The intellectual capital "father"

How much is the grey mass of your company worth?

The presentation of the work developed about the Intellectual Capital in Europe by the responsible at the Swedish group Skandia of the first pioneer application of a methodology of visualisation and measuring of this new form of capital.

Jorge Nascimento Rodrigues comments "Intellectual Capital" of Leif Edvinsson (1999)

How is it possible that Amazon.com this week (first week of September 1999) has a market capitalisation of 20 thousand million dollars when this virtual bookstore created only four years ago only estimates to make 1/20 of that value after 2000? The reader will say: pure speculation of NASDAQ in its up-trend!

And, probably, the reader is partially right. When the down-trend will come, a substantial part of this "hype" will be "filtered".

But how can we justify that older companies of the Third Wave are much more valuable than the old sharks of the industrial capitalism? How is it possible that Microsoft last year was 3 times worth the Shell group and that Intel was more valuable than the powerful Exxon? How can we understand that brands like Coca-Cola and Marlboro are 3 times worth Disney, Sony or Kodak?

From the traditional "goodwill"...

What is behind these astronomic market capitalisation and these bizarre differences, asks the common mortal that needs help from the accountants for a plausible explanation. But they do not have an answer - they use the known goodwill, that is always used when you want to account one of those unexplainable differences that someone had to pay for a corporation whose assets are at least 1/10 of the money he gave to have the star and its team on his lap.

"The problem is that this difference between the real value of the assets and the market value of the company became astronomic these days, with the development of the new economy in this last decade. In the end of 1997, the assets of Microsoft were only 6% of its market value. Coca-Cola's were even less: 4%. What generates that incredible hidden value of more than 90%?", asks Leif Evinsson, a Swedish that was responsible for putting into practice since the start of the 90s, in one of Skandia companies, a first method of evaluation and visualisation of that hidden value.

Edvinsson explains to us: "The present systems of accountancy are not capable of explaining why this happens and don't have the means to evaluate all that is beyond the immobilised, namely real estate and machinery. The problem is that these days the classical factors of production are not the main responsible for the creation of market value. The capital in the form of immobilised and the work in the old conception of labour gave the front seat to factors that we call intangibles".

The human resources factor has to be very well understood. The question of the human resources is simple: all depends if they are part of the multiplier of value or only a cost/burden. That is, all depends if the HR are potentiated as source of knowledge - it has to do with the form in which the brain mass uses it to create value, he refers.

... to Galbraith revisited

What Edvinsson and some academics that have worked with him - like Johan Roos and Goran Roos, of the International Institute for Management Development (IMD), Switzerland - did was to recover the concept created 30 years ago following John Kenneth Galbraith that in 1969 created the intellectual capital concept. What was a literary expression was analysed to detail and subdivided in two new types of capital: the human capital (HC) and the intellectual structural capital (ISC).

The first (HC) encloses the value of forming people, their competencies, their future potential and mainly their latent talent, sometimes hidden and under-used. "However, the human capital is purely personal and it's not property of the company. In general, it goes in the head of the worker when he leaves and goes back home at the end of the day. The company can - and should - evaluate him, but it cannot have his propriety", explains Eidvinsson.

In spite of that lack of power over the human capital, the company may account it by approximation through indicators like the percentage of workers with advanced academic degrees, the literacy level in IT and communication, the number of hours of training, levels of motivation and leadership, savings in costs by suggestions and ideas of the workers and number of products and projects that come from the workers. Those indicators are the reflex of the implicit knowledge that exists in the organisations.

"But the great challenge, says Leif Edvinsson, is to evaluate the structural capital, that is, what is explicitly inside the company, what is out of the people's heads. It's the case of the data bases, client's files, communities of faithfulness, brands, patents. In the model of Skandia we divided this second form of intellectual capital in capital client and organisational capital".
Although Edvinsson doesn't like the term of knowledge management (KM), the art of KM is to be able to transform the maximum of human capital in structural intellectual capital.

The internationalisation of the model

The pioneer work of Leif Edvinsson in Sweden leading the area of intellectual capital of Skandia in the start of the 90s (presented on the web at www.skandia.se/group/future/intellectual/frame_intellectual.htm) suddenly had an international echo and Fortune magazine gave him the cover in October 94. The editor of the magazine Thomas Stewart told the story.

In 1996, the project of measuring the intellectual capital receives a distinction of the American Centre of Productivity and Quality and from Business Intelligence, in the UK. At the same time, the Skandia experience is transformed in an academic case study in IMD, by initiative of Joan and Goran Roos. They created in London the Intellectual Capital Services, a new company that commercialises and customises a panel of indicators - the IC index - that you can visit on the web at www.intcap.com.

The impact of the worked called attention of the USA Securities and Exchange Commission, that wants to legislate in order to make the intellectual capital transparent in the accounts of the companies of the Wall Street.

Inside the group, the method is now working. Called "Skandia Navigator", it was introduced this year (1999) in all of Skandia's companies. In the meanwhile, a bank of knowledge called "Knownet" was created and everyone can suggest ideas and improvements. Also was launched an internal mechanism to express the training needs by the workers as well as an insurance of promotion of personal competencies that is fed by the company and its own workers.

The secret of Contactivity

Another initiative is Skandia Future Centers. The first centre of strategic reflection of the group, that Leif calls "contactativity" environment opened in one of the islands of Stockholm.

Contactativity means exactly what the environment wants to create - interaction with people and connection of their brains. Five groups of reflection about the future are already working and try to define the forces inside the group. Each group is formed by members of different generations, with different professional experiences, functions and culture inside Skandia Group. It's not the classical brain storming of the people at the top.

Two new companies for the globalisation of the reflection on intellectual capital were launched by Leif and Skandia: the UNIC (Universal Networking Intellectual Capital, visit it on the Web at www.unic.net) and the Futurizing (visit it on the Web at http://futurizing.com, only by invitation).

REFERENCE WORKS OF LEIF EDVINSSON:
Leif Edvinsson is co-author in two reference books - one with Michael Malone called Intellectual Capital - Realising your company's true value by finding its hidden brainpower, dated form 1997, and another with Johan and Goran Roos and Nicola Dragonetti also called Intellectual Capital, but with the post title of Navigating in the New Business Landscape, dated from 1998 and that can be found in the collection of Economics & Business of New York University Press.