Intellectual Capital vs Intellectual Property24 May 2016
Building enterprise IT projects as “capital investments” is something I consider potentially dangerous, because it lumps IT “assets” along with much more durable and valuable physical assets.
A key question to ask of an “IT asset” is just how valuable and permanent the asset is. In the venture capital world, nothing makes investors happier than hearing that a company is spending their investment dollars creating “intellectual property”. This is an intellectual product that is defensible and ownable: it’s not locked up between some employee’s ears, it’s owned by the company.
In contrast, building “intellectual capital” is a much more risky proposition. Intellectual capital is my stock in trade, it’s what distinguishes me from a random C/C++ programmer: I know some very detailed things about some specific open source projects that would take quite a long time to learn from scratch. It’s valuable capital, but it lives between my ears. It’s mine and mine alone.
Why is this important for enterprise IT projects? Because so much of the value created in IT projects is “intellectual capital”. Staff are assembled by a consultancy and take months and years to learn a business domain and the particular tools for the problem, and the particular code base that is the system itself.
And then when the project is done… they are sent off to consultancy’s the next project. Flush…
Treating enterprise IT projects as capital projects encourages miscategorization all over the place:
- The “system” is perceived as the target of the investment. But the value of the pile of code and hardware rapidly diminishes to zero once the knowledgeable staff are removed. Changes and enhancements that would take the original developers minutes now require days and weeks of staff learning time before they can be attempted.
- The nature of the funding assumes that at some point the system will be “complete”. It will be in “maintenance” mode. Except the budget assigned to maintainance is too low to make any substantial changes in response to unexpected future needs. So when serious new requirements arise, the response is always to start again from scratch. With a new team.
It’s weird that IT projects get this special treatment, because other areas of government are perfectly aware that when staff leave, they carry out the accumulated intellectual capital of years of learning.
The very nature of the outsourced IT relationship has obscured the fact that government is routinely building up very expensive stores of intellectual capital and then sending them on their way only a handful of months or years after they’ve built them.
Maybe it’s time to get back to building systems in house?