This paper talks about and evaluates the role of soft system thinking play in intellectual capital. It also gives emphasis on the importance and significance of knowledge in economics and in handling certain situations in facing problems with an organization regarding intellectual capital. This paper also discusses the difference and the connection or relevance of intellectual and social capital to a business or the economy. It gives insights on the different importance of concepts related to management and economy, such as knowledge management and systems thinking. It also discusses applications to organizations, it benefits and problems.
Introduction
Recent developments in science and technology had paved way to a lot of knowledge and information that we have today. Most of these information lead to many inventions and innovations that gave many a change in their way of life. During the turn of the century, more and more information are dissipated but the basis of the information and technology we have today is still the basic concepts that we use ever since. One of these concepts that are often talked about today is economics or the economy.
Our economy drastically changes, and the changes that the economy undergoes totally affect several aspects that we encounter everyday. One of them is management. (2002) noted that fundamental changes have been wrought in the global economy, which are changing the basis of firm level competitive advantage, and with it the functions of management. He added that the decreased cost of information flow, increases in the number of markets, the liberation of product and labor markets in many parts of the world, and the deregulation of international financial flows is stripping away many traditional sources of competitive differentiation and exposing a new fundamental core as the basis for wealth creation. The author explained that the fundamental core is the development and astute deployment and utilization of intangible assets, of which knowledge, competence and intellectual property are the most significant (). It can be emphasized that economic prosperity is enlightened if knowledge, the role of technology and organization in economic development is put to its proper application. However, we must know the proper knowledge about soft system capital to be able to understand the intellectual capital and apply it to management and the economy.
Knowledge Management
It was reported that for the last two hundred years, economics has recognized only two factors of production: labor and capital. However, this is now changing, as information and knowledge are replacing capital and energy as the primary wealth-creating assets. In line with this, technological developments in the 20th century have transformed the majority of wealth-creating work from physically based to what we so call “knowledge-based”. As a result, technology and knowledge are now the key factors of production; and with the increased mobility of information and global work force, knowledge and expertise can be now transported easily around the world. Due to this, any advantage gained by one company over another can be eliminated by competitive improvements overnight ( 2005). For an effective strategy, proper knowledge must be possessed in order to outsmart other competitors and gain economic advantage. In addition, (1997) noted that knowledge has become the most important fact of economic life, as it is the chief ingredient of what we buy and sell, and the raw material with which we work. He also added that in the new economy, intellectual capital and not natural resources, machinery, or even financial capital, has become the one indispensable asset of corporations (). This is so because without knowledge, there will be no strategies, no systems, no organizations, no products and no economy.
It is undeniable that knowledge management is very important in our society. According to (2000), the management of knowledge is promoted as an important and necessary factor for organizational survival and maintenance of competitive strength. The author also added that for an organization to remain at forefront, it needs a good capacity to retain, develop, organize and utilize their employee’s capabilities. Knowledge and its management appear to be regarded as increasingly important features for the survival of the organization ().
To have the necessary knowledge, information must be gathered and the environment must be assessed. This is to ensure the effectiveness and the success of the strategy to be used in order to apply basic knowledge in answer to certain situations. If proper knowledge is possessed but the information is not enough to suffice for the support of it, then a strategy or plan will not work.
Intellectual and Social Capital
In connection with knowledge in terms of economy and management, intellectual capital is very relevant. According to (2006), intellectual capital seeks to explain how knowledge, collaboration and process-engagement create decisions and actions that lead to cost allocations, productivity, and finally financial performance. In addition, it is strongly related to discipline of intangible management, which extends intellectual capital management by updating the foundations of accounting, finance, economics, risk management, project management, and other traditional disciplines. It is even used by theorists seeking ways to make systems or groups cooperate without relying on pre-existing social trust. Without intellectual capital then there would not be ideas, which are used to improve and develop certain systems such as those mentioned above.
In relation to intellectual capital is the concept of social capital. The two concepts go hand-in-hand, as the improvement of the intellectual capital depends on social capital and vice versa. As defined by (2006), social capital is the existence of a certain set of informal values or norms shared among members of a group that permit cooperation among them. However, social capital may not always be beneficial for society as a whole, and always depends on the ideas and the consequences it presents. Generally, major enterprises will not completely succeed without social capital, as the role of the intellectual capital is inseparable from the role of the social capital. The coordination of the intellectual and the social capital determine the force of production and labor, which in turn becomes responsible for the development and the success of a market economy.
Economic Systems and Soft Systems Thinking
For all of these concepts to become effective, it must all be applied to a system. It was stated that a system is a dynamic and a complex whole, interacting as a structured functional unit (2006). Similarly, an economic system is made up of a large number of interacting agents, and display a surprising self-organizing features and macroscopic order in spite of the underlying disorder among its constituents (2006). Technically, its parts must be working together to create harmony and ensure the unity of the system, but this does not always follow. In relation to this, system thinking, as described, is a mental model that promotes the belief that the component parts of a system will act differently when isolated from its environment or other parts of the system. Furthermore, it includes viewing systems in a holistic manner, rather than through purely reductionist techniques; it promotes gaining insights into the whole by understanding the linkages and interactions between the elements that comprise the whole system (2006).
In addition, system thinking recognizes that all human activity systems are open systems, therefore are affected by the environment in which they exist. It also recognizes that in complex systems, events are separated by distance and time; therefore, small catalytic events can cause large changes in the system. It thus promotes organizational communication at all levels as it acknowledges that a change in one area of a system can adversely affect another area ( 2006).
One technique in systems thinking is what we call soft systems thinking. As explained, soft systems thinking use to tackle systems that cannot easily be quantified, especially those involving people interacting with each other or with systems. It is useful for understanding motivations, viewpoints, and interactions but naturally, does not give quantified answers. In addition, it is an approach to organizational process modeling and can be used both for general problem solving and in the management of change. This method or technique was developed in England by and their colleagues at the University of Systems Department as part of an Action Research program (2006).
In its application to organizations, the soft systems thinking may be used effectively. As mentioned earlier in the paper, this system can be used to evaluate general problems and the management of change. With this information, we can deduce that it can be applied to different aspects in terms of managing a business. Through this technique, problems arising from a component of the whole system can be solved without affecting the whole system. Moreover, the whole system will not be put at risk if the time comes that one of its components or parts decide to separate from the system and function on its own. With this, the intellectual capital of the whole system will not be adversely affected and the system can continue to function without much worry and without sacrificing the system’s reputation and production. With this, the company or the system can focus on their innovations and inventions for better production.
A system’s innovations and invention practically determine their success. Certain factors were identified and understood, based on researches on organizational innovativeness, as some organizations more likely to develop innovations than others. These factors are both at the level of the organization, such as the size of the firm, and the firm strategy, and the individual, which shows the personality characteristics and cognitive styles. These factors largely predict the development and implementation of innovation in firms (1999). The authors also added that these perspectives offer useful insights into the complex array of micro and macro-level variables that potentially influence innovation. In relation to this, the intellectual capital and social capital of a firm strongly determines its success in production and management. The only comparative advantage a company or firm will enjoy will be its process of innovation, which is combining market and technology expertise with the creative talents of knowledge workers to solve a constant stream of competitive problems. Moreover, it will enjoy its ability to derive value from information, as we are now an information society in a knowledge economy where knowledge management is essential (2005).
In comparison to using traditional techniques or methods in decision-making, soft systems thinking is much more preferred as the presentation of a larger picture will typically provide results that are more useful. As explained, traditional decision-making tends to involve linear cause and effect relationships, but by using the soft systems thinking approach, we can see the whole complex of bidirectional interrelationships, instead of analyzing the problem in terms of an input and an output. Furthermore, the systems thinking approach also helps integrate the temporal dimension of any decision, as, instead of looking at the situation frame by frame, a systems methodology will allow us to see change as a continuous process (‘2006).
Application
To demonstrate the application of the given concepts discussed in this paper, we should take into account the existence of a specific company or firm. The specific company we will take into consideration is GTM Solutions Inc. This is a company specializing in providing high-tech remotely accessible control solutions through GSM technology. This company has done its preliminary research to study the market and to analyze the market needs. In turn, it will be providing advanced and reliable control and safety measures to all the major industries that use huge machines and complex activities. Furthermore, these safety measures enable their client companies to exercise better control and create safer work environments. As for their plan or strategy, they analyze first the market trends and market needs, define the target markets and the approaches chosen to address them. They identify also the competitors and the reason for their growth, plus the details about the advantages of using their products and services. In short, the evaluation of their goods and services, and extensive research must be made for their company to be able to resolve and provide safety and control solutions to their target companies (2005).
The strategy of this company was used for their advantage. With the combination of labor and intellectual skills, the company was able to establish itself in the market. As a proof of this, GTM Solutions Inc. was able to gain a profit of $ 2,411,709 by 2006 (2005). This was possible due to their effective plan comprising the intellectual and social capital and knowledge that they have for their marketing. They knew that their marketing research will be the source of identifying the market needs, target markets, changing patterns, environmental changes, social changes, changes in lifestyles, changing preferences and thus indicate the demand for the existing products, services and scope for the development of new products or services ( 2005).
In contradiction to all the advantages presented in connection to GTM Solutions Inc., a number of problems may still arise, such as environmental problems, resource and supply problems, pollution, publicity, internal chaos in the company, possible information leakage and competition with other companies.
The company mentioned that their concentration would be in making products having iron and steel, aluminum, Ferro alloys, chemical, gases and explosives. These elements might contribute to pollution and may lead to the poisoning of different living organisms, including humans, as excessive amounts of these elements are hazardous to living organisms. Furthermore, the excessive use of these elements might deplete its natural resource and in turn, affect the environment. With these ecological problems presented, the company may have crises regarding their supply and would opt to import their raw materials. This would then contribute to the destruction of the ecological balance of different habitats in the environment, which is not a good outcome.
Moreover, problems concerning publicity, internal chaos, information leakage and competition will also be faced. Primarily, the company must make sure that their products and services will get the most exposure for them to be able to gain from it. They must come up with different advertising strategies to attract the consumers and their target market as well. Secondly, the company would have to be strict with giving out their top-secret information on how to produce their products. They have to preserve their intellectual property. The information leakage would be one reason for internal chaos in the company. Lastly, competition will arise. New competitors will emerge and find ways to outsmart existing companies to become established as well, and acquire their market. The company must be able to find ways on how to come up with smart ideas and try to find solutions to their problems.
Conclusion
The 20th century is an age where man knew most developments and information. Such information and developments were now used to improve on different aspects in education, business, religion, culture, economy and many more. However, certain concepts existing never changes but continues to be utilized for the advantage of humankind, and these concepts contribute to the wide knowledge of humans in different perspectives. Included in these concepts were the ones discussed in this paper.
In relation, we are actually undergoing a collaborative process, which leads to the continuous learning of an organization, which involves certain approaches. These approaches promote a systemic and ongoing learning process in which a temporarily shared culture is created and allows understandings to be shared and mutually developed, conflicts resolved and actions taken. Furthermore, along the recognizing the complexity and interdependence of systems we are seeing a need to adjust our learning, decision-making and action processes to better account for this complexity. Successful collaborative learning sustains quality discourse, including constructive discussion of ideas, and collaborative argument by following interaction guidelines that emphasize listening, questioning, clarification, feedback, modeling and collective meaning making through framing and reframing ( 1998).
In conclusion, we have to be reminded, as explained, that systems thinking is, more than anything else, a mindset for understanding how things work. It is a perspective for going beyond events, to looking for patterns of behavior, to seeking underlying systemic interrelationships, which are responsible for the patterns of behavior and the events. It embodies a world-view, which implies that the foundation for understanding lies in interpreting interrelationships within systems. Interrelationships, in turn, are responsible for the manner in which systems operate, and result in the patterns of behavior and events we perceive (2004).
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