Companies need new navigation tools
to excel and thrive in today’s knowledge economy
by leveraging their full Intellectual Capital

“Corporate Longitude describes my approach to the corporate longitude problem. It does not provide a definitive compass for our organizational and personal behaviour. Nothing could – no matter what the self-improvement gurus may tell you. Instead, I hope, Corporate Longitude offers different ways of looking at problems. I believe that it is only through new perspectives that we can gain new insights. And it is only through new questions and perspectives that we will be able to chart the uncertain waters of our futures. The future, after all, is made up of what we do not know. Join me in a knowledge navigation journey, exploring the futures of the mind and of knowledge enterprising."

                                                                  Leif Edvinsson

Leif Edvinsson is using an analogy of the naval world to bring over his message in his new book: longitude, which stands for long-term, long lasting – precisely what is missing in today’s turbo management approach focused on short term earnings. Instead, his compass leads us to an orientation of new coordinates for sustainable results by using both the full potential of human individuals and of organizations that provide context, structure and relationships to talented people to create sustainable value for customers, shareholders, other stakeholders, and societies.

“Corporate Longitude” describes a journey, basically the journey of the author through ten years of work on “Intellectual Capital Management” since he joined the financial service company Skandia as the world’s first corporate director for intellectual capital in 1991. At Skandia he pioneered the development of a management and reporting model – entitled the Navigator – based around intellectual capital. His 1997 book, “Intellectual Capital”, co-authored with Michael Malone, drew on his experiences at Skandia. Edvinsson has left the company in Fall 1999 and became  the World’s first associate professor in Intellectual Capital and Knowledge Economics at Lund University in Sweden and serves as board member for various companies and is much in demand as speaker. This gave him the opportunity to have a much broader view on Intellectual Capital management, which is precisely what he is sharing with his readers in his new book “Corporate Longitude”.

The journey, Leif Edvinsson’s story, starts in the 17^th century when King Charles II of England founded the Royal Observatory within the park at Greenwich. The Observatory was tasked with finding a method of accurately determining longitude at sea so that sailors could navigate the world’s oceans. About 60 years later a little-educated clockmaker from Lincolnshire, John Harrison, arrived in London to work on this task and to win the prize which was set out for finding a solution “tried and found Practicable and Useful at Sea”. Harrison was an inspired thinker and innovator and he approached the problem from new perspectives. But he was an outsider. It was thought that the answer to the problem would emerge for the scientific elite or the professionals in the Navy. Harrison’s work was ignored and overlooked and it took him thirty years to enhance the design of his solution and to convince the officials that he possessed the answer and deserved the price.

According to Edvinsson, similar challenges currently face the business world. Modern corporations are used to act only in one dimension and calibrate along one, single measure: financial capital. This does not allow a company to sail the knowledge based economy of today with sustaining success. The financial view gives corporations only part of the picture, only half of the co-ordinates required to know their precise location and to map out the route to their renewal. Without another lateral co-ordinate – a measurement for intellectual capital and other vital intangibles – companies are unable to locate their true potential or chart a meaningful course into the future.

To most twenty-first century men and women, the mind is as mysterious as longitude was to eighteenth century sailors, as Edvinsson writes. And we are disbelieving of the brain’s potential. We need fresh, longitudinal, perspectives to make sense of our most cherished possessions. But also to organizations the implications are significant. Unfortunately, most organizations are even less prepared for the challenge of “knowledge economics” than individuals are. But when managerial methods and notions of how best to organize ourselves stand still, when the world moves on into the knowledge economy of the 21^st century, this results in organizational failures.

Without means of measuring longitude, all see navigation was regional. Sailors needed a clockmaker to crack the longitude problem so they could chart their whereabouts accurately and easily. And this is the context in which modern corporations and institutions operate. For all the talk of the global economy, companies and those who work within them remain trapped in their own intellectual and geographical locale. They are fearful of leaving the protection of the coastal shelf they know. To move further out, to venture from safety into new realms filled with personal and commercial potential, they need a practical method for measuring corporate longitude – something which is urgently needed. This is the mission of Leif Edvinsson’s new book and the objective of the journey to which he takes the reader. Here the “chapters” of the journey:

1.      My Journey – Every journey begins, but not all reach their aspired end (this one starts at Villa Askudden near Stockholm, the Skandia Future Center)

2.      The New Knowledge Economics – The economics of goods and markets have given way to the economics of knowledge and the migration of knowledge (about thought leaders, knowledge recipes, and the “intangible hand”)

3.      Changing the Nature of Value – One man’s treasure is another man’s worthless mystery (what is valuable?, talent markets, trust, relationship capital)

4.      Renaissance Perspectives – Enterprise & people are built in the future not in the past (accounting and the intangible gap, new perspectives to navigate the future)

5.      1+1=11 – the new theory of the firm (the chaordic organization – the future of business organizations, human capital X structural capital = intellectual capital, creating intelligent and holistic enterprising)

6.      Workplace fit for knowledge workers – You are where you work (knowledge work spaces with sense and meaning)

7.      U-Capital & I-Commerce – We are what we visualize (one man’s south is another man’s north, brain stress, building identity assets)

8.      The Knowledge Innovation Dimension – The only vital value an enterprise has is the experience, skills, innovativeness and insights of its people (innovation perspectives, white space management / managing the space between organizational boxes, innovating culture)

9.      Leading with a compass – The leader always required a compass. Now the leader must posses a mental compass (leading the new generation / the new challenges, refining the behaviour and attitude of leaders, the leader’s job today / shaping leadership perspectives)

10.   The Intellectual Wealth of Nations – The stories of our societies and of our nations are mirrors of our selves and our organizations (the new wealth of nations, taking stock of the world).

Leif Edvinsson writes on his arrival: “My learning from this journey are many. What I know is that the wave is increasing. It has gathered within universities, accounting standards groups, political and business communities. The message is that we need to surf the wave of knowledge economics or drown. The opportunity is great. There are a great many people who are lost at sea, lost  in the fog of the labour market, the stock market or confused by the political world. They need to understand corporate longitude otherwise they will continue to go around in befuddled circles. Knowledge navigation will continue on the quest for the new wealth of nations. There is no end, just another question, another curious leap into the dark. In the knowledge economy, the beginning is an end in itself”.

“Corporate Longitude” is not just a book about Intellectual Capital or Knowledge Management. It’s a culmination point of all the related ideas, thoughts and concepts. Leif Edvinsson did a tremendous job in documenting not only the though path of his own work of the last decade, he also made the underlying network of people and ideas transparent through the “compass links” at the end of each chapter and on the official website of his new book.  This book is a must read for everyone interested in management science and economics or just in his or her personal career.

About the author:

Leif Edvinsson, who calls himself a global knowledge nomad, championed early moves to nourish intellectual capital (IC) and to have it measured in corporate annual reports. His 1997 book “Intellectual Capital” (co-authored with Michael Malone) drew on Edvinsson’s experiences at the financial service company Skandia where he was appointed the world’s first corporate director of intellectual capital in 1991. He is also co-author of “Accounting for Minds” (with Gottfried Grafström, 1998). At Skandia, Edvinsson pioneered the development of a management and reporting model – entitled the Navigator – based around intellectual capital. He also developed the “Skandia Future Center”, an organizational laboratory, as a knowledge innovation tool. Having left Skandia in Fall 1999, he was recently appointed the World’s first associate professor in Intellectual Capital and Knowledge Economics at Lund University in Sweden, and he is much in demand as a board member and speaker. He is now developing a holding company for intellectual capital recipes Universal Networking Intellectual Capital (UNIC – www.unic.net)

Interview with Leif Edvinsson: Intellectual Capital: the new wealth of corporations by Juergen Daum

Corporate Longitude: Discover Your True Position in the Knowledge Economy
by Leif Edvinsson
Hardcover - 256 pages (July 2002)
Financial Times Prentice Hall; ISBN: 0273656279   

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In order to achieve the all-important differentiation, companies have to think about how to use the electronic marketplace in a novel way to deliver unique and superior value

“The first advantage the Internet delivers is transparency. All things being equal, it transforms the world into a buyer’s market. As a consequence, prices have a tendency to drop faster than process changes can get implemented [through e-business solutions that increase efficiency and reduce costs]. Transparency combined with lack of differentiation squeezes margins. In order to achieve the all-important differentiation, companies have to do things better than the rest of the industry. They have to think about how to use the electronic marketplace in a novel way to deliver unique and superior value. When differentiation is the goal […] then fully public markets are no longer appropriate. Instead, companies have to establish their own trading partner network."

              Philip Gerbert, Alex Birch, Gert Schnetkamp and Dirk Schneider

The first E-Business wave with utopian visions of electronic marketplaces that dominate entire industries, organizing trading, the matching of buyers and sellers, in new ways and dictating their business models to all industry players has passed by. In the meanwhile a great number of e-marketplaces has imploded, unable to attract the necessary business volume. They ignored the basic lesson that the very architecture of the Internet had taught: Interlinked dynamic networks, as opposed to large centralized structures, are the superior organizational forms. Today’s complex business relationships cannot thrive in a rigid corset of simplistic processes, as provided by many e-markets, any more than they could under central planning regimes. Instead, they need a flexible service network to support diversity and innovation. “E-topia is now gone. It is an irony of fate that the Internet hype has faded at the very moment the importance of electronic business was becoming evident” says Holmes in the fictitious dialog with Watson in the prologue to the book. The mission of “Digital Storm” is to describe how electronic business will really change the world and what companies have to do to leverage its power. 

The authors give an excellent account of the rise of the e-marketplaces and the digital storm they encountered by their pioneering acts. They do not just show what went wrong; they also show that the potential of the e-market places will continue to be in a networked environment, albeit a different one. With “Digital Storm” the authors want to dig much deeper than many others did during the first e-business / e-market wave and their aim is to show, that the burst of the Internet bubble does not mean that e-business has lost its power. On the contrary. After the corrections made in their e-business strategies based on the past experiences, companies and the economy at large will rely heavily on electronic business and on new forms of electronic marketplaces. The core of their message is, that differentiation, not imitation (which happened widely during the first e-business wave), creates value. Profitability will come from innovative value propositions. Thus future e-markets will differ in many ways from today’s landscape. Companies will use the support of multiple e-markets to enable their trading networks. They will, however, refrain from a “portfolio approach” to markets. Instead they will avoid overlap, but use complementary e-markets. These markets, like other companies, have to differentiate. The authors believe, that this means for individual companies and their e-business / e-market initiatives that

§        Successful players will strive to consolidate the segment

§        Markets become networked

§        Every company will have a private marketplace

§        E-markets will increasingly focus on services

§        Dynamic trading partner networks will evolve  

Anybody who has ever led an e-business initiative can confirm that it all starts and ends with the software. Therefore software is playing a key role in the e-business and e-market vision of the authors. Software determines the ability of companies to leverage the Internet. Sadly, software is also the weakest element of the infrastructure. The authors talk about the “software gap”. The complexity of software, slow progress in development and compatibility requirements with legacy systems are the main reasons for this software gap. Reinventing software as a service could lead the way out of this “software gap”. An architectural solution, Web services, has been proposed and is being pursued by many vendors. It consists of self-describing “Lego”-Software, interacting through the Internet. Pioneered by Hewlett-Packard, Web services have recently been most prominently adopted by Microsoft in its .Net initiative. If successful, they could bridge the software gap.

The most essential task for companies in pursuing an e-business / e-market based business strategy is to develop a strategic perspective first. Incremental improvements of existing business models and processes are inappropriate in the electronic marketplace at this point in time. Too many things are in flux. Ambitious initiatives are under way, claiming – rightly or wrongly – to restructure whole industries. It is thus essential for companies, the authors write, to step back and reconsider the own industry from the bottom up. When they have understood the potential for truly innovative value creation, they will be able to judge the current initiatives in the electronic marketplace and devise their own e-business strategy. Therefore Gerbert, Birch, Schnetkamp and Schneider recommend a multi-step approach in developing the e-business strategy of the company:

§        Understand today’s value delivery network and trends (of the own industry):
An environmental map of the flow of goods and services in the industry is a mandatory first step.

§        Identify core processes and pain points:
The next step is to distil the most relevant core processes in the value delivery and identify the major pain points in the processes today. By analysing these pain points based on the know how of the company, what an electronic marketplace can achieve, it is possible to grasp the efficiency potential an restructuring opportunity today’s value delivery.

§        Map out current e-market initiatives:
Classify, map and analyse existing e-market initiatives. While many may fail, the few remaining could have a deep impact on the own sector.

§        Devise (extreme) end game scenarios and triggers:
By devising (extreme) end game scenarios, their implications, in particular the attractive and unattractive roles, become very clear.

§        Design end-customer driven value innovations:
The critical creative step consists of rethinking how the electronic marketplace can be leveraged for novel value propositions. Such an analysis always starts with the end-customer and works backwards through the demand network.

In the end, what matters for a company is its ability to identify and execute its own winning e-play. Its business may be at stake. Also the financial commitments for a strong e-business/e-market initiative are substantial. Thus the strategy should be well elaborated. At the same time, project efficiency is critical in the fast moving electronic marketplace. Therefore the authors describe in the last chapter a tested streamlined process companies can follow to build a promising e-business.

“Digital Storm” is not about the Internet. It is about doing business in the new century. In 1999 Lou Gerstner, Chief Executive of IBM, commented: "The dot.coms are only the fireflies before the storm." While much has been written about the fireflies, the current book focuses on the storm. More specifically, it provides insights to help companies sail through the digital storm, while exposing shortcomings in past and present concepts. The authors use strong examples in explaining why online e-marketplaces have evolved the way they have, and they do a great job of laying the groundwork to help leaders navigate through the future innovations we're likely to see. Digital Storm provides a comprehensive picture of the electronic business-to-business landscape and its likely evolution. The book delivers a sharp analysis that cuts through the rather short-lived business coverage available so far. This is a definite must-read for everyone who needs to understand the pitfalls in building e-marketplaces and how to exploit their potential.

About the authors:

Philipp Gerbert is a partner of the McKenna Group and is based at its headquarters in Silicon Valley. He has extensive experience in electronic business / electronic commerce, Internet infrastructure and innovation management. He serves large multinationals as well as emerging new players. He is on the board of several Silicon Valley ventures and is a regular contributor to major business publications. The McKenna Group (www.mckenna-group.com) from Silicon Valley is the leading strategic consulting firm for technology-enabled growth.

Alex Birch is a director in the London office of OC&C Strategy Consultants (www.occstrategy.co.uk). His particular interest lies in how to exploit new technologies to achieve growth. He advices companies – both large and small – in the telecommunications, media, entertainment and leisure industries. He is on the board of a number of early-stage businesses.

Gert Schnetkamp heads the German office of OC&C Strategy Consultants (www.occstrategy.de). He is an internationally acclaimed authority in the retail and services sectors and has been heavily involved in the development of strategies for leading companies entering the New Economy in a broad range of sectors. Together with Dirk Schneider, he wrote a German language precursor of the current book called “E-Markets”.

The Digital Storm - Fresh Business Strategies from the Electronic Marketplace 
by Philipp Gerbert and Alex Birch with Gerd Schnetkamp and Dirk Schneider

Hardcover - 352 pages (July 2001)
Capstone Publishing Limited; ISBN: 1841121681  

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