Intellectual Capital Measurement Methods

© Copyright by Institute of Organization and Managment in Industry „ORGMASZ” 

Vol 1(1); p. 37 - 45 Year 2008 

10.2478/v10061-008-0005-y 

Intellectual Capital 

Measurement Methods 

Jolanta Jurczak* 

Introduction 

Evolution of economy has caused important changes in activity of companies on the global 

market. Nowadays we are observing a growth the importance of intellectual resources as 

an effective tool for increasing corporate competitiveness. This fact has caused the need to 

manage companies and to measure their performance in a new way. 

Measuring Intellectual Capital is essential and very important in order to compare different 

companies, to estimate their real value or even to control their improvement year by year. 

Also to improve the way in which companies manage its intellectual resources that generate 

value and give back some benefits in consequences maximizing advantages for the company. 

Authors like Kaplan and Norton (1996), Stewart (1997), and Kerssens (1999) use phrases 

like “If you can’t measure it, you can’t manage it” to justify the search for new Measurement 

Methods. 1 But to measure Intellectual Capital is necessary to determine exactly what the 

Measurement Methods are, which are the best and which the company should choose to 

evaluate its assets in proper way. Properly using Intellectual Capital Measurement Methods 

can cause the creation of competitive advantage and in consequence create development 

of the whole company at the present day. 

The Concept and Classification of Intellectual Capital 

Intellectual Capital (IC) are an increasingly important part of running a successful business 

but defining it is a difficult proposition. Intellectual Capital is a issue which is not determined 

completely. There is not one definition of Intellectual Capital. Different authors give different 

interpretation of this concept. Moreover many descriptions of Intellectual Capital are quite 

specific and created by individual companies for use within a specific industry. 

Edvinson and Malone describes Intellectual Capital as a knowledge that can be converted 

into value. 2 According to them IC encompasses the applied experience, organizational 

technology, customer relationships and professional skills that provide the company with 

a competitive advantage in the market. 

According to Roos, Pike and Fernstrom (2005) “Intellectual Capital can be define as all 

nonmonetary and nonphysical resources that are fully or partly controlled by the organization 

and that contribute to the organization’s value creation”. 3 The authors divide Intellectual 

Capital into three categories based on their economic behavior: relational, organizational and 

human.Stewart defines Intellectual Capital as intellectual material – knowledge, information, 

intellectual property, experience that can be put to use to create wealth. 4 

* 

Jolanta Jurczak, MSc., eng - Ph.D. student at Warsaw University of Technology, Faculty of Production Engineering 

1 

D. Andriessen, The Financial Value of Intangibles: Searching for the Holy Grail (Paper presented at the 5th World 

Congress on the Management of Intellectual Capital, January 16–18, 2002), p. 2. 

2 

L. Edvinsson, M. S. Malone, The Copyright Book: Intellectual Capital, Harper Business 1997, p. 44. 

3 

G. Roos, S. Pike, L. Fernstrom, Managing Intellectual Capital in Practice, Butterworth-Heinemann, New York 2005, p. 19. 

4 

N. Bontis, The Copyright Paper: Assessing knowledge Assets: A Review of the Models Used to Measure Intellectual 

Capital, 2000, p. 2. 

ECONOMICS AND ORGANIZATION OF ENTERPRISE 1/2008 

37

Intellectual Capital Measurement Methods 

Bratnicki and Struzyna characterize Intellectual Capital as the sum of knowledge which 

possess people who creates a community of the company and a practical transformation 

the knowledge in components. He has divided Intellectual Capital on components like 

organizational and social capital and human capital. 

Another definition given by Bukowitz and Williams present Intellectual Capital in dynamic 

way as a form nonmaterial assets, which thanks to flows of knowledge can generate 

a potential to create goods. 5 It includes three main elements like: human capital, customer 

capital and organizational capital. 

Interesting approach to the components of Intellectual Capital present Grudzewski and 

Hejduk, who say that an intelligence of the organization is not a simply sum of intelligence 

of it employees but it is a result of existing the synergy phenomenon. The intelligence of 

the company is built by different elements like: communications intelligence, technological 

intelligence, innovation intelligence, financial intelligence, marketing intelligence, organizational 

intelligence, social intelligence and ecological intelligence. 

As we can see there are many definition of Intellectual Capital. These definitions differ each 

other in some way but they are not disqualify each other. Most of them present Intellectual 

Capital as a knowledge capital or capital which derives from knowledge. Some of them 

says that Intellectual Capital is a intelligence of a organization or a form nonmaterial property. 

All presented definition are correct and right because they include all those factors 

that are nonfinancial and valuable for a company’s business. 

But it’s necessary to notice that not all knowledge constitute the Intellectual Capital. The 

basis of IC is Knowledge which is useful for the company. This knowledge can be Intellectual 

Capital then, if we can process and utilize it for the company good. 6 Therefore – basis 

of previous definition – Intellectual Capital can be described simply as all connected 

each other Knowledge Resources (material or nonmaterial, tangible or intangible) 

that the organization disposes in creating value needed to gaining competitive 

advantage in long term . 7 

Intellectual Capital is a complex concept. It possess big and complicated structure, which is 

not exactly specified. In order to measure IC, it is necessary to understand the distinguish 

between the different components of IC. Detailed structure of IC have been presented in 

fig. In the approach Intellectual Capital can be divided into organizational capital, relational 

capital and human capital. Human capital (HC) consists of knowledge capital, competence 

capital, attitude and intellectual agility all members of the organization and their ability to 

quick taking decisions, cope with the problems and create good interpersonal relationship. 

Organizational Capital (OC) is dependent on productivity of the organization, its structural 

capital, culture and ability to development. It is a kind of investment in systems, tools and 

philosophy, which decides about the process of flows knowledge. This capital encompasses: 

intellectual property (patents, copyright, licences, trademarks), structural capital (organizational 

structure, database or computer equipment), business processes capital (organizational 

culture, style of management or software) and market and development capital. Relational 

5 

W. R. Bukowitz, R. L. Williams, The Knowledge Management Fieldbook, Financial Time, Prentice Hall, London 2000, 

s. 223. 

6 

T. A. Steward, Intellectual Capital, Bantam Doubleday Dell Publishing Group, New York 1997. 

7 

Own definition of Intellectual Capital. 


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Figure . Components of Intellectual Capital 

Source: own work on the basis of: L. Edvinsson, M. S. Malone, The Copyright Book: Intellectual Capital, Harper Business 1997 and G. Roos, S. Pike, L. Fernstrom, Managing Intellectual 

Capital in Practice, Butterworth-Heinemann, New York 2005. 


39


Capital (RC) concerns connections and relation of the organization with the external environment. 

It is value of relationship with customer, strategic partners, employees etc. 

The figure shows that physical infrastructure is also a very important part of intellectual 

capital of the organization, which differs a bit from definition by Roos, Pike and Fernstrom. 

The reason for including physical assets into Intellectual Capital assets is that they may have 

components, such as databases, servers, and physical networks like intranets, which are 

based on specific knowledge and the combination of them is unique to one organization. 

In the end is necessary to notice that Intellectual Capital includes both created knowledge all 

the organization and its individual participant, their experience, abilities and innovations and 

also all the things that support efficiency of work in the organization (computers equipment, 

databases, organizational structures, patents, trademarks, licences) but also methods, techniques 

or relationships with stakeholders worked out by the organization. These elements 

combine and interact with each other in unique way to create value. 

Detailing and describing list of all components of the Intellectual Capital structure is a very 

difficult task. Intellectual Capital structure components are individual for each company. But 

if the managers of companies know detailed structure of IC existing in their companies, they 

will be aware of size and value intellectual potential, which they possess. It can cause a better 

understanding the concept. Than they could choose proper Measurement Methods and proper 

manage their assets. Companies, which learn to measure and manage their Intellectual 

Capital in a new way can significant improve their performance in a competitive market. 

Methods Of Measuring The Intellectual Capital 

The interest on managing the Intellectual Capital has caused the development of different 

methods of measuring it. 

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. 

But they still exist and are basis to create new methods. 

According to Luthy (1998) and Williams (2000) all methods can be divided into four main 

groups: 8 

1. 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. 

2. Market Capitalization Methods (MCM) – calculate the difference between a company’s 

market capitalization and its stockholders’ equity as the value of its intellectual capital 

or intangible assets. 

3. 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. The difference is multiplied by the company’s 

average tangible assets to calculate an average annual earning from intangibles. By 

dividing the above-average earnings by the company’s weighted average cost of capital 

or an interest rate, one can derive an estimate of the value of its intangible assets or 

intellectual capital. 

4. Scorecard Methods (SC) – identify various components of intangible assets or intellectual 

capital and indicators and indices are generated and reported in scorecard or 

8 

http://www.sveiby.com/articles/IntangibleMehtods.html, and G. Roos, S. Pike, L. Fernstrom, op. cit. 


40


as graphs. SC methods are similar to DIC methods, except that no estimate is made of 

the dollar value of intangible assets. 

The four main approaches for measuring intangibles (Direct Intellectual Capital Methods, 

Market Capitalization Methods, Return on Assets Methods and Scorecard Methods) have 

various advantages and disadvantages, presented in Table. 

Table. Categorization of the IC measurement methodologies with their characteristics 

Methodologies 

Economic 

Value Added 

(EVA) 

Human 

Resource 

Costing & 

Accounting 

(HRCA) 

Calculated 

Intangible 

Value 

Knowledge 

Capital 

Earnings 

Value Added 

Intellectual 

Coefficient 

(VAIC) 

Accounting 

for the Future 

(AFTF) 

Tobin’s q 

Investor 

Assigned 

Market Value 

(IAMV) 

Originator 

and year 

of first 

publication 

Stewart 

(1997) 

Johansson 

(1997) 

Stewart 

(1997) 

Luthy 

(1998) 

Lev 

(1999) 

Pulic 

(1997) 

Nash 

(1998) 

Stewart 

(1997) 

Standfield 

(1998) 

Description 

ROA Methodologies 

Calculated by adjusting the firm’s disclosed profit 

with charges related to intangibles. Changes 

in EVA provide an indication of whether the firm’s 

intellectual capital is productive or not. 

Calculates the hidden impact of HR related costs 

which reduce a firm’s profits. Intellectual capital is 

measured by calculation of the contribution of human 

assets held by the company divided by capitalized 

salary expenditures. 

Calculates the excess return on hard assets, then 

uses his figure as a basis for determining the proportion 

of return attributable to intangible assets. 

Knowledge Capital Earnings are calculated as 

the portion of normalized earnings over and 

above expected earnings attributable to book 

asset. 

Measures how much and how efficiently intellectual 

capital and capital employed create 

value based on the relationship to three major 

components: capital employed, human capital 

and structural capital. 

A system of projected discounted cash flows. 

The difference between AFTF value at the end 

and the beginning of the period is the value added 

during the period. 

MCM Methodologies 

The “q” is the ratio of the stock market value 

of the firm divided by the replacement cost of 

its assets. Changes in “q” provide a proxy for 

measuring effective performance or not of a 

firm’s intellectual capital. 

Takes the Company’s True Value to be 

its stock market value and divides it into 

Tangible Capital+(Realized Intellectual 

Capital+Intellectual Capital Erosion+SCA (Sustainable 

Competitive Advantage) 

Characteristics 

The ROA approaches have 

an element of rigor in that 

they rely on financial figures 

which, if not perfect, are 

auditable. 

They attempt real valuations 

and may appear useful 

in many situations since 

they can give crude comparisons 

between companies 

within the same industry. 

However, they give far too 

little detail for an adequate 

comparison. 

The methods are also very 

sensitive to interest rate assumptions. 

With the exception of VIAC, 

these are a means of explaining 

a financial feature 

and attributing changes in 

them to the efficiency in the 

deployment of intellectual 

capital resources. 

These methodologies avoid 

direct comparison with market 

values but link to some 

of the factors that market 

makers use in their assessments 

of companies. 

The MCM approaches also 

have an element of rigor in 

that they rely on financial 

figures which, if not perfect, 

are auditable. 

They attempt real valuations 

and may appear useful 

in many situations since 

they can give crude comparisons 

between companies 


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Market-to- 

Book Value 

Technology 

Broker 

Citation- 

Weighted 

Patents 

The Value 

Explorer 


Asset Valuation 

Total Value 

Creation, 

TVC 

Stewart 

(1997) 

Luthy 

(1998) 

Brooking 

(1996) 

Bontis 

(1996) 

Andriessen 

& 

Tiessen 

(2000) 

Sullivan 

(2000) 

Anderson 

& 

McLean 

(2000) 

The value of Intellectual Capital is considered to 

be the difference between the firm’s stock market 

value and the company’s book value. 

DIC Methodologies 

Value of intellectual capital of a firm is assessed 

based on diagnostic analysis of a firm’s response 

to twenty questions covering four major components 

of intellectual capital: Market Assets, 

Human-centred Assets, Intellectual Property 

Assets and Infrastructure Assets. 

The base of the develop of the Technology Broker 

method is that the market value of a company 

is the result of the addition of tangible assets 

and the intellectual capital. 

A technology factor is calculated based on the 

patents developed by a firm. Intellectual capital 

and its performance is measured based on the 

impact of research development efforts on a series 

of indices, such as number of patents and 

cost of patents to sales turnover, that describe 

the firm’s patents. 

Accounting methodology proposed by KMPG 

for calculating and allocating value to 5 types of 

intangibles: 1) Assets and endowments, 2) Skills 

& tacit knowledge, 3) Collective values and 

norms, 4) Technology and explicit knowledge, 

5) Primary and management processes. 

Methodology for assessing the value of Intellectual 

Property. 

A project initiated by The Canadian Institute of 

Chartered Accountants. TVC uses discounted 

projected cash-flow to reexamine how events 

affect planned activities. 

within the same industry. 

However, they give far too 

little detail for an adequate 

comparison. 

The DIC is intended to be 

holistic and offer the potential 

to create a more 

comprehensive picture of 

an organization’s health 

than financial metrics. The 

methods are more detailed 

and can be easily applied at 

any level of an organization. 

They measure intellectual 

capital resources from the 

bottom up and can therefore 

be faster and more accurate 

than ROA and MCM 

measures with respect to 

resources. Since they do 

not need to be measured 

in financial terms, they are 

very useful for not-for-profit 

organizations, business 

units, government agencies, 

and for environmental 

and social purposes. Their 

disadvantages are that they 

cannot be connected easily 

to financial results 

Human 

Capital Intelligence 

Fitz-Enz 

(1994) 

Sandia Navigator 

Edvinsson 

and 

Malone 

(1997) 

SC Methodologies 

Sets of human capital indicators are collected 

and benchmarked against a database. Similar 

to HRCA. 

Intellectual capital is measured through the 

analysis of up to 164 metric measures (91 intellectually 

based and 73 traditionally metrics) that 

cover five components: 1)financial, 2)customer, 

3)process, 4) renewal and development, 5)human. 

The idea is the Intellectual Capital is formed by 

the addition of the Structural Capital and Human 

Capital. This Structural Capital is also formed 

by: Human Capital and Organization Capital; 

and this last one is formed by the Innovation 

Capital, and the Process Capital. 

SC methods offer the potential 

to create a more 

comprehensive picture of 

an organization’s health 

than financial metrics, and 

they can be easily applied 

at any level of an organization. 

They also measure intellectual 

capital resources from 

the bottom up. They are 

very useful for not-for-profit 

organizations, business 

units, government agencies, 

and for environmental 

and social purposes. Their 


42


Value Chain 

Scoreboard 

Intangible 

Asset Monitor 



Navigator 

and Intellectual 


Index 

(IC Index) 

Value Creation 

Index 

Lev 

(2002) 

Sveiby 

(1997) 

Roos 

and 

others 

(1997) 

Ittner 

and 

others 

(2000) 

A matrix of nonfinancial indicators arranged in 

three categories according to the cycle of development: 

Discovery, Learning, Implementation, 

Commercialization. 

Management selects indicators, based on the 

strategic objectives of the firm, to measure four 

aspects of creating value from intangible assets. 

By: 1) growth, 2) renewal, 3) utilization / 

efficiency; and 4) risk reduction / stability. 

The Intangible Assets Monitor consists on a formal 

presentation of several relevant indicators 

for measuring assets according to the company 

strategy. This indicators form the base to create 

and develop a company with knowledge focused 

strategy. It can be integrated in the management 

information systems. The object is to 

represent the intangible assets from different 

perspectives: growth and renewal, efficiency 

and stability. 

Intellectual capital is broken down into 3 areas: 

human, relational and organizational plus the 

conventional physical and monetary resources. 

These are all subdivided. Several user-friendly 

plots are produced including a navigator, a conceptual 

diagram of how the company works in 

IC terms. Indices are defined based on the key 

resources and resource transformations in the 

navigator. 

The purpose of the method is to help managers 

to visualize growth by measuring the Intellectual 

Capital. 

For the creators of the method, the importance 

of the specific measures varies from one company 

to another. They suggest four high level 

categories as the foundation for discussion in 

individual cases. The develop of measures within 

these categories is formed by a three stage 

process: 

1. A critical review of existing indicators 

2. Development of indicators that represent the 

flows between different Intellectual Capital categories 

3. Develop a hierarchy of Intellectual Capital 

indices 

All the indices have to be aggregated into a single 

index that can be used to make comparison 

over time of the same unit or even compare with 

other business units. The critical factor for the successful 

application of the method is the process of 

creation of the Intellectual Capital Services, and 

this is the point in which the experience of the Intellectual 

Capital Services lies, the assistance to 

the companies to create their own ICIndex. 

Drivers of value are derived from an extensive 

literature survey and advanced statistics. Metrics 

are weighted and combined to give a Value 

Creation Index. The index is compared and 

combined with financial data. 

disadvantages are that the 

indicators are contextual 

and the meanings of the resource 

definitions can vary 

between each organization 

and each purpose, which 

makes comparisons very 

difficult. They cannot be 

connected easily to financial 

results. 


43


Balanced 

Score Card 

Kaplan 

and 

Norton 

(1996) 

A company’s performance is measured by indicators 

covering four major focus perspectives: 

1) financial perspective 2) customer perspective, 

3) internal process perspective, 4) learning 

perspective. The indictors are based on the 

strategic objectives of the firm. 

Its main purpose is to translate an organization’s 

mission and strategy into comprehensive measures 

capable to give information of the management 

system. 

The Balance Score Card uses two different types 

of indicators: 

– Driver: This indicators determine the result 

– Output: This indicators are the responsible of 

showing the results 

The Balance Score Card remarks the importance 

of the financial objectives by including performance 

drivers of these financial objectives. 

It also tries to visualize the intangible assets for 

the future growth. 

One of the pillars of the Balance Score Card is 

the assumption that investing and managing intangible 

assets is more decisive than investing 

and managing physical and tangible assets. 

Source: own work on the basis of: http://www.sveiby.com/articles/IntangibleMethods.htm, and G. Roos, S. Pike, L. Fernstrom, Managing Intellectual 

Capital in Practice, Butterworth-Heinemann, New York 2005, p. 249–255. 

The most popular Measurement Methods as well as the most widely used or just the easiness 

of their applications of all nonfinacial Measurement Methods are: The Balanced Scorecard, 

VAIC, Skandia’s IC Navigator, Intellectual Capital Navigator IC-Index, The Technology 

Broker’s IC Audit, Sveiby’s The Intangible Asset Monitor (IAM). 

Most of the presented methods use financial criteria to evaluate the intangible assets and they 

give only a global value. The most commons are: Economic Value Added (EVA), Marketto-Book 

ratio, Calculated Intangible Value, Market Value Added (MVA), Tobin’s Q Ratio. 

In my opinion the most suitable method to measure Intellectual Capital efficiency and connected 

it with value of the organization is VAIC created by Pulic and classified in ROA 

group methods. VAIC is different and more detailed. In the method there are links between 

the activities of the company, the resources used and the financial outcome. 

Conclusion 

Nowadays many corporations around the world have found that measuring and managing 

intellectual capital can provide them with a competitive advantage. Although there are several 

Intellectual Capital Measurement Methods it must be considered that calculated intangible 

value is not precise. Most of the methods are difficult to apply, require too much information, 

indicators or are not completely described. Other methods are not numerical, so they only 

provide a reference. But in all methods, the aim is to allow managers to manage more 

effectively all resources, increasing the performance and competitive position of the 

company. The important issue is whether all of these approaches can be auditable, useful 

and secure for all companies. Can they be use in different companies or institutions all over 

the world in the same way 


44


Estimating the value of intellectual capital at the organization is a very difficult proposition. 

In my opinion credible method of measuring intellectual capital resources does not exist. 

Intellectual Capital in different companies or institutions can be valued in different ways by 

different indicators or index. Therefore it may not be possible to quantify Intellectual Capital 

in way that allow us to compare the value of the assets between one company and another. 

In my opinion each company must select a method depending on its purpose, situation and 

audience. Nevertheless it is important to try managing these assets within companies 

and seek new, better solutions in effective Intellectual Capital measuring area. 

Bibliography 

1. Andriessen D., The Financial Value of Intangibles: Searching for the Holy Grail (Paper presented 

at the 5th World Congress on the Management of Intellectual Capital, January 16–18, 2002) 

from http://www.weightlesswealth.com 

2. Bontis N., The Copyright Paper: Assessing knowledge Assets: A Review of the Models Used 

to Measure Intellectual Capital, 2000. 

3. Brooking A., Intellectual Capital, International Thomson 1998. 

4. Bukowitz W. R., Williams R. L., The Knowledge Management Fieldbook, Financial Time, Prentice 

Hall, London 2000. 

5. Edvinsson L., Malone M. S., The Copyright Book: Intellectual Capital, Harper Business 1997. 

6. Edvinsson L., Malone M. S., Intellectual capital: The proven way to establish your company’s 

real value by measuring its hidden brainpower, Piatkus 1997. 

7. Norton D., Kaplan R., The balanced scorecard: Translating strategy into action, Harvard Business 

School 1996. 

8. Roos G., Pike S., Fernstrom L., Managing Intellectual Capital in Practice, Butterworth-Heinemann, 

New York 2005, p. 19. 

9. Steward T. A., Intellectual Capital, Bantam Doubleday Dell Publishing Group, New York 1997. 

10. http://www.know-net.org 

11. http://www.sveiby.com 

Summary 

Enterprise efficiency and competitiveness depend on intellectual resources, as well as the ability to apply 

them in the market competition. Intellectual capital of a company may be used more effectively when 

identification and measurement of its components are possible. The article presents a classified and 

grouped review of different Intellectual Capital Measurement Methods describing them and providing 

companies with information about a variety of ways and advice how to choose a proper measurement 

method. 


45

Intellectual Capital Measurement Methods

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