jashapara, knowledge management: an integrated approach, 2 nd edition, © pearson education limited...

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.1

INTELLECTUAL

CAPITAL

lecture (10 )

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.2

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

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.3

BUZZ GROUPS

• If you were asked to articulate your own personal capital in a job interview, How would you describe your personal capital?

• How would you place a value on your personal capital?

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.4

• What is Intellectual Capital? And why it should be measured?

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.5

Intellectual capital definition • There are plenty of definitions of intellectual

capital as example ;

• IC is defined as --------‘The difference between the market value and the book value ( the value of its intangible assets)’ .

• IC is defined as----------- 'The intellectual material – knowledge, information, intellectual property, experience – that can be put to create wealth’

• IC is defined as---------“The intangible assets, such as patents, trademarks and copyrights, that can be included in traditional financial statements.’

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.6

CONCEPTUAL ROOTS OF INTELLECTUAL CAPITAL (Roos et al., 1997)

Figure 3.1 Conceptual roots of intellectual capital (Roos et al. 1997)

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.7

HISTORICAL HIGHLIGHTS OF INTELLECTUAL CAPITAL

Table 3.1 History of intellectual capital

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.8

HISTORICAL HIGHLIGHTS OF INTELLECTUAL CAPITAL

Table 3.1 History of intellectual capital (Continued)

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.9

Intellectual capital classification

• Thomas Stewart is the pioneer in the study of such intangible assets, who coined the term ‘Intellectual Capital’

Intellectual Capital : itself is composed of three distinct types of capital

• Human Capital• Structural Capital • Relational Capital

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.10

Human Capital • Defined as the knowledge, skills and experience that

employees take with them when they leave. • Some of this knowledge is unique to the individual; some may

be generic.• Examples • Innovation capacity, creativity, know-how , past experience,

employee flexibility, tolerance for ambiguity, motivation, satisfaction, learning capacity, loyalty, formal training and education.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.11

Structural capital• Defined as “ The knowledge that stays within the

firm”. It comprises organisational routines, procedures, systems, cultures and databases.

• Examples

Organisational flexibility, a documentation service, the existence of a knowledge centre, the general use of information technologies and organisational learning

capacity. • Some of them may be legally protected and become

intellectual property rights, legally owned by the firm.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.12

Relational capital• Defined as “All resources linked to the external

relationships of the firm’' – with customers, suppliers or partners in research and development.

• It comprises that part of human and structural capital involved the company’s relations with stakeholders (investors,creditors, customers, suppliers), plus the perceptions that they hold about the company. Examples

• Customer loyalty, customer satisfaction, links with suppliers, commercial power, negotiating capacity with financial entities and environmental activities.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.13

Table of Intellectual capital classification

Human capital Relational (customer) capital

Organisational (structural) capital

Intellectual property

Infrastructure Assets

Education Customers • Patents • Philosophy

Qualification Customers loyalty • Copyrights • Culture

Work related knowledge Company name • Design rights • Processes

Occupational assessment Distribution channels

• Trademarks • Systems

Work related competences Licensing agreements

• service marks

• Network systems

Know-how Brands • Trade secrets

• Sales system

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.14

Characteristics of Intellectual Capital

• Although Intellectual Capital is similar to tangible assets in its potential for generating future cash flows, it is radically different from tangible capital in the following respects:

• First :Intellectual assets are non rival assets.

Unlike physical assets which can only be used for doing one thing at a time, intellectual assets can be multiplexed.

For example, a customer support system can provide support to thousands of customers at the same time.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.15

• Second :

• Human Capital and Relational Capital cannot be owned.

• But have to be shared with employees and suppliers and customers.

• Growing this kind of capital requires careful supporting .

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.16

Third :Structural capital is an intangible asset that can be owned and controlled by managers. However, •It cannot be traded easily since no markets exist for this purpose. •Moreover ,customers do not care about the structural capital of their suppliers since every one likes dealing directly with real human beings rather than with systems.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.17

• Fourth : Structural capital, in the form of some systems

as such just-in-time ,management processes, inventory control. Can be substituted for expensive capital expenditure such as storage warehouses.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.18

• Fifth:- Firms that leverage their intellectual capital to do

knowledge work are able to generate higher margin of profits than those who provide mass-produced solutions.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.19

• Sixth ;• Human, Structural and Relational Capital often work

together in combinations to give rise to core competencies .

• Hence it is not enough to invest in people, systems and customers separately, but in combinations that produce end value.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.20

WHY DO SHOULD MEASURE INTELLECTUAL CAPITAL?

• A review of over 700 papers that studied Intellectual Capital measurement related issues found five generic reasons as the purpose of measuring Intellectual Capital:-

To help organizations formulate and evaluate their strategyTo improve management practices.To assist in the firm’s diversification and expansion decisionsFor use as a basis for management compensationTo communicate with external shareholders; external

analysts, bankers, brokers, customers, etc..

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.21

Methods Of Measuring The Intellectual Capital

• There are several group of methods of measuring the Intellectual Capital, which can be used in order to evaluate this assets.

• Some of these methods were attempts made by different companies for their internal use rather than the development of a universal measuring method.

• these methods can be divided into Four main approaches

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.22

First : Direct Intellectual Capital

Methods (DICM)• Estimate the dollar /value of intangible

assets by identifying its various components.

• Once these components are identified, they can be directly evaluated, either individually or as an aggregated coefficient (cost)

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.23

Second Market Capitalization Methods

(MCM)

• Calculate the difference between a company’s market value and its stockholders’ equity as the value of its intellectual capital or intangible assets.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.24

Third Return on Assets Methods (ROA)• Average pre-tax earnings of a company and

divide them by the average tangible assets of the company.

• The result is a company ROA that is then compared with its industry average..

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.25

Fourth Scorecard Methods (SC)

• Identify various components of intangible assets or intellectual capital and indicators and reported in scorecard as graphs.

• The most popular Measurement Method as well as the most widely used of all nonfinancial measurement methods is

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.26

The Balanced ScorecardWhat is it?

The Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.27

The Balanced Scorecard

• Traditional financial reporting systems provide an indication of how a firm has performed in the past, but offer little information about how it might perform in the future.

• To deal with this problem, Robert Kaplan and David Norton developed the Balanced Scorecard, a performance measurement system that considers not only financial measures, but also customer, business process, and learning measures. The Balanced Scorecard framework is depicted in the following diagram:

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.28

THE BALANCED SCORECARD (Kaplan and Norton, 1992)

Figure 3.3 The balanced scorecard (from Kaplan and Norton 1992)

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.29

The Balanced Scorecard

• The Balanced Scorecard is the main management tool that has been used by successful organizations in various fields

• For Private and Public Sector • For- Profit and Not - Profit organizations• Different industries • The successful organizations placed their

strategies at the centre of their operations.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.30

The Balanced Scorecard

• Balances between the financial and non-financial measures

• Balances between the short and long-term measures

• Balances between the internal and external measures.

• Balances between objective measures and subjective measures.

• Balances between leading indicators with lagging indicators.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.31

The Balanced Scorecard

• The balanced scorecard translates the organization's strategy into four perspectives,

• Financial Perspective • Customer perspective • Business process perspective• Learning & growth perspective

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.32

The Balanced Scorecard

• Financial Perspective : includes measures such as operating income, return on capital employed, and economic value added.

• Customer perspective - includes measures such as customer satisfaction, customer retention, and market share in target segments.

• Business process perspective - includes measures such as cost, and quality. These are for business processes such as purchasing and production.

• Learning & growth perspective - includes measures such as employee satisfaction, employee retention, skill sets, etc.

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.33

• These four perspectives are not simply a collection of independent perspectives.

• There is a logical connection between them - learning and growth lead to better business processes, which in turn lead to increased value to the customer, which finally leads to improved financial performance

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.34

Objectives, Measures, Targets, and Initiatives

• Each perspective of the Balanced Scorecard includes objectives, Measures of those objectives, target values of those

measures, and initiatives, as follows:

• Objectives – major objectives to be achieved, for example, profitable growth.

• Measures - the observable parameters that will be used to measure progress toward reaching the objective. For example, the objective of profitable growth might be measured by growth in net margin

• Targets - the specific target values for the measures, for example, +2% growth in net margin.

• Initiatives - action programs to be initiated in order to meet the objective

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.35

• These can be organized for each perspective in a table as shown below.

Objectives Measures Targets Initiatives

Financial

Customer

Process

Learning

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.36

4 step process

• Define measurement architecture

• Specify strategic objectives

• Choose strategic measures

• Develop implementation plan

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.37

Advantages

• Translation of strategy into measurable parameters

• Communication of strategy

• Alignment of individual goals with strategic objectives

• Feedback of implementation results

Jashapara, Knowledge Management: An Integrated Approach, 2nd Edition, © Pearson Education Limited 2011

Slide 3.38

The End