IC REFLECTIONSJan Taug

Jan@core.as

UNECE / High level Task Force on Valuation and Capitalization of Intellectual Assets. Geneva, 18-19.

November 2002

Structure

• Background - Experiences• Lessons learned / in practice• Different capital forms at stake• Configuration and networks

From venture capital to intellectual capital…

Professional activities:• Entrepreneur, venture

capitalist and investor– 7 start-ups in 7 years.

• Member Norwegian Investor Forum & Norwegian Venture Capital Association

• CO2, shipping and Telecom(Capitalization)

• Strategy planning, Seattle University, USA (Capitalization)

• Integrated Business System, Norwegian Telecom (Capitalization)

Academic involvements:• PhD Santa Barbara, USA• Norwegian Research Institute:

From knowledge to value creation

• MERITUM and e*KNOW.net: IC guidelines (Valuation)

• Expert evaluator OECD: IC guidelines (Valuation)

• Media sector project Norway 2003-2005: Capitalizing IC

• Norwegian Financial Analysts: IC guidelines and transparency

Ventures and IP• Colifast Systems ASA

– Rapid method for detecting e-coli bacteria; Invested 10mill. EURO (17 people)

– IP process got in the way of development.• Birdstep Technologies ASA

– Database technology for PDA’s; Invested 7 mill. EURO (9 people)– Supported by the State Development fund, forced to search for patent.

Process stopped• Innerloop Studios AS

– Game engine and fractals; Invested 3 mill. EURO (19 people)– Unique and publishers pushed to go for patent. NO.

• Zailor AS– Networked Online shop for entertainment products; Invested 1 mill. (3

people) – Unique biz.model allow 3 people to handle millions of transactions.

Note: Hydro, DOW Chemicals, Telenor

Background

Lesson learned:• Codifying and patent IC is an important strategy decision. And a crucial

one for SMB’s

Question asked:• What drives knowledge-based value creation in complex

organizations?• What does the process of knowledge based value creation look like?• What drives the process? Chasing IPRs?

Capital Forms Traditional View

(Edvinsson & Malone, 1997)

Market Value

Financial Capital Intellectual Capital

Innovation Capital

Structural CapitalHuman Capital

Customer Capital Organizational Capital

Process Capital

An intellectual capital process is not there to explain the market to book ratio - it is there to change it!

Intellectual Capital

Human Capital

Rented

RelationalCapital

In use

StructualCapital

Owned

Individual knowledgeExplisit - Tacit

Knowledge networks Data bases, patents etc.

Financial CapitalNon-financial value

Income statement, cash flow,Balance sheet

Capital Forms Adjusted View

(MERITUM, 2000)

Research

• Capital forms• Conversion• Relations and interdependency• Drivers• Bundles (Portfolios)

Cultural Capital

SocialCapital

EconomicCapital

Symbolic Capital

Embodied Institutionalized Actual

PotentionalObjectifiedPolitical

Capital Forms Sociology

(Pierre Bourdieu, 1985)

Capital Interconvertibility

Human Capital

Social/RelationalCapital

In use

OrganizationalCapital

Owned

FinacialCapital

Owned

CulturalCapital

CollectiveRented

Intellectual Capital

Intellectual Capital

Human Capital

Rented

RelationalCapital

In use

StructualCapital

Owned

Individual knowledgeExplisit - Tacit

Knowledge networks Data bases, patents etc.

Connecting and Creating

Developing

Facilitate

Integrating andRepresenting

CulturalCapital

Communities

Benefit for communities

Capital Interconvertibility

Production

Identification and Communication

Producing

Financial CapitalNon-financial value

Income statement, cash flow,Balance sheet

Benefit for organization

Capital Interconvertibility, cont.

From Case study 1

Social/RelationalCapital

In use

OrganizationalCapital

Owned

FinacialCapital

Owned

CulturalCapital

CollectiveRented

Intellectual Capital

Human Capital

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From case study 2

Developing, combining and using

Knowledge in activitiesDeveloping, combining and using

Knowledge in activities

Knowledge-ressourcesDifferent knowledge carriers

with different qualities.

CreateDirects

Mobilizeactivate

(Partly) knowledge driven

Results and values

Reflections• Lack of respect for Intellectual assets/property• IC to create organizational difference and uniqueness not

similarities.• Interdependency and Bundles• Patent discrimination (Small/Big-New/established-poor/rich)• Undiscovered IC in developing markets, communities, nations• A better language will help us see• Guidelines and forced fit - The BSC trap. • Intellectual properties as innovation barrier• Knowledge circulation not knowledge management (Control). • IC matchmakers and brokers: How to open for intangible capital

intensive communities and nations? • A new options (ICR) and security (IPR) market• Sharing is producing

Questions• Why do we continue to perceive relationships

and behaviours to be intangibles? • Who is challenging what sits where on the

balance sheet? • How do our accounting practices continue to

shape Leaders mindsets in terms of the value they attribute to building better businesses, communities etc. ?

• How do we change that?

Thank you

Jan @ core.aswww.taug.no

Reporting model

Marked/Eksterne forhold

og kunde-kapital kapital kapital

Market and external conditions

Organizational Strategy

Human-capital

Strukturalcapital

Innovation

Relation-and Customer

capital

Finansial reporting

Overall modelÅrsregnskap (RL§ 3 -2)

Del av, og inkludert i

-

Markedet og eksterne forhold

Strategi

Finansielle måltall

Ikke-finansielle måltall(kategorier innenfor Intellektuell kapital-teori)

Innovasjonskapital

Human-kapital

Relasjons-og kunde-

kapital Strukturkapital

Noter

Annual Report (RL§ 3-2)-

INTERNAL USEManagement of organization

EXTERNAL USE(Presentation av organization)

Balance andIncomestatement Cash flow statement

Part of, and Integrated in

Annual report(RL § 3-3)Statements fromthe Board and the CEO.

-

Strategi

Market and external conditions

Strategy

Steering-modelbased onIntellectualCapital

Finansielle måltallFinancial measures

Non financial measures(Categories within Intellectual capital theory)

Critical sucsess factors

Innovasjonskapital

Human-kapital

Relasjons-og kunde-

kapital Strukturkapital

Innovation caoital

HumanCapital

Relationaland customer

capital Structuralcapital

Notes

Man

dato

ry a

nd re

vise

dVo

ulan

tary

dis

clos

ure

= Retningslinjer for rapporteringav ikke-finansiell informasjon

= Guidelines for rapporting non-Financial information (intangibles)-

AIA

F IT

ALI

AN

ASS

OC

IATI

ON

OF

FIN

AN

CIA

L A

NA

LYST

S Disclosure assessment

Challenges

As a result of the lack of research, a number of important economical problems arise:

• Inefficient resource allocation in business management• Loss of promising investment opportunities• Volatility in stock prices• Information asymmetry• Errors in analysts earnings forecast• Litigation between stakeholders and managers• High cost of capital for knowledge intensive organizations• Lack of reliable data on innovation for design and implementation

of entrepreneurial policies.

Value drivers

SupportingManagementprocess

Phases ofInnovation

Entrepreneurial relationships

Main Activities

Value drivers

Facilitate IC Navigation

Projects andActivities

STRUCTURAL CAPITAL

RELATIONAL CAPITAL

HUMAN CAPITAL

VALUES

RISKS

PERFORMANCE

From PLAN to PROTO

From PROTOTYPETo INTRO

From IN

TRO

To GR

OW

TH

REN

EWA

L and DEVELO

PMEN

T

FRO

M G

RO

WTH

to PRO

FIT

FromC

ON

CEPT

To PLAN

From

OB

SERVA

TION

to ID

EA

From ID

EA to

CO

NC

EPT

VALUE CREATION For STAKEHOLDERS

DIRECTION, SPEED AND TIMING

EFFICIENCY ANDPROFIT ABILITY

POSITION AND

UNIQUENESS

FACILITATION, CONVERSATIONS AND STORIES

INNOVATION DEVELOPING COMMERCIALIZEKnowledge Creation Knowledge RepresentationKnowledge Production

Entrepreneurial PROTOTYPING

AligningValues

Networks

Capitalization – A case• Established 1855• Socialization of Norway• Measured on different capital forms• Used last 3 years making sense of their

knowledge based value creation

Action

Plans

Reporting

Business

Reviews

-Dialogue

DataCollecting

PerformanceContracts

Stra

tegi

cgo

als

Analyzing

Value

Creatin

g

Activitie

s

Business

Plan & Budget

Proj

ects

Evaluating

Results

ValueDrivers

Deployment

of goals

ExpectedAchieved

Strategy Phase

Implementation phase

Follo

w u

p Ph

ase

Development

Customer/relations Competence/learning Internal processes InnovationNo subscribers- National

- International

Human capital

Quality of delivery No of first launches/ first in the world

Market share Norway

Building up channelsfor e commerce

Accounts receivable

Attractiveness amongrelevant workforce

New services our ownportal Attractiveness

(Customer capital)

Cost efficiency

”Better than target" ”Behind target"" On level with target"

FinancialRevenue growth

EBITDA

EBIT

Turnover strategic competenceSicness abscence

?

Process capital Innovation capital

Research highlights

COMPETECIESLEARNING

FINANCIAL

OWNERS

CUSTOMER/MARKET INTERNALPROCESSES

INNO-VATION

Developing, combining and using

Knowledge in activitiesDeveloping, combining and using

Knowledge in activities

Knowledge-ressourcesDifferent knowledge carriers

with different qualities.

CreateDirects

Mobilise/activate

(Partly) knowledge drivenResults and values

CUSTOMER RELATIONS

COMPETENCELEARNING

INTERNAL PROCESSES INNOVATION

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FINANCIAL - OWNERSKD 13

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CUSTOMER RELATIONS

COMPETENCELEARNING

INTERNAL PROCESSES

INNOVATIONKD 1

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FINANCIAL - OWNERSKD 13

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CUSTOMER RELATIONS

COMPETENCELEARNING

INTERNAL PROCESSES

INNOVATIONKD 1

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FINANCIAL - OWNERSKD 13

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KD 15

Mobile

Networks

Model experimentsInnovation and IC:

Key Issues• Language issues• Lack of respect for Intellectual assets/property• Intellectual properties as innovation barrier• IC matchmakers and brokers: How to open for intangible capital

intensive communities and nations? • Knowledge circulation not knowledge management. Sharing is

producing.• IC to create organizational difference and uniqueness not

similarities.• Guidelines and forced fit - The BSC trap.• A new options (ICR) and security (IPR) market