The Intellectual Capital (IC) of
by Debra M. Amidon
When the Knowledge Movement began, many thought that it was a matter of productivity – and it was. However, it was only the tip of the iceberg for the real potential transformation underway. The ENTOVATION® definition of Knowledge Innovation® from 1992 was “The creation, evolution, exchange, and application of ideas for new products and services to benefit (1) the success of an enterprise (both profit and not for profit, (2) the vitality of a nation’s economy, and (3) the advancement of society-as-a-whole.” It was only a matter of time when the knowledge and innovation communities would converge. Now, almost a decade later, the definition has stood the test of time and there is evidence that, indeed, the economic transformation is occurring on all three levels simultaneously – micro-, meso- and macro-economic.
We are all well aware of the leadership examples cited in research reports, such as Creating the Knowledge-Based Business. And we have become familiar with the initiatives architected by the OECD and The World Bank - http://entovation.com/gkii/articles/blueprint1.htm - that provide impetus for societal initiatives for both developing and industrialized nations. For years, economic development plans have been a function of technology – technological innovation. And although the human element (e.g., labor, training and development) were an integral part of the success of a community, region or nation, few understood the intricacies of how to manage such human resources – now referred to as human capital.
The original Roundtable – Managing the Knowledge Assets into the 21st Century – called for the “harnessing of the intellectual capital of the nation.” At the time it was a global competitive agenda; now we now it is a function of international collaboration - http://www.entovation.com/backgrnd/future.htm. That was in the United States; and the year was 1987. Today, there is hardly a nation that is not carefully scrutinizing the real economic wealth of their country in terms of the intellectual capital – how it is developed and utilized.
Some nations have been more progressive than others – establishing formal, systematic measurement criteria to document and report the progress according to key factors that undergird the prosperity of the nation. Sweden was first. Announcing 1996 the “Year of Innovation,” the government leadership together with Stockholm University modified the Skandia Navigator at the national level to quantify Sweden’s critical success factors. The resulting report – “Welfare and Security” – details a barometer of indicators that have been charted over a period of time: Financial Focus (e.g., Per capital GDP, Nation al Debt, the Mean Value of the US Dollar); Market Focus (e.g., Tourism Statistics, Standards of Honesty, Balance of Service, Balance of Trade, Balance of Trade for Intellectual Property); Human Focus (e.g., Quality of Life, Average Age Expectancy, Infant Survival Rate, Smoking, Education, Level of Education for Immigrants, Crime Rate, Age Statistics); Process Focus (e.g., Service-Producing Organizations, Public Consumption as a Percentage of GDP, Business Leadership, Information Technology such as personal computers connected by LAN’s, Survivors in Traffic Accidents, Employment); and Renewal and Development Focus (e.g., R&D Expenses as a Percentage of GDP, Number of Genuine Business Start-Ups, Trademarks, Factors Important to High School Youth).
Sweden was only the beginning for architects such as Leif Edvinsson and Caroline Stenfelt (http://www.unic.net)– the principals involved in the study. Believing that Intellectual Capital (IC) is the driving force for the future wealth creation and provides the roots for the “future fruits of nations as well as organizations,” they hosted the Vaxholm Summit – the First International Meeting on Visualizing and Measuring the IC of Nations in August 1998. The result has been a flurry of activity in different nations and an informative report that is available – “An Invitation to the Future.” The original meeting was intended to have an open, imaginative and collaborative exploration of the IC of nations in order to share past experience, identify issues and develop new perspectives. The process of measuring the IC of nations includes four steps:
In addition to the
Sweden report, there are several others available for your review. Under
the leadership of ENTOVATION®
colleague Edna Pasher – http://www.pasher.co.il
- and her management consultants, an IC Report of the State of Israel – “A
Look to the Future: The Hidden Values of the Desert” – was
released in 1999. This IC picture of Israel presents the hidden values and
the key driving success factors along its 50 years of existence in
different areas such as education, patents, scientists engaged in research
and development, international openness, computer and communication
infrastructure. The report concludes: “…(global competition) trends
are creating opportunities and new businesses based upon the Knowledge
Revolution…dependent upon knowledge from the technological and
scientific fields, upon information concerning world markets, and upon the
optimal acquisition and exploitation of knowledge!”
The courageous report was intended to present a holistic and organized picture of the knowledge and intellectual assets the country enjoys in contrast to other nations. It was also to be seen as a basis for assessing the knowledge, expertise and capabilities of the country as a navigator for government in various policy-making forums in order to upgrade the tools to exploit knowledge and accelerate the process of long-term economic and social growth. In addition to indicators outlined above in the Sweden Report, they have added: Financial Capital (e.g., Dollar Exchange Rates, External Debt, Unemployment, Sector Productivity Rates, Exports by Industry and Inflation); Market Capital (e.g., International Events, Openness to Different Cultures, Language Skills); Process Capital (e.g., Extent of Internet Use, Software Use, Teaching Effectiveness, Freedom of Expression, Agriculture Added-Value, Entrepreneurship and Risk-Taking, Venture Capital Funds, Immigration and Absorption); Human Capital (e.g., Advanced Degrees, Equal Opportunities, Women in the Professional Workforce, Book Publishing, Museum Visits, Physicians in the Medical System, Alcohol Consumption, and Crime); and Renewal and Development Capital (e.g., Civilian R&D, Scientific Publications and Biotechnology Companies). Results conclude that in a number of fields, Israel is at parity with other developed nations; and in some instances, such as the scientific activity and quality of its workforce, Israel even surpasses the leading developed nations.
Another ENTOVATION® colleague who is featured on the Global Knowledge Leadership Map is Lars Kolind – http://www.kolind.dk. In July 1997, The Danish Government published a study – “A Structural Monitoring System for Denmark” – believed to be the first of its kind. The publishing group – the House of Mandag Morgen – has a think-tank that analyzes main trends with economic and societal importance developed a concept to unite the competence development of the country with a national vision.
The leadership in Denmark believes that a global knowledge economy poses quite different conditions than an industrialized society. Intellectual Capital Statements – similar to the ones originally produced by Skandia, such as http://www.entovation.com/innovation/skandia.htm - are used as both an internal management tool as well as an external communication tool to attract new staff, clients and perhaps new investment capital. In a unique effort to establish the national IC Guidelines, The Danish Agency for Trade and Industry has been publishing a series of IC Statements that systematically collect experience from nineteen companies for a couple of years. Diverse participants include: A/S Dansk Shell, ATP, Byggecentrum, Byggeplandata AS, Carl Bro Gruppen, Coloplast A/S, COWI, Dansk System Industri A/S, Dator A/S, The Danish Insurance Institute A/S, Hofman-Bang A/S, Hotel Imapla A/S, Kommunedata A/S, Meku A/S, Nellemann Konsulenterne A/S, Systematic Software Engineering A/S and Tele & Data.
A complete package of the summary report – “IC Statements: Toward a Guideline” - and the individual company reports are available upon request – http://www.efs.dk/icaccounts/. Based upon the comparative analysis (i.e., first and second generation IC Reports), companies have begum to focus on work with knowledge and competencies as the very basis of future profits. “Experience has shown that it has become easier for customers and collaborators to understand the companies…This has paved the way for improved dialogue.” The summary provides a checklist for setting up IC Statements (e.g., purpose and form, resource requirements, project group, IC report review, company strategy mapping, framework for analysis, available data sources, indicator brainstorming, project plan and implementation, etc.) as well as a checklist for verification of progress with an auditor’s report from the initial meeting through the IC report review and final declaration and recording.
Most companies, suggests the report, publish their second report with some pride. The difficulty is in providing clear, precise narrative that provides meaning for the stakeholders, often times investors. The challenge is defining their inherent values, the statement of vision and how to convert from ‘knowledge reporting’ to ‘knowledge management.’ In the first report, they could only document the status; in the second, evidence of progress against goals can be documented – at least recording a sense of direction. The goals become defined more sharply – making the IC statement more binding and coherent. The quote from A/S Dansk Shell tells the story: “An intellectual capital statement without an audit may easily be seen as a marketing document. In our case, the auditor’s report has lent the statement credibility. Auditing is a demanding process, but in our experience, it pays off.”
The Ministry of Economic Affairs in The Netherlands - with a shift from ‘technology policy’ to ‘innovation policy’ - published a 1998 report – “The Immeasurable Wealth of Knowledge.” Subsequent reports, such as “Intangible Assets: Balancing Accounts with Knowledge,” is available upon request - http://www.minez.nl. The study administered by the Central Planning Bureau showed that in 1992 over 35% of national investments were of an intangible nature – an indication of the evolution of the knowledge-based economy. In 1995, KPMG was asked to assess the feasibility of creating a ‘knowledge balance sheet.’ They advocated establishing appendices to the corporate annual reports and the creation of a database for benchmarking purposes. The Cabinet, the standing Committee Parliamentary Committee for Economic Affairs, the Royal Netherlands Institute of Chartered Accountants and the Netherlands Order of Management Consultant Accountants – to mention a few – have been involved in subsequent studies.
In June 1999, an OECD congress on the topic took place in The Netherlands.
Report results include a status of the intangible production factors, legislation and regulation and a comparison of methods. The Ministry commissioned pilot studies from four consulting firms – the insights of which are included. They explore the ways that longitudinal data on the topic can be of most value and the importance of having a critical mass of companies publishing ratios. “Standardization of the method and the possibility for companies to certify their method of applying it could make a significant contribution to the comparability and, thereby, the value of the indicators for knowledge intensity, potential and the balance sheet.”
In March of 2000, an executive summary – “Benchmarking the Netherlands 2000: On the Threshold of the new Millennium” – was released. Somewhat modeled after the Israeli Report, the leadership uses the study to illuminate the major challenges that must be addressed by the Dutch economy. Indicators (and related analysis) are organized according to: Macro-economic and Fiscal Climate; Human Capital; Climate for Innovation; Physical Infrastructure; Product Markets and the Capital Market. The express aim of the study was not only to show how The Netherlands was performing, but also to learn from the best practices in other benchmark countries. It does suggest one caveat. Nations do not compete, as do companies. Rather, governments influence the basic conditions for those companies (e.g., quality of living environment, climate for innovation, physical environment, etc.) A healthy competitive position, then, is ultimately expressed in the level of growth and prosperity. The second challenge is to shape the economic policy in such a way that the country can benefit form the trends, such as demographic changes, globalization, increasing demand for individual freedom of choice, information technology, growing mobility, greater environmental awareness, which will in turn provides:
(1) A knowledge and participation economy;
(2) An economy that calls for macro-economic stability and a competitive fiscal climate;
(3) An economy that calls for macro-economic flexibility and innovation; and
(4) An economy that must reconcile growing demand for mobility and space with the concern for a clean environment.
The report surveys all these factors and places the analysis in the context of actionable policy initiatives to move the country forward.
And so now it is evident that the benefits to be reaped with a focus on a knowledge –not even information – society extend far beyond the context of company profitability. Indeed, those nations that seek to establish viable and sustainable economic prosperity will inevitably turn toward managing (and measuring) what we now consider the intangible wealth of the nation. As more nations focus upon the human capital and the innovation process (i.e., how knowledge is created converted into products and services and applied), we have an opportunity to increase the standard of living worldwide.
There are plans on collaboration with the Institute for Higher Studies in Vienna to prepare a report to devise position, evolution speed and direction in the new economic sphere of Austria. In Japan, the Japan Advanced Institute for Science and Technology is taking the lead. There are plans for preparing reports for the UK and Poland. There are regional approaches being pursued to contrast four innovative regions in Europe (i.e., Kista, Madrid, Stuttgart and Cambridge. We hear significant interest from developing nations and aboriginal communities and plans of newly elected executive officials using the IC Report and the platform for their reform. It is only the beginning. Once we have enough examples to contrast national and regional approaches, the reality of a Global Knowledge Innovation Infrastructure – http://www.entovation.com/gkii - may become a reality.
This is true evidence of the beginning of the Knowledge Millennium.
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