Creating Organizational Capital through Intellectual and Social Capital
Janine Nahapiet
Templeton College, University of Oxford
Michael Earl
London Business School
Paper for presentation at the Organization Science Winter Conference
February 2000
This paper represents work in progress. Please do not cite or quote without reference to the
authors. Comments and suggestions are welcome.
Creating Organizational Capital through Intellectual and Social Capital
Abstract
Recent research suggests that intangible assets are a critical source of
value creation in companies. More specifically, it has been argued that
intellectual capital and social capital are especially important resources.
Notwithstanding the amount of attention these concepts are now
receiving, we still lack detailed frameworks for describing the elements
of intellectual and social capital and, more especially, empirical evidence
of how companies go about building these various forms of capital. In
this article, we address these two issues by drawing on a detailed case
study of Skandia, the Swedish insurance company. First, we identify the
main features of Skandia’s approach to developing intellectual and social
capital.
Second, we describe the main elements of their investment
strategy, which we label the architecture of intellectual and social capital.
Finally, we consider the implications of this analysis for the development
of both theory and practice in this field.
In both the academic and practitioner worlds there is growing recognition of the importance
of intangible assets as a critical source of value creation in firms. Among these intangible
assets, much attention is being focused on the ability of firms to create, leverage and protect
their intellectual capital. Research on the attributes of organizations as knowledge systems
demonstrates that while individual knowledge and human capital are significant resources,
many critical knowledge processes are fundamentally socially embedded. (Spender, 1996;
Boisot, 1998; Cook and Brown, 1999). In a recent review of this field, Nahapiet and Ghoshal
(1998) propose that the relationship between knowledge and its social context can usefully be
explored through consideration of the concept of social capital. Viewing social capital as a
set of network based relational resources, they argue that social capital both shapes and is
shaped by the development of intellectual capital and that social and intellectual capital coevolve in a mutually dependent and interactive way.
Although the suggestion that there is a reciprocal relationship between knowledge and its
social context finds support in social theory (Giddens, 1984; Foucault, 1980 ) the sociology of
2
science ( Zuckerman, 1988), and in organization theory (Weick, 1995; Zucker et. al. 1996),
there are still few empirical studies which focus on this particular relationship in business
organizations. Thus we know relatively little about the managerial strategies and processes
by which firms invest in these two types of asset and how they affect each other through time.
This article explores these issues by drawing on a clinical case study of Skandia Insurance.
The article is organised around two research questions: (1) what are the processes used by
Skandia to invest in intellectual and social capital? and (2) how do these processes influence
each other?
By focusing on a study of a firm widely acknowledged to be a pioneer in the
field of intellectual capital and network relationships, we develop a framework that identifies
the key elements of the architecture of intellectual and social capital and suggest that this
framework extends our insight into the concept of organizational capital as a source of
competitive advantage.
Background
Our interest in these questions arises from three interrelated concerns. First, we believe that
evolutionary perspectives on organizations are of increasing salience, as scholars shift their
attention from questions of value appropriation to value creation (North, 1990; Moran and
Ghoshal, 1999). i.e. as research moves from a primary interest in the optimal allocation of
resources to considering how firms mobilise and develop their resources over time. Thus
there is growing interest in endogenous rather than exogenous change and in the firm as a
dynamic institution.
Second and closely related, this concern with firm dynamics is
stimulating the development of theory in which the firm is increasingly viewed as a repository
of knowledge and agent for continuous learning and knowledge creation. Whilst not new
(Penrose, 1959), this emphasis on the particular capabilities organizations have for creating
and sharing knowledge is a focus for much current research (Kogut and Zander, 1992, 1996;
Nonaka, and Takeuchi, 1995; Spender, 1996). However, at both the firm and societal level,
the information or knowledge economy poses many challenges to conventional thinking as we
move to a new institutional order, increasingly viewed as an ‘edge of chaos’ economy.
(Zohar, 1997; Boisot, 1988; Brown and Eisenhardt, 1998; Pascale, 1999). Third, and again
closely related, there is growing evidence that knowledge and knowing processes are
fundamentally social processes, in which exchange and interaction between social agents play
a vital role (Brown and Duguid, 1991; Nonaka and Takeuchi, 1996; Spender, 1996; Nahapiet
and Ghoshal, 1998; Cook and Brown, 1999).
Thus a further area receiving attention is the
creation and leveraging of relationships, particularly through social networks. Variously
3
described as the relational or associational economy, this appears another key perspective
deserving investigation within evolutionary political economy (Putnam,1993; Fukuyama,
1995; Cooke and Morgan, 1998).
If analysis of the knowledge and associational economies and the search for a dynamic theory
of the firm challenge contemporary scholars, they also present a major challenge to those
practitioners responsible for the strategic management of knowledge and relational assets.
Strategy theory, in the form of resource based approaches, informs us that those assets that are
especially valuable are those that are rare, durable, imperfectly imitable and non-tradeable
(Barney, 1991; Dierickx and Cool, 1989). The factors underpinning these features, such as
causal ambiguity (Lippman and Rumelt, 1992), time compression diseconomies and
interconnectedness (Dierickx and Cool, 1989) and social complexity (Barney, 1991), are all
likely to be features of both knowledge and relational assets. But there are important gaps in
our understanding of strategic management in this area. First, there are still relatively few
studies which have examined the nature of different resources rather than their effects
(Wernerfelt, 1997). Although now receiving increasing attention, we are still in the early
stages of exploring the nature of social and intellectual capital and of what appears in the
literature to be a closely related concept - organizational capital. Prescott and Visscher (1980)
view organizational capital as a particular kind of firm specific information and include both
human capital and formal information in their analysis. Tomer (1987) defines organization
capital as embodied human capital and identifies organizational relationships and repositories
of information among its critical constituents. By contrast, Barney (1991) distinguishes
between human and organizational capital, seeing the latter as covering formal reporting
structure, formal and informal planning, controlling and coordination systems, and informal
relations among groups, within and without the firm. In the context of this article, we are
therefore interested in what, for Skandia, comprise social and intellectual capital and whether
their approach informs our understanding of organizational capital.
Second, there is as yet little empirical knowledge of how companies set about investing in
these assets.
As Foss (1997) observes:
‘there is no clear conceptual model of the
endogenous creation of new resources to be found in the resource based perspective’ (Foss,
1997 p.352). This is particularly problematic in respect of social capital, which is widely
regarded as a by-product of other activities rather than a direct form of investment (Coleman,
1990). So the empirical question here is how has Skandia set about developing its intangible
4
assets, specifically intellectual and social capital? Finally, in what research there has been,
the unit of analysis has typically been the individual resource but it may be its embeddedness
in a system which is also important. Hence, there is increasing recognition of the need for a
sound understanding of the linkages between difference forms of asset, since it is unlikely to
be individual resources per se, but the ability to access, deploy, exchange and combine them
that lies at the heart of economic value creation (Schumpeter, 1934 ; Boisot, 1998; Moran and
Ghoshal, 1999). In the context of this article, the particular combination of interest is that
between social and intellectual capital.
This paper seeks to address these issues and, thereby to contribute to the body of work on the
management of intellectual and relational assets through analysis of a detailed case study . In
discussing this case, we focus on two particular assets: intellectual capital and social capital,
adopting the definitions of Nahapiet and Ghoshal (1998). Thus, by intellectual capital, we
mean the knowledge and knowing capability of a social collectivity and by social capital we
mean the resources embedded within, available through and derived from the network of
relationships possessed by an individual and social group. Social capital thus comprises both
the network and the resources that may be mobilised through that network. Social capital
theorists have identified several different facets of social capital. Following Nahapiet and
Ghoshal (1998) we see these falling into three clusters: the structural features of networks, the
personal relationships which exist between network members, such as trust, and the
representations and systems of meaning shared by network members.
Methods
This article is based on a single embedded case, selected in order to provide description and
generate theory around the dynamics of investment in intangible assets within a single setting.
(Eisenhardt, 1989). Skandia was chosen as a revelatory case (Yin, 1994) because of its
reputation in the field of intellectual capital and its network and alliance strategy. The study
was undertaken primarily to provide an empirical counterpoint to the theoretical perspective
set out in Nahapiet and Ghoshal (1998).1 It is subject to the general limitations associated with
clinical field research, particularly the constraints on generalising from a single case.
1
Indeed, having read an early version of this article, several academics independently suggested researching
Skandia as an appropriate institution for the study of intellectual and social capital.
5
Data Sources
The study was designed to take a longitudinal approach, with primary data collection spread
over two year period and secondary data covering a 10-year period. There were four data
sources.
1) Interviews with senior corporate and line management and with managers involved in the
intellectual capital programmes. These interviews used a semi structured format, lasted a
minimum of one hour and usually longer. Most interviews were undertake jointly by the two
researchers2 and, by agreement, all interviews were taped. Several people were interviewed
more than once, as the research progressed. The interview agenda included questions about
(a) Skandia – its strategy and performance and (b) the intellectual capital programme – its
purpose, origins and how it developed, its content and impact (c) their role and views about
the programme. Eight people were interviewed from corporate and line management and ten
people directly involved in the intellectual capital programme..
In undertaking our research in Skandia, we set out to describe what Skandia had done in
seeking to establish and pursue its intellectual capital agenda. Since this agenda was an
explicit commitment by Skandia, it provided a focus for our research which was readily
understood and accepted by the company.3 On the basis of what we had read and heard in
advance, we expected important facets of social capital to be part of Skandia’s approach to
intellectual capital, but the focus on social capital took a secondary place in our discussions,
at least in the early stages of the study.4 It became more salient and explicit as the research
progressed.
2) Participant observation at one location, the Skandia Future Center. After an initial visit to
this center, it was decided that it represented an important example of Skandia’s approach and
should be studied in more detail. During a week of observation, over fifty people were
present in the Center and the researcher held conversations with one third of them, including
Skandia employees and external visitors.
2
Michael Earl, Professor of Information Management at the London Business School and Janine Nahapiet,
Fellow in Strategic Management, Templeton College, University of Oxford.
3
Leif Edvinsson, Director of Intellectual Capital was our primary contact and company sponsor for the study.
4
Throughout the fieldwork, we attempted to work with the language and concepts of those we interviews and to
avoid introducing our own concept and terminology. Thus in discussions we used the concept of intellectual
capital as used by Skandia and worked with those concepts, such as trust, contactivity etc. used by Skandia but
which we aligned with our own view of social capital.
6
3) Secondary sources internal to Skandia. These included internal documents, reports and
computer based information systems as well as documents produced for external purposes
such as videos, CDs, reports, web sites. (See Appendix 1 for a list of published documents.)
4) Secondary sources external to Skandia. Skandia has attracted much external interest in the
policy and academic fields as well as the business press. Thus there are numerous books,
newspaper and journal articles, videos and written case studies about the company.
These
have provided a source of data as have interviews with external people familiar with the
company, through their own research or visits. (See Appendix 2 for a list of relevant
publications).
Data Analysis
All tapes and fieldwork notes were typed up. On the basis of interview data and secondary
sources, a chronology was compiled. This included important company events, such as
acquisitions, restructuring and senior management changes, as well as details of stages in the
development of the intellectual and social capital programmes.
Interviews were then analysed, alongside the observational data and secondary materials, in
order to identify recurring themes and topics. Examples of themes include information
technology and its impact, specific elements of the intellectual capital programme, such as the
navigator model, recurring concepts and ideas, such as ‘the future as an asset’, the importance
of ‘gestalt’, as well as key people and their roles. These themes were further refined and
supported by the compilation of relevant quotations and other data.
The first output from the study was a teaching case with supporting teaching note (Earl and
Nahapiet, 1999a and 1999b). These met our primary obligations to our funding body and to
Skandia.5 The case also provided a way of checking the accuracy of our findings and
stimulating further feedback and insight into Skandia.
The identification and subsequent refinement of themes enabled the development of a
provisional framework, inductively derived, for describing Skandia’s approach to intellectual
and social capital – the framework to be explored in this article. Finally, we have referred to
literature to clarify and augment the insights gained by the inductive process.
5
We gratefully acknowledge a grant from the London Business School which funded this study.
7
Skandia
Skandia is a long established international insurance and financial services company,
headquartered in Stockholm, which entered the Fortune 500 list in 1997. In 1998, the group
had approximately SEK 470 billion in assets under management and SEK 70 billion in written
premiums. Operations were conducted in 23 countries and organised into three strategic
business units: Long Term Savings, Asset Management and Property and Casualty Insurance.
Approximately 60% of Skandia’s employees, 60% of its customers and 80% of its assets were
located outside Sweden. (See Appendix 3 for the company organization chart).
Internationally, Skandia is perhaps best known for two developments over the past decade.
First is the rapid growth and success of its Assurance and Financial Services (AFS) business
which sells unit linked savings products. The AFS business concept combines alliances with
leading independent fund managers and distributors (banks and brokers) with an internal
network organization supported by innovative IT (Hedberg et. al. 1994; Bartlett and
Mahmood, 1997; Ghoshal and Bartlett, 1997). Over a ten year period, AFS has grown from
around 10% to over 80% of Skandia’s total business and has won numerous independent
awards. (A brief description of AFS and its partnership model is given in Appendix 4.) It has
provided the basis for what Skandia’s current President and CEO describes as its
‘transformation from a traditional insurance company to a personal financial services
company’. By making this transition, Skandia has reduced its exposure to the volatile
insurance cycle and it continues to report growth in sales, operating results, and assets under
management ahead of many of its competitors. Second, Skandia has gained international
visibility through its work on intellectual capital in which it has developed a philosophy, a
language and a way of accounting for intellectual capital (Stewart, 1994, 1997; Edvinsson and
Malone, 1997). More recently, it has been attracting attention for its approach to futurising
(Earl and Nahapiet, 1999a and 1999b).
Skandia is potentially of great interest because of its commitment to an explicit and deliberate
strategy of investment in intellectual and social capital. Although Skandia does not formally
use the term social capital, its strategy built around inter and intra organizational networks can
be viewed as a relational strategy in which social capital is pivotal. Skandia can thus be
regarded as a natural experiment providing rich insights into what is involved in (a) a
commitment to a strategy rooted in intellectual, organizational and relational assets and (b) a
8
systematic approach to building intellectual and social capital. It therefore provides empirical
evidence from which to derive propositions about building and leveraging intangible assets.
Skandia’s Approach to Intellectual and Social Capital
Skandia is widely regarded as a pioneer in intellectual capital. It uses the term extensively in
its communications internally and externally. It was the first company to appoint a Director
of Intellectual Capital and to produce regular intellectual capital supplements to its
conventional annual and six monthly report and accounts. One executive went so far as to
suggest that intellectual capital had become a brand name for Skandia. The company is also
recognised as being an early adopter of an alliance and partnership strategy in a relatively
unusual configuration for this part of the insurance industry (Hedberg et, al, 1994; Bartlett and
Mahmood, 1996). Although it rarely uses the term social capital, Skandia’s emphasis on intra
and interorganizational networks implies a heavy commitment to social capital. Skandia
businesses frequently describe themselves as ‘specialists in cooperation’ and in a recent
interview, a senior corporate executive said Skandia now sees itself as ‘an expert in
information logistics and in building relationships’.
In reviewing our primary and secondary data in order to identify Skandia’s approach to
building intellectual and social capital, three points emerged clearly. First, in respect of
intellectual capital, Skandia had an explicit strategy to build and share intellectual capital (IC)
as the foundation for competitive advantage. We call this their IC based strategy. Alongside
this, Skandia also had an explicit strategy to extend their understanding of what intellectual
capital is and how to build capability in this area. We call this their IC programme and it
includes the development of a language and set of metrics for analysing IC. The IC based
strategy and IC programme have influenced each other over time.
Second, Skandia also
appeared to have a deliberate strategy of building and leveraging relationships as a foundation
for competitive advantage. We call this their social capital (SC) based strategy. Alongside
this, Skandia also had an explicit commitment to extending their understanding of how
networks and relationships operate and how to build capability in this area. This programme
includes the creation of cross-boundary teams and experiments with physical environments to
gain insight into the factors producing trust and openness to social exchange. We call this
their SC programme. The SC based strategy and SC programme have influenced each other
over time. Third, although intellectual and social capital can be analytically treated as
separate, in practice Skandia’s processes for building and leveraging them are highly
9
interrelated. These relationships are represented in Figure 1 and explored in more detail
below.
Skandia’s Approach to Intellectual Capital
(1) IC based Strategy
The key, explicit premise underlying Skandia’s approach is that intellectual capital is a critical
factor affecting the long-term performance of the firm. In the words of Bjorn Wolrath, former
President ‘at Skandia, we have always maintained that our intellectual capital is at least as
important as our financial capital in providing truly sustainable earnings’.6 For Skandia, this
implies recognition of the importance of developing the knowledge and expertise of people
and dedication to building the systems, processes and culture to support them and leverage
their capabilities (Hedberg et al. 1994; Ghoshal and Bartlett, 1998). Skandia’s declared goal
in knowledge management is ‘to improve the company’s value creation capability through
use of intellectual capital’ and it has its own version of the knowledge value chain. (See
Appendix 5). Three features are characteristic of Skandia’s strategy.
(a) Encouragement of innovation, experimentation and learning. On taking office in 1997, the
new President of Skandia commented that Skandia ‘can be described as an innovative growth
company rather than a traditional insurance company’. This statement reflects the emphasis
on innovation which had emerged during the 1990s. For example, the AFS strategy of
alliances with both fund providers and banks and brokers was highly innovative and
stimulated the division to experiment with a range of ways of building knowledge about
partners and bringing value to them through demonstrating and/or sharing Skandia’s own
expertise (Ghoshal and Bartlett, 1997). Early on, AFS defined itself as a ‘learning and
teaching organization’. More generally, a programme of compulsory job rotation, leadership
training and competence upgrading operates in many of the company’s businesses as a
continuing investment in human capital.
(b) Dedication to sharing and leveraging learning across the organization. Skandia uses a
variety of ways of doing this. It is a committed user of technology to embed learning and
make it available elsewhere in the company. For example, AFS attributes much of its success
in achieving fast and effective entry into new geographical areas to the prototype systems it
developed on the basis of its early experience. Today, there are a number of intranet based
knowledge exchanges, such as the Savings Bourse, providing information and experience
6
Visualizing Intellectual Capital in Skandia, Supplement to Skandia’s 1994 Annual Report p. 3
10
relating to savings products. Skandia describes this general process as ‘turning human capital
into structural capital’. They define structural capital as ‘codified brainpower’ and it includes
databases, customer files, software, manuals, trademarks and organization structures.
However, not all knowledge sharing is built around technology. Several of the businesses
have identified particular units as strategic competence centres and across the company there
are now several award schemes designed to acknowledge knowledge sharing– such as the
‘golden bumblebee’ award for innovative ideas in Dial, Skandia’s fast growing telemarketing
business.
(c) Conviction that a strategy based around intangible assets requires a systematic approach
to visualising, measuring and reporting intellectual capital. This conviction is rooted in a long
established interest by Skandia’s senior executives in finding better ways of measuring and
reporting the activities of service companies and those businesses in which intangible assets
are the critical resources. Perhaps the most visible manifestation of Skandia’s belief in the
importance of intellectual capital is its programme of investment in IC measurement. The
appointment in 1991 of Leif Edvinsson as Director of Intellectual Capital for AFS, triggered
the development of a formal process and programme for defining, measuring and accounting
for intellectual capital.
The logic behind this move was explained by the then President,
Bjorn Wolrath as follows: ‘Commercial enterprises have always been valued according to
their financial assets and sales, their real estate holdings, or other tangible assets… The
service sector has few visible assets, however. … That is why we have made substantial
efforts in recent years to visualize and more concretely describe those assets that are difficult
to distinguish in the overwhelming mass of financial information….. A clearer and more
balanced reporting of Skandia not only makes it easier for the world around us to value our
operations – it also gives us more effective instruments to better manage and develop our
hidden values. And the more tangible we can make our hidden values, the better for all of
us’.
(2) Skandia’s IC Programme
What we have called Skandia’s IC programme is an investment programme undertaken in
order to develop a set of tools to define, measure and report on intellectual capital and to
develop insights into innovation and knowledge sharing. It had its origins in concerns about
the difference between book and market valuations of companies. As the above quotation
implies, this gap was regarded by Skandia’s leadership as particularly problematic in
businesses, such as Skandia, whose critical assets are intangible and therefore not well
11
represented by conventional accounting measures. This problem appeared particularly acute
in the early days of the development of AFS – a ‘hollowed out organization’ whose future
potential was impossible to assess using normal reporting measures. (See Edvinsson and
Malone, 1997; Earl and Nahapiet, 1999a.)
The IC programme began the AFS business but has subsequently spread to other parts of
Skandia. It includes development of Skandia’s particular version of the balanced scorecard,
which it calls the navigator, as a way of visualising and monitoring the development of the
business, publication of regular intellectual capital reports as supplements to the regular
annual and six month reports, and a range of investments designed to increase capability for
learning, innovation and renewal. For example, the pursuit of better understanding of
creativity and innovation stimulated Skandia to establish
its own future center, as ‘an
intellectual laboratory’ for creativity and innovation and to sponsor the first World Mind
Sports Olympiad in London in 1998. Leif Edvinsson who, as Director of Intellectual Capital,
has played a leading role in the IC programme has described the journey as a set of six steps,
analytically separate, but in fact occurring alongside each other and with many iterations
between them. (See Appendix 6 and also Edvinsson and Malone, 1997.)
(3) The Interrelationship between IC Strategy and the IC Programme.
Just as the business needs around intangible assets were an important stimulus for the IC
programme, the programme itself feeds back into the business. For example, when the level
of investment in IT training was shown in American Skandia’s Navigator to have dropped
below budget, this triggered an increase in training investment and thus capability building.
Skandia’s prototyping of the future center has subsequently led to the development of a model
of the effective future café which is being incorporated back into some of the businesses.
Finally, Skandia claim that their continuing focus on intellectual capital through their
programme has been an important stimulus to a new line of business for them – the
development of competence insurance.7
Finally, the intellectual capital supplements
themselves represent a continuing set of accounts by the company about the interrelationship
between its IC strategy and IC programme.
Described as ‘insuring intellectual capital’, the scheme is a corporate one in which individuals are encouraged
to save 5% of their earnings in a Skandia savings vehicle. The corporation commits to match that figure. The
savings and return can be drawn down in the future by the employee to spend on competence development.
7
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Skandia’s Approach to Social Capital
(1) SC based Strategy
Analysis of Skandia’s evolution suggests that an equally important element of their approach
has been a commitment to developing business strategy based on internal and external
networks of strong relationships and partnerships. In its first intellectual capital report, it was
stated that ‘Skandia strives to foster leadership and a corporate culture distinguished by high
trust, in both internal and external relations’. For this reason, we suggest that they have
adopted strategies, both corporate and business, in which social capital plays a pivotal role.
Perhaps the most obvious and well known example of this is the AFS business with its
strategy built around alliances with external partners. Early in the development of this
business, its head, Jan Carendi explained ‘we must think of ourselves less as insurance
specialists and more as specialists in collaboration’. In American Skandia, this intent carried
through to the creation of customer focus teams: ‘the reasoning behind the Customer Focus
Teams is simple: to provide better service to American Skandia’s customers through
relationship building’.8 This was subsequently extended into a key account programme with
similar objective.
Indeed, Skandia’s special supplement on customer relations entitled
‘Customer Value’ suggests that relationships should be viewed as ‘capital in waiting’.
The partnership approach has become increasingly evident in other parts of the Skandia
business. For example, the industry division developed cooperation with non-competitive
partners as a way of increasing geographic coverage, complementing their own competence
and increasing volumes and economies of scale. More recently, Skandia Life has established
an alliance network of health care clinics.
Skandia’s commitment to networking exists beyond immediate business partners. For example,
through its Ideas for Life Foundation, it seeks community involvement in order to reduce violence and
vandalism and contribute to the implementation of ideas that can lead to a safer, friendlier society. It
seeks thereby to build networks to extend social capital at a societal level.
(2) Skandia’s Social Capital Programme
Similar to their approach to IC, Skandia have also adopted an experimental programme for learning
about the development of social capital. Four examples are given here. First the creation of cross unit
project teams designed around new social principles, such as 3G: that is pulling people together
8
Source: Customer Value. Supplement to Skandia’s 1996 Annual Report
13
across three generations in addition to the usual cross functional and cross geography criteria.
Second, the creation of a physical space, the Skandia Future Center (SFC) – described variously as a
‘laboratory for future organization’, ‘a meeting place’
and a ‘greenhouse for dialog and
collaboration’. An important part of the brief for the SFC has been to encourage network building,
both within Skandia and with a wide range of outsiders and around 5000 people visit the place each
year. (See Earl and Nahapiet, 1999a.). Third, Skandia has been deliberately experimental, in the
creation of new words, such as ‘contactivity’ (defined as a meeting which creates contact and activity),
and in stimulating dialogue around them. Fourth, Skandia also co-operates actively with a range of
academics and policy makers on issues such as new organizational forms, such as networks and
imaginary organization, which may shape its future organizational design.
(3) The Interrelationship between SC Strategy and the SC Programme.
Skandia’s commitment to network bases strategies was an important stimulus for the social
capital programme but elements of the programme are feeding back to the business. For
example, having experienced the networking benefits of the SFC, several executives now use
it as a resource for gaining new contacts and ideas for their own business. Similarly, some
have attempted to incorporate 3G principles or aspects of the physical design of the SFC into
their own working arrangements.
The Interrelationship between Intellectual and Social Capital at Skandia
In our view, it is the interrelationship between social and intellectual capital which makes
Skandia’s approach relatively distinctive over the past decade. This is clearly recognised and
articulated within the company. For example, in describing Skandia’s approach to what it
calls ‘futurizing’, Bjorn Wolrath explained ‘its about having the courage to realise that the
key word for the future is not only competition, but understanding that the future is more a
matter of collaboration and context. About daring to understand that we do not need to do
everything ourselves, but can collaborate with competence partners outside Skandia’.9
Similarly, one of Skandia’s publications on intellectual capital explains: ‘no one can predict
with precision how this future will look. But one thing is clear: Skandia’s current field of
operation will be widening and new activities will emerge.
This will lead to greater
collaboration between units within Skandia and external competence partners. This is why
9
Power of Innovation , 1996 p.2
14
Skandia is now being transformed into a sort of community of entrepreneurs working in
collaboration’.10
This link between knowledge and relationships has been actively pursued within the business.
For example, American Skandia's sales and marketing division created a database on 250,000
brokers, aimed at reducing the rate of turnover among brokers in its networks. The database
tracked a range of broker activities, such as the types of annuities sold, the commission
structure and annual sales, as well as broker attitudes, such as preferred type of software.
Through related systems, the company was able to pick up changes in a broker's underwriting
activity, triggering offers of support or messages of congratulations on business success. The
subsidiary’s marketing chief explained that ‘I want to create a process where we're
communicating and building an emotional tie with the broker’. Similar thinking lay behind
the creation of a "concierge desk " to help brokers with whatever they needed: hotel
reservations, lost credit cards, theater tickets ‘Now the broker thinks of American Skandia
when he has a problem to solve’, said Carendi, global head of AFS. ‘and the likelihood is
that if he continues to think of us, he will also think of us when he has business to write’
(Bartlett and Mahmood, 1997). The customer service function was also reorganised into
teams with the objective of providing personal service and building lifetime relationships with
their assigned brokers and wholesalers.
At a corporate level, we also see the dialectical relationship between network building and
knowledge building. In 1996, Skandia created a series of ‘future teams’ given the remit of
examining the key challenges facing Skandia.
Their findings were presented to senior
managers, including the Corporate Council, by means of a series of short plays performed by
trained actors at a major company conference. Stimulated by these visions of the future, the
Council and 150 managers formed working groups to engage in technology assisted
conversations about the visions in a format which Skandia calls ‘future café’.
These
conversations addressed a series of questions about Skandia’s future, such as ‘how can we in
Skandia prepare ourselves to face the evolving global economy with confidence?’
The
groups used a network of PCs to communicate their conversations to others, to build on them
and to draw together their ideas and suggestions.
collective intelligence.
10
Jan Carendi describes this process as
‘We have twenty stations out there. They happen to be in the next
Power of Innovation, 1996 p.9
15
room but they could have been in twenty countries. So what we want to show is the virtual
company is here, working together. That’s one pattern maybe. The second pattern could be
we have 150 people out there: 150 brains for one hour. It is the collective intelligence of
Skandia at work, at its best and IT makes it happen so to speak’. 11
By way of summary, we have argued that over the last ten years Skandia has developed a firm
and explicit commitment to developing its business on the basis of intellectual capital and
network relationships. In doing so, it has developed programmes for developing capability to
build both intellectual and social capital. These various investments are highly interrelated
and have substantial impact on each other. In the next section, we propose to examine the
details of these investments in more detail, through analysis of Skandia’s architecture of
social and intellectual capital.
The Architecture of Intellectual and Social Capital in Skandia
(1) Key Elements
In describing Skandia’s approach to intellectual and social capital, we have noted that this
represents an espoused commitment to building and leveraging these two forms of intangible
asset. This commitment has been enacted through an evolving design, representing a series of
interrelated investments for which we use the term architecture. Architecture had been defined
as ‘the art or science of building’ (Oxford English Dictionary). We adopt the architectural
metaphor because we believe it captures Skandia’s willingness to experiment with both art
and science in building and capitalising upon intangible assets. Skandia is unusual in the
variety of its investments – which range from accounting calculations to imagery and
metaphor. Moreover, much of what Skandia has sought to do is to design contexts for
behaviour and action, a purpose which directly parallels that of architecture.12
On the basis of our research, we suggest that there are five key elements which make up the
architecture of intellectual and social capital in Skandia. These view capital as (1)
management philosophy (2) strategy (3) language and metaphor (4) technology and artefact
and (5) function. (See Figure 2.) These elements will now be examined in turn and then
illustrated through presentation of a vignette of one investment, the Skandia Future Center.
11
Video: Future Power of Skandia: Skandia Corporate Council 24-25 September 1996
16
For the purpose of this article, we take as our primary focus the intellectual and social capital
programmes, with occasional references to the intellectual and social capital strategies they
support.
Capital as Management Philosophy
Philosophy has been defined as ‘a system of principles for the conduct of life’ (The Oxford
English Dictionary). We suggest that there are three salient and interrelated principles at
Skandia. First, and perhaps most fundamental, is Skandia’s own statement that ‘Skandia is
about value and values’. While these words might be espoused by many firms, in this context
they represent two important ideas - first, the belief, already noted, that intangible assets are
the source of hidden value upon which the future of the business depends and second, core
values, such as the importance of trust and collaborative relationships, should guide action.
The second major principle, and the one upon which this article is based, is that knowledge
and relationships are inextricably interrelated. In the words of Lars-Eric Pettersson, President
and CEO: ‘in today’s network-based, knowledge intensive, global service society, it is not
products that count, but effective, knowledge-rich relationships characterised by innovative,
high-quality partnerships.13
The third principle, again already noted, is the importance of
making invisible and intangible values both visible and tangible. We suggest that it is these
three principles which underpin Skandia’s strategy for intellectual and social capital.
Capital as Strategy
If philosophy explains the ‘why’ of business investments, strategy typically focuses on what
executives do. On the basis of our inductive analysis, we believe Skandia’s strategy seeks to
build dynamic capability around intellectual capital, which it regards as inextricably bound up
with issues of relationships (Teece et. al., 1997). We identify here four important features of
this strategy.14
(1) Invest in ways of visualising, measuring and reporting on intellectual and social
capital.
12
Thus Skandia appears to span different logics - from the linear thinking which typifies conventional economic,
financial and accounting analysis, to the non-linear approaches more characteristic of complex dynamic systems.
The relevance of ideas such as design for emergence is explored further in Earl and Nahapiet, 1999b.
13
Human Capital in Transformation, Intellectual Capital Prototype Report, 1998
14
Further features have been separately identified in the three architectural elements still to be examined .
17
In describing his ‘road map’, Leif Edvinsson’s identifies the importance Skandia attached
from the outset to ‘visualisation’, through metaphors, language and measurement. Since
metaphor and language are considered in a separate section, the focus here is on metrics and
measurement. It is around these metrics that much of Skandia’s external visibility has been
established. These metrics were deemed to be important both externally, so that the investor
community would be better informed about Skandia’s performance and prospects, and
internally in order to be effective managers of critical but hidden assets.
Given this perspective, Skandia chose to do two things. First, to develop a coherent and
relatively comprehensive set of models and metrics and second to produce a regular series of
intellectual capital reports as a supplement to the normal interim and annual published
accounts. (See Appendix 1.) These reports both explain the developing logic of Skandia’s IC
programme as well as report on its various businesses in IC terms. The two key models and
frameworks were, in Skandia’s own terminology, the market value scheme (Appendix 7) and
the navigator (Appendix 8).
The Skandia market value scheme provides the crucial
terminology and distinctions around which Skandia’s approach has been developed, in
particular, three propositions: (a) what creates market value is the combination of financial
and intellectual capital;15 (b) intellectual capital comprises two key elements: human capital
and what Skandia call structural capital, i.e. embedded human capital, and (c) structural
capital is itself made up of customer capital and organizational capital, the latter defined as
‘systematized and packaged human competence’ and comprising process capital, culture and
innovation capital. Thus, Skandia distinguishes between human and organizational capital and
focuses the latter largely on organizational systems and processes.16 The Skandia Navigator, the
company’s own version of the balanced scorecard seeks to provide more balanced picture of
and metrics for its activities. Thus alongside the financial focus, the company defines and
seeks to measure a customer, process, human and renewal and development focus. Combining
these frameworks with Skandia’s process model (Appendix 9) provides Skandia’s perspective
on IC measurement and management.17
15
Implicit in this approach is the assumption that through more wide ranging measurement, it will be possible to
account for Tobins Q.
16
The inclusion of culture in organizational capital did not appear until 1998.
17
More recently, another model has been developed: the IC index which shows the development of these indices
over time enabling speculation about their interactions.
18
These models were developed originally in the AFS business but other parts of Skandia were
encouraged, though not directed, to take them up. Over time they have been adopted by
different subsidiaries which have increasingly reported their results using the IC metrics and
format. In 1999 the navigator became the basis for company wide budgeting.
(2) Focus particularly on innovation and renewal
Within the navigator model, and indeed Skandia’s general approach to IC, there has been
great emphasis on the renewal and development focus. In distinguishing their model form the
balanced scorecard, Skandia emphasise that it is not change but renewal which they seek.
This reflects a view about the speed of change and the inability of firms to predict what will
happen – hence the importance of building capability for renewal. During his period as
President and CEO, Bjorn Wolrath repeatedly drew attention to this issue: ‘developments are
unfolding at an accelerating pace.
Never in Skandia’s over 140-year history have the
demands on us to quickly and continuously prepare for the future been as great’.18 Top
management appears to have interpreted this as an opportunity to innovate, and innovation is
an idea which is increasingly visible in Skandia’s approach during the 1990s. In the same
statement, Wolrath comments ‘the goal is to make Skandia an innovative business community
within society at large. Our innovative power will determine how well we accomplish this
goal’. They have also seen it as an opportunity to be proactive shapers of the future. ‘We can
choose to focus strictly on streamlining or we can seek new opportunities and markets.
Skandia has chosen to take the offensive and view the future as an asset for growth’.
(3) Lead the agenda externally as well as internally
As part of taking the offensive, Skandia has deliberately engaged in extensive networking
externally, developing a community of interest, and increasingly a community of practice,
around the intellectual capital agenda. The first, ‘missionary’ stage of the IC programme lists
‘gather pioneers for change’ as an important activity. One of the striking features of Skandia’s
approach has been the degree to which it has engaged externally to learn about, to inform and
indeed to shape the debate about intellectual capital. Examples include the following. (a)
Work with other executives concerned with the same agenda, including managers from ABB,
Mutual Life Canada, and Dow, as well as leading policy development in the Swedish
Coalition of Service Industries. (b) Collaboration with other opinion leaders and policy
18
Power of Innovation Supplement to Skandia’s 1996 Interim Report p.2
19
makers. For example, Edvinsson organised a meeting in Mill Valley, San Francisco in 1994,
which brought together a group from industry, academia and policy research. In April 1996,
at a symposium on intangibles, sponsored by the Securities and Exchange Commission,
Commissioner Wallman predicted that intellectual capital, and specifically the Skandia
supplement approach, would one day become the heart of the modern corporate annual report.
(c) Joint work with leading academics, in Europe and America, and willingness to have
researchers study Skandia. (d) Active links with the quality business press leading to articles
in such publications as Fortune (1994) and the Economist (1998). (e) Edvinsson has been a
regular presenter at the growing number of conferences on intellectual capital and knowledge
management and the firm has sought to sponsor high profile events, such as the Mind Sports
Olympiad in London. (f) Finally, Skandia has also sought to gain visibility in local
communities and in schools, in order to increase its visibility and reputation as an innovative
organization.
(4) Leverage the programme into new business opportunities
Although the IC programme can be described separately from IC based strategy, there is in
practice a strong connect - for example, measures of IC are designed to influence investment
in IC. However, beyond this, it was expected that the IC programme should itself provide
insights into new business opportunities. Two are frequently cited by Skandia. First is its
move into intellectual capital insurance. Second, is the packaging of its understanding of IC
and leveraging its capability in this area. This has led to the development in 1999 of UNIC
(Universal Networking of Intellectual Capital) as a separate knowledge management business.
Capital as Language and Metaphor
We have already observed that a major objective driving the IC programme was to make
intellectual and social capital more visible. To achieve this, Skandia has emphasised language
as well as measurement. Indeed in what Edvinsson describes as the missionary stage of the IC
programme, he puts ‘simple metrics and language for conversation’ alongside each other as
significant activities. He subsequently explained this as follows: ‘so therefore we developed
those two models, you could say, the value scheme of Skandia, with various boxes to describe
where do we have values, hidden values in the organisation. The other model was how do we
nurture the hidden values which is the navigator. And there you see the social context and the
social process again based on the realisation that we need a new language to change the
perspective. This new language was based on the insight that if you want to communicate to the
20
financial community it has to be numbers. So it's a new language based on numbers. But to
communicate to a larger audience than the financial community we also need to have another
pedagogical twist which we picked up from a professor in Finland. She has been working with
senior pedagogics and she has found out that if you want to communicate with people above the
age of 25 you need strong colours, big images. So therefore the supplements have also a
graphical language which is waves and flowers and boats etc., trying to convey the message of
renewal’.
We can see Skandia’s investment in language, and its impact, in a variety of ways. From the
outset, Skandia chose to use the term ‘capital’ but to extend it to areas not conventionally
labelled as such within the vocabulary of business. Thus, although intellectual capital may be
in common currency, its use of the terms ‘organizational capital’ and ‘customer capital’ were
unfamiliar, particularly early in the 1990s when Skandia developed its models. In adopting
these value laden but unusual words, it provided a clear and novel terminology, with
definitions, as a basis for constructing the discourse around intellectual and social capital,
both within Skandia and beyond. Second, as we have already noted, Skandia has consciously
been playful with words to stimulate different ways of thinking. As one executive commented
‘language is critical for your thinking. For example there is a big difference between having
controller or value finder on your business card. Language is very important in searching for
the images’. Another commented ‘it is important not to call things with the old names when
you want to go into the future’. Thus, Skandia’s pursuit of ‘futurizing’ is intended to contrast
with conventional planning – in theory and in practice. Even Edvinsson’s title, Director of
Intellectual Capital, was unusual in its time. This emphasis on language extends from single
concepts and terms to the development and frequent repetition of a few key phrases – in
documents, presentations etc., again both within and without Skandia. We have already
referred to several of these, including: the importance of ‘hidden values in Skandia’, viewing
the ‘future as an asset,
‘Skandia as an innovation company’,
and ‘specialists in
cooperation’..
Alongside language, Skandia has also placed great stress on the use of metaphor. Again, the
missionary phase of the IC programme lists ‘develop visualising metaphors’. Edvinsson
explains: ‘Skandia chose to use a range of complementary approaches and methods.
Put
briefly – these involved a commitment to developing a new accounting for intellectual capital
combined with strong visual imagery and metaphor to communicate the message’. Although
21
Skandia has used a variety of metaphors and visual imagery in its documents, particularly the
intellectual capital reports, there are a few central metaphors which underpin its programme.
Two will be mentioned here. First, the metaphor and picture of a tree – in which the root
system is as large as the branch system. This image is used to emphasise that conventional
accounting focuses primarily on the crop – the fruit, whereas
tomorrow’s harvest is
dependent upon the roots – which lie hidden from view. The metaphor is thus part of the
visualizing process in Skandia. The second enduring metaphor is navigation. It appears in
both the accounting logic, through the navigator, and in the visual imagery of reports. Even
the Skandia Future Center is designed around the navigation metaphor
Closely related to this, is Skandia’s recognition that story telling is an important part of
effective management. As one corporate executive explained: ‘90-95% of stock variations is
based on stories, non-financial information. And if we could systematise that story telling and
improve the quality of the stories, then you have a much more solid base for the valuation of
our company as well as other companies’. The language and metaphors are an important
element in that story telling, both creating an interpretation of events and encouraging people
to behave on the basis of that interpretation.
Capital as Technology and Artefact
In this element of architecture, we focus on the physical tools used to support the programme.
Two are especially important in Skandia’s own descriptions of their programme: information
technology and artefacts.
(1) Information technology.
As we have already observed, IT was from the outset a vital
part of Skandia’s approach. Technology-enabled systems were used to capture learning, to
transfer knowledge and to make connections within and without the firm. Skandia has
continually experiment with the technology itself, as well as the systems they carry, in order
to simulate different types of knowledge environments. We have already referred to the
knowledge café at the Corporate Council meeting – an approach applied occasionally in other
parts of the organization for experience of collective intelligence. The Skandia Future Center
also experiments with computers with cameras, bringing live pictures from different
locations, again to experiment with ideas of time/space compression. In such prototypes, it
appears that it is the physicality of the technology and its impact on behaviour and interaction
which Skandia wishes to observe.
22
(2) Artefact: Skandia appears to attach importance to investment in other artefacts besides
information technology. One of the concepts used frequently by Leif Edvinsson is ‘gestalt’
by which he means to make an idea tangible in physical form. Thus chairs are gestalts of the
knowledge and craft skills of the chair maker. Edvinsson’s and his colleagues view gestalt is
an important means of making the abstract tangible, much in the same way that metaphor
makes the hidden visible. The Skandia Future Center, described below is, perhaps, the most
thorough expression of Skandia’s commitment to experimenting with artefacts to encourage
networking, exchange and, thereby, innovation.
In so doing, it can be regarded as
experimenting with ides of affordance, discussed recently by Cook and Brown (1999). It is
also very much in line with actor-network theory in which material objects can be views as
influential agents within the network (Latour, 1998).
Capital as Function
A final element of Skandia’s architecture is the creation of key roles in the intellectual and
social capital networks. Perhaps the most obvious is that of Director of Intellectual Capital,
but various other roles have emerged during the programme.
These include those of
intellectual capital controller and learning controller, both appearing first in AFS. Rather less
obvious is that of ‘cultivator’ at the Skandia Future Center – a position created as the focal
point in creating and supporting the environment designed to be a greenhouse for crossfertilisation and interaction. Another role recently established at the Center include that of
FuturICer and Connector, who focuses on making explicit Skandia’s learning to date around
intellectual capital and extending this to propositions about the links between intellectual
capital, relationships and futurising.
It is to the Future Center we now turn in order to examine how these various elements of
Skandia'’ architecture of intellectual and social capital come together in one prototype
location. The vignette below is adapted from Earl and Nahapiet, 1999a and summarised in
Figure 4.
23
The Architecture of Intellectual and Social Capital in Skandia
(2) A vignette of the Skandia Future Center
Under the heading ‘The Future as an Asset’, the supplement to Skandia’s 1996 interim report
states that the ‘SFCs ambition is to make innovation a core competence within Skandia and
foster a climate of collaboration that creates value, stimulates growth and increases the
return on intellectual capital’. Seen as ‘ a bold venture in Skandia’s development’ and ‘an
investment in futurizing processes’, the first SFC opened in May 1996 at Villa Askudden in
the archipelago town of Vaxholm, north of Stockholm. In its first two years, it attracted over
10,000 visitors. Although the majority of these were employees of Skandia, a growing
proportion of visitors come from other organizations and from other countries. They are
drawn by the increasing reputation of the Center as an innovative meeting place for
conversations about the future. This is a different place. Here it is informal and you think
differently comments a Swedish visitor. The first thing you notice is the smell, observes the
Economist.19 It is inspiring – there are so many impressions – you feel it, is the reaction of an
American executive.
Navigating your way to the future
Villa Askudden, built in the 1860’s, is a large timber house in the Swedish style, located by
the water’s edge. On entering the house on the lower ground floor, the connection to the sea
and things nautical is powerful: the timber and metal floor, with its faint smell of tar, the
porthole lights, the archipelago folk song playing in the background, the many artefacts,
including a captain’s desk, log book and navigating instruments – all create a clear yet subtle
impression of boarding a boat. The house is warm, airy and light and the smell of coffee and
fresh cakes draws the visitor onwards to the wooden staircase and up to the first floor. The
villa has been fully renovated - walls have been knocked down and windows replaced,
creating a create sense of openness and light. The floors and most of the furniture are wooden
and the windows right the way down the sides of the house offer panoramic views over the
sea. Indeed, one recent visitor to the Center commented: ‘you are so close to the water ….
You really feel that you are on the water... and that you have to steer the ship. It is very good.
With open space, you can see far horizons. Also it is important to have movement. The boats
are always moving.’
19
June 6th 1998 p.96
24
Navigating your way to the future is the central theme around which the SFC has been
designed. On all three floors of the Villa there are images of navigation – globes, maps,
nautical instruments, paintings of the sea and far horizons, model boats, ship’s lamps. As one
visitor commented: ‘there is a story line here, it is well supported and crafted, it is
convincing’.
These artefacts represent another central theme for the SFC: that of linking old
and new. The furniture, for example, spans from the traditional to the modern: from a third
floor room filled with Rococo antiques through to the latest, curious wooden chairs designed
for lumbar support. The office technology ranges from old typewriters and insurance ledgers
to the latest in telecommunications. Leif Edvinsson, the sponsor and inspiration behind the
Center, explains that the emphasis is deliberately on both high tech and high touch and that
to stretch into the future you have to stretch into the past.
This message is picked up by the
many visitors. As one of them commented when looking around the Rococo room: It is good
to have old things. It is important to have a sense of history – we don’t know why things are
as they are, why we do the things we do.’
An organizational laboratory
The SFC seeks to be ‘a strategic meeting place, a greenhouse for cross-fertilisation and
interaction’ and ‘a laboratory for future organization’. It’s design is based on Richard
Normann’s idea that you ‘don’t manage the people, manage the environment’. Leif Edvinsson
explains what we are trying to shape out there is a new management prototyping place where
you learn to find a new pace and place for your innovations – and the pace is very critical –
we move out there from brain storming to brain stilling. Much of what happens is built
around the idea of ‘contactivity’, a meeting which creates contact and activity. ‘It is not just
connectivity but contactivity - that you meet and through the meeting and the conversation
you create new ideas and stretch your thinking, you get a broader perspective on what the
future might be.’ Edvinsson emphasises that it is very important to make thoughts tangible
through artefacts, i.e. to ‘gestalt’ ideas.
Here we are prototyping a lot of things - future
teams, office design, increasing contactivity and increasing leverage.
For example, the way
you design a chair increases or decreases the contactivity. The environment is important:
light, colouring, furniture, space. When you have been through team building here, then you
have to go back to your job and the challenge is to change that. For example, asking how
would it be if we changed the furniture, the office, etc? - but its up to you. We are stretching
the organizational behaviour by having all these things coming together.
25
Creating waves
Asked how Skandia judges the success of the Future Centers, the immediate response is ‘the
number of people who come here’. This reflects Skandia’s intention that Center should be an
icon for change. Edvinsson explains I can call it Mexican waves and that can go through the
whole arena, circling round and the same goes for organisational development.
You are
building on those volunteers to start the ripple … Which means that once you have been
exposed to it, and you have seen the first small wave, you have seen 5000 people doing this
small wave and some of them are coming back, like the future teams. By showing courage
and making many small waves, we will generate power for renewal and innovation .
Making coincidences happen
At around 5,000 a year and growing, visitors to the SFC fall, very broadly, into two groups.
The first, and largest, group comprise those who come to the Center to use its facilities,
usually for an internal meeting, conference or training event. The majority of these come
from various parts of the Skandia organization, and it provides for them a good, off-site,
meeting place to stand back from the day to day business and think about the future. Some
come primarily because the SFC is part of Skandia with all that that implies: this is Skandia
and that is important. It is more convenient, you can link up electronically, use the equipment
etc.. there are lots of data and systems. Other Skandia employees are attracted to the SFC
specifically because of its physical environment and mission . Vaxholm as a place… it is an
interesting place…. It is near but far away… the atmosphere is so easy, it is a nice locality,
good food and friendly… you are more relaxed. …Its supposed to be creative… we are
encouraged to think about the future here.
However, the Center can also be used by people
outside Skandia, who similarly want a genial environment in which to meet. These include
local community groups, such as the police and sailing club.
The second group of visitors, more disparate but growing fast, come to the Future Center
because they want to talk about its agenda or discover what it is. Some of these visitors come
to attend meetings or conferences organised by Edvinsson on specific themes. In June 1997,
for example, over fifty people gathered for a morning’s workshop on the Intelligent Enterprise
led by Brian Quinn. Attendees represent Edvinsson’s growing network of those engaged in
the intellectual capital agenda, including managers from Skandia’s many alliance partners.
Other visitors have heard, seen or read something about Skandia and the SFC and they simply
26
want to discover more. During one week in March 1998, such visitors included executives
from Motorola, SEMA, Hanover Re-Insurance as well as a director of Swedish housing
corporation, a journalist, an independent consultant and an academic.
A typical visit to the SFC begins with a welcome by Leif Edvinsson or Ingrid Tidhult, the
only full-time person at the Center, with the title of ‘cultivator’. Chatting informally over a
cup of coffee and freshly baked biscuits, taken sitting in the south end of the first floor gallery
overlooking the water, Leif or Ingrid describe the background to the Skandia Intellectual
Capital programme and the Center’s mission to be a laboratory for future organization.
Ingrid, for example, comments ‘that
I am prototyping the future organization:
I am
telephonist, secretary, maintenance, managing director, cultivator etc’.
Then follows a tour of the building during which Leif or Ingrid expand upon the Skandia’
perspectives and approach, point out the significance of some of the artefacts, and answer the
many questions which visitors ask. These can be wide ranging, for people come to Villa
Askudden with different agendas. Some wish to know more about intellectual capital and
Skandia’s work in this area. Some arrive because they are interested in the design of the
future work place, and their questions focus on space, furniture and their consequences for
behaviour. They discuss the flexible furniture and space allocation, the different styles of
room, the implications of meeting in a café rather than office environment. As one visitor
reflected, ‘this is a good place for interfaces. This is a different place: when you are in the
office, you think differently. Some people like chairs with five legs, just to be safe. Here it is
informal and you think differently’.
Others come because they want to deepen their
understanding of creativity, innovation and renewal, and their questions focus more on
atmosphere, freedom, making connections. The housing association executive suggests: ‘it is
a beautiful place.
We are not used to such beautiful buildings. Ours is a very strict
organization - very straight, boxes, dark buildings. Here, it is like home - it is relaxed, it is
light.20 At work, we have no meeting place. If you sit and talk, people think you are not
working. You have to have something on your desk and be moving papers. . Yes, we go round
to each other’s offices - but you are still thinking about the papers on the desk and not about
the future and about different things. Here, it is a very different environment - not like your
own working place. Here, there is a chance to be more creative: you can leave all the old
20
The SFC was explicitly designed to create a home-like atmosphere, with relaxation as an enabler of creativity.
27
things behind you’.
Stefan Helander, a member of one of the Future Teams commented
during a return visit to Vaxholm: it is great to meet out here: to meet across cultures - both
company and country. It is so relaxed. There are no rules and that’s important when you
start something new. Others visitors, however, have a much less focused agenda – put simply
they have heard that the Center is interesting and they want to know why. Jonas Kjellstrand,
a recent recruit to SFC explains the place makes tangible a set of ideas.. people like to visit
artefacts: the Coliseum in Rome, the Eiffel Tower; Big Ben etc. But now people want more:
they want to be there, to experience it, to ’get it’. An important component of the ‘tour’ of
the SFC is the showing of some of Skandia’s visual material – a recent video, such as that
made recently by the BBC as part of an open university programme or a CD Rom explaining
the next stages in the intellectual capital programme. All visitors are encouraged to take away
copies of these materials with them at the end of their visit.
The final stage of any visit is usually another chance to chat – over an informal lunch, or tea,
often with other people who happen to be in the Center at the time. As one manager from
Vesta explained during a chance meeting over lunch: every time I have been here on a
meeting I have also met other people and had other conversations - which we are doing now.
I didn’t come here to meet you, but I did meet you when I came here and that has happened
to me every time I have been here. I have met other people either that I know or that I don’t
know. I have been involved in discussions - being able to present my views. Ingrid Tidhult
has worked at the Centre since it opened and notes that sometimes there are accidental
meetings and sometimes there is chaos, but out of chaos, some good things can come.
Actually, I don’t believe in coincidence any more. I think you make it likely that these things
happen. She illustrates with a series of chance meetings that led to productive conversations
and subsequent action.
In his discussions, Leif Edvinsson concludes ‘The place is for one activity – futurizing… It is
about prototyping new behaviour – very agile, moving at high speed new connections and
new possibilities and, thereby, you are stretching.’
Reflections and Implications
We began this paper with two empirical questions: (1) what processes are used to invest in
intellectual and social capital and (2) how do these processes influence each other? Through
inductive analysis of a single case, we have identified two patterns. First, investments in
28
intangible assets, such as intellectual and social capital, can be made both directly in support
of business and corporate strategy and more indirectly, through programmes of capability
building. Second, at least in respect of Skandia, it is possible to identify a set of interrelated
elements in these investment programmes, a set we have labelled the architecture of social
and intellectual capital. We have described these elements and illustrated several of the ways
in which they are interconnected. Further work is needed to translate these illustrations into
formal propositions to be examined in the context of other organizations.
For those concerned with the strategic management of intellectual and relational resources, we
suggest that the architectural framework identifies important features of an investment
programme for these intangible assets. For those concerned with resource based theory, we
believe that this framework both builds on and extends the concept of organizational capital
as it presently stands in the field (Prescott and Visscher, 1980; Tomer, 1987; Barney, 1991).
Although researchers vary in the aspects of organization they choose to emphasise, analysts of
organizational capital typically emphasise the embedding of human capital in various forms
of information system, and a range of organizational processes shaping the pattern of
relationships inside and outside the firm. Throughout this article, we have suggested that
strength of Skandia’s approach lies in the reciprocal and reflexive relationships between their
parallel investments in intellectual and social capital. We suggest this relationship and the
architecture which supports it can usefully be viewed as organizational capital. (See Figure 3)
There are, of course, many limitations on the conclusions one can draw from a single case
study and, even in a paper of this length, it has not been possible to explore many aspects of
the reflexivity between intellectual and social capital. Nonetheless, we believe the Skandia
case presented here raises some important issues which merit further examination – either
through this or other cases.
First, in respect of social capital, there has been some debate as to whether social capital is
always a by-product of other activities. Skandia’s work suggests that companies can and do
invest to build social capital. Through its social capital programme, Skandia has impacted not
only the structure of social networks but also important cognitive dimensions. It has also
gained insight into some of the conditions conducive to the development of relational social
capital. In so doing, it has highlighted the potential of material as well as social agency
29
affecting relationships21 and perhaps raised questions about the degree to which time is
always required to build reciprocity of exchange.
Second, with regard to intellectual capital, the strength and perhaps the impact of Skandia’s
approach, particularly externally, may derive in part from the fact that it appears effectively to
address different modes of cognition. Recently, Bruner (1990) proposed that there are two
different such modes - the information or paradigmatic mode and the narrative mode. The
former suggests a process of knowledge creation rooted in rational analysis and good
arguments, the latter is represented in synthetic narratives, such as fairy tales, myths and
legends, good stories and metaphors. Both are clearly evident in Skandia’s joint emphasis on
metrics and metaphor. Its explicit commitment to both high tech and high touch in both its
intellectual and social capital programmes may also reflect an understanding of these different
modes.
Third, considering the connections between social and intellectual capital, the Skandia case
highlights the potential impact of external social capital for the internal exploitation of
knowledge. For example, there are those in Skandia who argue that by gaining external
legitimacy and reputation for its IC language and approach, this has accelerated the degree of
internal take-up of the ideas.
Finally, in respect of the knowledge economy, the Skandia approach appears to combine two
different and potentially contradictory logics - an asset based accounting logic as a route to
explaining the difference between book and market value and a logic more akin to complex
adaptive systems which sees non-linear renewal and innovation processes as the source of the
value creation. The relationship between these two merits further investigation.
21
See also Cook and Brown, 1999.
30
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32
Figure 1 Skandia’s Approach to
Intellectual and Social Capital
Intellectual Capital
IC based
strategy
IC programme
Social Capital
SC based
strategy
SC programme
Figure 2 The Architecture of Intellectual and
Social Capital in Skandia
Intellectual Capital
Capital as:
Philosophy
IC based
Strategy
IC
Programme
Strategy
Language &
Metaphor
Technology &
Artefact
Social Capital
SC based
Strategy
Function
SC
Programme
33
Figure 3 Organizational Capital in Skandia: the
interplay between intellectual and social capital
Intellectual Capital
Capital as:
Philosophy
IC based
Strategy
IC
Programme
Strategy
Language &
Metaphor
Technology &
Artefact
Organizational
Capital
Social Capital
Function
SC based
Strategy
SC
Programme
Figure 4 The Skandia Future Center & the
Architecture of Intellectual and Social capital
Capital as:
Philosophy
• The future as an asset
• Design for emergence
Strategy
• High tech, high touch
• Prototype new behaviour
• Open to all
Technology
• Computers, but background not
foreground
• Skandia materials video, CD, websites, intranet etc
• Ventana, for simulating the future cafe
• Technology to stimulate all senses:
smell, sound, touch
Artefact
• Multiple representations of navigation pictures, globes, maps, music etc
• Old and new
• Building & furniture designed
to encourage networking
Language and
Metaphor
• Navigation
• Organizational laboratory
• Contactivity
Roles
• Cultivator, FuturICer and Connector
34
Appendix 1
Skandia Published Documents
Supplementary Reports on Intellectual Capital
Vizualizing Intellectual Capital in Skandia
Renewal & Development
Intellectual Capital: Value Creating Processes
Intellectual Capital: Power of Innovation
Intellectual Capital: Customer value
Intellectual Capital: Intelligent enterprising
Intellectual Capital Prototype Report: Human Capital in Transformation
Videos
Reflections on Intellectual Capital
Future Accounting & Intellectual Capital
3. Future Power of Skandia: Skandia Corporate Council 24-25 September 1996
CDs
Skandia and the intellectual capital development
FuturICing
1994
1995 Interim
1995
1996 Interim
1996
1997
1998
1.
2.
1.
2.
Appendix 2
Publications with Descriptions of Skandia
Publications written or co-authored by Skandia employees
Edvinsson, L & Sullivan, P (Dec. 1996) Intellectual Capital Management European Management
Journal
Edvinsson, L and Malone, M (1997) Intellectual Capital Harper Business
Roos, J, Roos, G, Edvinsson, L and Dragonett, N C (1997) Intellectual Capital. Navigating in the
New Business Landscape London: Macmillan Press Limited
Publications by external writers
Bartlett, C & Mahmood, T (1996; 1997) Skandia AFS. Harvard Business School Case N9-396-412
Bartlett, C (1998) Skandia AFS: Developing Intellectual Capital Globally: Teaching Note Harvard
Business School 5-398-111
Earl, M J (1994) Skandia International in C. Ciborra and T. Jelassi (Eds.) Strategic information
systems: A European perspective. John Wiley and Sons pp161-184
Earl, M J (1994) Knowledge as Strategy: reflections on Skandia International and Shorko Films in C.
Ciborra and T. Jelassi (Eds.) Strategic information systems: A European perspective. John
Wiley and Sons pp53-69
Economist (June 6th 1999) A Viking with a Compass p.96
Ghoshal, S. and Bartlett, C. (1997) The Individualized Corporation Boston: HBS Press
Hedberg, B, Dahlgren, G, Hansson, J and Olve, NG (1994;1997) Virtual Organizations and Beyond.
Chichester: John Wiley & Sons
Skyrme, D J and Amidon, D M (1997) Case study on Skandia in Creating the Knowledge Based
Business (Business Intelligence)
Stewart, T (1994, October 3) Your company’s most valuable asset: Intellectual Capital Fortune
Cover story
Stewart, T (1997) Intellectual Capital. The New Wealth of Organizations. London: Nicholas
Brealey. Contains many references to Skandia
Open University (1997) Intellectual Capital: The New Wealth of Nations. Video: BBC Publications.
35
Appendix 3
Skandia Organization
SKANDIA
Corporate Management and Group Staffs
LONG-TERM
SAVINGS
Life and Unitlinked
Assurance
(AFS)
Swedish
Skandia Life
ASSET
MANAGEMENT
Equities
Real Estates
Bonds
PROPERTY AND
CASUALTY
INSURANCE
Denmark
Norway
Sweden
UK
Italy
Skandia
Banken
Source: Skandia Annual Report, 1998
36
Appendix 4: Skandia AFS
AFS offers a range of products to satisfy the increasing concern of people in many countries that their
retirement systems and other welfare arrangements will be unable to meet their needs. With growing
awareness of the likely impact of an ageing population, many people wish to increase their savings.
Through AFS, Skandia has created a savings organization with unit-linked arrangements to tie these
private savings to growth investments. The business can thus be viewed as personal financial services
rather than mainstream insurance.
From the outset, AFS adopted an innovative business model based on alliances - both with key local
distributors (such as independent brokers and banks) and with highly successful investment managers.
In this model, AFS seeks to create value through providing the links between the distribution and
investment functions, designing innovative products offering life assurance and pension savings in
funds managed by leading firms and marketed by local, well established, independent distributors.
‘The basic idea is to provide the best savings alternatives in cooperation with the world’s best fund
managers.’ This model provided AFS both with fast, flexible and low cost access to national markets
through its distribution partners and strength in investment and financial management through its
investment partners. Described by some as a ‘hollowing out’ of the organization, its head - Jan
Carendi, saw this business concept as moving the firm away from being insurance specialists towards
being ‘specialists in collaboration’.
AFS’s Partnership Model
F
U
N
D
S
Investment
Product
Management
Development
Banks and
Brokers
Administrative Coordination
(Local)
(Global)
(Local)
C
U
S
T
O
M
E
R
S
Customers
785,000
Partners
46,000
AFS
1,700
:
37
Appendix 5
Skandia’s View of Knowledge Management
The knowledge value chain:
Create financial capital from structural capital from
human capital
Gather/
capture
Create
Share
Leverage/
Capitalize
The goal of knowledge management:
To improve the company’s value creation capability
through use of Intellectual Capital
Source: Internal Company Document
Appendix 6
Edvinsson’s Six-Step Road-Map
Phase
Activities
MISSIONARY
Develop Visualising Metaphors
Gather Pioneers for Change
Simple Metrics and Language for Conversation
MEASUREMENT
Develop the Metrics and the Value Model
Change Accounting System
Develop IC Function
LEADERSHIP
Focus on Future and Renewal and Development
Act Upon this at Different levels of Organisation
TECHNOLOGY
Develop IT systems to make visible IC
Use New Media to Communicate IC ideas
CAPITALISING
Develop Systems to Capture IC
Develop Systems and Processes to Recycle IC
FUTURISING
Nurture Innovation as Core Competence
Develop Futurising Facilities and Processes
Source: Internal Company Document
38
Appendix 7
Skandia Market Value Scheme
Market
Value
Financial
Capital
Intellectual
Capital
Human
Capital
Structural
Capital
Customer
Capital
Organizational
Capital
Innovation
Capital
Appendix 8
Process
Capital
The Skandia Navigator
History
CUSTOMER FOCUS
HUMAN
FOCUS
PROCESS FOCUS
TOMORROW
RENEWAL & DEVELOPMENT FOCUS
TODAY
INTELLECTUAL CAPITAL
FINANCIAL FOCUS
Operating Environment
Appendix 9
The Process Model
INDICATORS
BUSINESS
CONCEPT
SUCCESS
FACTORS
FINANCIAL
CUSTOMER
HUMAN
PROCESS
RENEWAL
&
DEVELOPMENT
FOCUS
FUTURIZING
ACTION
PLAN
39