Preliminary studies
on IA
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Denmark is also in the forefront on describing the Knowledge Economy. As Sweden, Denmark is viewed as a nation with a high potential of IC growth and is regarded to have one of the most favourable growths of Innovation climate during the last 15 years.
With regard to the measurement of intangible assets, the Danish government has been conducting a series of studies started in 1995. In 1998, it launched a Pilot project and conducted a policy of openness with regard to intangible assets on a standardised basis.
All these studies and projects have involved and still involve, around the Danish Trade and Industry Development Council and Danish Agency for Trade and Industry, the main actors interested in intangible capital issues in Denmark: Copenhagen Business School, Aarhus University, auditing and consulting firms, Danish Commerce and Companies Agency, banks, Danish Patent Office, etc.
In 1995, the Danish Trade and Industry Development Council initiated a survey on intellectual capital accounts.
Prior to that survey, a preliminary study of four companies and a literature study had already been carried out by Jan Mouritsen of the Copenhaguen Business School (published in 1996.).
Also, several reports previously put the emphasis on that topic:
- the "Business and Industry Report 1996" of the Danish Ministry of Business and Industry already underlined the importance of intellectual capital : this report describes the company of today as a flexible company with an intense focus on competence, application of technology, significant research and development work and close relations with both customers and suppliers. But, in order to turn knowledge into a management factor in the company, it must be measurable in one way or another. The knowledge-intensive company possesses both equity capital and employee capital (individual capital or human capital), structural capital and other intangible assets. Except for equity capital, there are no systematic statements of the value of these capital types embodied in intellectual rather than tangible assets.
- The report "Capital and Growth" (1996) from the Danish Trade and Industry Development Council also underlined that there was a special problem to SMEs, which often feature several types of intellectual capital, but hardly have any possibility to render them visible. It established that innovative SMEs lack capital opportunities because financial agents and other interested parties have difficulties in seeing through the future-oriented prospects of a knowledge-intensive company. It is stated that innovation projects and intangible assets often receive only little attention from investors partly due to difficulties in understanding the significance of intangible assets and partly due to lacking possibilities of providing collateral.
The Survey on Intellectual Capital Accounts 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, Rambøll, Skandia, Consultus, Telia, ABB, Sparekassen Nordjylland (SparNord), The Swedish Civil Aviation Administration (SCAA), Sparbanken Sverige, WM Data.
The purpose of the ten intellectual capital accounts examples was to illustrate companies’ motives for, and ideas with, the work with intellectual capital accounts and to provide concrete examples of ways to structure and apply intellectual capital accounts:
- Why does the company want to measure intellectual capital?
- How is the intellectual capital measured?
- What are the current or potential effects of the intellectual capital reporting?
- What are the problems with developing a system for measurement of intellectual capital?
- How does the company establish what to report to the world?
The survey has been performed by a task force, coordinated by Henrik Jensen from the Danish Agency of Trade and Industry.
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Task force
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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".
2. The Danish Intellectual Capital Statements Pilot Project
2.1 Background
The Project Intellectual Accounts started in February 1998 as one of the 7 components of a governmental initiative aimed to facilitate the transition from the industrial society to the knowledge society. This 3-year umbrella scheme is called LOK (initials of the Danish words for management, organisation and competence: "Ledelse, Organisation og Kompetence - LOK").
Under the Danish Ministry of Business and Industry, the project is organised by a Project Group. Headed by the Danish Agency for Trade and Industry, its groups together the Danish Commerce and Companies Agency, Copenhagen Business School, University of Aarghus, Arthur Andersen Consulting. Besides the project group, there are three groups which represent the "users and readers" of IC statements:
- an expert group
- a steering group
- a financial group
Finally, 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:
- 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."
"Intellectual capital statements" are defined as "externally published documents, which provide information to internal and to external parties about firms’ work to sustain and develop their resources, competencies, capabilities, and knowledge" (NB: the precise wording remains undecided: Intellectual Capital Statement, Intellectual Capital Account, and Intellectual Capital Report).
- 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.
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Project Group |
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Danish
Agency for Trade and Industry - EFS (project leader) Arthur
Andersen Consulting
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Erhvervs- og
Selskabsstyrelsen - EOGS Copenhagen
Business School - CBS Århus
Universitet |
2.2 First results
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:
- Why do the firms want to measure intellectual capital?
- Who is involved in the project?
- How does the firm work with intellectual capital?
- What is intellectual capital made to be in the specific firm?
- 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.
2.3. Recent developments and findings
During 2000, more experiences from the 18 companies have been gathered and several steps have been achieved:
Organisation of a technical international workshop on intellectual capital statements, 22-23 February 2000The Danish Agency for Trade and Industry hosted a workshop on Intellectual Capital Statements in February 2000. The very first draft of guidelines for intellectual capital statements was presented and discussed at the workshop.
The participants were divided into 4 parallel workshop session each discussing a different theme:
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Topics discussed |
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Group 1
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Group 2 |
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Group 3 |
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Group 4 |
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The summaries and slides from the 4 parallel workshop sessions can be downloaded on EFS web site.
Presentation of the first draft of guidelines for setting up IC statementsBased on the interim results, researchers connected to the project have prepared draft guidelines. This framework describes the building blocks of the kind of IC statements that the Ministry for trade and industry wants Danish companies to develop.
Two documents are available at present in English:
- The Logic of Intellectual Capital Statements
- Towards a Guideline for Intellectual Capital Statements
These guidelines present indicators from 18 firms’ intellectual capital statements which are classified into 4 categories:
- Employees
- Customers
- Processes
- Technology
Each category is subdivided in 3 sub-categories, each of them containing items:
- resources
- activities
- effects
2.4 Future activities
Three steps are still planned before the end of the project :
- Early summer 2000 , the second draft of the guidelines will be terminated. They will include the results from the second intellectual statement published in May 2000.
- In Autumn 2000, the second draft will be circulated among a wide range of interest organisations and companies for consideration. The Ministry will organise specific discussions with groups having a special interests in the guidelines such as companies and accountants.
- In November 2000, the Final Guidelines will be presented in the framework of a national conference.
The question now is to know what will be done after the end of the project.
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Contact The Danish Agency for
Development of Trade and Industry (EFS)
IC
Statements Project:
http://www.efs.dk/icaccounts/
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To be noted that the Danish Patent and Trademark Office, placed under the Ministry of Trade and Industry, has a project about valuation of patents. A recent publication has been released on "new trends in Intellectual Property Rights" which outlines the current situation in industrial rights and presents a strategy for developing the IPR area in the coming years. It includes a number of proposals and initiatives by which the Danish government intends to strengthen the Danish IPR-culture and to improve the frame conditions for enterprises in protecting their knowledge - nationally as well as internationally. It is available for downloading at: http://www.dkpto.dk/english/start.htm.
As mentioned above, the Copenhagen Business School (CBS) and Århus University are active in research concerning intellectual capital.
From CBS, Heine Thorsgaard Larsen work areas are Intellectual Capital Statements, Balanced Scorecard, Knowledge and strategic management, Management Control and Accountability. He has written several working and articles available on his personal web page.
Jan Mouritsen is professor of Management Control at CBS. His current research interests lie in two main areas. One is ‘Management Technology and the Technologies of Managing’. The other area is ‘Intellectual Capital and Knowledge Management’ where he is conducting longitudinal research studying the making of intellectual capital statements. This research is oriented towards understanding how firms ‘digitise’ knowledge management activities. As par of this research program, there is also attention to financial analysts’ conduct in relation to immaterial assets. Jan Mouritsen in involved in the Danish IC statement project as well as the European MERITUM project.
He has published lots of papers and articles in a range of journals including Accounting Organisations and Society, Accounting, Auditing & Accountability Journal, Scandinavian Journal of Management, and Management Accounting Research. He has also written many books and monographs in both the English and Danish languages. Jan Mouritsen is Board member of the European Institute of Advanced Studies in Management (EIASM) and on the editorial boards of a number of accounting, management and IT journals.
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Contact Copenhagen
Business School |
Per Nikolaj Drachmann Bukh is Associate Professor at the Arhus University. His research interest are Management Control Systems, Cost and Management Accounting, Service Management and Marketing, Intellectual Capital Accounting and Knowledge Management, Investor Relations and Disclosure and Growth and Entrepreneurship. He is involved in several projects concerning intangible assets, in particular the Danish IC statement project with Jan Mouritsen and Heine T. Larsen, the European MERITUM (with international partners). He has published many working papers and articles. The complete list is available on his personal web page.
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Contact Århus
Universitet |
Denmark counts other experts and researchers in the field of intangibles.
One can mention Bengt-Ake Lundvall who is a professor in economics at the Department for Business Studies at Aalborg University. He is also a research manager for the nation-wide Danish network, DRUID (Danish Research Unit for Industrial Dynamics) and Project Director for DISKO (a project on the Danish Innovation System in a Comparative Perspective). In 1992 -1995 he was Deputy Director at the Directorate for Science, Technology and Industry. His current work is focused on systems of innovation, the learning economy and knowledge management.
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Contact University
of Aalborg |
4. The Danish Confederation of Trade Unions - LO
The Danish Confederation of Trade Unions - LO is the largest national trade union confederation in Denmark and is recognised as the most representative workers' organisation in both the public and the private sector.
LO has launched "The Developing Workplace" initiative in order to catch and reshape the development process so that it matches the Danish model in which the employees and employers conduct a dialogue and work together to solve their problems.
In that framework of building a "community of interest", LO has taken part in the debate concerning knowledge accounting. In a booklet published in June 1999 and entitled "You knowledge - can you book it?", LO considers that it would be necessary to make a "kind of account or statement of the knowledge : a knowledge account", to make the staff and their knowledge visible. A knowledge account could pave the way for investments in training, increase the interest of investors in the company and finally, oblige individual employees to invest more on their own knowledge and development.
It considers that the Trade Union has a role to play. "The Trade Union Movement wants to see knowledge accounting as part of the agenda for companies: "we must be able to work with the development of knowledge accounts". Therefore, LO has developed tools and methods to calculate investments in staff training. But Knowledge account cannot be only considered as a technical matter. LO suggests that a social and ethical account (attitudes to people, social responsibility, employee rights, etc.) should be prepared in parallel with the knowledge account (people, systems, the market, etc.).
LO has also published a booklet of 22 pages entitled The National Human Capital Accounts focusing on competence development and lifelong learning, both for the individual and for society as a whole. This workbook shows, among other things, how to calculate the value of investment in training and development.
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Contact The
Danish Confederation of Trade Unions - LO |