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March 15, 2001
Consider Intellectual Capital when Planning Layoffs
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lysts are warning businesses to manage staffing cuts and layoffs carefully. More than 90 percent of knowledge workers who are laid off or choose to leave during an economic downturn will be unavailable for rehire in an upturn, new research warns.

The research, compiled by Gartner, Inc., likens intellectual and human capital management to asset management. "You need to know how much intellectual capital you have in each account," said French Caldwell, Gartner research director. "Many managers are sending some of their best intellectual capital out the door forever because they do not have a good assessment of their companies' intellectual capital landscape."

"CEOs are fond of saying that people are their companies' most important assets, yet when they start thinking about layoffs, many sacrifice the strategic value of people and intellectual capital to short-term financial tactics," said Diane Tunick-Morello, Gartner vice president and research director.

"People and intellectual capital form the heart of business growth and success. Investment in such disciplines as workforce planning, skill management and intellectual capital management are the only effective ways to determine how, when and where to apply layoffs or to reorganize knowledge and skills. Without those human capital management disciplines, managers are shooting in the dark."

The report urges enterprises to conduct an intellectual capital audit and to establish clear management accountability for maintaining a knowledge and skills database. When planning layoffs, executives should consciously decide which employees hold critical knowledge that is not duplicated in the enterprise and which maintain transient knowledge that is perishable by nature. While knowledge will leave an enterprise during any layoff, management should make an executive decision as to which knowledge they are selecting to leave.

Gartner's rule of thumb for intellectual capital is: If the market value of a company is dependent on its intellectual capital, then at least as much senior executive attention should be placed on managing intellectual assets, especially the human capital component, as is placed on physical and financial assets.

"Senior executives must continually take the pulse of their organizations, identifying which roles, people and areas of knowledge capital are pivotal to business growth. They cannot wait until the week before a layoff to take inventory," continued Tunick-Morello.

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