Intellectual Capital Measurement Methods

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Intellectual Capital Measurement Methods 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 ECONOMICS AND ORGANIZATION OF ENTERPRISE 1/2008 44
Intellectual Capital Measurement Methods 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. ECONOMICS AND ORGANIZATION OF ENTERPRISE 1/2008 45
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