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Intellectual Capital:-Define It-Understand It-Capture It
Mary AdamsPresident
Intellectual Capital Advisors
Association for Consulting ExpertiseFriday, September 18, 2009
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Interesting company?
• Many decades in business• Growth and profits over the years• Great people• Tough 2009 but will be OK• Industry has good outlook• Opportunities for innovation
�Good client, investment, employer?
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Co’s main production facility
• Today is the company’s key competitive advantage
• Started as experiment in 1980’s• Mostly internally-built components• Customized for this business• Never kept track (still don’t) of cost to
build, maintain or operate
�What do you think now?
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Economic value is increasingly intangible
Research: Ned Davis
Components of
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Market Premium
Intangible Book Value
Tangible Book Value
Components of S&P 500® Market Capitalization
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
S&P 500 Market Cap ($ billions)
Market Premium
Intangible Book Value
Tangible Book Value
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This change touches all sectors
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Energy
Materials
Industrials
Consumer Discretionary
Consumer Staples
Health Care
Financials
Telecommunications Services
Information Technology
Utilities
Intangible Value as a % of Total Market Capitalization by Sector
1975
2005
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The clearest answers come from the field of intellectual capital
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Value is created when IC elements are combined in a system
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Human Capital
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+ Structural Capital
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+ Relationship Capital
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+ more Structural Capital (that generates revenue)
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+ more Relationship Capital
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This “knowledge factory”grossed $22+ billion in 2008
From: You Can Grow Like Google on YouTube
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Every business has a knowledge factory
Medical
Device Co.
Specialty
Contractor
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Implications for management
Unit or Project
Corp
Division
Knowledge Era:Collaboration/
Innovation
Industrial Era:Hierarchy/
Strategic Control
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Management dualities
Networks �� Org charts
Orchestration �� Command/control
Innovation �� Strategy
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Accounting dualities
Investment �� Capital expenditure
Assessment �� Balance sheet
Indicators �� Income statement
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Implications for consultants
1. A lot of consulting involves helping companies see intangibles ad hoc
�Increase your intangibles skill set
2. A lot of consultants have weak structural capital
�Find the leverage in your firm’s intangibles
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“Technology and especially the internet can really help you be lazy. Find the leverage in the world, so you can be more lazy!” - Larry Page
Intangibles battle cry
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Resources
• Slides will be posted on my blog:www.smartercompaniesblog.com
• Bibliography/discussion:www.icknowledgecenter.com
• Worksheet for knowledge factory:http://tinyurl.com/you-can-grow-like-google
Mary Adams, [email protected]: maryadamsica
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Additional Detail
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The org is now a network
Elizabeth Reuthe, and Verna Allee, “Knowledge Management: Move the Case Model From a Snapshot to a Story,” Health Forum Journal, May/June 1999
Value Networks:
Content of connections
Social Networks:
Patterns of connections
Dietmar Offenhuber, Judith Donath, MIT Media Lab, “Comment Flow: Visualizing Communication Along Network Path, 2008
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I-Capex* ($1 trillion/year)
• Intellectual capital expenditures are expensed under today’s accounting
• Should be tracked in a management report• Cost is actually the most concrete piece of
data available about intangibles• Internally, will help with better decisions• Externally, will help tell corporate story
* the new capital expenditure
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IC assessment*
• Like a 360-degree review of the knowledge factory
• Review is by stakeholders (both internal and external)
• Asks whether it is working well today, outlook and risk
• Used for strategy, reporting, M&A* the new balance sheet
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IC Rating assessment output
AAAAAABBBBBBCCCCCCD
-
R
RR
RRRA R
BB RRA
BBB
RBBBBBB
Brand
IP Processes Management Employees CustomersNetwork
Intellectual Capital
Relational Structural Capital
Business Recipe Organizational
Structural CapitalHuman Capital
BBB BBB RRBBB BBB RR
BBRBB
BBBB RRBBBRBBB BBB RBBB BBB -BB BBB
BBRBB BBB
BBRBB BBB
BBB BBB R
AA
BBB A RBBB A R
RBBB
B
RBBB BBB RBBB BBB
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Performance management*
• Uses non-financial indicators • Examples: headcount, customer
demographics, IP mapping, process metrics
• Bottom up for learning• Top down for management and
reporting—key performance indicators (KPI’s)
* the new income statement
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Triangulate intangible performance
Graphic from: http://amath.colorado.edu/outreach/demos/hshi/2000Sum/TaT.html
Cost
Assessment
Indicators