system. "We financially reward our inventors for making inventions when they reach certain milestones, a certain number of patents issued," says IBM's Rosenthal. "Then every year we look at some of the most significant patents from an income standpoint and we give out additional awards. IBM chairman and CEO Lou Gerstner does it at an annual ceremonyâ€"and we give out a significant amount of money."
Publisher McGraw-Hill has set up a Burning Ideas intranet site where employees can submit hot business concepts. "We have venture money put aside to fund those ideas," says Steve H. Weiss, vice president of corporate communications. Through that and other programs designed to foster and reward employee input, "it's tapping potential from much deeper in the organisation than we'd previously been doing," Weiss says. "Because our product is information, creating a culture where employees are encouraged to come forward with ideas that contribute to our business success is crucial." Perhaps not coincidentally, McGraw-Hill has posted seven straight years of double-digit growth.
And that's measuring the company's performance the old way. Meanwhile, Arthur Andersen's Barry Libert and others are busy working on the new way. Libert's method, explained in the book Cracking the Value Code (Harperbusiness, 2000), which he coauthored with fellow Arthur Andersen partners, is called Value Dynamics. Its premise is that tangible assets based on traditional financial measurements are just one of four drivers of value in a company, the others being organization assets, customer assets, and employee/supplier assets. The trick for each company is to find what it does in each of those areas that, when done well, generates profit. Find a metric that measures each of these "key performance indicators"â€"employee retention, customer satisfaction, some measure of product qualityâ€"and keep a sharp eye on it. Software company Hyperion Solutions developed Performance Scorecard software that ties into information systems across a company to give executives an easy-to-read dashboard on company performance in diverse areas. Arthur Andersen is working with Hyperion to incorporate a Value Dynamics-based scoring system into the software.
Nobody says this is easy. The challenge is to think in new ways about the value of what you have and what you do. Arby's, the chain of roast beef sandwich restaurants, in November raised $290 million for its nameâ€"selling bonds backed by future franchise fees from its restaurant owners. CAK Universal Credit facilitated a buyout of designer Bill Blass in part by selling a bond backed by revenues from clothing makers who pay to use the Blass name on men's underwear. Creative thinking like this about where your real assets lie may be what the new new economy is all about.
FRIENDS - Regarding Corporate America, think you will enjoy the first 3 chapters of my upcoming book, I LEAP OVER THEIR HEADS!, regarding General Electric (GE) and their reprehensible behavior. You can read them by going to www.edwardbaskett.com.