Intellectual Capital
by
Melvin Hathorn

When AT&T laid off 40,000 people, Tom DeMarco in a NY Times article of 4/14/1996, estimated that AT&T lost $4 to $8 billion in human capital, knowledge, and skills. This intellectual capital write-off is equivalent to 1/3 of AT&T's property, plant and equipment value. That translates into $100,000 to $200,000 per person.

Is there any reason not to believe that AT&T's laid-off staff, consisting of secretaries, file clerks, highly skilled technical people or truck drivers, are any different than you or me? If this is true , the inescapable conclusion is that each skilled laid-off person costs any company $100,000 to $200,000 each.

When Xerox laid off 9000 employees a few months ago - ten percent of its work force - they lost $900,000,000 - $1,800,000,000 in irreplaceable skills and talents. If I were a stockholder, I might question that at the next annual meeting.

Most accountants when figuring assets like furniture, equipment, and computers forget to include other valuable assets such as employee information, knowledge and skills, and other intangibles.

What are some of these assets? That secretary may have tremendous leadership abilities; that clerk may have an inventive mind; and that driver may have great sales ability. Thomas Stewart in his book, Intellectual Capital, the Wealth of Organizations, tells the story of a young secretary who joined a startup firm. Ten years later, she retired as vice president of marketing of Apple computer. Apple didn't see her as a secretary. It saw her as a person with potential.

An organization that develops and uses its intellectual capital has a competitive edge. It can outthink and out maneuver its competitors. Lief Edvinsson of Skandia AFS estimates that for most organizations the ratio of intellectual capital to the value of physical and financial capital is between 5 - 1 and 16 - 1.

The cynic might object that the loss of only a few highly paid and skilled persons skewed DeMarco's numbers and that the intellectual capital costs would in reality be much lower if it were not for a few highly paid and skilled persons. I might agree if the numbers of AT&T's dismissals had been lower. However, that argument falls flat when one considers that 40,000 people is too large a sample to be skewed by a few highly skilled and salaried persons. It also falls flat when one considers that most laid-off persons are not highly skilled but are usually paid on the low end of the scale.

It also follows that each person that leaves the State of Connecticut for "greener pastures" costs the taxpayers $100,000 to $200,000 each. The Hartford Courant (5/27/98, business section) in an article entitled, "Drop In Labor Force Puzzles Experts" reveled the loss of 38,000 jobs in the last few years. This translates to a loss for the taxpayers of Connecticut of $3,800,000,000 to $7,200,000,000.

In any case the realization that your intellectual capital is worth $100,000 to $200,000 in the market place is really empowering one. Again, your skills and ideas in a free and open market should bring you $100,000 to $200,000.

Think of how much more you can improve your capital by learning more. Think how much more you can improve your company's capital by having your employees learn more and improve their skills. The great thing is that this learning doesn't have to relate directly to your business. A foreign language or a history course is valuable in that they develop critical thinking skills that they can connect with their work. You can never lose by learning.