InformationWeek

February 22, 1999

Print this story

Protecting Innovation

continued...page 3 of 3

Related links:

Wal-Mart V. Amazon.com: The Inside Story

Hiring Helper

Dig Deeper For IT Talent

And from our sister publications:

Computer Reseller News The Ins, Outs Of Getting Over The Underhiring Blues

Capital Of The Mind
Patents and copyrights aren't the only ways companies are protecting their IT assets. A lot of intellectual capital resides in the minds of IT workers--and can walk out the door when they do. Many companies use IT itself to capture that knowledge. Companies such as Andersen Consulting, Ford, and Monsanto encourage employees to put "tacit" knowledge--the know-how in their heads--into "explicit" form, such as written reports or videotaped presentations. This captured knowledge is stored in repositories such as groupware, databases, intranet Web servers, and streaming media servers, all of which users can search.

"IT managers are starting to do knowledge-management projects internally within their own departments," says Jeffrey Mann, an analyst with Meta Group Inc. "They're doing things like putting in help desks, knowledge bases, frequently asked questions databases, and best-practices databases."

Ownership of intellectual capital gets complicated when companies hire IT services vendors to aid in development. Many companies demand that services vendors transfer knowledge about systems they develop to in-house IT staff. "We're seeing a definite trend in the marketplace where clients are requesting knowledge sharing more and more," says Sunil Wadhwani, co-chairman and CEO at Mastech Corp., an IT services company.

Cloister Spring Water Co., a $33 million bottled-water distributor in Lancaster, Pa., hired Mastech in 1997 to develop a custom enterprise resource planning system. Cloister's IT staff worked closely with Mastech's developers to understand how the software was built. "The people who are supporting the package were intimately involved in the design phase," says Curt Smith, controller at Cloister. After developing the system, Mastech transferred knowledge to Cloister's staff in a series of training sessions. Cloister retained total ownership of the source code, which it copyrighted.

Many companies require IT employees to sign confidentiality agreements as a condition of employment or for specific projects. Companies also require IT workers to sign noncompete agreements that limit their ability to change jobs within their industries.

In the IS division at Wal-Mart, only officers at the director level or higher sign noncompete agreements. Lower-level employees are expected to abide by Wal-Mart's statement of ethics, which forbids them from disclosing trade secrets while they work for the company or after they leave. The statement of ethics is a key element in Wal-Mart's case.

"IT professionals are very mobile," notes Wal-Mart's Mott. But part of having the freedom to choose your employer is having the freedom to join a company that doesn't compete with your former employer, he says. At least nine out of 10 new-job choices won't put an IT professional in danger of revealing a former employer's proprietary business practices, Mott contends. "Because of that mobility, we're in a better position as an industry to protect trade secrets."

Some companies avoid piling legal restrictions on IT employees for fear it will repel talented people. Instead, they use high salaries and incentives to encourage loyalty and retain key people. "In an industry like ours, you'd better be willing to pay employees a premium if you're going to put restrictions on them," says Ed Glassman, director of IT strategy at Pfizer Inc., a $13.5 billion pharmaceutical company in New York. "Trying to lock people in with some sort of legal document would be ineffective and detrimental. Would the best and brightest sign up for a deal like that?"

The company frequently credited with inventing the concept of measuring intellectual capital is the Skandia Group, a Swedish financial services firm with $18 billion in assets. In the early 1990s, Skandia proposed measuring intellectual capital by subtracting a company's book value (tangible assets) from its market value (number of shares multiplied by stock price). What's left is the value of the company's intangible assets, or its intellectual capital.

Today, Skandia's IT organization is less concerned with measurement and more attentive to cultivating its people's intellectual capital. "It's not really the systems you have today that are important," says Anders Söderström, CIO of the company's American Skandia and Skandia AFS business units. "It's more important to manage competence at building the next platform."

IT managers at Skandia expect their staff to keep proprietary information confidential. But they concede leakage is inevitable. "If employees leave, they can take knowledge with them about how to build a system like ours, but you can never really prevent that," Söderström says. "If I make sure people evolve and are happy, and I keep them here, that's more important than anything I could patent."

Whether through motivating workers or filing legal motions, IT managers are waking up to the need to protect their intellectual capital in all its forms.