Business Communities of Practice of
measuring intangible assets
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In Sweden, investments in intangible assets tend to exceed those in tangibles. It is estimated that the share of investment flows geared to intangible assets is at 20 percent of GDP.
Together with the Netherlands and Denmark, Sweden is certainly the most advanced country of the sample of 7 countries in terms of research and concrete applications concerning measurement and disclosure of intangible assets.
In Sweden, the topic of intangibles is at a high level priority, both at academic and practitioners levels. It has also entered the public debate and Swedish newspapers relate regularly issues concerning the transparency of investments in intangibles. Moreover, Sweden, through the "Invest in Sweden Agency" (one of the Governmental authorities) is the only country to develop an integrated approach to measure the "Intellectual capital of a nation", based on the Intellectual Capital Navigator of Edvinsson. Therefore, the Invest in Sweden Agency bases the country's promotion on its high share and quality of intangible assets in order to attract foreign investors. Sweden is officially promoted as the "Vikings of Intellectual Capital".
1. Business Communities of Practice of measuring intangible assets
1.1 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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1.2 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 |
1.3 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 Skandia Future Centre: http://www.skandiafuturecenter.com/ |
1.4 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.
There are many researchers and doctoral students in Sweden universities and Research Centres dealing with intangible assets. Therefore, they have published more than a hundred studies and books on the topic. These researchers are closer to the HCRA School.
One of the driving forces is the School of Business at Stockholm University which has undertaken several studies on intangibles, and in particular two researchers:
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Ulf Johanson. He is involved in international (MERITUM) and national research projects.
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Jan-Erick Gröjer is also involved in MERITUM and works with Ulf Johanson.
Within Stockholm University, a special research Institute works with the Human Resource Costing and Accounting concepts: the Personnel Economics Institute - PEI. Headed by Birgitta Olsson, it performs studies concerning HRCA issues, is in charge of the "Journal of Human Resource Costing and Accounting" and organises international workshops. This year, the workshop is dedicated to "Measuring and Managing the Invisible". It took place on June 16, 2000 in Stockholm.
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Contact Stockholm
University Personnel
Economics Institute |
3. Governmental policy on Intangibles
A number of public organisations are involved in institutional reflections and projects concerning intangible assets. The key public actors are the Swedish Ministry of Industry, Employment and Communications, The Swedish National Board for Industrial and Technical Development (NUTEK), the Swedish Council for Work Life Research (RALF), Invest in Sweden Agency and Statistic Sweden. Besides, several organisations are specialised within subsets of intangible assets (Patents, IPR, etc.).
3. 1 Sweden: the "country of intellectual capital"
"An IC-Navigator for Nations": a new method to identify, measure and monitor the intangible capital of a country
Invest in Sweden Agency (ISA) is the first national investment organisation to apply latest methods of measuring corporate intellectual capital to assess country potential and compare nations’ competitiveness and potential. They consider that international investments will be increasingly determined by intellectual capital of nations, i.e. country-specific "soft" investment data.
According to ISA in its 1999 Report "Intellectual capital forms the root of a corporation - and of a nation - that supply the nourishment for future strength and growth. A new analytical method enables these previously unevaluated resources to be assessed and compared. This can be an important tool for selecting an international location for knowledge-based companies. Sweden offers highly attractive and competitive intellectual capital assets - assets of superior value for leading-edge companies". It is the "Intangible wealth of nation".
To measure this soft investment data and identify intellectual capital assets, ISA has adapted a tool developed by a company to apply it to measure hidden values of countries and assess a country potential: the IC-Navigator developed for Skandia company. This work has been performed in cooperation with the Skandia Future Centre (see - Caroline Stenfelt).
ISA has identified a range of indicators.
Towards a national perspective of IC : an IC-Navigator for Nation
This "IC-Navigator for Nations" in a knowledge-based economy would consist of five value-creating fields:
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renewal, development and innovation : the "power of innovation";
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knowledge capacity: the "power of exchange of knowledge" at a national and international level (ability, willingness and capacity to share knowledge nationally and globally measured with 5 essential factors such as foreign language skills, teamwork and networking, external trade relations);
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Human capital: the "power of human capital" (education, high investments in training and life-long learning, labour relations and corporate culture based on long-term profitability, entrepreuneurship). In particular, according to ISA, "Sweden appears to be a showplace for the Theory of Intellectual Entrepreneurship" - which argues that individual brainpower combined with structural capital of well-established institutions will generate future growth. A growing share of Swedes work as "free agents" in networked virtual organisations. Today an increasing number, about 6 percent, work online, away from offices";
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Information technologies : IT investments are a key tool (cf IS indicators) as well as Intelligent enterprising and networking competence promoted in regional clusters around universities and science parks. "Knowledge-based firms work in a complex network with academia and industry".
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Investments in intellectual capital.
ISA also bases its analysis on the "innovation Index", compiled by Michael Porter and Scott Stern of the U.S.-based Council on Competitiveness where its is shown that Sweden is well positioned in terms of R&D spending and personnel, international patents, property protection, education, and other factors. The Index ranked Sweden fourth globally.
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Contact Invest
in Sweden Agency |
3.2 Governmental efforts to increase the transparency of intangibles
In 1986, Statistics Sweden started a voluntary pilot study on intangible assets, stimulated by the fast technological change and the growing demand of firms of information on investment structure. Since 1988, the survey includes several indicators on intangible investments and covers all manufacturing companies with more than 500 employees.
In 1991, a government study was conducted that resulted in asking a special working group to formulate a government proposal. The report (DS 1991:45) discussed a proposal making it mandatory for all companies and authorities with more than 100 employees to work out Human Resources Accounting reports with profit and loss accounts every year (e.g., personnel turnover, sickness leave, training, and working environment). For various reasons, the proposal never reached the Parliament but it has been considered positive that proposed legislation was submitted to various bodies, increasing awareness in this matter.
The question of changes in the legislation has been reconsidered. After a debate in the Parliament, the standing committee on civil law legislation emphasised the importance of investigating the necessity of changing the legislation with respect to the treatment of human capital.
In 1993 the Swedish Council for Service Industries issued a recommendation for its member companies to use a number of indicators describing their human capital in their annual reports. The indicators were based on the Konrad design with additional input from Skandia. The recommendation was one of the inputs into the 1995 OECD and EU initiatives to issue recommendations for reporting on human capital.
Today, the Ministry of Industry, Employment and Communications supports several research projects in this field, including its participation within the MERITUM project and a model of an "IC Knowledge Desk for industrial growth" (work performed by Skandia Future Centre).
Within the Ministry, Karin Aldskogius and Lena Wirkkala work more specifically on these issues. A workshop on Intellectual capital will be organised by the Minister during the Swedish Presidency on March 19-20, 2001 in Växjö within the framework of an SMEs workshop.
The Swedish National Board for Industrial and Technical - NUTEK (Government Agency for Trade and Industry) also works on this issue. For example, a survey has been produced which explores the link between intangible factors and companies' results. It attempted to measure the significance of innovations to individual businesses.
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Contact Swedish
Ministry of Industry, Employment and
Communications NUTEK Statistics
Sweden |
3.3 Intangibles on the Agenda of the EU Swedish Presidency
Sweden will hold the Presidency for the first six months of 2001. It is planned to hold an event on intellectual capital during this period.
As indicated, the Ministry of Industry will also organise a workshop on IC (19-20 March 2001 Växjö).
In parallel, issues involving working life and work environment will be raised during Sweden's tenure. As one phase in these efforts, the National Institute for Working Life (NIWL), the National Board of Occupational Safety and Health (NBOSH) and the Joint Industrial Safety Council (JISC) will hold a joint conference in January 2001 called Work Life 2000. It will take place on January 22-25, 2001.
In order to prepare this event, a total of about 70 preparatory workshops have been and will be held on important EU subjects between 1998 and 2000. The "Workshop Statements" will subsequently serve as input to sessions at the conference.
In that framework, two workshops were held in Brussels on the topic on intangible assets:
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in September 1998, a "Human Capital workshop" on "The Value of Investing in the Workforce";
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in February 1999 on "How To Manage And Account for Intangibles: Voluntary guidelines on the disclosure of intangibles: a Bridge over troubled water?".
"The managing of intangible assets is a key issue in the creation of wealth for individuals, organisations and nations. In the past the European Commission has discussed appropriate measures to increase the transparency of intangibles, especially those concerned with human capital. However, too little is known about how the intangibles are managed and accounted for and how they contribute to growth and employment. In two workshops, such issues will be discussed. In the present workshop human capital is highlighted, whereas intangible assets in general are discussed in the second workshop". (Introduction to the workshops)