Falcon Invoice Discounting: Empowering Your Business Growth
Lecture 4 intellectual capital
1. Analysis 1: Evidence and the Nature of
Knowledge in the Digital Age
Topic: Intellectual Capital
Topic Number: 4
2. LEARNING OBJECTIVES
• To describe the development of the concept of
intellectual capital from a historic perspective
• To discuss commonalities between different
intellectual frameworks as a mixture of human
capital, social capital, organisational capital
and customer capital
• To outline issues related to the notion of
intellectual capital as a narrative
3. Questions to think about during the
session
• If you were asked to articulate your own
personal capital in a job interview, how would
you go about doing it?
• How would you describe your personal
capital?
• How would you place a value on your
personal capital?
4. Questions to think about during the
session
• What is ‘intellectual capital’?
• Why do businesses think ‘intellectual
capital’ is important at present?
• How do you develop it?
5. IS INTELLECTUAL CAPITAL THE
MARKET TO BOOK RATIO?
• ‘the difference between the market value of a publicly
held company and its official net book value is the
value of its intangible assets’ (Svieby, 1997)
• ‘intellectual material – knowledge, information,
intellectual property, experience – that can be put to
create wealth’ (Stewart, 1997)
• ‘the economic value of two categories of intangible
assets of a company: organisational (“structural”)
capital and human capital’ (OECD, 1999)
6. WHY DO WE WANT TO MEASURE
INTELLECTUAL CAPITAL?
• To improve management practices?
• For external analysts, bankers, brokers,
customers, etc.?
• Can we measure the tacit ‘know how’?
• Are snapshots meaningful?
• Fluctuations in capital markets?
• Dangers of benchmarking?
7. CONCEPTUAL ROOTS OF INTELLECTUAL
CAPITAL (Roos et al., 1997)
Figure 3.1 Conceptual roots of intellectual capital (Roos et al. 1997)
9. HISTORICAL HIGHLIGHTS OF
INTELLECTUAL CAPITAL
Table 3.1 History of intellectual capital (Continued)
10. HOW DO WE MEASURE ORGANISATIONAL
PERFORMANCE?
• ROI, ROCE etc.?
• Financial engineering – undervaluation of
assets, provisions, capitalization of costs,
depreciation, goodwill, brands, off-balance
sheet finance?
• EFQM – leading European companies include
non-financial indicators
• Balanced Scorecard?
12. THE BALANCED SCORECARD (Kaplan
and Norton, 1992)
Figure 3.3 The balanced scorecard (from Kaplan and Norton 1992)
13. HOW DO WE COMPARE IC
FRAMEWORKS?
• Is the goal for management to extract value
from the organisational ‘know how’ or to
create value through developmental and
cultural relationships?
• Human capital and social capital are common
threads
• Organisational capital
14. HUMAN AND SOCIAL CAPITAL
• Hamel & Prahalad (1994) – success linked
with development and utilisation of core
competences
• Human capital – human embodied knowledge
• Social capital – nature of relationships in a
cooperative entity
15. SOCIAL CAPITAL
• Structural dimension showing the linkages
and connections between actors such as the
density and hierarchy of networks
• Relational dimension that provides the history
of interactions between individuals resulting in
certain levels of trust, norms and expectations
• Cognitive dimension that leads to shared
meanings, interpretations, mental models and
alignment of views
16. ORGANISATIONAL CAPITAL
• Pure form such as organisational structure
• Hybrid form – embodied in individuals through
socialisation
• Investments will lead to greater worker
productivity?
• Differences between structural, human and
organisational capital?
17. INTELLECTUAL PROPERTY
• Intellectual assets – documents, drawings,
software programs, data, inventions and
processes
• Intellectual property – claim ownership to
patents, copyrights, trademarks and trade
secrets
• In knowledge based economy, do we need to
manage intellectual property strategically?
18. PATENTS
• Offer greatest level of protection
• Gather revenue from licensing agreements
• 1998 – ‘method of doing business’ patents in US
• Smart patents – extend the life by using
continuation patents
• File patent application at Patent Office –
undergoes few years of ‘examination period’
• Normal life 20 years
• WTO – Agreement on Trade Related Aspects of
Intellectual Property Rights in 1995
20. COPYRIGHT
• Prevent infringements on copying, distributing,
performing or displaying material
• Protect the original works for a longer period
of 100 years
• Problems of copyright in the digital age and
the potential need for encryption
21. KODAK – POLAROID
• 1975 – Kodak ignored vast patent barriers
Polaroid had erected in the high growth instant
camera market
• Kodak was found to have infringed Polaroid’s
patents
• Ordered to pay $925 million in damages
• Shut down its manufacturing plant
• Retrieve the 16 million cameras sold
22. FINANCIAL REPORTING OF IC?
• Use notion of fair value
• FASB (1999): ‘an estimate of the price an entity would have
realized if it had sold an asset or paid if it had been relieved of a
liability on the reporting date in an arm’s-length exchange motivated
by normal business conditions’
• EU (2000): 1. A market value, for those items for which a reliable
market can readily be identified. Where a market value is not readily
identifiable for an item but can be identified for its components, the
market value of that item may be derived from that of its components;
or
2. The value resulting from establishing valuation models and
techniques, for those items for which a reliable market cannot be
readily identified. Such valuation models and techniques should
ensure a reasonable approximation of the market value
23. INTELLECTUAL CAPITAL AS A
NARRATIVE
• Found knowledge as a narrative was most
useful when centred around ‘value-to-a-user’
• Needs to highlight ‘positive’ aspects as well as
problems and pitfalls for it to succeed
• Provides real life examples of trials and
tribulations
• Reliability of narrative?
24. Mouritsen et al. (2002)
Figure 3.6 Example illustrating framework for key components of an intellectual
capital statement (adapted from Mouritsen et al. 2002)
25. KNOWLEDGE AUDIT – VALUE-BASED
PERSPECTIVE (Truch, 2001)
Figure 3.7 Process of knowledge auditing (adapted from Truch 2001)
26. Reading and preparatory work to be done
Read:
• Jashapara, A. (2011) “ Knowledge Management:
An Integrated Approach” Pearson Education,
Chapter 3
Work to be done before the seminar:
• Carry out all the reading above
• Answer the questions on the handout
• Bring your work to the seminar
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27. Essential work for next week
• Please consult the OLE for details of:
– Essential readings*
– Seminar/workshop preparation work*
– Recommended further readings
– Any additional learning
* Essential readings and preparation work must always be completed in time
for the next session
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During the session think about how you would answer the following questions
During the session think about how you would answer the following questions
There are a lot of definitions of intellectual capital:
Intellectual capital has also been defined as the difference between a firm’s market
value and the cost of replacing its assets. It is those things that we normally cannot put a price
tag on, such as expertise, knowledge and a firm’s organizational learning ability3. Market
value equals book value plus intellectual capital, with book value usually only the tip of the
iceberg of wealth.
Intellectual capital encompasses much more than patents, copyrights and other forms
of intellectual property. It is the sum and synergy of a company’s knowledge, experience,
relationships, processes, discoveries, innovations, market presence and community influence4.
The most widely used definition of intellectual capital is “knowledge that is of value
to an organization.” Its main elements are human capital, structural capital, and customer
capital. That definition suggests that the management of knowledge (the sum of what is
known) creates intellectual capital5.
Reasons for measuring intellectual capital.
Human capital is defined as the knowledge, skills, experience, intuition and attitudes
of the workforce. Intellectual capital can be increased by increasing the capacity of each
worker.
Human capital is the knowledge, skill and capability of individual employees
providing solutions to customers1. Human capital is the firm’s collective capability to extract
the best solutions from the knowledge of its people. It is important because it is a source of
innovation and strategic renewal, whether it is from brainstorming in a research lab,
daydreaming at the office, throwing out old files, re-engineering new processes, improving
personal skills or developing new sales leads2.
Individual competence is important for organizations. This is people’s capacity to act
in various situations. It includes skill, education, experience, values and social skills. People
are the only true agents in business; all assets and structures, whether tangible physical
products or intangible relations, are the result of human action and depend ultimately on
people for their continued existence3.
People create knowledge, new ideas, and new products, and they establish
relationships that make processes truly work. Unfortunately, when people leave, they take
along their knowledge, including internal, external, formal, and informal relationships4.
Intellectual capital - the commitment and competence of workers - is embedded in
how each employee thinks about and does work and in how an organization creates policies
and systems to get work done.
