The KF and TOC

I’ve just been reading Intangible Capital, by our own Mary Adams and Michael Oleksak. Yes, it’s out and available! In this book they formulate an interesting thought framework that they call the knowledge factory (KF). They visualize the components of this factory as color-coded Lego pieces that represent structural capital, human capital, relational capital, and the business recipe. This makes a nice mnemonic device to think about how combinations of these elements make up Google’s KF vs. the KF of a medical device company, in their example.

I would like to offer a complementary visualization of the KF. The image I have in mind is the shop floor in a manufacturing firm. The manufacturing factory starts with some raw materials or assemblies, and then runs through various processing steps, operating on work in progress to create finished goods inventory. Processors, composed of various automated and non-automated equipment and tools, perform these steps.

The Theory of Constraints (TOC) provides a good way of analyzing manufacturing operations. As developed by Eli Goldratt, TOC focuses on identifying the one bottleneck in a plant (or firm) that “constrains” the flow of revenue-producing throughput. Goldratt originally developed this theory for the manufacturing industry, and it has since been applied very widely in a variety of situations.

Each of the aspects that the TOC addresses has its counterpart in the knowledge factory. As Mary and Michael suggest, knowledge-based intangibles are the raw materials of the KF. This includes tacit and structuralized IC, and it also includes well-articulated problems, which are the feed that drives the factory. Finished goods inventory of the KF (its intended results) comprise the capabilities required to perform intelligent and well-informed activities that produce the firm’s products and services, maintain relationships with customers and partners, etc. Work in progress of the KF are half-solved problems, improvement projects underway, inventions that have yet to become market-ready innovations, etc.

In the knowledge factory there are tools, such as databases, search engines, and simulators, but the real processors are human minds. In the manufacturing world automated processors are programmed and adjusted based on what’s being produced. The humans of the KF might object to an implication that they are programmed, but there is no escaping the fact that the KF requires dependable problem solving, which involves a balance between talent and protocols.

Just to complete this cursory analogy between the KF and TOC factories, there is the issue of the KF constraint. TOC practitioners know that the one bottleneck at any given time could be any processor or process step, or it could be market demand when the factory too easily processes its orders with spare capacity. In the KF a few examples of possible constraints include cognitive functions such as sensing, sense-making, logical inferencing, domain knowledge, specific experience, the ability to articulate a valuable problem to solve, etc. The lack of capacity of any one of these can be the constraint at any point in time.

As in manufacturing, the constraint shifts from one place to another, as bottlenecks are remedied and as conditions change. So this kind of analysis of the knowledge factory provides a continuous feedback loop that applies a virtuous circle of improvements to the KF and to business performance.

Many thanks to Mary and Michael for their good work, which inspired this thought.