posted 1 Oct 1997 in Volume 1 Issue 2
Intellectual Capital. The future
Leif Edvinsson, Director of Intellectual Capital, Skandia focuses on Intellectual Capital, a concept that is both broader than knowledge management and can be considered as more of a 'knowledge navigation' into unknown 'but necessary' actions for corporate survival and competitiveness.
The hidden capabilities
Just look at the stock exchange in New York. Today, in October 1997, the top five valued organizations have a value that, on average, is 13 times the book value. Microsoft and Coca Cola are being valued, respectively, 21 and 26 times over their book value. This is called either Tobins Q or Intellectual Capital ratio. It shows and quantifies the hidden and intangible capabilities of an organisation, which are usually not included in the traditionally accounted book value. Furthermore, it is an appreciation of the future earnings potential of the enterprise. According to research by Professor Baruch Lev of the Stern University, New York, this growing 'value gap' is a trend that has been escalating during the last 20 years.
A more refined distinction of this gap is described by the Skandia Value Scheme, which has been visualised in several publications from Skandia. It looks as below; It describes the major building blocks of intellectual capital. It starts by making a clarification that the hidden capabilities consist of more than just the human capital. This value gap includes what is left when people have gone home, the so-called structural capital. This includes, for example, organisational systems, trade marks, databases, patents and customer relationships.
From a management as well as a shareholder perspective the key focus should consequently be on these components of hidden capabilities for future earnings potential, i.e. the intellectual capital.
In Skandia this approach had already been inaugurated in 1991, when a Director of Intellectual Capital was appointed within the dynamic globally operating unit of Skandia, AFS-Assurance and Financial Services. Today, the whole Skandia Group is a Fortune 500 global company and is applying this management to an even greater degree. It is an approach that is evident for knowledge intensive service enterprises, that is based on intangibles. But it is applicable in most organizations as a model for extracting and creating value out of investments in knowledge and other intangibles.
The Skandia approach can be summarised in the following major phases:
Since the inauguration of the first Skandia Future Centre in Sweden in May 1996, it has attracted more than 5,000 visitors.
3 generations of IC
Today the leanings and development within Skandia can be represented by 3 generations of approaches:
A quest not only to become a more knowledgeable but also a more intelligent enterprise.
Leif Edvinsson is the Director of Intellectual Capital at Skandia and a member of the Editorial Board of KM, as well as an author and acknowledged expert in the field of knowledge management. He can be contacted at: