Intellectual Capital & Knowledge Management Human Assets
are a Direct Contributor to Your Companies Wealth
Let's assume for a moment that you have to show accountability for your
company's entire assets. Surely the tangibles like property, furniture,
computers, clients and inventory will appear on the list. What will probably be
overlooked are your employees who fall into a category called "intellectual
capital", also known as "brain power". The total worth of your
company isn't comprised of just your building and your business tangibles, its
worth is really the broad base of knowledge your employees have!
Although it has been around forever, intellectual capital was not
identified as a key company asset until just a few years ago. In 1994 Fortune
magazine carried several articles about intellectual capital or brain power
based on pioneering efforts operating in the United States and Scandinavia. The
results were phenomenal. In each case study Fortune was able to identify that
the gap between a company's market value and the value of all its tangible
assets has broadened significantly over the past two decades. Fortune reported
that market-to-book ratios of most U.S. companies are now 2-to-1, roughly double
the average between 1945 through 1990. Price/earnings ratios in the U.S. are at
25 versus a historic average of 17. At the same time, corporate investment in
tangible capital stock is declining. Fortune concludes that the ratio of revenue
to the sum of property, plant, equipment and inventory for U.S. companies has
increased by 20 percent over the past 25 years. Research completed by Morgan
Stanley's World Index indicates that the average value of U.S. companies
typically ranges from two to nine times the book value. These results were
directly related to the intellectual capital the companies had in their
employees.
Now that we have entered the "knowledge age", intellectual
capital and knowledge management should be an issue of widespread concern to
every company. Companies that want to remain viable in the next millennium will
have to maximize their efforts to retain the intellectual capital of their
company. Today companies rely more and more on their employee's expertise and
technical ability and less on manual labor. Succinctly, intellectual capital is
what makes a company worth more than the sum of its countable parts.
Intellectual Capital comprises intangible assets to include market,
intellectual property, infrastructure and human centered assets. In some
organizations, notably service organizations and those companies that are
dependent upon information technology, intangible assets greatly outweigh
tangibles in their importance to the organization. As an asset, it has been
inadequately covered for years by the blanket of
goodwill. However, unlike accounting goodwill,
intellectual capital appreciates! Traditional accounting measures can no
longer adequately determine the real value of companies. Corporations are taking
this problem seriously and are working to develop systems to identify, value and
manage intellectual capital. Eric Beier, M.D./MBA president of Professional
Medical Billing has seen quantifiable results from the company's intellectual
capital and knowledge management. "In a sense it's been beneficial in two
ways. We are taking the knowledge that we have and transforming that data and
information into value for our clients," says Beier. "in billing it's
very important because we are trying to help our clients improve their
reimbursement, but also to manage their risk clients. The second issue is how we
use that knowledge internally, and change that into value, optimizing our
internal operations."
When companies decide to go on the auction block buyers will be looking
in-depth at what cutting-edge technology advantages the seller has to offer.
They will also be looking at the depth of knowledge your employees have in their
given professions and how that has contributed to the companies growth. How can
a company recognize the hidden assets in their employees? John King, president
of Roster, Inc., headquartered in Fort Wayne, Indiana fully believes that using
a positioning matrix will reveal the real qualities and knowledge of your
employees thus revealing the real intellectual capital of the company. "An
objective position description is a fundamental key to the successful operation
of any business," says King. "Without it, you will not have a true
identifying tool to evaluate the entire worth of your company. Using the
position matrix allows management a perfect view as to the broad knowledge base
of your employees." According to King, companies that are incorporating the
positioning matrix during employee evaluations are learning more about the true
assets they have in their employees. Because the positioning matrix reveals so
much about the employee's true aptitude, diligence, and desires, the company
benefits by positioning employees in areas of the company that need their
expertise. Employees also become a very valuable asset to customers and possibly
future owners. '"Human capital grows when a corporation uses more of its
employees knowledge or when employees gain more useful knowledge,"
according to Barry Brinker, CPA. A company's ability to capitalize on its
employees' ideas and know-how, and its commitment to training and education, can
enhance productivity and add value."
"In today's society employees no longer spend a life time or even a
decade at the same employer," says Michael Nader, a partner in the law firm
of Baker & Daniels. "Many employers are only now beginning to harvest
the knowledge of their employees. An employer must also take actions to protect
its proprietary information in the event an employee leaves the company. As a
result, we continue to see an increasing interest by employers in non-compete and non-disclosure agreements to protect their
competitive advantage, whatever it may be."
Much of the on-going discussions regarding intellectual capital center around all of the hidden assets in the company. Those non-tangibles specifically your employees are at the center of concern. A company's brains, the know-how, relationships, secrets and collective knowledge of its employees define its competitive advantage today. "As we move into the next millennium, brainpower will continue to become far more valuable than mechanical power or technical power," says King. "Identifying tools such as the Position Matrix will be utilized consistently to bare out the qualities and depth of knowledge our employees can contribute to the company. Conversely, the employees benefit because they are now able to identify their own strengths and form a comfortable niche for themselves within the company."