Investing in intelligence?

Investing in intelligence?

710 INVESTING IN INTELLIGENCE? P. Caspar Following a discussion of why intelligence-in its multifarious senses-is in vogue, the level and dimensio...

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710

INVESTING

IN INTELLIGENCE?

P. Caspar

Following a discussion of why intelligence-in its multifarious senses-is in vogue, the level and dimensions of contemporary change and complexity are discussed. Intelligence provides a means of dealing with these phenomena, particularly with the growing shift towards a ‘non-material’ economy based on information, communication, finance and a range of services. This article argues that it is vital to invest in knowledge and intelligence to further strategic visions in both material and non-material realms.

Faithful readers of newspapers and magazines have all noticed in recent months that ‘intelligence’ has become an ‘in’ word. There is no daily or periodical which does not use the word regularly, in extremely varied and sometimes very surprising contexts: An electric switch is intelligent because it ‘sets your alarms off at the slightest noise’. its two hands are worth A watch is intelligent because ‘it isn’t like other watches: and equipped with an six’. An exercycle is intelligent because ‘it is streamlined ergonometric trip computer’. The same applies to a fire detector which ‘doesn’t it supplies a constant stream of merely sound the alarm in case of danger: information to an alarm centre’. Better still! But one also speaks of ‘an intelligent in the form of a van’ for a camper, a ‘hydroactive compact camera’, ‘intelligence automobile suspension which intelligently anticipates the car’s reactions and increases its dynamic safety capacity’. Buildings are becoming intelligent thanks to home robotics, while logistics have also become intelligent; banks say that they are ‘intelligent with you’, that they ‘think intelligently about money’. And even television weeklies bring us the intelligence of pleasures and the pleasures of intelligence.

A first hypothesis comes to mind on glancing through these pages of advertisements. The things called intelligent are those objects, machines and services which have become capable of reacting independently when faced with an operational problem and capable of anticipating possible problems thanks to the information which they take the initiative of supplying. Two other advertisements provide a cogent illustration of this: one says that ‘intelligence is at the heart of the network’, while the other claims to provide ‘intelligence as a service’. This will come as no surprise to industrialis& who have long been designing devices for self-servicing or built-in remote diagnosis, flexible workshops, and robotized assembly lines which adapt to fit business needs and production ups and downs and which develop their decision-making capabilities through ‘expert systems’. Professor Caspar is at the Conservatoire Paris Cedex

National des Arts et Mktiers,

22 rue Saint-Martin,

75141

03, France.

0016-3287/90/070710-20 @ 1990 Butterworth-Heinemann

Ltd

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All this comes under the heading of ‘artificial intelligence’ based on human intelligence which man has succeeded in incorporating in devices which are then controlled by delegation. In this connection, there is a marvellous gift in return, namely, when the machine’s signs help the maker to reflect and move ahead. However, a second hypothesis comes to mind in view of the quasiobsessional use of the word ‘intelligence’, even in situations which do not require such sophisticated devices. There may be a kind of exorcism hidden behind such a frenetic appeal to this specific ability to know and understand that is so typical of the human race. Exorcism or, in any case, a manifestation of a profound intuition: the men and women of our day will have to develop and mobilize constantly all their intelligence, both individually and within the economic and social systems they establish, if they are to continue to master both the discoveries they make and the planet-wide complexity to which their actions give rise, ie to make genuine progress in taking up the challenge they have set themselves. Two of the challenges appear at the heart of the uncertainties and confusion of present-day man, tossed about by events which disturb him and are often beyond him-the accelerating pace of change and an increase in complexity.

Intuitive

need for intelligence

to cope with change and complexity

Paul Valery regretted that the future was no longer what it used to be. Today we say that change is occurring constantly, and that this is happening at an ever faster pace. Half the things we use today did not even exist five years ago. And we are incapable of naming half the trades that will mark the year 2000. The French apply for 12000 patents every year, as against 30000 for the Germans and 300000 for the Japanese. More inventions have come into being over the past three decades than throughout the entire history of mankind. Of course, new technologies, which are to be seen as sciences of techniques, are at the heart of this exponential change. Yet one reason why technologies are developing so rapidly is that their development has itself become a need. Change is not an ideology. Nor does one change for the sake of changing, but rather because the different forms of change have become key elements in international competition, ie in the redistribution of powers worldwide. Products and services change because buyers and consumers themselves change, sometimes without their knowledge. We live in sociocultural currents which are in a constant state of flux, as a result of which we have gone in a few years from a society of repetition to a society of creation; to a society which has become increasingly demanding with regard to the satisfaction of needs, real or not, and with regard to anything that challenges our status or identity. For example, a product’s technological lifespan goes hand in hand with its psychological lifespan, which is linked to fashion and the interests of consumers-or producers and distributors. As far as companies are concerned, the quality of products and services remains essential, but it is rounded out by a growing need for innovation, adaptability and flexibility. The characteristic feature of efficient structures is their

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ability to develop rapidly as, for example, temporary resources to complete a project. The problem is not so much producing but rather knowing how to change production rapidly, anticipating what market changes will be. The primary condition is no longer profitability but rather ability to compete, ie the ability to gain decisive, lasting edges over one’s rivals, and to invest at an early enough stage to invent other such edges before the previous ones fade away. Heading up and managing a company or one’s own personal life is becoming increasingly delicate as the environment itself changes: deregulation is taking place in all fields, starting with the world of finance and money. New competitors are emerging in all fields of activities who operate by rules of the game and ways of doing things which are novel or even contrary to what had previously been felt was the right way to do things. In this connection, the saga of corporate raiders and takeover bids has once and for all changed the concept of corporate integrity, in all senses of the term. The nature and volume of the jobs, the configuration of productive structures and the real ownership of companies change, sometimes within less than a year. Population and immigration flows, together with funraise issues which affect all levels of social and damentalist attitudes, economic life. The major political and social oligopolies are shaking at their foundations; they are not only looking for a faithful and renewed customer base but for something to add meaning to their activities, or even to their very existence. And what can one say about the extraordinary geopolitical upheavals linked to Eastern Europe, which marked the end of 1989? They have already had an impact on the edification of Europe and will strongly influence North-South relations as well. The entire role of ideologies in world history is called into question when real or symbolic walls are destroyed together with the role which the image had assumed in policy making. Communism is disappearing. But we do not yet know what will follow, nor what help and economic support we should fashion to meet the needs of all these countries. 1990 is both the year of all creations and the year of all possible ruptures.

Change

and complexity

can also cause anxiety

When everything changes so quickly, we tend to think that those behind will follow, ie that the ‘man on the street’ will become involved and join the movement. This attitude ignores the fact that any change may be viewed as a threat when the speed and nature of the change combine. Although we tend to overestimate the changes which affect us, we also tend to underestimate the inertias, fears, anxieties and resistance to change which we carry in ourselves, especially when these changes are taking place in fields which are strongly characterized by complexity. Complexity does not mean complication. We have been familiar with complication ever since Borge’s descriptions of the library of Babel or Kafka’s descriptions of the bureaucratic universe. We experience complication daily through administrative bothers and legislative and regulatory provisions which govern the exercise of the work contract or training within the firm. We come across complication in the technical sphere when we

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choose an adjurant as common as glue, of which there are more than 5000 different kinds. Everyday French consists of 2000-3000 words, literary French of 6000 words and the French language of 60000 words, but the current technical vocabulary contins over 6 million terms! Things are complicated because a given situation combines factors which may be several in number and which interact in a determinist logic. Just as one decodes a software program, thoroughness, time, energy, memory and the capacity to remain calm allow us most of the time to unravel complicated situations. Complexity is no longer situated in determinist situations but rather in universes which are at best probabilist but which are most often uncertain and antagonistic. One example, often cited by researchers, such as J. C. Dupuy from the French Polytechnic Institute (Ecole Polytechnique), is that of monetary or financial speculation, as first described by Keynes. Speculation, as the origin of the term reflects full well, is done through a ‘game of mental mirrors’. Each actor plays on the basis of an image of what the others are going to play, knowing that each of the others will play on the basis of their image of what each of the others will play. Moreover, all players know each other, and can therefore engage in disinformation so as to modify the image that the others have of the image they have of them! As in the game of Co, the situation can only be mastered by the person who anticipates the most moves in advance, and who is sturdy enough to withstand the ups and downs of the game. Another example of complexity may be found in the new composites used more and more in industry. Their intrinsic properties, their ability to withstand bending, temperature variations or external forces depend not only on the materials which compose them but also on the manufacturing process itself and the final form to which it leads. Here, we are no longer in the field of adding properties, but rather in a system whose final capacities cannot be predicted on the basis of each of its components.

Complexity

takes a new turning

Complexity is not a 20th century invention, as can be seen by examining the functioning of the ‘untaught thinking’, so dear to L&y Strauss, in the face of situations such as those provided by the rainforests or the deserts of Australia. What is new is the degree of complexity which our societies have reached and, above all, the games of interdependence and crossvulnerabilities which bind them together. We have gone from worlds made up of acquired positions to a universe of complex networks, where faraway, reassuring horizons have been replaced by near, fluctuating horizons. Moreover, the changes themselves feed this complexity through the discoveries that they produce which mark them and through the new questions they raise with regard to mastery of the very consequences of these discoveries. Interaction between biotechnologies and social life reflects this fully. Another new factor may be found in the demands tied to the ways of to coping with this increase in thinking and means of action suited complexity. Indeed, the technical and social systems in which we live have become quite different from those of our parents. One of their main hence the difficulty in anticipating their characteristics is the autonomy,

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behaviour. One cannot use rules, logical schemas and algorithms to describe and above all predict the behaviour of complex systems. This would hem them in and diminish them. A complex system is self-structuring and self-regulating, is capable of learning, acts according to its own rules and can provide devices which are more complex than itself. One example is multinationals, which are used to raising capital all over the world, to producing, by using resources, raw materials and technologies-and labour from all over the world, and to selling products based on the view of the entire world as a single market.

instability

and dematerialization

become

basic factors

Any complex system is both one and multiple. Multiple because of the subsets which comprise it and which are engaged in many games of interdependence and interaction. Some peoples’ objectives are others’ means; as a result of retroaction, effects become causes, the logic of the actors becomes entangled and produces perverse effects, thus contributing as much to the increase in possibilities as to the appearance of the unplanned, the paradoxical. When llya Prigogine ‘praises instability’, he is well aware how difficult it is to determine whether or not an observed event is due to chance. However, he also suggests that this constant imbalance, which generates so much uncertainty, can also create more coherent structures than traditional components. In this connection, a complex system which is multiple owing to its components is also unique even when it appears contradictory at certain points in its history when viewed from the outside. Von Neuman, one of the fathers of game theory, described this well: once a certain degree of complexity has been reached, it becomes easier to describe the system itself rather than the behaviour it might display, unlike a complex machine, which is more difficult to describe than the results one obtains through it. The same holds true for an automaton or an expert system. This shows just how useful ecological thinking, in the broadest sense of the term, can be in tackling such systems. Another characteristic of present-day complex systems is tied to both the growing dematerialization of industrial societies and the key role of communication and order technologies, to use J. Robin’s expression; for our exchanges tend more and more to be composed of non-material elements, man-machine exchanges where numerical controls and computer screens are progressively replacing all physical contact. The same holds true for industrial and commercial exchange. Out of the above-mentioned transaction volume, only US$5 billion (IO’) worth of exchange concerns concrete goods. This is reflected in trends displayed by investment curves; the ratio of non-material investments to physical investments (gross fixed capital formed) stood at 21% in 1974, rising to 40% in 1987. It is estimated to be at about 50% today, a ratio which should remain constant up to the end of this century, This dematerialization has considerably increased the field of possible alternatives; it also adds significantly to the complexity and vulnerability of industrial and social systems. The extremely rapid pace at which these systems are changing is combined with extreme dependency as far as the time factor is concerned, which brings us back to the theme of change.

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Moreover, the problems of overinformation and disinformation facing these systems place them perpetually on the verge of ‘the dynamics of chaos’. The year 2000 has already begun; the question is knowing who the actors will be. Increased complexity raises the problem of operating the systems which we create or live in. Ashby’s old theorem remains valid: the variety of a control system must be either greater than or equal to the system it controls. This implies that complexity is the only means of dealing with complexity; that attempts to decomplexify what one observes means that one is always diminishing things and is often vulnerable; that the effective management of complex phenomena cannot help but incorporate complexity. Indeed, this is the factor which often leads to confrontation between the former turn to the latter for simple ‘operationists’ and ‘functionalists’: answers to the difficult questions they have come across, while the latter communicate complex images and advice. Sometimes, however, the latter are themselves capable of ‘educating’ their colleagues, and sufficiently credible in their eyes to do so. This presupposes that they are prepared to admit sometimes that something simple may be wrong but that what is not simple is unusable! Thus, a whole way of thinking, a whole culture is in the process of forming.

Intelligence

seems the ideal means of combining

change and complexity

In the face of increasingly rapid change and a considerable rise in complexity, one may perhaps understand better why intelligence is such a topical theme. It evokes all the abilities which we view as necessary to understand what is being created, foresee problems, make choices and manage our plans and our lives. The feeling of a departure has re-emerged: ‘knowledge is at the end of the road’, as a recent advertisement for a major beer brand put it. The factor which enables us to create, transform and enhance knowledge in action is commonly known as intelligence.

Not just any kind of intelligence It would be dangerous to reduce the intelligence on which we rely so heavily to its purely intellectual or cerebral component. One may recall how the good Doctor Watson used to describe his master: His lucid and cold mind, admirably well balanced, was repelled by all emotions in general and by love in particular. I consider him to be the most perfect machine for observing and reasoning that our planet has ever seen. When he speaks of matters of the heart, he always adopts a mocking tone or adds an ironic little laugh But as a professional logician he repudiates emotions. In such a delicate and subtle temperament as his, the irruption of a passion would have introduced an element of disorder which could have affected the soundness of his deductions!

Fortunately, Holmes’ life did not always fit this image, and the abovementioned intuition does not apply only to this biting form of intelligence. Of course, intelligence has long been viewed in a Cartesian, positive and rationalizing way, ie as a tool enabling one to reach a goal by modifiable means, a tool which allows one to make distinctions and to give

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meaning to all the data with which our senses supply us. ‘Intelligence’ first means creating ties and choosing, ie understanding. Intelligence is also a set of abilities making it possible to execute abstract constructions, to manipulate them and to reform them on the basis of information provided by feedback with the reality of phenomena. Information is also a set of abilities to study and solve problems, to reason and to elaborate formal systems, namely models and theories. Yet intelligence has another essential dimension-sensitivity, imagination, symbolic thinking, intuition, and the ability to concentrate a whole in a unique, essential process of reflection. It is said that intelligence is a flaming sword. It cuts through fog and brush. By linking elements which may seem secondary, and by transcending appearance to grasp ‘what is behind the appearance’, it makes it possible to arrive at the factor which makes intelligence so difficult to define: through an entire set of functions, it transcends them by enabling one to draw closer to a single guiding principle which touches the very foundations of the universe. As mentioned above, the primary intuition then leads to certainty: these capacities, brought together, will all be necessary to face the challenges which lie before us at the dawn of a new century. As knowledge and intelligence play an increasingly strategic role, everything which helps to increase and enhance the value of these key resources, to ensure their use in the medium term and to lend them meaning also becomes strategic. In a nutshell, this is intellectual investment. Need for intellectual

investment:

an intuition

transmitted

via reasoning

The first treatment of non-material investment in France came in the early 1980s by the Commission General’s Office for Planning, followed by the CNPF. These efforts were in turn followed by studied carried out by the Crkdit National, the Office for Economic Information and Forecasting (BIPE), work done by the Centre for Forecasting and Evaluation (CPE) of the French Ministry of Research with T. Caudin and C. Afriat, the National Centre for Information Statistics (CNIS), the Economic and Social Council, and many Equivalent work was done in other countries during the same others. period. They corroborate the intuition that it is vital to invest in knowledge and intelligence and that the material and non-material realms complement each other based on experience and various levels of reasons. They also provide a certain vision of our society. Explaining

growth:

capital,

labour,

technical

progress

and something

more

Macroeconomic reasoning concerns the factors behind growth. Humanism has always enhanced the value of the specific role of man in creation. Although the immaterial realm has won acclaim today in the firm and in the eyes of the public, macroeconomists have long emphasized the importance of humanity as a subject which creates economic development. Back in the 196Os, the OECD gave thought to the differing rates of development of its member countries, and to the technological gaps between the most advanced countries. It became clear at the time that it was necessary to incorporate a factor other than capital, labour and technological progress to

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take account of the differences observed. This ‘other factors’, which is essentially composed of non-material qualitative elements, was called the ‘residual factor’. The invention of this term may seem unimportant, especially if one acknowledges that, like the residual variance in statistics, it merely provides an appreciation of our ignorance. Yet this was the first official recognition of the key role of the qualitative and human dimensions in the economic sphere. This observation is even more valid today. If we attempt to define why some countries succeed better than others, we see that they have a high a more favourable foreign balance and a lower GNP, stronger growth, unemployment rate, especially as far as youth are concerned. These are countries which have been able to develop active forms of social solidarity, which adapt quicker than others in mastering strategic resources, coping with crises, reconverting zones or sectors in difficulty, or anticipating the economic and cultural changes which will affect them. What do these countries have in common? Their previous, deliberate investment which is underpinned by at least three beliefs. First is the importance they attach to initial education, continuing training and the development of general and technological culture. This is reflected specifically by an extremely high rate of schooling and by original forms of education financing which facilitate the resumption of studies or entry into higher education at an adult age. This is also reflected by educational forms which are open to the world, pragmatic and grounded in reality, which enhance the value of the collective dimension and the balance between the intellectual, physical and emotional spheres. Next comes the search for political and social structures which are based on processes of involving persons and broadened sharing of responsibilities, at both national and local levels. There is a search for structures which give priority to man and knowledge, capitalizing in the form of technological and social progress, ie economic and social structures which are able simultaneously to provide answers to both of these questions: how can we ensure over the long run that the country’s economy remains competitive and in balance in the face of technological and culture change and the international challenges it must take up? How can we offer each member of society opportunities to construct and enhances the value of his potentials and skills, while contributing to joint projects? The last belief is development, at all levels, of capacities for strategic information, communication and reflection. This implies the adoption of an active attitude vis-A-vis available resources, which allocates part of the wealth produced to ensure its renewal. This also leads to endowing oneself with capacities for vision in the various fields which appear absolutely decisive for the future, and taking the necessary steps to realize them.

Profitability, non-material

competitiveness, investments

performance:

the fruit of material

and

Microeconomic reasoning corroborates the above when it highlights the crucial nature of non-material data for the enhancement of the productive and commercial performances of companies and for the acquisition of decisive, lasting advantages over their rivals.

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The non-material dimension has long been accepted in the firm, through traditional elements such as start-up costs or ‘goodwill’. One also used to speak of corporate investment, making a distinction between ‘investments in capital’ and ‘investments in industry’, a distinction which is once again being seen. In a much broader perspective, many firms agree today that the only way to optimize a material investment is to combine it with non-material investments which are sometimes just as large. When one speaks of productivity, it no longer seems reasonable to focus exclusively on the performances of tools and equipment, regardless of whether they are traditional or state of the art. The contribution of the most modern technology is extremely dependent on the man-machine relationship which has been created and their integration in the organizational and communications structures which enhance the value of the persons which operate them. There is no other explanation for performance differences between technologically equivalent industrial installations. Opting to play the game of modern technology without first preparing by gradually sensitizing all the company’s actors through training which goes beyond simple mastery of the workstation and through coherent internal marketing is a cause of great disappointment. Here as well, company heads have gradually realized and accepted that the additional expenditure to be committed was designed to be spent not when introducing the technical innovation, but rather well in advance. They have come to understand that such expenditure is not only in the realm of the tangible and visible, the immediately useful and profitable, but also in the preparation of minds, the creation of intellectual potential, the assimilation of new logics by the persons concerned, and in the development of their autonomy This also presupposes investments, all and their intelligence of situations. the more so since commercial differentiation is based on market studies and established on good institutional communication, on the quality and reliability. But it also depends on the conditioning and ease of use of products, on their after-sale service and the satisfaction which one derives from their use. This very often leads firms to enlarge their field of operations and to become service providers, which offer their clients the software or training which they use. This is the brainpower which they needed to develop the products they produce and sell. And when companies are consistently better than their rivals, they frequently share a number of common characteristics:

a high cultural level and well qualified personnel; a deliberate search to gather, analyse and exploit information systematically for purposes of anticipation; o rapid exploitation of the resources offered by new technologies; l mobilization of potentials with a view to increased sharing of responsibilities; l acceptance of the fact that change concerns and affects everyone; l extremely high flexibility and extremely rapid reactions at all levels; l a systematic search for productivity, both in small tasks and in major projects; * consistency between what the management says and does. l

l

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investing

In other words, human resources. Growing

this

means

share of intellectual

that

these

elements

companies

in international

rely

in intelligence?

primarily

719

on their

exchanges

According to current estimates, roughly one half of all value exchanged internationally is in the form of invisibles, in both intermediary consumption and in end-products. Moreover, these exchanges are underpinned by deliberate investment strategies. The invisible contents of exchanges do not always show up in profit and loss accounts, sales figures or trade balance data. Yet they involve transfers of knowledge and know-how; they play an increasingly important role in the redistribution of dominant positions between both companies and countries. These exchanges may take extremely valid forms, ranging from extremely official to very secret, not to mention ‘disinformation’ and industrial espionage. Not only licences and patents are exchanged, but also knowledge and procedures, either transcribed on documents or cassettes or stored in the memory of trainees and visitors to industrial plants. Strategic information is provided in international advisory committees. Technology transfers are made. Old technologies, economic analyses, approaches to security, managerial procedures and research capabilities are all exchanged. According to N. Bassano, working in the advanced strategies mission of the French Ministry of Industry, two main features characterize these relations between companies and between nations. On the one hand, there are exchanges of invisibles within the framework of structured sets of products and services, which rely on skills and high technology to an ever increasing extent. Thus, complex systems which meet the specific needs of new materials, the information the aerospace industry, biotechnology, industry, and arms manufacturers often have a non-material component of SO-60%. On the other hand, invisible exchanges take place between economic interest groups, transnational networks, and official or secret agreements. Each partner can find it beneficial to exploit their distribution networks, rapidly penetrate markets, enhance rare resources, take advantage of complementarities, or dynamize its structures. Yet these invisible exchanges may sometimes be very asymmetrical when one of the partners, without the others’ knowledge, pursues a long-term strategy by turning a series of apparently unrelated operations into a vast experiment at the world level, and invests accordingly to ensure gradual domination of the market of brainpower and strategic knowledge. Thus, whether the starting point is an intuition or is based on reasoning, founded on more quantifiable elements, we began to see the importance of deliberate strategies aimed at developing and enhancing the value of knowledge and human creativity in the processes which prepare, accompany and further develop production and marketing systems. To use Michel Albert’s expression, this means strategies which invest in brainpower. What initial conclusions should we draw from all this? First, a real market for intelligence is developing for trade in data, information and disinformation, but also for persons or groups possessing strategic knowledge and anticipatory expertise, ie holders of non-material wealth. Second, the development of non-material investment is inevitable, given the value it

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adds to material investment dominant positions.

Intellectual

investment:

and

a strategy

its

role

in facilitating

of deliberately

the

investing

attainment

of

in brainpower

The expression ‘intangible investments’ has long been used to describe such diverse contributions in industry as rights to a lease, business, patents, licences or brands. The idea of non-material investment refers in a broader sense to the non-physical character of the goods in which investments are made. Yet the subject under discussion is broader. Indeed, we have in mind any form of strategy which deliberately aims to enhance the value of knowledge and intelligence in political, economic and social choices, and in manage and further develop production and processes which design, marketing systems. This is a more global approach than merely reflecting on the nature of goods concerned by investment. This is why a new term has been proposed to take this concept into account-intellectual investment.

Possible

fields

for intellectual

investment,

‘traditional’

or otherwise

In practice, what activities are generally called ‘intelligent’, and which ones can we invest in? Ever since the early 198Os, a distinction has traditionally been made between research and development; training education; marketing surveys, advertising and institutional communication; and the ‘soft’ component of information systems, which includes software and expert systems. Since it may already be said that these are traditional intellectual investments, we only cover them briefly.

intellectual

investments

which

are already

traditional:

four

plus

one

Investment in research. Of all the elements we review, research is without any doubt the most well known, since for many companies it accounts for a large share of their overall investment plan and their development strategy. Since 1963, R&D input has been measured by a statistical methodology used in the OECD countries and known as the ‘Frascati Manual’. This system serves as a basis for data compilation and makes it possible, at least in theory, to compare research costs with results obtained, as would be done for a material investment. In research and innovation, intelligence plays a role of invention-to work out explanatory schemes or theories to interpret phenomena, but also to invent solutions to problems encountered, to develop technical mastery of such problems, to create products and new processes which make it possible to consolidate and develop the national or international positions of a company or country. Today, we know that investing in research can be far more effective than physical investment; this is also a key reason for growth, on the condition that the status of investment and the structures which nurture it make it possible to move effectively from research to actual discovery.

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Education and training. These are ideal intellectual investments. They determine both a country’s ability to maintain its standing and status in world competition and the quality of existence available to the greatest number. This realization is not new. Let us recall what Condorcet said in 1792: Giving all individual members of the human race the means ensure their well-being, to know and exercise their rights, their duties; to ensure that each of them has an opportunity prepare himself for the social duties to which he is entitled the full range of talents nature has given him; and hence practice between citizens and to turn into reality the political law: this should be the primary aim of national education.

to satisfy their needs, to to understand and fulfil to perfect his skills, to to be called, to develop to establish equality in equality recognized by

Today, the training of people and their ability to adapt to new technologies and economic cultures have become a necessity for companies facing a technological and scientific revolution which has caused upheaval throughout the production system. Training plays an increasingly important role in the application of technological innovations, in the search for advances in productivity and competitiveness, but also in the qualitative improvement of working life through the mastery of trades it provides. Training further represents a key process of personal transformation for each person who undergoes training. It is one of the most important processes we can experience because it pertains directly to the relationship with knowledge. In France today, some Ff 80 billion is spent yearly to train adults by companies, regions and the state, ie 1% of GNP. Five times this amount is spent on initial education. Is there any doubt that this is a perfect example of intellectual investment, which is long-term in nature? Is there any doubt that the way training is managed, including the way in which we treat those responsible for dispensing training, is an essential variable? Commercial thinking. One of the managerial upheavals of recent years has been the shift from product-based thinking to market-based thinking. Competition has become internationalized and significantly keener. Competitiveness no longer depends on price but rather on the overall satisfaction of a need which changes with time. Less and less emphasis is placed on selling products, and more and more on selling a system which meets a set of needs. This transformation of mentalities affects all categories of a company’s staff, and constitutes a genuine cultural change. The marketing function is seen as an intellectual investment because it aims to modify the conditions in which exchanges take place, by introducing a strategic dimension. Present competition, which is situated more at the world rather than the European level, can only reinforce this necessary transformation of minds and productive systems, while reinforcing in turn the need to invest in market studies and advertising, institutional communication and promotion of the image and the overall recognition of companies, or in the establishment of networks for canvassing, distribution and sales abroad. What is more, commercial intelligence, the tool through which intelliengineering of systems to gence seeks targets, is now aiming at genuine control factors and strategic actors who determine the attainment and

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Investing

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maintenance of the position arise only in business.

of market

leader.

But

this

question

does

not

Information systems. The reason why there is so much talk of ‘artificial intelligence’ is that today’s tools for processing information go far beyond the simple role of management tools which still characterized them a decade ago. Hardware has evolved tremendously and will continue to do so, yet it is software and other ‘soft’ elements which have been the target of the most strategic investments. Investment in computer software is already a fully fledged form of intellectual investment. Expert systems allow us to capitalize on both knowledge and experience, to reproduce the modes of conception, reasoning and problem solving of the best among us and to move ahead in our own thinking and decision making, through a dialogue in plain language with the ‘machine’. On a still more general level, investment, is turning towards information systems in which software and hardware intermingle and are themselves incorporated into a structure which endows them with meaning. The best examples of this are the management of the body of flows in a firm, present-day design of devices for the gathering, storage and utilization of information in an integrated internal and external communications system, or weapons systems. Purchasing or subcontracting intelligence. In a transverse way, a fifth field of so-called intelligent activities has developed significantly: everything which comes under the heading of ‘advanced services’ in companies, territorial bodies and public administration. It is one thing to commit oneself personally to an intellectual investment effort by using the appropriate means when one is in a position to do so. It is something else to note that there are ‘professionals’ for this type of service and to decide to use their services for a fee. If we acknowledge that this corresponds to an allocation of financial resources with a view to acquiring a potential, a set of capacities whose effects will be felt over the long run, it is legitimate to speak of an investment. Indeed, from a fiscal point of view, this is one of the reasons for being able to do so: this places a company in a market by externalizing expenditure which would have been considered as burdens if they had come about through self-financing and had been allocated to internal departments. This approach of investing through the intermediary of an intelligent partner may lead to different actions; for example, purchasing intelligence by using an outside consultant; contributing to the funding of a research centre for the profession; establishing special ties between industrial and teaching establishments; developing national or international networks by relying eg on the backing of major European programmes, or creating scientific committees to guide long-term research. Other

intellectual

investments

are less traditional

but just as strategic

Many other areas offer opportunities for investing in knowledge and intelligence. Four of them are particularly rich in upheavals which affect the social and cultural life: the change in production whole of economic,

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systems, thinking.

new

forms

of

organization,

financial

engineering

and

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Intellectual investment in materials, goods and systems of production. The ‘intelligence revolution’ owes a great deal to the organizational and social impact of technological changes. The complexity of the technological act necessitates the release and investment of increasingly large quantities of brainpower with a view to conceiving products and means of production simultaneously so that the products themselves may be conceived to fulfil as well as possible the functions which justify their existence. This is the reason for the extraordinary intellectualization of technology which has a feedback effect on both working modes and everyday life. Here are some examples which can illustrate this tendency. The fantastic choice of materials brings about a manifold increase in the universe of possibles: thanks to the possibilities they offer, thanks to the entirely new properties that their and because the material itself can create intelligent alliance can create; itself at the same time as the finished good, since its properties embrace the entire process from its elaboration to its application and surface processing. The approach of designing products and procedures also constitutes a specific intellectual investment: it includes in particular competition based on speed, power and memory, through the invention of new computing tools, computer-aided design, the analysis of value and design. Production itself is changing, as factories are to an ever increasing extent becoming places of transmission and transformation of data, creation, conception, and management of processes. It is often estimated that a half, or even three-quarters of all profits from automation depend on the previous quality of preparatory studies and work done prior to purchasing the machines. Material and non-material elements intermingle and enhance each other’s value through numerically controlled machine tools, programmable automatons, robots, voice synthesis-the vision which one still has is of the flexible workshops situated at the junction of production and marketing. The widespread introduction of captors and microprocessors reflects in a way to a growing inclusion of intelligence in objects, equipment and machines. This helps them gradually to become capable of diagnosing, carrying out self-servicing and anticipating incidents, ie to become more autonomous and capable of taking initiatives in communicating with their users. Thus, man invests his intelligence to endow himself with tools which precede, prolong and gear down his intelligence. Investing

in new forms of organization

and participation

The structure of work and the managerial styles which underlie it have become completely strategic. First, this is because technological change and stiffer competition have now made it necessary to conceive simultaneously the technological system, the social organization and the market relations they must maintain. Next, it is because the mobilization of persons, their abilities to take initiatives which are crucial for attaining the required quality and performances, depend quite directly on the individual and collective

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labour structures and professional relations in which they operate, communicate, manage their security, solve problems and prepare for the future. Lastly, it is because the working world has come to occupy an important position in social life; and because its organization and the relations it maintains with its environment strongly influence the nature and quality of life of society as a whole. Innovation and social experimentation in recent decades have already led to the emergence of a whole series of organizational modes which aim to increase what has been called ‘citizenship’ in the firm: ‘expression groups’, groups for progress or improvement of working conditions, quality circles and corporate projects, to mention only a few. Biologically inspired research, the spread of telecommunications, the influence of concerns of an ethical nature, combined with discussion on restructuring in a European perspective-all these factors will probably lead in the future to radically different corporate conceptions in the search for an intelligence of synergies and motivations.

Financial

engineering

In recent years, the assembling and, sometimes, the invention of financial arrangements has become vitally important to corporate development strategies. Mergers, rapprochements, acquisitions and takeovers now represent half of all productive investments. Moreover, there are grounds for concern when the profits from purely financial operations become so large that they can lead to a failure to modernize the production apparatus itself. In the beginning, financial engineering applied primarily to international operations. Now, every complex project must or should rely on financial engineering, since the vast variety of financing possibilities, juridico-fiscal provisions and effects, and the host of new financial instruments require a Four main points characterize these studies, which study by professionals. fit neatly into a logic of construction and optimization of the future in a logic of investment where cost is often not negligible but which can result of objectives and in substantial profits. In the first place, the analysis constraints, in particular those of a juridical and fiscal nature, leads to a strategic diagnosis. Then comes the search for and analysis of visible or hidden risks. This is followed by the invention of the financial arrangement as such, ie the study of financing opportunities, modalities and alternatives, and the designing of an arrangement which incorporates a risk compatible with the strength and strategy of the company and optimizes the use of resources and available financial instruments in terms of costs and profitability. Lastly, any arrangement of this kind takes into consideration the nature of relations to be established with banking establishments, financing and credit bodies and, if necessary, the invention of measures to protect against possible ‘raids’.

Strategic

thinking

The French are often criticized for their lack of long-term vision. Even though this reproach is less and less justified, we surely have considerable room for improvement in looking beyond our order books and stopping

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since it is intellectual investment which clinging to the past, especially finalizes all other components. We are not yet certain as to what encourages the emergence of true strategic thinking, ie the ability to give oneself a future and to situate oneself at the right time on the chessboard of time and the strengths of others. However, we know much more about which fields to invest in to be able to develop a vision and strategic reasoning. The creation of monitoring systems and the development of an overall attitude of vigilance are often a starting point, with the support of the establishment and efficient use of technical, scientific, economic, commercial, social and cultural databases. The creation and animation of ‘technopoles’ or interactive networks, the development of stable cooperation between universities and companies, are all means of developing capacities for innovation and taking new problems into consideration, ie an intelligence of interfaces. Invention and the real implementation of more formal management methods is another essential field of investment. Here the company endows itself with integrated systems for processing information, communication and decision making. This requires means of analysing and understanding a company’s own functioning, taking into account its historical, mythical, symbolic and cultural dimensions. This further implies that one learns to derive maximum benefit from the socio-technological system in which one is situated, at the junction of materials, energy, mastery of the living and time, to use the terminology of the science historian, B. Gilie. Central strategic investment may perhaps be linked to all spending aimed at getting ahead of time with a view to developing means of managing the irreversible and key resource of time.

Careful:

simply

spending

does not mean

investing

In all fields, the aim is to create and enhance the value of intellectual wealth. We do not enter into detail here concerning the accounting or tax provisions which, depending on the country, allow or do not allow a company to activate on its balance sheet expenditure relating to nonmaterial elements, ie to consider them as genuine investments. One can have a genuine investor’s attitude without however being able to set a time limit for amortizing the non-material wealth created in this manner, or to link the authorized expenditure with ‘something in return’ with sufficient precision to enable an estimate of the profitability of the operation. However, it is important not to make an amalgam by considering that any expenditure of a non-material nature constitutes an intellectual investment. The distinction between existing operating (or maintenance) expenses and spending on progress is quite illustrative in this respect. One sees this clearly with education and training: one can spend considerable sums and still not invest, or even cause performance to fall. For it is not only the financial volume and the tax status of the expenditure undertaken which characterizes the investment but rather the attitude one adopts towards them. From this point of view, four main considerations can help with the managerial sharing of operating costs and investment. l

Investing means first creating a break with regard ated from the past. It is because we become

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to expenditure extrapolaware of the strategic

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l

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interest of a given sector that we decide, at some point, to allocate additional and substantial resources thereto. Investing means creating wealth. This presupposes that it is immobilizable, ie firmly rooted in the structures or persons which have called it into being. This also presupposes that one could assign to it a certain market value, which could be taken into account in a possible future transaction. This is a case of what we group together under the heading of ‘goodwill’, ie of an overvalue attributed to a company in the light of qualitative elements. The effects of an investment should cover a period longer than a business year. Indeed, this is the very idea of the amortization period which defines the investment at the start. Thus, one can only speak of an intellectual investment if one has created, by means of the corresponding expenditure, a lasting gearing down of individual and collective potentials, an increase in the possibilities of production and marketing, through the application of the new strategic resources created in this way. Lastly, genuine investment implies real freedom of choice for those who decide to make such an investment, ie an explicit decision is made and, whenever applicable, other hypotheses are excluded.

All these conditions are rarely met in the projects carried out today in the various fields mentioned above. As French law only allows a small number of them to appear on the asset side of the balance sheet and under extremely precise conditions, in all rigorousness, these projects can rarely be deemed investments in the strict sense of the term. It is not even certain whether or not it is possible to do this rapidly in all fields, but we shall revert to this. The work of the National Accounting Council, the Association of Auditors and the Central Tax Department will provide clear progress in the future. Through the rigour of terminology and accounting entries, it is in all likelihood an awareness of the need for increased financial efforts in all these areas and the progressive search for a deliberate investor’s attitude, with all the requirements that this implies in turn, which will constitute the essential act of the future. In any event, that is the hypothesis we have developed. Separate

investments

or global

investments?

In our presentation of the various possible fields of intellectual investment, we have used a functional reading, isolating operations which are relatively easy to identify and which correspond in general to budgetary dimensions and to teams which are delimited clearly enough to make sense. It is easy to move ahead in our reflection, as work has already been done on each of these functions, thus making it possible to become more familiar with them. This is also useful to anyone wondering about the possibilities and importance of increasing their intellectual investments and who is seeking concrete points of application to which they could allocate resources. The real state of affairs is often very different. First of all, this is because the current development strategies, being pursued, for instance, by French companies, closely mix material and non-material elements. Since 1984, the year in which physical investment took off once again, they have systematically sought to increase their production capacity while ensuring the mastery

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of new technologies by modernizing what already existed rather than by ensuring the mastery of new technologies. This represents about a quarter of the total invested, an amount which should probably be doubled to take into account non-material investments which prepare and accompany their utilization. At the same time, high priority has been given to growth through It is estimated that they have represented, over the financial acquisitions. past two years, half of all productive investments of the major industrial enterprises. Material and non-material elements are thus closely linked within strategies in which financial arrangements will become determining factors in future years. The second limit to a purely functional reading is that an intellectual investment often hides one or several others. Thus, no R&D is finalized without liaising with the marketing department; there are no competent researchers without appropriate training; no training can be applied to work behaviour if the organizational forms and managerial styles do not lead the persons who have undergone training to get involved and participate; and nothing effective can come into being if there is no strategic reflection to finalize the whole. Thus, it will always be difficult, and sometimes illusory, to seek to isolate the effects of each possible investment. Only the overall combining material and non-material eleprofitability of a given project, ments, can make sense for those responsible. A third limit of reasoning is even more important: it has to do with interfaces between functions. To an ever increasing extent, a company’s level of profitability and competitiveness depends on the management of interfaces. A director of a steel-manufacturing company was concerned some time ago by the amount of money and time his engineers had spent to reduce by a few minutes the time needed to process steel billets, whereas no one was interested in knowing ‘how many days they are housed, heated and lit between two operations’. Whether it is true or not the image is striking. Likewise, one defines the cost of the poor quality at level 1 if it is handled by the operator, at 10 if it is processed at the end of the line, at 100 if a specific supervisory department handles it after manufacturing, and at 1000 if the client handles it himself. Thus, it is the globality of the intellectual approach which itself becomes a factor of profitability and competitiveness. It will primarily depend on managerial ability to optimize the management of interfaces between the various material and non-material functions which make up the scientific ‘trade’ of the company.

A reflection

which

raises more questions than it answers

We have now come to the end of this reflection. It is far from being finished; other persons are endeavouring to move ahead it or renew it. And like any thinking which is under way, like any instituting exploration, it needs to be placed henceforth in a dual framework. On the one hand, it needs to open wide to observation and experimentation, to increase its relevance and better understand the nature and possible evolution of the problems it raises. On the other hand, it needs to confront theoretical work on the fringes of which it situates itself, in particular in the economic field, to avoid the ideological trap, increase its rigour and possibly suggest a

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reinterpretation of existing theories. A number of research approaches come to mind immediately. Here are some examples. The first problem which remains to be solved is that of recognizing and measuring non-material investment. Recognition, because the status of knowledge and intelligence in French society is far from clear, and because the relative insufficiency of our investments in this field, in comparison with other countries, is also due to the priority we grant them. Measurement, because it is the starting point for recognizing the importance of these investments and finalizing choices. The invention of systems to define and record intellectual investment is at the heart of the present debate. Its importance is especially great in view of the fact that the manner of recording directly affects ways of thinking and possibilities for change. There is a real need for more accurate measurement instruments which would enable us, for example, to grasp better the reality of a business year and not run the risk of overestimating production costs for a given year or subsequently underestimating the price strategies to be adopted, to force ourselves to reason like investors who make well-thought-out choices to prepare for the future, and regularly assess the relevance of their decisions. In this connection, the recognition and measurement of intellectual investments once again call into question the very notion of value. Consequently, we wish to give thought to a second area. In the field before us, there is a direct link between what a non-material investment produces in terms of new potentials and the persons who bear or possess this potential. Two major questions immediately come to mind. First, should we therefore speak of investment or joint investment between the institutions which have allocated the expenditure and the persons who have involved themselves deeply in taking the necessary steps, which require much time and effort and self-questioning? if so, how can we invent new organizations and establish new rules of property law in this field? Such making known the real holders of intellectual wealth, rules play key roles: protecting them against undue pressure or exploitation, providing a means of immobilizing this wealth long enough for it to pay off, and finally supplying a basis for an equitable sharing in the fruits of the investment made to create this intellectual wealth. Intelligence, measurement and profitability-all these terms carry in them another potential danger, tied to the status given to knowledge, to those who possess it and to the perverse effects of an overly economical focus on intelligence in the narrowest sense of the term. Wanting to invest in intelligence may also introduce real discrimination, between those with access to intelligent machines and the others; between those who are considered as deserving of investment and those who are not worth it; or someone who is no longer worth the trouble because the ‘lifespan’ in a to earn a profit on the company or in society doe s not make it possible investment in them. Thus, wanting to invest straight away in intelligence runs the risk of creating a new kind of two-tiered society where the value of the winners is enhanced with the ‘losers’ are increasingly marginalized. This would clearly be socially inadmissible and economically unbearable. Our society is much too quick to assimilate intelligence to the level of schooling. Investing in intelligence also means investing in a social structure. In order to answer these questions and give meaning to the proposals

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we have mentioned, a new kind of investment is no doubt needed. We it would first be necessary to could call it ‘investing in a void’, because lighten the load, to clear the way and to make room before moving ahead. is what already exists’. As Paul Valery once said: ‘The barrier to invention We have to be able to create a time void which we can devote to imagining, to betting on the unknown and making to daring to engage in ruptures, room for it. Yet investing in a void does not imply advocating ‘nothing’ or on the contrary, this is an entirely the elimination of an entire heritage: different kind of void. The human mind is sometimes so full that there is no more room for anything else. Perhaps the first thing to do is to create a void, but an active void so as to free intelligence to deal with uncertainty and the essentials. Investing in a void leads to synthesis and helps us to surpass ourselves. It gives birth to creative spaces.

Eibliography

J. L. Bassano, [email protected] internationales de /‘intelligence (Paris, Document CERDI, 1989). G. S. Becker, Human Capita/ (Chicago, IL, Chicago University Press, 1980). j. I. Bonnaud and M. Moreau, fnvestissement immatPriel ef croissance industrielle (Paris, Commissariat C&x&al au Plan, Documentation Franqaise, 1982). H. Bouchet, Rapport p&sent& au nom du Conseil economique et social, ‘Investissement intellectoel : facteur de modernisation de l’industrie franyaise’, journal Officie/, 1989. 1. P. Burcklen and M. C. Kaplan, ‘Evolution de la nature de I’investissement’, Bulletin du Crkdit National-DPpartement des &udes, 1985. j. J. Carre, P. Dubois and E. Malinuaud, La croissance fraqaise (Paris, Seuil, 1972). P. Caspar and C. Afriat, L’investissement infellectuel (Paris, Economica, 7988). P. Caspar, ‘L’investissement intellectuel’, Revue d’konomie industrielie, 43, 1988. Centre National de f’lnformation Statistique (CNIS), ‘lnvestissements immatPriefs et capacit& de production’, Archives et documenfs INSEE, 231, 1988. E. F. Denison, Why Growth Rates Differ (Washington, DC, Brookings Institution, 1987). J. P. Dupuy, ‘Common knowledge et sens commun’, Cahiers du CREA, 11, 1988. M. Godet and J. Lesourne, La fin des habitudes (Paris, Geghers, 1985). K. Itami, Mobilizing invisible Assets (Cambridge, MA, Harvard Business School Press, 1985). I. M. Keynes, The General Theory of Employment--fnferest and Money (1936) (London, MacMillan, 1973). H. Maier, (editor), Human Resources, Em~/oyment and Devetopmenf, (New York, St. Martins 1983). A. Marion, ‘Problbmatique financiPre de I’investissement immat&iel dans f’evaiuation des entreprises’, Revue Francake de Gestion, 1988. H. Mendras, ‘Le social entraine-t-il desormais I’Cconomique’, Futuribles, 1986. J. Mincer, Schooling Experience and Earning (New York, Columbia University Press, 1974). M. Morishima, Why Has Japan Succeeded? (Cambridge, Cambridge University Press, 1982). OCDE, fnvestissement international en usage dans /es pays membres de I’OCDE (Paris, OECD, 1980). OCDE, la contribution de la science et de fa tecbnologie au d&eloppement Pconomique et sociaf (Paris, OECD, 1987). ‘Rapport sur l’etat de la technique : la r&olution de I’intelligence’, co-CditC avec le CPE, Sciences et Techniques 1986. B. R. Scott and G. C. Lodge, (editors), US Competitiveness in the World Economy (Cambridge, MA, Harvard Business School Press, 1985). S. Tatsuno, The Technopolis Strategy-Japan, High Technology and the Control of the 27st Century (London, Prentice Hall, 1986). M. Yabusuke and K. Yutaka, japan in the Global Community--fts Role and Contribu~jon on the Eve of the 2lst Century (Tokyo, University of Tokyo Press, 1987).

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