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Why Lebanese companies need to invest more on Intellectual Capital

I recently read a report about the consulting market in the GCC. Valued at about 2.7 $billion. obviously the lion share goes to KSA with 1.25 $billion, growing 9.4%.

However, what caught my attention is Oman. A country with roughly a population of 4.5Million and a GDP of 70$billions. The Omani economy is mostly trade led with high exports. In 2015, Oman has spent $100 million on consulting services, a 7% growth versus previous year.

The reasons behind this increase in GCC spend is the need to step-up their strategic capabilities in various domains to offset slowly their economy's dependence on oil & gas towards knowledge-based economies but also to be able to compete more strategically in the global markets.

In Lebanon, a country with almost similar population size, Per Capita GDP and an economy focused primarily on Services, most companies are yet to embrace the concept of investing on developing their strategic business skills & capacity building by tapping on the intellectual capital embedded in consulting services.

The reasons are many and are also to be found in the traditional mindset of 'doing things in-house' as a way to save money but also as an ego-centric form of saying that “we don't lack the capabilities and we don’t need anyone to tell us how to do things” type of self-reassuring/bragging statement.

And when they do ask for advise, they want to pay the cheapest possible because the painful truth is that they value the returns on Human's intellectual capital, & knowledge in general, way much lower compared to assets or financial capital. Whereas in the west, intellectual capital, innovations & patents are worth much more than the fixed assets of any company.

After all every successful company in the world was built around a great/ big idea and then scaled using applied knowledge, creativity sound strategic decisions.

Let us correlate the above with few recent facts:

-      Today the leading French newspaper shockingly revealed: "half of the banking sector deposits of $155billions is held by less than 1% of the total depositors”. The IMF has warned against this salient inequalities of wealth distribution.

-      According to to 2015 World Economic Forum competitiveness report, Lebanon ranked 101st out of 140 countries. Ranking 61/140 in terms of business sophistication and 95/140 on innovation.

This tells with some degree of certainty, that a substantial number of the country’s top economic actors are only interested in investing on traditional tools and the minimum they can on IC build up in view of maximizing and accumulating profits in the banks. A very short-sighted approach with potentially devastating effects on the country’s economic and social well being.

They are ready to invest on tangible assets, that usually depreciate fast, due to rapid changing technology but little on building up their intangibles such as strategic business capabilities (not only technical skills); Knowledge, R&D, Business model innovation, digital, customer-centric processes & policies and Customer experience all that create sustainable long term value, new employments, wealth creation and increase the stakeholders returns.

This is very awkward in our times when you think that the biggest global driver of value today is innovation which is by definition the outcome of intellectual capital and knowledge-based economy. P&G, PepsiCo, Google, Apple & Samsung to name just few examples are not competing on Assets or Capital anymore. They do on the best talents, knowledge accumulation, acquiring Intellectual capital and attracting strategic advisors & hiring of consulting firms to design & develop the most innovative customer value propositions via cutting edge products & services.

Uber and Airbnb both with astronomical capitalized market values don't own a single asset(cars or hotels). Their success lies in their capabilities to capture human needs and ideate simple solutions, scaled using existing knowledge and technology. This gives food for thought and illustrate my point.

In Lebanon, most observed companies keep doing the same things and expect different results. There is a tendency to blame all shortcomings on the economic & political situation. Only part of it is true. The other part is that customers have changed with the world around them, they are connected, demanding and expecting different experiences, to be valued, understood and served on multi-channels with consistent quality levels. They want their brands to surprise them & delight them but also to play a meaningful role in their life. They want to live and work in a stimulating, creative and dynamic ever learning environments.

To adapt to these customers’ demands companies equally need to design a growth strategy that mandates to review and upgrade their strategic capabilities & acquire new skills & knowledge that is usually lacking or not widely available internally. So accepting to call upon outside professional services of consultants & advisors must be embraced & paid generously as it’s the fastest way to bridge the knowledge gap, acquire and adopt best practices to increase their competitive advantages.

Luckily this is changing slowly as we are now witnessing more & more local companies driven by a new generation of leaders with an open mind to these facts and willing to mutate from traditional capital-based model to knowledge-based one.

We are blessed to be working with some of the country’s top businesses and new leaders who understand the importance of reinventing their organization, adopting new mindset, listening to their customers, sourcing strategic capabilities and trying new ideas.They ask us to help them build internal knowledge, innovate their strategies & services and even create innovation design labs so they build sustainable and differentiated value propositions.

So we hope more companies would start believing and embracing the value of knowledge so the above facts and performance indicators about our country can be improved substantially and make Lebanon with its immense human capital potential and creativity an example of a ‘knowledge country’.

Joe Ayoub- Business design/brandcell consulting.

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