Business Communities and Tools for measuring intangible Assets
Sweden
Denmark
United Kingdom |
The MAGIC project
Tools
The "Knowledge gurus" |
1. The Konrad Group and its "invisible balance sheet"
Swedish managers have been precursors in the field of intangibles. In fact, it is in Sweden that a group a 7 persons decided to work on this issue. They formed the Konrad Group (they called it the Konrad Group because they first met on November 12, 1987 and November 12 is Konrad Day in the Swedish calendar). They issued a fist publication in January 1998 entitled the"New Annual Report" and issued their final report in 1989 presenting the first method on intangible measurement "The Invisible Balance sheet" Den Osynliga Balansräkningen Ledarskap 1989, w. "Konradgruppen". The publication presents key indicators for accounting control and valuation of know-how companies. It has had a major impact on Swedish companies which started at the end of 1980's to identify, value and report on their intangible assets.
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Members of the Konrad Group
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2. Karl-Erik Sveiby case
Involved in the Konrad Group, Karl-Erik Sveiby has also been a precursor. Together with the Konrad Report, Sveiby presented its theory about "Knowledge Capital" in 1988, dividing it into three categories: Customer Capital, Structural Capital and Human Capital.
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Contact Karl-Erik
Sveiby - Sveiby Knowledge Management |
3. The Skandia Case - IC-Navigator
Also in Sweden a company was the first in the world to develop an integrated intellectual capital model allowing to define and classify intangibles not shown in the balance sheet: Skandia, a financial services company.
In fact, in 1991, Skandia started an intellectual capital project based on the work of the Konrad group. This project was led by Leif Edvinsson, also the world’s first corporate Director of intellectual capital. This project has resulted in the IC-Navigator. Since 1994 Skandia uses non-financial ratios and publish them in its annual reports.
IC-Navigator is considered as a key reference for companies as well as for national applications. For example, it is applied to assess the potential of a country by the Swedish Government (see below) and included in official guidelines.
This model has also gained a world-wide recognition. Skandia actively promotes its IC-Navigator. It is now one of the driving forces in the "Intellectual Capital Movement" that is growing in momentum world-wide.
In 1996, Skandia Future Centers opened in Vaxholm Sweden. Since, it has become a major learning site for IC growth for business leaders, academicians, politicians all over the world. "SFC is a tool for the growth of the critical IC components and especially innovation capital. It is an arena for organisational prototyping and experimenting. It is an arena for the appreciation of the collective value creation potential of human capital in collaboration with the structural capital impact. It is a tool to test the various dimensions of the structural capital, i.e. to improve IC multiplier effect of the organisational capital components of IC. "
Since 1996, there is a growing interest in other countries to open such Future Centres dedicated to IC, from countries (Denmark, Israel, ….) and companies as well as create collaborative clusters for the systematised growth of Intellectual Capital ("federative IC growth approach").
In that same framework, in January 2000, Leif Edvinsson has launched a new Portal site on Intellectual Capital, entitled UNIC : Universal Networking Intellectual Capital. He said " "The pressure has increased for this type of service and it is a need to gear up knowledge exchange and learning capabilities on a world-wide basis. With this as a principle we are now proud to launch the first IC Portal for growing the universal learning in networking intellectual capital processes".
One of its functions will be to link these IC future centres around the world. Around Leif Edvinsson, this initiative groups together 3 Swedish experts in Intellectual Capital working with Skandia Future Centre: Christer Holm, expert on structuring and commercialising Intellectual Capital; Caroline Stenfelt, young entrepreneur within the area of Intellectual Capital having established the company Me InC Sweden ; Axel Sjöstedt from Skandia Future Centers (SFC)
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Contact Leif
Edvisson and Skandia UNIC
Universal Networking Intellectual
Capital |
4. The business communities of practice
Following these different impulses, Swedish companies started to measure and report some of their intangible assets according to Swedish models as well as foreign theories which are being developed, in particular the Balanced Scorecard of Kaplan and Norton.
Roughly speaking, there are now two schools in Sweden: the HCRA school and the Konrad school (and its variants through the IC-Navigator, the Balanced Score Board and other models such as those developed in Canada). They have a lot to share, in particular the objective to try to detect hidden costs, incomes, and values and increase the transparency of intangibles. But the Konrad/IC-Navigator/Balanced Score Board (BSC) are more focused on management control and business processing while HCRA model is more focused on human capital (human resource accounting (HRA) and cost/benefit analysis of human resources).
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The Konrad/IC navigator/ BSC Models school: WM-data (IT consultancy firm), Skandia AFS, KREAB (media and communication consulting firm), Jacobson & Widmark (technical consulting company), Ångpanneföreningen (technical consulting firm), FFNS, Awapatent, Komrev, Bohlin & Strömberg (consulting) and Lindebergs (accounting firm). Also, Celemi carried out the world´s first "Intangible Assets Audit" in 1995. Most of them have a web site with their annual reports on-line showing how they have developed their indicators and key ratios;
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the HCRA school: e.g. Telia, the Swedish National Telecommunication Company (both a human resource income statement and a human resource balance sheet), Kooperativa Förbundet (Swedish Cooperative Union), Sweden Post.
In Denmark, a Community of Business Practise is emerging thanks to the government policy undertaken in 1995 in the field of intellectual capital accounts.
In fact,
in 1995, the Danish Trade and Industry Development Council initiated a survey on intellectual capital accounts. This first survey was aimed at establishing why and how companies which actually prepare intellectual capital accounts do so. Therefore the intellectual capital accounts of ten companies have been analysed through interviews. The ten companies come from different industries in Sweden and Denmark, but are most often knowledge-intensive :-
PLS Consult
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Rambøll
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Skandia
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Consultus
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Telia
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ABB
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Sparekassen Nordjylland (SparNord)
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The Swedish Civil Aviation Administration (SCAA)
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Sparbanken Sverige
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WM Data.
This work has resulted in a Memorandum published in May 1997 by the Danish Trade and Industry Council entitled "Intellectual Capital Accounts - Reporting and managing Intellectual Capital".
An other group of companies is under survey at present in the framework of the Danish Intellectual Capital Statements Pilot Project (see Denmark pages for all details). 18 Danish companies are participating to the project (originally they were 25 but 7 have left the project for various reasons). They have been selected randomly: the main selection criteria was their commitment and they are not a representative sample of Danish companies. All but two of the firms participating in the project are service companies, and half of them operate in the IT business. They range from 20 employees to 3000.
Combining a process of theoretical research and field practical development, this project has been designed:
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to explore how companies that did not have an intellectual capital statement would create one adapted to their situations and characteristics. In fact, according to EFS, "so far discussions on intellectual capital accounts have referred to pioneering cases (Skandia, Ramboll). This project is the first attempt to systematically collect experiences from companies setting up intellectual capital accounts at the same time."
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to develop cross-industry guidelines based on the real experiences from the 18 companies having set up IC statement. These guidelines will not have a legal status but they will take the form of an official recommendation from the Danish Government. "It is too early to talk about standards". Guidelines will need to be tested.
Starting in February 1998, all 18 firms agreed to develop intellectual capital accounts for the years 1998 and 1999. Each firm was interviewed at least twice per year, a questionnaire was administrated each year, and several individual meetings and common seminars have been organised so that they can discuss their progress, and exchange with the consultants and researchers.
These surveys were oriented towards the same five questions:
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Why do the firms want to measure intellectual capital?
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Who is involved in the project?
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How does the firm work with intellectual capital?
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What is intellectual capital made to be in the specific firm?
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What potential effects is the reporting of intellectual capital expected to have?
No single assessment methodology or theory has been made compulsory: each company was free to choose its own methodology and indicators, way of presenting the statement, etc. On the contrary, companies were asked to be creative in order to suggest new ideas and practical solutions close to business reality.
The first generation of intellectual capital accounts has been published in May 1999.
The results show that they have approached IC statements in very different ways and adopted various solutions. As a result, the IC statements are very different in their content and presentation.
There is however a common denominator which is that they felt this work was relevant and productive: they started for the first time to identify, organise and manage their intellectual capital, now viewed as a real production factor.
Moreover, publishing of the intellectual capital accounts has itself proved to be a good way of recruiting new employees as well as communicating with customers and external partners. The intellectual capital accounts also improve investors, banks and others ability to evaluate the companies potential for growth and development. Hereby the intellectual capital account can help the company to get access to funding.
The publication is available on EFS site as well as in paper format under the title : "Developing Intellectual Capital Accounts – Experiences from 19 companies" from May 1999.
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Contact The Danish Agency for
Trade and Industry (EFS) |
Within the framework of the MARIA project (part of the UK agenda), a community of companies could emerge.
MARIA stands for "Managing And Reporting Intangible Assets". It is a Best practice programme which focuses on key business decision makers and asks what they are doing today to create value in the future. It is primarily interested in how companies are tackling the measurement of intangibles, how they are used to support business decisions and how they are communicating externally. The goal of the project is to convince decision makers in UK companies that by identifying and managing dynamically the intangible value of their businesses they will enhance their ability to compete, achieve long term success and create wealth.
The project aims to look at how successful companies are dealing with these issues in order to develop and share these insights. It also aims to show how to collectively manage these intangibles based on leading indicators, in order to extract their value.
The project methodology is based around "industrialists talking to industrialists". It includes the following phases:
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Develop and pilot questionnaires to elicit and transfer best practice (Achieved)
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Interview relevant companies in the UK and overseas. The project incorporates a structured interview technique (approx 1½ hours), data from which will be used to form hypotheses and the collection of lessons and examples (Achieved). In total 25-50 international companies have been studied.
The interviews have focused on the following questions:
What does ‘value’ mean for your business?
What market conditions and factors led to your success?
What do you focus on for the future?
What are your key intangibles?
How are they identified, measured and managed?
How are they taken into account in decision making?
How do you balance these factors systematically?
How is value extracted from them?
What do you say about intangibles within your company and why?
What language do you use?
What do you say externally about intangibles and why?
Key lessons and advice to others?
3. Produce and disseminate a "How to" guide. (2000)
As of end of June 2000, a new draft report is in preparation.
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Contact Department
of Trade and Industry |
Within the framework of the European MAGIC project, a business interest group is participating to the project, coming from several European countries and business sectors.
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RAMSE
Consulting Oy, (Finland) Linz Textil, Linz (Austria) KAPPA Arbeitsschutz und Umwelttechnik, Steyr (Austria) INTEGRAL, Montage-, Anlagen- und Rohrtechnik GmbH (Austria) Haarmann Hemmelrath & Partner, Management Consultants GmbH (Germany BCP - Banco Comercial Português (Portugal) GERAS Beteiligungs- und Managementgesellschaft mbH, Berlin, (Germany) IDS SCHEER, Saarbrücken (Germany) sd&m - software design & management, Munich (Germany) FESTO AG & Co., Esslingen a.N. (Germany) Wifi Oberösterreich , Linz (Austria) Siemens AG, ZU S1, Munich (Germany) Wojtas Nachrichtentechnik, Stralsund (Germany) A. Sutter GmbH, Essen (Germany) Quelle AG, Nürnberg (Germany) DG Bank Deutsche Genossenschaftsbank, Frankfurt (Germany) |
S-Bahn
Hamburg, Deutsche Bahn Gruppe, Hamburg (Germany) C+O Consulting + Organisation, Eislingen (Germany) Lenzing Technik, Lenzing (Austria) Siemens AG Österreich, Vienna (Austria) Framag Industrieanlagenbau GmbH, Frankenburg (Austria) BEKO Holding AG, Vienna (Austria) Filzmoser, Steinhaus bei Wels (Austria) Lenzing Films, Lenzing (Austria) Volkswagen Coaching GmbH, Wolfsburg (Germany) Household Technologies, Cerdanyola del Vallès (Spain) Magna Europa AG, Oberwaltersdorf, (Austria) VSS GmbH, Frankfurt (Germany) Raiffeisenlandesbank Oberösterreich, Linz, (Austria) Indra, (Spain), Technosphere Oy (Finland) Sintef Electronics & Cybernetics (Norway) LTT Research Limited, Helsinki (Finland) Commtrain, Stuttgart (Germany). |
Key measurements theories and methods at the level of the firm (compilation made from different sources and "Best Practices Benchmarking" Report)
Theories and methods concerning the measurement of intangible assets have been multiplying since 1980, coming from theoretical frameworks or from the business community. However, all these methods can be grouped into two main categories corresponding to two main schools of thoughts :
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External measurement methods
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Internal Measurement Methods
The first school of thought measures IC using current accounting data. They develop financial models and indicators on the basis of financial statements existing in the annual reports. The first method to be used was those of "market-to-book values". Then, the Nobel Laureate James Tobin modified this basic ratio and developed another method known as the "Tobin's Q". Other experts have developed other analysis.
The second school of thought proposes integrated systems for measuring Intellectual capital. Rather than analysing the external already produced in financial statements, they tend to develop internal models allowing companies to identify, value, report and manage their intangible assets.
Roughly, they are two main inspirations:
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one from Scandinavia : the first attempt was made by the Konrad Group in Sweden, becoming the "Konrad theory". This theory spread throughout Scandinavia and has produced several "sister theories".
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one from the United States : independently from the Swedish , Kaplan and Norton developed the approach called the "Balanced Scorecard". Initially, it was not designed to measure and report on intangible assets but more to measure internal performance.
Other models have been developed, some of them being a combination between the US and Swedish approaches. It is the case of the Skandia's Business Navigator developed by a manager, Leif Edvinsson. It is also the case of the "Intellectual Assets Monitor" developed by Karl-Erik Sveiby, a Swedish consultant now working in Australia.
Other experts have developed their own theories and models in the US and Europe (Paul Strassmann, Thomas Stewart), including now major consulting and auditing firms. As a result, books are flourishing on these issues.
Intellectual Capital Index Measures (Using Current Accounting Data)
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Market-to-Book Value |
The most widely known indicator. |
Market Value divided by Book value |
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Tobin's Q |
Developed by James Tobin |
Market value divided by the Total Replacement Cost of the Company's Assets |
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Calculated Intangible Value (CIV) or "Return on (Intellectual) Assets" |
Developed by NCI Research (US) |
Average Pre-Tax Earning divided by Average Tangible Assets (on 3-5 years) |
Integrated systems for Measuring Intellectual Assets
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Name |
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Contents |
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KONRAD Theory |
Konrad Group |
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Skandia Business Navigator |
1993 |
A combination of Konrad and BSC. Three components that interact to form value:
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Sveiby's Intangible Assets Monitor |
1994 |
Three components: Internal Structure External Structure Competence of Personnel |
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Human Resource Costing and Accounting (HCRA) |
1960's and 1970's but the first model dates from 1985. It was pioneered by the Dutch researcher Flamholtz and developed further by Swedish researchers at Stockholm university who had already developed a "social accounting model" (Social redovisning, 1978 - Gröjer-Stark model) |
This theory helps to calculate costs that can be attributed to staff turnover, alienation, recruitment etc |
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The BALANCED SCORE CARD (BSC) |
Developed by Kaplan and Norton - 1996 |
Three components:
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"The Knowledge Gurus" according to "Knowledge On-Line" "We feature the key Knowledge Gurus, the people who are shaping the Knowledge Era. Each respected in their own field, each responsible for a transformation in their work practices." Larry
Prusak Dr
Karl Eric Sveiby Gordon
Petrash Robert
H. Buckman Hubert
Saint-Onge Leif
Edvinsson Arian
Ward Thomas
A. Stewart |