Our Vision

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					    Intellectual Capital
What’s In It For Government Information

   CALLUM HOLMES & JUDITH JOHNSTON
            GOVIS May 1 2000
                 SKANDIA

The service sector has few visible assets. What
   price does one assign to creativity, service
    standards or unique computer systems?
 Auditors, analysts and accounting people have
     long lacked instruments and generally
    accepted norms for accurately valuating
    service companies and their “intellectual
                    capital.”
            Intellectual Capital

What is it?
•   Knowledge creation
•   how do we measure it
•   valuing intangible assets
•   why understand it
•   private versus public
  Focus on Knowledge Creation Capacity

To strengthen the ability to realise future opportunities
       we need to find the points of most leverage

                       OPPORTUNITY
               focus                 strategic
                plan                   intent

         ACT                              REFLECT

            options                 company
             plan                  foundation

                        CAPACITY
       Book Value versus Market Value?

3000                                    Air New Zealand
                                        Fisher & Paykel
2500                                    Unisys
                                        Hewlett Packard
2000                                    Sun Microsystems
                                        IBM
1500                                    SAP
                                        Netscape
1000                                    Intel
                                        Oracle
500                                     Microsoft
                                        Telecom NZ
  0                                     Radio Pacific
                 Intangibles            Sky TV

              Assuming book value = 1
            A Traditional Model


                   VISIBLE
Cash                              Short Term Debt



A/R                               Long Term Debt


Plant &                           Shareholders’
Equipment                         Equity
ASSETS                              FINANCE
             A Non-Traditional Model
                       VISIBLE
Cash                              Short Term Debt



A/R                               Long Term Debt


Plant &                           Shareholders’
Equipment                         Visible Equity
ASSETS                                 FINANCE
External                          Shareholders
Structure                         Invisible Equity
Internal
Structure
Individual                        Obligation
Competence            INVISIBLE
 A More Realistic Model



              Market Value




Intangibles                  Tangibles
    Categories of Intangible Assets


•   External
•   Internal
•   Individual Competence
  Categories of Intangible Assets

External
  –   brand
  –   customer loyalty
  –   customer advocacy
  –   3rd party relationships
  –   track record
  –   reputation
  Categories of Intangible Assets

Internal
  –   values
  –   beliefs
  –   behaviours
  –   culture
  –   processes
  –   methodologies
  –   market positioning
  –   internal communications
      Categories of Intangible Assets

Individual Competence
  –   leadership
  –   knowledge of our people
  –   individual beliefs & ethics
  –   risk taking
  –   commercial acumen
  –   intellect
  –   extrapolation
  –   conceptualisation
    Categories of Intangible Revenue


•   External Structure
•   Internal Structure
•   Individual Competence
      Examples of Intangible Revenue

External Structure
  –   referrals of new customers reduces sales &
      marketing costs
  –   prestige makes it easier to sell to customers &
      recruit new staff
  –   policy advice is respected and listened to
  –   prestige / expertise makes it easier to recruit new
      staff, work in interdepartmental teams, “sell” new
      initiatives, win support for business cases
      Examples of Intangible Revenue

Internal Structure
  –   management leverage when solutions developed
      for one customer are reused
  –   patents & projects that support knowledge transfer
      reduce dependence on individuals
  –   institutional knowledge and memory accessible to
      all
  –   knowledge management ensures historical and
      current information about policy, operations and
      regulations, is accurate, timely and relevant.
      Examples of Intangible Revenue

Individual Competence
  –   learning via on-the-job training increases revenue
      creation potential and value to the organisation

  –   encourage people to maintain steep learning curves
      & avoid career plateaux

  –   adds to calibre and reputation of organisation
          The Skandia Navigator


                   Financial Focus




Customer Focus         Human               Process Focus
                       Focus



             Renewal & Development Focus
The Unisys Intellectual Capital Model

                        UNISYS NZ

          Intangibles                Tangibles



   PEOPLE        Intangible Assets        REPUTATION

 Human Assets                       Structural Assets

    Individual          Internal Structures   External Structures
   Competence

                        CUSTOMERS
           The Calculation Model
                                                      Cash
                                                      Receivables
                                                      Inventory
                               Assets                 Fixed Assets



            Tangible
             Assets
                                                      Accrued Liabilities
Market                                                Payables & Accruals
                                                      Current Liabilities
 Value                       Liabilities              Long Term Debt
Analysis

                                                      Processes, Methods (40%)
                           Internal Structures (x%)   Values &Beliefs (30%)
                                                      Strategy & Positioning (20%)
                                                      Internal Comms. (10%)
            Intangible                                Branding (50%)
                          External Structures (y%)
              Assets                                  Customer Loyalty(20%)
                                                      3rd Party relationships (20%)
                                                      Reputation (10%)
                         Individual Competence (z%)   Leadership (35%)
                                                      Knowledge of Staff (35%)
                                                      People-ize (20%)
                                                      Risk Taking (10%)
        Categories of People
             Organisational Competence




What is the right mix of people for your organisation?
Sample Intangible Asset Measurement

External Structure (growth & renewal)
  –   % revenue from organisation building projects
  –   % annuity revenues
  –   brand recognition rating (prompted & unprompted)
  –   client value-add
  –   client referrals
  –   market share
  –   share of client’s wallet
Sample Intangible Asset Measurement

External Structure (efficiency)
  –   return on investment (bid cost/bid value)
  –   value add/client
  –   % contingency applied
  –   incentives achieved
  –   cost of sale
  –   value add/partner
Sample Intangible Asset Measurement

External Structure (stability)
  –   % customer retention
  –   client references
  –   partnership measurements
  –   employee satisfaction
  –   employee referrals
  –   % annuity revenues/all revenues
  –   customer complaints
Sample Intangible Asset Measurement

Internal Structure (growth & renewal)
  –   % revenue from image building projects

  –   % of employees who own Unisys stock

  –   Unisys NZ “share value”

  –   % of positive feedback from Ministers

  –   % of staff who have specialist “government sector”
      expertise e.g. privacy

  –   benchmark values with international peers
Sample Intangible Asset Measurement

Internal Structure (efficiency)
  –   NZQF Award winner
  –   application of methodologies
  –   compliance with audit
  –   % “perfect” internal transactions
Sample Intangible Asset Measurement

Internal Structure (stability)
  –   cultural alignment
  –   remuneration satisfaction
  –   employee churn
  –   employee retention
Sample Intangible Asset Measurement

Individual Competence (growth & renewal)
  –   total company IQ, EQ, KQ ratings
  –   turnover
  –   # of new ideas generated
Sample Intangible Asset Measurement

Individual Competence (efficiency)
  –   rate realisation / productivity
  –   morale
  –   client chargeability / output / KRA / FTEs
  –   utilisation statistics
  –   course attendance
Sample Intangible Asset Measurement

Individual Competence (stability)
  –   training levels achieved
  –   employee technical certification
  –   rookie ratio
  –   recruitment
     What Builds External Structures?
•   External communication of sound, total message
•   Internal communication of sound, total message
•   Construction/enunciation of unique value
    propositions
•   Press coverage ie. positive results
•   Consistent advertising
•   Business reports demonstrating value in client’s
    terms
•   Managed expectations
•   Scorecard approach - clients/partners
•   Common/consistent behaviours
     What Drains External Structures?

•   Improper budget bids / opportunity qualification
•   Contracting to outcomes that we cannot control
•   Talking partnership with those who don’t value
    partnering
•   Inconsistent methodology application
•   Commercial naivety
•   Being too difficult to do business with
•   Rigid compliance with a corporate model
     What Builds Internal Structures?
•   Alignment of objectives/measurements
•   Identification of acceptable behaviours
•   Common business practices
•   A single “business” model aligned with sector or
    whole of goverment
•   Application of professional disciplines
•   Clear & consistent communications
•   Easy-to-use systems
•   Knowledge management systems
     What Drains Internal Structures?
•   Failure to carry out decisions made
•   Lack of personal accountability
•   Lack of collegiate ethos
•   Equating activity with progress
•   Lack of management cohesion
•   “One rule fits all” attitude
•   Constant re-invention of the wheel
•   Commercial naivety
    What Builds Individual Competency?
•   Acceptance of skills inventory available
•   Clear vision & values
•   Strong, agile people
•   Leadership in our leaders
•   Clear accountabilities and responsibilities
•   Appropriate reward & recognition systems
•   Supportive performance management
•   Appropriate tools
•   A learning environment
•   Investment in our people
What Drains Individual Competency?
•   Lack of think time
•   Tolerating poor performance
•   Inconsistent views of “value”
•   “One size fits all”
•   Rework
•   Leadership failure
•   Inconsistent hiring policies/practices
•   Inappropriate incentives/rewards/recognition
•   Poor business planning
“organisations are like people. The most
 perceptive and curious live the longest.
They stay young by testing new ways and
  being alert to new opportunities. They
        make the future an asset.”

                          Lief Edvinsson

				
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