Marketing an intangible capability

One of the difficulties of understanding the Intangible Economy is that even the description of intangibles is rather (pardon the pun) intangible. Intangibles run from worker skills and know-how and informal relationships that feed creativity and new ideas to formal intellectual property and brand names. The term is often used narrowly only to describe these latter “hard” intangibles, which are often also categorized (along with software) as intangible goods. The former set of intangibles – worker know-how, relationships, tacit knowledge – is some times referred to as intangible competencies. (See the Athena Alliance paper Reporting Intangibles: Lessons from the US Experience for a more in-depth discussion.)
Intangibles are used both internally in a company (as part of the production process) and marketed externally. The business model for marketing/selling intangible goods outside the company is well known: licensing, royalties, etc. Marketing intangible competencies is another matter – especially if that intangible was developed for internal use (e.g. a better production process) rather than specifically as an external product (e.g. a specific set of skills to sell to a client).
It can be done, however. Steven Pearlstein’s column in this morning’s Washington Post has a perfect example – “GE’s Wealth of Free Advice”. As Pearlstein relates, GE has been giving away free consulting services on its legendary Six Sigma process, especially to companies who borrow money from their financing arm:

For the $15 million that Six Sigma costs a year, GE Commercial Finance buys a ton of customer loyalty and sets itself apart in what is otherwise a commodity-service business. Perhaps even more important, the program increases the odds that the mid-size firms to which GE is lending money will not only stay in business long enough to pay back the loans, but will be more likely to grow in the future — as will their need for capital. “We know instinctively that the benefits to us are substantial,” said Sharon Garavel, who heads up the program. “Our customers have told us that they intend to give us a larger share of their business.” By her reckoning, it has already generated 350,000 hours of free consulting services to more than 3,000 customers since 2002, saving them collectively more than $1.2 billion.
In fact, under chief executive Jeffrey Immelt, who started offering Six Sigma assistance to customers when he ran GE’s medical equipment division, all of General Electric’s units have an “At the Customer, for the Customer” program. It is a brilliant example of how a company has taken an internal skill — in this case, change management and continuous improvement, for which it is world-renowned — and turned it into a marketable product.

Exactly – turning an internal intangible competency into an external intangible good. But with a very important twist: it is not marketed as a separate product, like licensing out a non-core technology. This model links the intangible directly back to the core product. In other words, GE Commercial Capital is not going into the Six Sigma consulting business. They are using this intangible asset to enhance its core business of lending money.
Smart – very smart.

Copyright critique – from the right

The Stanford Review is proudly conservative in its views, which makes this article on copyright – “Promoting Science and Useful Arts: The Growth of Copyright Since 1976” – that much more interesting. Written by its Managing Editor, Omkar Muralidharan, the conclusions are not what you would necessarily expect:

As Lessig argues, copyright is robbing culture of its lifeblood—collaboration. Truly vibrant culture requires the freedom to build on, modify, and borrow from others’ work. Copyright makes this process difficult, if not impossible. The creator must apply for permission to use each recognizable source of inspiration, and must change his or her work if denied. Copyright expansion is pushing us toward a sterile, lifeless “culture” where everyone pretends to work in isolation, afraid that others will hurl accusations of theft and sue for damages.
Is this necessarily our future? The economic factors that have driven copyright expansion show little sign of abating, but for the first time, there is hope on the cultural front. The development and spread of easy media creation tools means more and more people are running into copyright barriers, while peer-to-peer networks and other sharing technologies mean vast numbers of people infringe copyright frequently. All this means copyright law is beginning to be critically examined, despite the strong trend toward ever more restrictive laws. This combination of factors is pushing us toward a critical point—the future of copyright will be determined relatively soon. Only time will tell if we will choose a rich culture where people share freely, or a poor one where everything is owned.

The cultural argument that the article advances is an interesting one. But ultimately it is a subset of the economic argument. In an information/knowledge driven economy, the creative isolation that Muralidharan fears due to restrictive IPR is formula for economic stagnation – not just sterile culture. Information and knowledge need to be shared in order to be utilized and expanded. Overly restrictive controls on information are like shutting off the water supply to agricultural crops — insuring nothing grows. While that may be in the interest of certain information holders — insuring that competitors don’t grow by withholding information — such a tactic is detrimental to the economy as a whole and will eventually backfire on the practitioner as their creative growth dries up as well. As has been stated over and over again, balance between users and producers of information is key. And the current system is out of balance.
I’m not sure that I agree with the article’s statement that the future of copyright will be determined relatively soon. I think that this is an ongoing process of constantly re-balancing. Right now, that re-balancing is sorely overdue.

May employment

Quick take on the May employment numbers:
Employment growth was flat – increase of only 75,000 new jobs – while the unemployment rate actually dipped a 0.1% to 4.6%.
Financial services continued to gain (up 12,600), as did the professional and business services (up 27,000), mostly in the computer systems design area (up 11,200). However, the information service sector lost 13,000.
Health and education services also continued to gain (up 41,000).
Food services and drinking places continued to gain (up 9,000) while arts, entertainment and recreation lost slightly (down 2,800).
Manufacturing decreased by 14,000 with declines in both durable and non-durable goods (durable goods production workers were actually up while non-durable goods production workers dropped significantly). The auto sector continues to be the most volatile.
Once again, big loser was retail trade – down over 27,000 (after dropping by 36,000 last month).
Generally, bad news for the economy – but some sliver of good news in the high-end services jobs.

Issues for the new Treasury Secretary

Most of the press (and the blogs) have been focusing on the macro-economic challenges that the new Treasury Secretary will face. The chatter has been on the trade deficit, the current account deficit, the budget deficit – and the impact of those deficits on the value of the dollar, the stock markets and the bond markets.
But yesterday’s Wall Street Journal pointed out another economic issue that will confront the Secretary in his role as the Administration’s lead economic policymaker – “Bush’s Competitiveness Agenda Is Tested”:

Henry Paulson accepted his nomination as Treasury secretary by highlighting the need for the nation to stay competitive. But one of his first challenges will be guiding President Bush’s ballyhooed competitiveness agenda out of choppy waters on Capitol Hill.
The initiative, launched at the beginning of the year, started out with wide support among senior Democrats and Republicans in Congress. As the election year progresses, key planks face an uncertain future.
A proposal to renew the now-expired research-and-development tax credit, the keystone of the plan, was blocked from the tax-cut package that Republican leaders sent to the White House a few weeks ago. Instead, they promised the provision would be folded into a “trailer” bill later in the year. A plan to allow more highly skilled foreign workers into the country is in limbo, part of the deadlock over immigration. And with fiscal conservatives demanding curbs on spending, the outlook for proposals to increase spending on basic science research as well as math and science education is unclear.
“Two months ago, it looked like this was a slam dunk. Now it’s bogged down,” says John Hassell, Hewlett-Packard Co.’s director of federal-government relations, who is working to build momentum for the plan. “We’re in an election year, and it’s very easy for the headlines of the moment to push this off the front page.”
. . .
Under Mr. Bush’s proposal, about two-thirds of the $136 billion would go toward making permanent the R&D tax credit, a now-expired program that encourages firms to invest in cutting-edge research. “If you’re not sure the tax thing is going to be around, you may not want to invest,” Mr. Bush said recently, explaining the reasoning behind making the credit permanent. Amid budget pressures, Congress appears likely to revive the credit for a year, or perhaps two, when lawmakers get around to the second tax bill.
The balance of the Bush competitiveness program is designed to increase government spending on targeted priorities. The biggest beneficiaries: basic scientific research and mathematics-and-science education for high-school and younger students. Among other things, the Bush plan proposes to increase next year’s spending by 9.3% for the National Science Foundation, the Department of Energy’s Office of Science and the Commerce Department’s National Institute of Standards and Technologies, a step toward doubling their budgets during the next decade.
Last week, the House approved a spending bill that would bump up funding for research supported by the Energy Department’s Office of Science, carrying forward one plank of the Bush plan. The other science proposals have yet to be fully aired in the House, and fights may break out over the remaining requests. Mr. Bush’s education proposals — designed to increase teacher training and widen student interest in math and science — appear to be in the greatest peril.
With the election looming, conservative House Republicans are showing little fealty to the White House on fiscal issues. Texas Republican Jeb Hensarling, a leader among House conservatives, says the government has more than 200 programs designed to promote math-and-science education. “Is the 208th program going to be the one that gets the job done? I have my doubts,” he says, predicting a fight on the House floor. “Most House conservatives are going to be very reluctant to put their imprimatur on a new program.”

I’ve been following this legislation closely, and it is clearly not a slam-dunk. It will take continued push from the White House and the House and Senate leadership. As the article notes, there is a strong conservative element that will fight against any new programs or funding – in both chambers. Already on the Senate side, the Senate Commerce Committee striped out a number of innovative new programs from their portion of the package. Among the provisions dropped was a small pilot program to help Manufacturing Extension Partnership (MEP) Centers develop new programs to help small manufacturers become more innovative — to go beyond the current focus of the program to help small manufacturers with new process technologies.
At a time when continued American prosperity relies on the creativity and innovation, I really don’t understand the objection to moving our premier business assistance program – MEP – into the 21st Century. MEP was a successful part of our meeting the competitive challenge of the 1980s – with its focus on new manufacturing techniques and processes. It can be an important factor in meeting today’s competitiveness challenges – of creativity, innovation and design. But Congress needs to support this new direction – not hinder it with the cry of “no new programs.”
We support innovation in the economy. Why can’t we support innovation in economic policy as well?