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SPECIAL FEATURE No. 2

Who Is Measuring Intellectual Capital?

David J. Skyrme

Work has started on revising and updating the report Measuring The Value of Knowledge (first published in 1999). Wile there have been several interesting developments since then (such as the VAIC measures featured in I3 UPDATE No. 33 - http://www.skyrme.com/updates/u33.htm#
VAIC) and more annual IC reports from Celemi), it remains a conundrum that few organizations, especially North American ones) have followed the lead of Skandia and others in taking a systematic approach to measuring IC.

The issues around IC measurement have been admirably addressed by one of the gurus of the field - Karl Erik Sveiby in his recent contribution to the AOK Star Series discussion (if you are not already an AOK member, you will not have seen this - I do suggest you visit http://www.kwork.org to see what you are missing!). On the topic of "why measure?" his statements are clear - to maximize "Value Creation", which consists largely of intangibles. He notes that "most companies wildly underestimate the value of their tacit knowledge".

Karl's main proposition is that traditionally we measure for control purposes. However, in the knowledge era where a company has smart people, the real reason for measuring should be for learning.

He notes that venture capitalists and analysts take into account many of a firm's intangibles. However, he remains pessimistic about IC measurement within firms becoming widespread in the near future "it is one of many battles between the old Industrial society paradigm and the new knowledge paradigm". In the US he believes that "the infamous trio of auditors, regulators and examiners are choking the initiative on valuation of IC". He surmises that it will take another 20 years or more before the Industrial Era paradigm is completely dead.

Taking a more positive note, I personally see many companies taking a look at their existing measurement systems and at least thinking about how knowledge should be incorporated. The latest version of the EFQM model (European Foundation for Quality Management) has a component on KM processes. Also many Open University students (typically middle managers) who take the Managing Knowledge module, have to do an overview IC assessment of their organization's IC. So at least IC accounting is starting to rise in many managers' consciousness. However, I share Karl's view in that it might be several years before IC accounting is taken as seriously as financial accounting. That time will come when firms hire more IC accountants and analysts than they do financial ones.

If you have some practical experience of attempting an IC exercise or know of companies who are attempting such measurements then I'd be delighted to hear from you. If this results in substantive new material for our report update or a new case study, then you can expect to receive a substantial discount (or perhaps even a complimentary copy) when the new edition is published next Spring.

Email: David J. Skyrme

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