Managing Intellectual Capital in Practice Free

Intellectual capital, IC, is a theoretical concept heavily discussed by researchers within the field of personal economics and accounting. The empirical evidences from academic studies have shown how and why IC contributes to organisations value creation. Researchers have explained how the human resources, in terms of the contribution of unique skills and competencies, contribute to the organisations performances and how organizational learning processes develop a structural capital that can be owned and managed by the company. Within the field of accounting, the IC plays an important roll in the discussion of transparency and how to disclose the immaterial resources in the financial records. IC has become a crucial issue both for management control and strategic human resource management as well as for financial accounting and market analysis. However, the cumbersome issues are related to questions of how to develop and implement these IC theories in practise in the organisations.

In the book Managing Intellectual Capital in Practice the theories of the IC are discussed. The importance of the IC resources are illustrated by different surveys of senior executives in many countries. The economy has changed. Today many firms, belonging to publicly listed companies on stock exchanges globally, unlisted firms and organizations within the not‐for‐profit sector, are representing new forms of doing business, often relying on non‐traditional business models and leveraging IC rather than strictly physical resources to create superior competitive advantage. It is argued that failure to plan for and implement necessary changes in management practices will account for many of the stated occasions when the benefits of, for example outsourcing, have not been realized in accordance with original expectations. Good managers have always been able to manage their IC resources well, but they have usually relied on intuition and experiences rather than explicit tools, and have been frequently frustrated in their endeavors to monitor the effectiveness and efficiency of value creation from these IC resources. The book aims to provide managers with tools that are as well grounded and tested as those available for management of classical monetary and physical resources.

The authors are Göran Roos, Visiting Professor of Intellectual Capital at the Centre for Business Performance, Cranfield School of Management; Visiting Lecturing Professor at JOKO, Helsinki School of Economics; and Intellectual Capital Adjunkt at Melbourne Business School, Dr Stephen Pike, Research Director, Intellectual Capital Services Ltd and Lisa Fernström, Senior Consultant, Intellectual Capital Services Ltd.

The authors gives us useful practical advises of how to identify the organization's IC resources and how to put the IC resources to value creating use. The authors also discusses how to value and measure the IC and gives us insights in the field of intellectual disclosures as well as in other applications of the IC approach.

Linking strategy and resources by using the three different value creating logics is an interesting approach when describing why IC is important. It gives us a broader perspective on how IC resources contribute to organizations potential to commence or continue to create value.

The value creating logics are presented and characterized as the value chain, the value shop and the value network. The value chains are dominated by monetary and physical resources, the value shops by human resources and the value networks by relational and organizational resources. These different resources are also discussed in terms of intangible and tangible resources. It is argued that there are plenty of IC resources that have a tangible expression and there are plenty of traditional economic resources that have intangible expressions. Common sense and experience tell us that institutional investors and investment bank analysts take many non‐traditional intangible resource considerations into account in their valuations analysts' reports, and recommendations. From the APiON example we learn how the IC is used as an approach to design and implement a growth strategy in the company.

In chapter two the portfolio of resources is discussed and the value logics are used to practically identify the organizations IC resources. The organization needs to have access to a given portfolio of resources to be able to achieve its strategic objectives. The IC resources normally form a basis for competitive advantage in most organizations. In the mean time, it is important to have the right resources in sufficient quantity and of sufficient quality available. The intellectual management process, ICMP, build upon studies and theories of sustained competitive advantage and unique resources, is described as a structural method, where the resources are categorized into five categories and related to the organizations specific value creating logic. Traditional economic resources are divided into two categories – monetary and physical – while IC resources are divided into three categories – relational, organizational, and human. The description of the ICMP is complex, but it is described in a logical way, which makes it easy to follow. In the process, the resources are weighted and valued regarding their strategic importance to the organization. However, these methods involve a great amount of subjectivity, which could have been discussed more. Especially, concerning the persons involved in the work with ICMP. Thus, the ICMP can be a help to the company when judging if its chosen strategy can be put in action directly or if it needs to acquire resources before it is able to pursue its chosen strategy.

The chapter three discusses how to transform the unique resource portfolio to value creating use. All resources in an organization are interconnected in one way or another, and value is created through the transformation of one resource into another (e.g. products into money, competence into new processes, relationships into reduced search costs, brands into increased revenues, etc.). Based on the methods of system dynamics, where the relationships between different resources are identified, pictures are drawn showing the importance between the different resources and the strengths between the resources. The IC navigator is used in the process of valuing the relationships between the resources and describing the transformation process and the value creating of the resources. The cases and practical advises guide the reader through these difficult processes.

In the chapter four the difficulties with valuing and measuring the IC are discussed. The strength in this chapter is the discussion of the basics of measurement, because of the cumbersome issue of measuring and valuing something that mostly is seen as tacit and “invisible”. The questions of measuring and quantifying data are more likely to be related to objective matters and physical resources. The methods for valuation and measurement of IC should be quiet easy to understand due to the discussion in this chapter.

The two final chapters are discussing how the IC can be disclosed in companies' financial records and how it can be used in other areas. For the stakeholder, a more transparent reporting contributes to a trustworthiness relation to the company. When hiding a part of the company's resources, it is difficult for the stakeholders to get the right picture of the company's forthcoming possibilities to growth. The chapter five gives an overview of some of the efforts made during the last years, both theoretical as well as practical to include the IC in the companies' financial reports. In chapter six the synergies from merges, acquisitions and joint ventures are discussed with an IC perspective. Finally, the IC is discussed in a human resource management (HRM) perspective as well as in a knowledge management (KM) perspective. One interesting part in this last chapter is the discussion about the indirect effects on the company's economical performance through HRM and KM. An IC perspective on HRM and KM makes it possible for HR managers to set out a strategy for the human capital and to set out strategic goals for the learning processes within the organisation.

A very useful management book for graduate students from different disciplines. Interesting cases illustrates the practical use of the theoretical value creating processes of the IC. The IC is now visible to managers!