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					               Intellectual Capital Measurement
                        State of the Field
                                 Dina Gray
                     Cranfield School of Management’s
                     Centre for Business Performance




26 July 2002           Centre for Business Performance
 Introduction




  •   Background
  •   Intellectual Capital – why measure
  •   Who’s who
  •   Latest trends
  •   Example measures
  •   Current research activity




26 July 2002           Centre for Business Performance
 Background




26 July 2002   Centre for Business Performance
 Why measure intangibles?




26 July 2002        Centre for Business Performance
 … what it is not




               market value – book value

 • Explains that analysts value aspects other than
   financial and physical assets
 • Current market turbulence
       – Have companies really lost all their Intellectual
         Capital?



26 July 2002              Centre for Business Performance
 Relationships between terminologies


                                 Intellectual Capital

               Human Capital        Structural Capital             Stakeholder Capital


               Human Assets         Explicit Knowledge             Relationship
                                    Management                     Management
               Human Resources
                                    Organisational Capital         Customer Capital
               Tacit Knowledge
               Management           Process Capital                Supplier Capital

                                    Intellectual Property          Shareholder Capital




                  People                 Processes                  Relationships

26 July 2002                     Centre for Business Performance
Measuring the benefits



     Measures that Matter
     Business Innovation Center,
     Ernst & Young, Boston, 1997

     Measures that would be most beneficial:
     • Revenue generated by ideas
     • Collaboration levels in key initiatives
     • Productivity of knowledge workers
     • Quality of decisions
     • Percentage of revenues from new products




26 July 2002                Centre for Business Performance
 IC measurement drivers


                 Financial                      Financial
                  targets                      performance
               (indicators)                     measures
                                                                              Share price
                                                                Mandatory
                                                                disclosure
Strategy                      PMS
                                                                Voluntary
                                                                disclosure


               Intellectual                     Intellectual                 Stakeholders
                  capital                         capital
                  targets                      performance
               (indicators)                      measures




26 July 2002                  Centre for Business Performance
 Key internal drivers for IC measurement



               Human                                                 Structural
               Capital                                                Capital
    People,         What do we know that we could use and exploit         Information stores
    knowledge                  (Resource Based Theory)                     and organisational
    and culture                 Future profitability
                                           or                              processes
                  How should we change our intangibles to enable us to
                              achieve our strategic goals?



                                      Stakeholder
                                        Capital
                                       Relationships



26 July 2002                       Centre for Business Performance
 Key external drivers for IC measurement



 • FSAB calling for voluntary disclosure of intangibles
 • Institute of Chartered Accountants 1999 “Good Practice
   Guideline on Managing Intellectual Capital”
 • “The Influence of Voluntary Disclosed Qualitative
   Information” reported that companies who are able to make
   meaningful disclosures about their long term prospects
   achieved more satisfactory market valuations than those that
   did not.
      (Narayanan, Pinches, Kelm and Lander , Strategic Management Journal
      Vol 21, No 7, July 2000,)




26 July 2002                  Centre for Business Performance
 Measurement philosophy



 • Intangible measures should inform:
       – about the resources in the business
       – on the potential for growth


 • Current tools:
       – Each area of strategic importance has a
         measurement index
       – A measurement index is made up of a variety of
         indicators


26 July 2002            Centre for Business Performance
   Who’s who in the world of IC measurement?


 • Balanced Scorecard – Kaplan and Norton
       – Creation of company specific indices grouped under Financial,
         Customer, Internal, Innovation and Learning
 • Skandia Navigator – Lief Edvinsson
       – Similar to the BSC, but includes People
 • IC-Index – Goran Roos
       – Single company index mechanism
 • Intangible Asset Monitor – Karl Sveiby
       – KPI monitor for intangibles, internal management tool
 • Technology Broker – Annie Brooking
       – An internal IC audit tool
 • Value Chain Scoreboard – Baruch Lev
       – Useful for managers but focussed on external reporting leading to
         accounting standards

26 July 2002                   Centre for Business Performance
 Human Capital Index examples (1)


 • Personnel index
       – Average remuneration
       – Incentive premium
       – Remuneration / revenue
 • Learning and Development index
       – Training costs per FTE
       – Performance of trainer
       – % of industry certifications
 • Recruitment index
       – Cost per hire
       – % of people returning
       – Number of people recruited at each development level

26 July 2002                 Centre for Business Performance
 Human Capital Index examples (2)

 • Skills index
       – Number of people at each development grade
       – Number of people at each development grade per role
       – % of staff with more than one role
 • Retention index
       –   Length of service per developmental grade
       –   Length of service for each graduate
       –   Retention of onsite staff
       –   Retention of flexible staff
 • Flexibility index
       – % of home workers
       – % of part timers
       – % of contractors

26 July 2002                 Centre for Business Performance
 Human Capital Index examples (3)

 • Morale index
    – Number of issues raised
    – Number of issues solved
    – Absence rate
    – Number of grievances
    – % of people who feel valued
 • Leadership index
    – Number of leaders
    – Ratio of leaders to followers
    – Time spent in a leading activity
    – Leadership training hours per person
 • Quality of life index
    – % of home workers
    – % of time spent travelling
    – Excessive hours and distribution
    – Satisfaction with family friendly policies

26 July 2002                 Centre for Business Performance
 HC measurement mechanisms




 • Return on Learning and Development investment
       – Investor in People audit
 • Return on Recruitment investment
       – Increase in skills levels across the company
 • Benchmarking statistics
       – EP- Saratoga
 • Satisfaction measurements
       – Staff survey




26 July 2002                Centre for Business Performance
 Structural Capital Index Examples (1)

 • Knowledge index
    – % of dynamic intranet sites
    – Number of books in the library
    – Number of magazine subscriptions
    – Number of lunchtime lectures
    – Number of white papers on the web
 • Efficiency index
    – % of processes automated through the web
    – Net operating costs per FTE
    – Utilisation
    – % of time spent on appraisals
 • Culture index
    – Number of events
    – % attending the company party
    – Car parking spaces per FTE
    – % staff tell friends it’s a good place to work

26 July 2002                 Centre for Business Performance
 Structural Capital Index Examples (2)


 • Communication index
       – % of interaction time
       – Number of queries about company policy
       – % of communication about operations
 • Creativity index
       –   Number of comfy chairs per FTE
       –   Number of knowledge sharing areas per FTE
       –   Floor space footage for brainstorming activities
       –   Number of new products per year
       –   Number of innovative job titles per FTE
       –   Ratio of art to science graduates



26 July 2002                  Centre for Business Performance
 Stakeholder Capital Index Examples (1)
 • Customer index
       –   Number of new customers
       –   Average revenue per customer
       –   Turnover of customers
       –   Number of strategic alliances
 • Supplier index
       – Number of suppliers
       – Turnover of suppliers
       – Number of joint ventures
 • Community index
       – Number of community based projects
       – Number of staff partaking in community projects
       – Number of direct recruits from the local community

26 July 2002                Centre for Business Performance
 Different measures – cause and effect

   Category       Resources                        Activities                   Effects

   Employees      Number of staff                  Training days per FTE        Absence due to
                  Average age of staff             Training investment          sickness
                  Number of operations staff       Size of project teams        Total employee
                  vs administration staff          Number of people involved    satisfaction
                  % of employees holding           in recruiting new staff      % of staff
                  PhDs                                                          telling others its
                                                                                a good place to
                                                                                work


   Stakeholders   5 largest project customers      Joint participation in       Total customer
                  Number of licenses sold          research projects            satisfaction
                  Active project customers         Customers visiting the co.   Duration of
                  Turnover of customers                                         relationships


   Structural     PC workstations per person       Investment in equipment      Employee
                  Office space size                Investment in premises       satisfaction
                  Intranet size                    Investment in intranet       Number of hits
                                                                                on the intranet




26 July 2002                  Centre for Business Performance
 Current research activity




 •    How to measure the flows of IC
 •    IC statements
 •    Macro IC measures
 •    Cost/benefits of IC measurement




26 July 2002          Centre for Business Performance
 … and finally




 • Understand how this affects your business performance




26 July 2002          Centre for Business Performance

				
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