INTELLECTUAL CAPITAL MANAGEMENT

How much?

Hidden Value

PROCESS MODELIntellectual Capital

Intellectual capital management

The intellectual capital process (4 steps approach).

1.Matching with the organizational epistemology: – The vision and mission of the organization.

2.Translating the vision into strategies. 3. Identifying key success factors (KSFs). 4.Measuring the KSFs (put indicators to reflect

each KSF)

Intellectual capital System: the process model

Human Capital

Customer Capital

Business Process Capital

Renewal & Development

Capital

OWNERS

Step 1: Matching with the organizational epistemology: The vision and mission of the organization.

Understand Who you are & Who you want to be?

Visionmission

Step 2: Translating the vision into strategies

• Identification of strategy• No limited to the number of strategy• Top level management’ duty

Visionmission Strategies

Step 3: Translating the trategies to key success factors

• Identification of KSFs is the most important step• KSFs are the must do action• No limited to the number of KSFs• Should be prioritized• Senior managers’ duty

Strategies KSFs

Step 4: Measuring the KSFs (put indicators to reflect each KSF)

• KSFs => indicators (proxies number)• The manager of the business unit suggests

indicators

KSFs Indicators

Developing an IC SystemVision: the first choice of customers for insurance business Mission / strategy: to be the marketplace for the movement of selected investment funds and optional insurance

KSFs (ranged No. 1): To establish long-term relationship with satisfied customer

Indicators: (proxies number / should be ranged)• Satisfied customer index (2)• Customer barometer (3)• Number of news sales (5)• Market share (4)• Lapse rate (1)• Average respond time at the call center• Average handling time for completed cases • New customer (5)

Indicators: examples

Putting It Together

• The indicators needs to be expressed in term of capital identified by the company

• Create a common language between the theoretical thought behind the IC model and the practical indicators

• The org. have the same picture of doing business

Company X

FC

HC

Company X

Process capital

Relationalcapital

Renewal & Development capital

Company 1

Putting It Together

FC HC SC

• Relational• Process• Renewal &

Development

Flow of IC: Systematic Approach

Company X

The selection

• Selecting the capital form: strategy is the key• Selecting indicators: bottom-up process• Selecting weight: value in particular business

(relative importance each capital form)

The selection of capital forms,

weights and indicators Selection ofCapital forms

Selection ofweights

Selection of indicators

Strategy

Business

Company

Intellectual capital System: the process model

Human Capital

Customer Capital

Business Process Capital

Renewal & Development

Capital

ExampleVision= in 2020 : I will have a nice - rich family

Mission & Strategy

KSF Indicators

M1: finding a rich boyfriend

M1K1: Dress up in fashion

M1K1I1: No. of wearing new dress from

M1K1I2: No. of reading fashion magazine / month M1K1I3: get the hair done every month M1K1I4: study how to wear make up

M1K1I5: building personnel character

INDICATORS

IC - index

• IC: measurements are proxy variables or indicators– Number of hours– Number of workers – Number of new products – Number of new customers – level of satisfaction – Etc.,

The creation of a complete set of IC-indices• Review of the existing indicators

– Picture of the company IC situation (new process create more happy customer or frustrate employee / form & flow)

– Review & adjust (proxies number need multiple indicators)• What each one is really aiming to capture• What it actually measure • What the change in the indicator would signify for the

company

– Ranking them (find the handful indicators)

IC-Index: distinct features

• It is context specific• it is an idiosyncratic measure• it focuses on the monitoring of the dynamics of IC• it is capable of taking into account performance from prior periods• it sheds light on a company different from an external view typically

based on an examination of physical assets• it is a self-correcting index in that if performance of the IC-Index

does not reflect changes on the market value of the company, then the choice of capital forms, weights, and/or indicators is flawed.

Note: IC weak spots• Trade-off between two alternatives

– No. of customers has increased but innovation rate is declined

• Comparisons difficulty – Inter-company comparison: homogeneous – Two total different industries: genetic factors

• Lack of relation between IC and the financial and physical side of the company

The selection of capital forms, weights and indicators

• Making choice of indicators is a bottom up process (day-day operation)

• Making choice of weights is a manager consideration

• Making choice of capital is a creation value in the business (top manager)

Top-down vs bottom-up process

Bottom-up process• The bottom-up approach, on the other hand, takes a knowledge-

based view of the firm to guide strategy formulation.(Grant, 1997; Sveiby, 2001)

• In this approach organizations match more closely their internal capabilities with the opportunities in the market.

(Andrews, 1971)

• The bottom-up concept of corporate strategy definition is more internally focused and allows organizations to first identify what they do well and then go out and look for ways to exploit it in the market.

(Collins and Montgomery, 1995)

Top-down vs bottom-up process

Human Capital indicators : Prioritizing example

• Management experience/abilities 43.46• Change in number of employees 16.54• Agreements with employees 4.62• Breakdown of employees by age or experience 3.85• Experience of employees 3.46• Recruitment policy 3.46• Description of competence development program 2.69• Production/Income per employee 1.54• Remuneration systems 1.15• Education and training policy 0.77• Pensions 0.77• Job rotation opportunities 0.38• Dependence on key employees 0.38• Value added per employee 0.38• Career opportunities 0• Insurance policies 0

Customer Capital indicators : Prioritizing example

• Customer breakdown by product or business 46.15• Market share by segment/product 43.08• Sales breakdown by product or business 42.31• New customers 38.08• Customer relationships 21.54• Relative market share to competitors 18.08• Sales breakdown by customers 14.62• Market share 9.62• Dependence on key customers 7.31• Value added by customer or business 3.08• Education and training of customers 1.54• Production by customer 1.15• Customers by employee 0.77

Organizational Capital indicators : Prioritizing example

• Efficiency 42.69• Installed capacity 42.31• Investment in technology 33.08• Business model 31.15• IT systems 25.38• Utilization of energy and other input goods 23.46• Organizational structure 20.38• Information and communication within the firm 13.46• Corporatize culture 8.46• Environmental policies 3.46• Litigation 2.69• Efforts related to the working environment 2.31• External and internal failures 0.77

Innovation, research, and development Capital indicators : Prioritizing example

• Patents and licenses 25.77• Strategy, objects of I and R & D 6.54• I and R&D in basic research 1.15• I and R&D in product design/development 1.15• Future projects regarding I and R&D 0• Patents pending 0

Indicator advantages -disadvantage

Pike, Fernstrom & Roos, 2005