INTELLECTUAL CAPITAL MANAGEMENT

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INTELLECTUAL CAPITAL MANAGEMENT Powered By Docstoc
					INTELLECTUAL CAPITAL MANAGEMENT
         AT UNIVERSITIES

                    by

            Johan Andrew Kok


                 THESIS

      submitted in partial fulfilment

     of the requirements for the degree


        DOCTOR COMMERCI

                     in

      BUSINESS MANAGEMENT

                   in the

     FACULTY OF MANAGEMENT

                   at the

   UNIVERSITY OF JOHANNESBURG


  PROMOTER: PROF ASA DU TOIT
  CO-PROMOTER: PROF N LESSING

               October 2005



                     i
                                DECLARATION

I hereby declare that the thesis submitted for the D.Com. degree to the University of
Johannesburg, apart from the help recognised, is my own work and has not been formerly
submitted to another university for a degree.



Andrew Kok




                                          ii
                                      SUMMARY
This research commenced by looking at what the knowledge economy is and what the
driving forces are. In order to decide on how knowledge in this new economy can be
managed, it was first necessary to define the concept of knowledge. The difference
between tacit and explicit knowledge and the interaction between the two were discussed
and at the end ways of managing this knowledge were investigated.


In a discussion of the term knowledge management it was concluded that it can be
regarded as the handling of tacit and explicit objects of knowledge through information
systems, so that it enhances innovation and learning in the enterprise. However, when this
knowledge is used for creating economic value, it becomes an item of capital and it is
therefore necessary to determine what Intellectual Capital is.


The history of Intellectual Capital was discussed and in defining Intellectual Capital
seven different models for Intellectual Capital were studied. It was found that Intellectual
Capital is subdivided into three major components, viz. Human Capital, Structural
Capital and Customer Capital. Each of these components was then thoroughly described
and discussed.


The aim of the research was to study the explicit management and measurement models
of Intellectual Capital that would improve understanding of the mechanisms by which
value is created and extracted. The different approaches that can be followed in managing
Intellectual Capital were investigated. It was concluded that the three major components
cannot be seen as independent from each other and must therefore be managed as a
whole. The management of the interaction between the three components can be seen as
the management of the intellectual assets of an organisation and this consists of two
phases, viz. value creation and value extraction.


In order to determine how successful an organisation is in managing its Intellectual
Capital this management needs to be measured. The vehicle for measuring performance




                                             iii
is a model with a set of indicators in each of the three major components. It was found
that measurement models can be divided into four major categories:
•   Market capitalisation methods
•   Return on assets methods
•   Direct intellectual capital methods, and
•   Scorecard methods.
Twenty-seven different models were investigated in order to understand which indicators
were necessary to measure Intellectual Capital in an organisation.


In order to propose a new framework a study was firstly done on what a framework
should look like and which elements should be included. Thereafter an investigation was
done to determine which indicators should be included in such a framework.


As it was found that such a framework is very organisation-specific, a brief overview of
the RAU was given and according to the strategic objectives of the University as set out
in the three-year rolling plan a set of indicators was decided upon. It was necessary that
each of these indicators indicate whether the University had been successful in the key
performance area through the management of its Intellectual Capital.


The criteria and indicators identified were applied in the composition of a new model in
an effort to find a suitable model for use at universities. The evaluation process turned up
the scorecard models as the most suitable for applying in this instance. An attempt was
therefore made to modify and adjust these types of models to answer all the requirements
of the University. Meeting the requirement that indicators from all three major
components must be present was possible. Efforts to adapt existing models in such a way
that sub-components can also be measured were met successfully. This model was then
tested at RAU and it was measured whether the management of Intellectual Capital
contributed to reaching the University’s strategic goals.




                                               iv
                                  CONTENTS
SUMMARY                                                        iii


LIST OF FIGURES                                               xiii


LIST OF TABLES                                                xiv


1         INTELLECTUAL CAPITAL MANAGEMENT AT
          UNIVERSITIES
1.1       Background                                            1
1.2       Problem statement                                     4
1.3       Research methodology                                  6
1.4       Outline of the thesis                                 7
1.5       Delimitations                                        10


2         THE ROLE OF KNOWLEDGE MANAGEMENT IN THE
          KNOWLEDGE ECONOMY
2.1       Introduction                                         11
2.2       Knowledge defined                                    12
2.2.1     Tacit knowledge                                      15
2.2.2     Explicit knowledge                                   17
2.2.3     Interaction between explicit and tacit knowledge     17

2.3       Knowledge Management                                 20

2.4       The role of knowledge management in the knowledge    23
          economy
2.5       Conclusion                                           28


3         INTELLECTUAL CAPITAL
3.1       Introduction                                         29
3.2       Historical overview of Intellectual Capital          31
3.3       Definitions of Intellectual Capital                  35


                                       v
3.4       Models of Intellectual Capital                   39
3.4.1     Sullivan’s model                                 39
3.4.2     The Skandia Intellectual Capital Value Scheme    41
3.4.3     Brookings model                                  43
3.4.4     Roos & Roos’s Categorization                     44
3.4.5     Saint-Onge’s Model                               46
3.4.6     Sveiby’s Model                                   47
3.4.7     Wigg’s model                                     48
3.5       Components of Intellectual Capital               50
3.5.1     Human capital                                    50
3.5.2     Structural capital                               53
3.5.3     Customer capital                                 56
3.6       Conclusion                                       58


4         MANAGEMENT AND MEASUREMENT OF
          INTELLECTUAL CAPITAL
4.1       Introduction                                     59
4.2       Intellectual Capital management                  59
4.3       Intellectual asset management                    64
4.4       Intellectual Capital measurement                 67
4.4.1     Market capitalization methods                    70
4.4.1.1   Tobin’s q                                        70
4.4.1.2   Investor assigned market value                   71
4.4.1.3   Market-to-book value                             71
4.4.2     Return on assets methods                         71
4.4.2.1   Economic value added                             77
4.4.2.2   Human resource costing and accounting (HRCA)     72
4.4.2.3   Calculated intangible value                      73
4.4.2.4   Knowledge capital earnings                       73
4.4.2.5   Value Added Intellectual Coefficient             74
4.4.3     Direct Intellectual Capital measurement models   74



                                        vi
4.4.3.1   Technology broker                                                   75
4.4.3.2   Citation-weighted patents                                           75
4.4.3.3   Inclusive Valuation Methodology                                     76
4.4.3.4   The value explorer                                                  76
4.4.4     Scorecard methods                                                   77
4.4.4.1   Skandia Navigator                                                   77
4.4.4.2   Balanced Scorecard                                                  84
4.4.4.3   Intangible Asset Monitor                                            87
4.4.4.4   Intellectual Capital Index                                          91
4.4.4.5   Value Creation Index                                                94
4.4.4.6   Baruch Lev method                                                   97
4.4.4.7   International Federation of Accountants Indicators                  98
4.4.4.8   Austrian Research Centre Seibersdorf Knowledge Goal Matrix         100
4.5       Conclusion                                                         103


5         DEVELOPING A FRAMEWORK FOR MANAGING
          INTELLECTUAL CAPITAL AT UNIVERSITIES
5.1       Introduction                                                       104
5.2       Types of models or frameworks                                      104
5.3       Methodology for a framework                                        107
5.4       Criteria for indicators in the measurement of Intellectual         109
          Capital
5.5       Rationale      for    Knowledge    and    Intellectual   Capital   112
          management at Universities
5.6       The Rand Afrikaans University                                      113
5.7       Elements of measurement to be used in an Intellectual Capital      115
          Management framework for implementation at the Rand
          Afrikaans University
5.7.1     Human Capital:                                                     117
5.7.2     Structural capital:                                                117
5.7.3     Financial Capital:                                                 117



                                       vii
5.8         Variables to be measured                                             118
5.8.1       Human Capital                                                        118
5.8.1.1     Human resources                                                      118
5.8.1.2     Further training and education                                       118
5.8.2       Structural Capital - Customer Capital                                119
5.8.2.1     Customers, image and stakeholders                                    119
5.8.2.2     Project cooperation and networking                                   119
5.8.3       Structural Capital - Organisational Capital - Innovation Capital -   119
            Intangible Assets:
5.8.3.1     Technological support                                                119
5.8.3.2     Library and Information Services                                     120
5.8.3.3.    Diffusion and networking per academic and research staff             120
5.8.4       Structural Capital - Organisational Capital - Innovation Capital -   120
            Intellectual Property:
5.8.4.1     Internationalisation                                                 120
5.8.4.2     Intellectual Property                                                121
5.8.5       Structural Capital - Process Capital:                                121
5.9         Conclusion                                                           121


6           CASE STUDY: INTELLECTUAL CAPITAL
            MANAGEMENT AT THE RAND AFRIKAANS
            UNIVERSITY
6.1         Introduction                                                         122
6.2         Gathered data according to the framework                             124
6.2.1       Human Capital                                                        124
6.2.1.1     Human Resources                                                      124
6.2.1.1.1   Number of staff                                                      124
6.2.1.1.2   Proportion of staff groups to total number of staff (%)              125
6.2.1.1.3   Total staff influx                                                   126
6.2.1.1.4   Total of instruction/research professionals                          127
6.2.1.1.5   Rookie ratio                                                         128



                                         viii
6.2.1.1.6      Average term of employment in years                                  129
6.2.1.1.7      Total staff resignation within two years                             130
6.2.1.1.8      Total of staff according to age                                      131
6.2.1.1.9      Median age of all staff according to groups                          132
6.2.1.1.10     Leadership index                                                     132
6.2.1.1.11     Motivation index                                                     133
6.2.1.1.12     Empowerment index                                                    133
6.2.1.1.13     Equity index                                                         133
6.2.1.1.14     Further training and education                                       138
6.2.1.1.14.1   Total number of employees receiving training per financial year      138
6.2.1.1.14.2   Total training expenditure per employee (ZAR)                        139
6.2.1.1.14.3   Budgeted payroll for financial year (ZAR)                            139
6.2.1.1.14.4   Percentage spent on training                                         140
6.2.2          Structural capital - Customer Capital                                140
6.2.2.1        Customers, image and stakeholders                                    140
6.2.2.1.1      Total number of qualification registrations                          140
6.2.2.1.2      Growth in student numbers                                            141
6.2.2.1.3      Students per employee                                                141
6.2.2.1.4      Students per instruction/research professional                       142
6.2.2.1.5      Students per non-academic staff                                      142
6.2.2.1.6      Market share                                                         142
6.2.2.1.7      Customer/stakeholder satisfaction                                    142
6.2.2.2        Project cooperation and networking                                   143
6.2.2.2.1      Number of researchers per NRF category                               143
6.2.2.2.2      Number of NRF categories                                             144
6.2.2.2.3      Percentage of grants received                                        145
6.2.3          Structural Capital - Organisational Capital - Innovation Capital -   145
               Intangible Assets:
6.2.3.1        Technological support                                                145
6.2.3.1.1      Number of PC’s per employee                                          145
6.2.3.1.2      Number of individuals linked to the network                          145



                                              ix
6.2.3.1.3    Volume of IT use                                                  145
6.2.3.1.4    Reliability of hardware and software                              145
6.2.3.1.5    Satisfaction with IT service                                      145
6.2.3.1.6    Total of IT expenditure                                           146
6.2.3.1.7    Cost of IT per student                                            146
6.2.3.1.8    IT expenditure per staff member                                   146
6.2.3.2      Library and Information Services                                  146
6.2.3.2.1    Total cost of LIS                                                 146
6.2.3.2.2    LIS expenditure per employee                                      147
6.2.3.2.3    Total number of book volumes acquired in financial year           147
6.2.3.2.4    Total number of titles in stock                                   147
6.2.3.2.5    Total number of journal volumes                                   148
6.2.3.2.6    Total number of current journal titles                            148
6.2.3.3      Diffusion and networking per academic and research staff          148
6.2.3.3.1    Total number of national events of importance to research (e.g.   148
             conferences) attended
6.2.3.3.2    Total number of international events of importance to research    149
             (e.g. conferences) attended
6.2.3.3.3    Total number of contributions at international events             149
6.2.3.3.4    Total number of contributions at national events                  150
6.2.3.3.5    Total number of research articles published in accredited peer-   150
             reviewed journals (A&B-type)
6.2.3.3.6    Total number of research articles published in non-accredited     151
             peer-reviewed journals and conference proceedings (C-type)
6.2.3.3.7    Total number of chapters/ contributions in peer reviewed books;   151
             and/or complete books
6.2.3.3.8    Total number of extra-curricular courses                          151
6.2.3.3.9    Total number of Master’s students graduating during year          152
6.2.3.3.10   Total number of Doctoral students graduating during year          152
6.2.3.3.11   Total number of staff on editorial committees                     153




                                            x
6.2.3.3.12   Total number of staff on management committees of professional       153
             societies
6.2.4        Structural Capital - Organisational Capital - Innovation Capital -   153
             Intellectual Property:
6.2.4.1      Internationalisation                                                 153
6.2.4.1.1    Number of overseas visitors received                                 153
6.2.4.1.2    Number of overseas research visits                                   154
6.2.4.2      Intellectual Property                                                154
6.2.4.2.1    Number of patents registered in the name of the RAU                  154
6.2.4.2.2    Income from patents                                                  155
6.2.4.2.3    Income from copyright                                                155
6.2.4.2.4    Number of patents for which subsidy was received                     155
6.2.5        Structural Capital - Process Capital:                                155
6.2.5.1      Satisfied employee index                                             155
6.2.5.2      Direct communications to customer/year                               155
6.2.5.3      Community involvement                                                156
6.2.5.4      Management capabilities                                              156
6.3          Interpretation of gathered data                                      156
6.3.1        The ability to draw and retain staff of good calibre                 157
6.3.2        Financial health of the institution                                  159
6.3.3        Visionary participative strategic management                         159
6.3.4        Adherence to mission                                                 159
6.3.5        Projecting a highly visible positive image                           160
6.3.6        Dedicated staff                                                      160
6.3.7        Technological support                                                161
6.3.8        Quality research                                                     162
6.3.9        Relevant tuition programmes                                          168
6.3.10       Ability to draw good students                                        168
6.3.11       Implementation of effective staff and student equity measures        168
6.3.12       Internationalisation                                                 171
6.4          Conclusion                                                           172



                                           xi
7        SUMMARY, CONCLUSION AND RECOMMENDATION
7.1      Summary                                                             173
7.1.1.   What is the role of Knowledge Management in the knowledge           174
         economy?
7.1.2    What is Intellectual Capital?                                       174
7.1.3    What are the existing frameworks for managing and measuring         175
         Intellectual Capital?
7.1.4    Which models can be applied to Universities and which variables     176
         should be included in proposed framework for Intellectual Capital
         management at Universities?
7.2      Recommendations                                                     177
7.3      Areas for future research                                           179
7.4      Conclusion                                                          180

REFERENCES                                                                   186




                                         xii
                                 LIST OF FIGURES

Figure 2.1 Four modes of knowledge conversion                            18
Figure 3.1 ICM Gathering’s view on Intellectual Capital                   40
Figure 3.2 The Skandia Intellectual Capital Value Scheme                  42
Figure 3.3 A taxonomy of the elements of Intellectual Capital classes.    44
Figure 3.4 Detailed categories of intellectual capital.                   44
Figure 3.5 Categories of intellectual capital.                            45
Figure 3.6 Developing Intellectual Capital indicators                     46
Figure 3.7 Hubert Saint-Onge’s model                                      47
Figure 3.8 Sveiby’s taxonomy of Intellectual Capital                      47
Figure 3.9 McElroy’s modified Intellectual Capital map                    57
Figure 4.1 Intellectual Capital Value Platform                            63
Figure 4.2 Measuring models                                               69
Figure 4.3: The Balanced Scorecard                                       87
Figure 4.4 Value Creation Index Model                                     95
Figure 6.1 Number of staff                                               157
Figure 6.2 Instruction/Research professionals                            163
Figure 6.3 Equity index                                                  170
Figure 6.4 Equity index 2000 vs 2004                                     171




                                             xiii
                                  LIST OF TABLES
Table 2.1Two types of knowledge                                              16
Table 2.2 Difference between tacit and explicit knowledge                    19
Table 3.1 Development of Intellectual Capital                                32
Table 4.1 The Intangible Asset Monitor by Sveiby                             89
Table 6.1 Number of staff                                                   124
Table 6.2 Proportion of staff groups to total number of staff               125
Table 6.3 Total staff influx                                                126
Table 6.4 Total number of instruction/research professionals                127
Table 6.5 Total number of instruction/research professionals in a faculty   127
Table 6.6 Rookie ratio                                                      128
Table 6.7 Average term of employment                                        129
Table 6.8 Resignations within two years                                     130
Table 6.9 Total number of staff according to age                            131
Table 6.10 Median age of staff                                              132
Table 6.11 Equity index 2000                                                133
Table 6.12 Equity index 2001                                                134
Table 6.13 Equity index 2002                                                135
Table 6.14 Equity index 2003                                                136
Table 6.15 Equity index 2004                                                137
Table 6.16 Number of employees receiving training 2000 - 2001               138
Table 6.17 Number of employees receiving training 2002 – 2004               139
Table 6.18 Training expenditure                                             139
Table 6.19 Budgeted payroll                                                 139
Table 6.20 Percentage spent on training                                     140
Table 6.21 Total number of qualification registrations                      141
Table 6.22 Growth in student numbers                                        141
Table 6.23 Student per employee ratio                                       141
Table 6.24 Student per instruction/research professional ratio              142
Table 6.25 Student per non-academic staff ratio                             142
Table 6.26 Number of researchers per category and amount received           144
Table 6.27 Number of NRF categories and number of researchers in each       144


                                            xiv
Table 6.28 Percentage of grants received                     145
Table 6.29 Total IT expenditure (ZAR)                        146
Table 6.30 Cost of IT per student (ZAR)                      146
Table 6.31 Cost of IT per staff member (ZAR)                 146
Table 6.32 Total cost of LIS (ZAR)                           146
Table 6.33 LIS expenditure (ZAR)                             147
Table 6.34 Total number of book volumes                      147
Table 6.35 Total number of titles in stock                   148
Table 6.36 Total number of journal volumes                   148
Table 6.37 Total number of current journal titles            148
Table 6.38 National events attended                          149
Table 6.39 International events attended                     149
Table 6.40 Contributions at international events             150
Table 6.41 Contributions at national events                  150
Table 6.42 A and B type published articles                   150
Table 6.43 Non-accredited articles                           151
Table 6.44 Contributions in books                            151
Table 6.45 Extra-curricular courses                          152
Table 6.46 Master’s students                                 152
Table 6.47 Doctoral students                                 152
Table 6.48 Editorial committees                              153
Table 6.49 Professional societies                            153
Table 6.50 Overseas visitors received                        154
Table 6.51 Overseas research visits                          154
Table 6.52 Number of patents registered in the name of RAU   155
Table 6.53 Patents for which subsidy was received            155
Table 6.54 Percentage of staff who received training         161
Table 6.55 A and B type publications per employee            164
Table 6.56 Master’s students per employee                    166
Table 6.57 Doctoral students per employee                    166
Table 6.58 Equity index 2000 vs 2004                         170



                                              xv
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