Introduction - Goran Roos (PPT 2003 version)€¦ · on Intellectual Capital, Knowledge Management...

Intellectual CapitalIntellectual CapitalWhat is it and Why does it matterWhat is it and Why does it matter

Prof. GProf. Gööran Roosran Roos

Centre for Executive Education, Helsinki School of EconomicsCentre for Executive Education, Helsinki School of EconomicsWarwick Business School, Warwick UniversityWarwick Business School, Warwick University

Centre for Business Performance, Cranfield School of Management,Centre for Business Performance, Cranfield School of Management, Cranfield UniversityCranfield UniversityVTT Technical Research Centre of FinlandVTT Technical Research Centre of Finland

Intellectual Capital Services Ltd.Intellectual Capital Services Ltd.

What is it?What is it?

•• An extension and integration of the Resource An extension and integration of the Resource Based and Competence Based views of the Based and Competence Based views of the firm taking into account the dynamics of the firm taking into account the dynamics of the way in which value is createdway in which value is created

•• An integrated part of any business model An integrated part of any business model thinkingthinking

•• A basis for strategic innovationA basis for strategic innovation

©©GGööran Roos Intellectual Capital Services Ltd. 2009ran Roos Intellectual Capital Services Ltd. 2009

All Activities are Grounded in Five Types All Activities are Grounded in Five Types of Resources with different characteristicsof Resources with different characteristics

Monetary

Physical

RelationalOrganisational

Competence

Owned By The FirmControlled By The FirmDiminishing Marginal ReturnMeasurement Convention Exist

Owned By The FirmControlled By The FirmDiminishing Marginal ReturnMeasurement Convention Exist

Owned By The EmployeeControlled By The EmployeeIncreasing Marginal ReturnNo Measurement Convention

Owned By The FirmControlled By The FirmNetwork Economic Marginal ReturnNo Measurement Convention

Owned By Both PartiesControlled By The Other PartyNetwork Economic Marginal ReturnNo Measurement Convention


Value is created by transforming resources Value is created by transforming resources according to a firm specific pathaccording to a firm specific path

Monetary

Physical

RelationalOrganisational

Competence


Examples of Resource Examples of Resource TransformationsTransformations

MonetaryMonetary PhysicalPhysical Relational Relational OrganisationalOrganisational CompetenceCompetence

MonetaryMonetaryInvestmentInvestmentIn financialIn financialinstrumentsinstruments

InvestmentInvestmentin assetsin assets

InvestmentInvestmentin buildingin building

relationshipsrelationships

InvestmentInvestmentin brands,in brands,processes, processes,

systems, SW, systems, SW, information, etc.information, etc.

Investment in Investment in acquiring or acquiring or

building building competencecompetence

PhysicalPhysical Product sales Product sales revenuerevenue

Chemical Chemical synthesissynthesis

Design, Chemical Design, Chemical addictionaddiction

New asset New asset generates new generates new

processprocess

New asset New asset generates new generates new competencecompetence

Relational Relational Relationship Relationship brokerage feebrokerage fee

Free asset Free asset through through

relationshiprelationshipWord of mouthWord of mouth

Free system Free system through through

relationshiprelationshipCoCo--learninglearning

OrganisationalOrganisational IP sale or IP sale or licensing revenuelicensing revenue

Produce by Produce by numbersnumbers

Working CRM Working CRM systemsystem

Process for Process for generating generating informationinformation

Programmed Programmed learning or learning or developing developing

competence competence through process through process

deploymentdeployment

CompetenceCompetenceRevenue from Revenue from

competence sale competence sale [proxy: manhour][proxy: manhour]

Prototype Prototype development or development or creation of artcreation of art

Lead conversionLead conversion Knowledge Knowledge codificationcodification

Personal Personal instruction, instruction,

apprenticeshipsapprenticeships


Enables Evaluation of the FirmEnables Evaluation of the Firm’’s Strategys Strategy

Organisational

Physical HumanRelational

Monetary

Regression Line, Area, Up Regression Line, Area, Up ↔↔ Down, Left Down, Left ↔↔ RightRight


Is Fundamental in the Design of New Is Fundamental in the Design of New Business ModelsBusiness Models

Conceptual Components of a business modelConceptual Components of a business model–– A A Value PropositionValue Proposition is an overall view of a company's bundle of products and servicis an overall view of a company's bundle of products and services es

that are of value to the customer. that are of value to the customer. –– The The Target CustomerTarget Customer is a segment of customers a company wants to offer value to. is a segment of customers a company wants to offer value to. –– A A Distribution ChannelDistribution Channel is a means of getting in touch with the customer. is a means of getting in touch with the customer. –– The The RelationshipRelationship describes the kind of link a company establishes between itselfdescribes the kind of link a company establishes between itself and and

the customer. the customer. –– The The Value ConfigurationValue Configuration describes the arrangement of describes the arrangement of activities and resources that are activities and resources that are

necessary to create value for the customer. Normally these are enecessary to create value for the customer. Normally these are expressed in ICxpressed in IC--Navigator form and using the (Stabell and Fjeldstad 1998) Value Navigator form and using the (Stabell and Fjeldstad 1998) Value Logics Logics

–– The identified The identified ResourcesResources that can be deployed by the firm to create value including that can be deployed by the firm to create value including those that form the basis for a competitive advantage those that form the basis for a competitive advantage

–– A A PartnershipPartnership is a voluntarily initiated cooperative agreement between two oris a voluntarily initiated cooperative agreement between two or more more companies in order to create value for the customer companies in order to create value for the customer

–– The The Cost StructureCost Structure is the representation in money of all the means employed in theis the representation in money of all the means employed in thebusiness model. business model.

–– The The Revenue ModelRevenue Model describes the way a company makes money through a variety of describes the way a company makes money through a variety of revenue flows. revenue flows.


New business models have a higher New business models have a higher dependency of intellectual capital than older dependency of intellectual capital than older business models. Hence designing them and business models. Hence designing them and

understanding them requires an inunderstanding them requires an in--depth depth understanding of intellectual capital.understanding of intellectual capital.


Is Fundamental in the Is Fundamental in the Management of InnovationsManagement of Innovations

STRATEGYSuggestions from all parts of the organisation

&Membership from all parts of the organisation

Innovation Office

Corporate Head of Innovation

CEO

Decision

InnovationMeeting

Innovation Groups

ExternalProposals

ExternalProposals


Is Fundamental in the Management of the Is Fundamental in the Management of the Future Value Component of the Share PriceFuture Value Component of the Share Price

100.0%100.0%

65.9%65.9%

34.1%34.1%

$19.516 tr.$19.516 tr.

$12.856 tr.$12.856 tr.

$6.660 tr.$6.660 tr.

Russell 3000Russell 3000Enterprise ValueEnterprise Value

CurrentCurrentValueValue

FutureFutureValueValue

5.2%5.2%$1.008 tr.$1.008 tr.

20052005““Net IncomeNet Income””

““19.36 P/E19.36 P/E””

Notes:Notes:1.1. Current Value is defined as NOPAT Current Value is defined as NOPAT

/ WACC and represents the / WACC and represents the Present Value of current operations Present Value of current operations in perpetuity.in perpetuity.

2.2. Future Value is defined as Future Value is defined as Enterprise Value minus Current Enterprise Value minus Current Value and represents the Present Value and represents the Present Value of the future incremental Value of the future incremental value the market expects the value the market expects the company to create in addition to company to create in addition to the value to be delivered from the value to be delivered from current operations into perpetuity.current operations into perpetuity.

3.3. The Current Value and therefore The Current Value and therefore the Future Growth calculations are the Future Growth calculations are sensitive to the market premium sensitive to the market premium chosen (in this case 4.5%) chosen (in this case 4.5%) –– a a higher market premium would see a higher market premium would see a higher WACC which would see a higher WACC which would see a lower Current Value and an even lower Current Value and an even higher Future Value. higher Future Value.

4.4. Analysis does not include the Analysis does not include the Standard & PoorStandard & Poor’’s GICS industry s GICS industry group group -- real estate [4040].real estate [4040].

© AssetEconomics, 2008. Patents Pending. All rights reserved©©GGööran Roos Intellectual Capital Services Ltd. 2009ran Roos Intellectual Capital Services Ltd. 2009

Future Value Represents the Present Future Value Represents the Present Value of the Future Incremental Value the Value of the Future Incremental Value the Market Expects the Company to CreateMarket Expects the Company to Create

•• The drivers are expectations normally The drivers are expectations normally anchored in nonanchored in non--monetary and nonmonetary and non--physical physical resources and their deployment structureresources and their deployment structure

•• The communication and realisation of this The communication and realisation of this expectation value requires the understanding expectation value requires the understanding of intellectual capital. of intellectual capital.


The relevance of intellectual capital is The relevance of intellectual capital is high and getting rapidly higher whilst the high and getting rapidly higher whilst the understanding and ability to create and understanding and ability to create and

deploy intellectual capital is low and only deploy intellectual capital is low and only increasing slowlyincreasing slowly


Relevant ReadingsRelevant Readings•• Roos, G., Pike, S. and FernstrRoos, G., Pike, S. and Fernströöm, L., m, L., ““Managing Intellectual Capital in PracticeManaging Intellectual Capital in Practice””, ,

ButterworthButterworth--Heinemann, an imprint of Elsevier, USA, 2006Heinemann, an imprint of Elsevier, USA, 2006•• Pike, S. and G. Roos Pike, S. and G. Roos ““Innovation Management from an Intellectual Capital PerspectiveInnovation Management from an Intellectual Capital Perspective””, Paper accepted for , Paper accepted for

the International Forum on Knowledge Asset Dynamics (IFKAD), Annthe International Forum on Knowledge Asset Dynamics (IFKAD), Annual Conference 2008 ual Conference 2008 ““Intellectual Intellectual Capital Dynamics & Innovation CapabilitiesCapital Dynamics & Innovation Capabilities””, Center for Value Management, University of Basilicata, 26th , Center for Value Management, University of Basilicata, 26th ––37th June, 2008, Matera, Italy37th June, 2008, Matera, Italy

•• Pike, S. and G. Roos Pike, S. and G. Roos ““The Future of Intellectual CapitalThe Future of Intellectual Capital””, Paper presented at the 4th International Conference , Paper presented at the 4th International Conference on Intellectual Capital, Knowledge Management and Organisationalon Intellectual Capital, Knowledge Management and Organisational Learning, University of Stellenbosch Learning, University of Stellenbosch Business School, 15th Business School, 15th -- 16th October 2007, Bellville, South Africa16th October 2007, Bellville, South Africa

•• Burgman, R., Roos, G., BoldtBurgman, R., Roos, G., Boldt--Christmas, L. and S. Pike Christmas, L. and S. Pike ““Information needs of internal and external Information needs of internal and external stakeholders and how to respond: Reporting on operations and intstakeholders and how to respond: Reporting on operations and intellectual capitalellectual capital””, International Journal of , International Journal of Accounting, Auditing and Performance Evaluation (IJAAPE), SpeciaAccounting, Auditing and Performance Evaluation (IJAAPE), Special issue on Intellectual Capital, Vol. 4, No. l issue on Intellectual Capital, Vol. 4, No. 4/5, 2007.4/5, 2007.

•• Pike, S., BoldtPike, S., Boldt--Christmas, L. and G. Roos Christmas, L. and G. Roos ““Intellectual Capital: Origin and EvolutionIntellectual Capital: Origin and Evolution””, International Journal of , International Journal of Learning and Intellectual Capital, Vol. 3, No. 3, 2006, pp. 233Learning and Intellectual Capital, Vol. 3, No. 3, 2006, pp. 233--248.248.

•• Burgman, R. and G. Roos Burgman, R. and G. Roos ““Measuring, Managing and Delivering Value Performance in the PublMeasuring, Managing and Delivering Value Performance in the Public Sectoric Sector””, , International Journal of Learning and Intellectual Capital, Vol.International Journal of Learning and Intellectual Capital, Vol. 1, No. 2, 2004, pp. 1321, No. 2, 2004, pp. 132--149. 149.

•• Pike, S. and G. Roos Pike, S. and G. Roos ““Mathematics and Modern Business ManagementMathematics and Modern Business Management””, Invited Paper for the Performance , Invited Paper for the Performance Management Association Symposium, Journal of Intellectual CapitaManagement Association Symposium, Journal of Intellectual Capital, Vol. 5, No. 2, 2004. pp. 243l, Vol. 5, No. 2, 2004. pp. 243--256. 256.

•• Ballow, J., Burgman R., Roos G. and M. Molnar Ballow, J., Burgman R., Roos G. and M. Molnar ““A New Paradigm for Managing Shareholder valueA New Paradigm for Managing Shareholder value””, , www.accenture.com/institute, Accenture Institute for High Perforwww.accenture.com/institute, Accenture Institute for High Performance Business, 2004, Wellesley, mance Business, 2004, Wellesley, Massachusetts, USA Massachusetts, USA


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