Intellectual capital management

© Oksana Lentjušenkova    Performance measurement Created value measurement PR     Direct Intellectual Capital methods (DIC). Estimate the $-value of intangible assets by identifying its various components. Once these components are identified, they can be directly evaluated, either individually or as an aggregated coefficient. Market Capitalization Methods (MCM). Calculate the difference between a company's market capitalization and its stockholders' equity as the value of its intellectual capital or intangible assets. Return on Assets methods (ROA). Average pre-tax earnings of a company for a period of time are divided by the average tangible assets of the company. The result is a company ROA that is then compared with its industry average. The difference is multiplied by the company's average tangible assets to calculate an average annual earning from the Intangibles. Dividing the above-average earnings by the company's average cost of capital or an interest rate, one can derive an estimate of the value of its intangible assets or intellectual capital. Scorecard Methods (SC). The various components of intangible assets or intellectual capital are identified and indicators and indices are generated and reported in scorecards or as graphs. SC methods are similar to DIS methods, expect that no estimate is made of the $-value of the Intangible assets. A composite index may or may not be produced.      Indivdual indicators are grouped by IC component For grouping IC is divided in two groups: “thinking part” and “non-thinking part” “Thinking part”: employee’s knowledge, attitudes, competences, ability to create innovation “Non-thinking part”: relations with customers, suppliers, partners, data bases, business processes, organisational culture etc.) For each indicator the rank is calculated and then select most important IC elements and use it for IC-index   IC monetary value 3 approaches: • Based on costs – how much costs replacement of certain asset for the company • Based on market prices – market price • Based on income – asset’s ability to earn   The VAIC model is intended to measure the extent to which a company produces added value based on intellectual (capital) efficiency or intellectual resources. VAIC calculations are based on: • human capital (HC), which is basically interpreted as employee expenses, • structural capital (SC), which is interpreted as the difference between produced added value (VA) and human capital (HC), i.e. SC = VA – HC; • capital employed (CE), which is interpreted as financial capital, e.g. book value.  Based on these definitions and assumptions VAIC is calculated as the direct sum of key efficiency figures, which in turn are calculated as ratios: • capital employed efficiency (CEE) = VA/CE • human capital efficiency (HCE) = VA/HC • structural capital efficiency (SCE) = SC/VA.  Social Return on Investment (SROI) is a framework for measuring and accounting for this much broader concept of value; it seeks to reduce inequality and environmental degradation and improve wellbeing by incorporating social, environmental and economic costs and benefits. (UK Cabinet Office, 2009).  SROI is about value, rather than money. Money is simply a common unit and as such is a useful and widely accepted way of conveying value.  Main steps: 1) Establishing scope and identifying key stakeholders 2) Mapping outcomes using impact map. What are changes for each stakeholder group? 3) Evidencing outcomes and giving them a value 4) Establishing impact. Having collected evidence on outcomes and monetised them, those aspects of change that would have happened anyway or are a result of other factors are eliminated from consideration. It necesary to develop indicators for measuring each outcome 5) Calculating the SROI. This stage involves adding up all the benefits, subtracting any negatives and comparing the result to the investment. Stakeholders IC investments outcomes Owners Profit, reputation, personal growth, company’s value growth, market share growth Employees Professional qualifications growth and experience, higher salaries, higher positions, better working conditions Customers Better product and service quality, lower prices Partners Lower costs, time and resources savings, competitiveness, reputation Society Higher lever of welfare, higher labor force quality, productivity     Use impact map Indentify necessary investments for expected changes and outcome (description and in money) Identify indicators for outcome measurement: forone outcome – one indicator If some outcomes are measured with the same indicator, it is necessary to group outcomes or find another indicators    Deadweight is a measure of the amount of outcome that would have happened even if the activity had not taken place. It is calculated as a percentage. Attribution is an assessment of how much of the outcome was caused by the contribution of other organisations or people. Attribution is calculated as a percentage (i.e. the proportion of the outcome that is attributable to your organisation). In future years, the amount of outcome is likely to be less or, if the same, will be more likely to be influenced by other factors, so attribution to your organisation is lower. Drop-off is used to account for this and is only calculated for outcomes that last more than one year n FV PV   n ( 1  r ) i 1