Member Blogs

I am glad to share with you the main findings of my research project on ValueRabbit, a new and holistic IC Evaluation and Management scorecard model developed in collaboration with SmarterCompanies and Fast Forward Advisors.

It is a master degree thesis submitted in fulfilment of the requirements for the degree of Master of Science in Innovation Management, a double-master degree between the Scuola Superiore S. Anna Pisa and University of Trento, Italy. 

Here you can find the Executive Summary. 

If you are interested in the whole research, I will be happy to mail you the complete thesis!

Hope you enjoy! 

New paper in JIC with my co-author Elena Shakina. You can find it at: http://dx.doi.org/10.1108/JIC-03-2015-0025.

I just got back from the European Conference on Knowledge Management (ECKM). The big driver for me was the first (as far as I know) case study competition for Intellectual Capital and Knowledge Management.

There were 78 applications to the competition. 40 were invited to submit full case studies. I was one of seven finalists who were asked to present at the conference.

Here’s the abstract for my case:

This paper describes an intangible capital (IC) assessment project at a software and services company. In the year prior to the project, the company experienced a small decline in annual revenue on the heels of ten years of rapid growth. This caused concern among the owner/managers. The company initiated this project to create a road map to spark new growth and also to think about how to build the long-term value of this privately-held company.

The project used an IC assessment as an initial diagnostic of the key drivers of growth and value. The main project steps were:

• Workshop with management team to identify the company’s unique IC portfolio
• Customization of a standard questionnaire to include these unique IC elements
• Interviews of a 360-degree stakeholder sample that included managers, employees, customers and partners.
• Presentation of findings to the team
• Collaborative creation of an initiative road map
• Design and implementation of key initiatives to effect change
• Design of a set of more traditional metrics to monitor progress

The project used generic tools for survey data gathering, analysis and presentation. The use of IC language was very limited; rather than talk about human capital, for example, the focus was on employees and managers. The data were compelling enough to prompt a series of clear initiatives that did indeed spark a 27% increase in revenues in a little over a year. The principal challenges involved the design of a metric set to monitor the progress of the initiatives; it was hard to find KPI’s that gave as clear a read as the qualitative assessments.

This project became the foundation for tools that have since been used in a couple dozen other companies. The next step for the methodology is to more fully automate the assessment process and move from a model of assessment at a moment in time to a continuous on-line communication with stakeholders.

Here's the full case. I look forward to working with all our collaborators to develop more winning cases!!

South Africa is leading the way on the usage and adoption of the integrated reporting approach. Ernst & Young encourage this through a bench marking of the listed companies, presently in its forth year.

In the recent report "EY’s Excellence in Integrated Reporting Awards 2014" it does make for interesting reading on where the use of all the combined capitals are encouraged but still shows that progress seems to be significantly lacking.

The stated purpose of the report.

The purpose of the survey is to encourage excellence in the quality of integrated reporting to investors and other stakeholders in South Africa’s listed company sector.

EY encourages the use of a bench marking process to give entities the opportunity to obtain independent input about the quality of their integrated report.

The integrated reports are reviewed using guidelines from the Excellence in Integrated Reporting survey and a bench marking report is issued. The bench marking reports contain practical suggestions and comments that can be used by the company to improve the quality of future reporting.

A link to the report is here.

The articulating and reporting of the combined capitals is really disappointing.

I wanted to pick up on this by showing the continued disappointing result from trying to articulate the combined capitals. A situation that seems to indicate companies are still struggling to understand and capture the values of their capitals even after four years of running this bench marking and award system. Something is clearly lacking.

The Adjudicators comment falls short of offering the help needed in reducing this glaring error in this integrated capital reporting and it seem is only continuing to place encouragement on the emphasis on this but offer little practical advice of setting about this. It seems clearly that companies clearly struggle on articulating the make up of all their combined capitals.

To quote:

"We believe that an explanation of how a business creates value with respect to the six capitals is a particularly suitable way for most companies to present much of the content that needs to be shown within its integrated report.

An explanation of how value is created within an organization can sensibly be structured around how value is embodied in the capitals that it uses."

The integrated report is ideally meant to be a demonstration of integrated thinking.

Is there any evidence of this?

To quote: "We would imagine that this is happening, but there is little or no clear evidence of this in the reports. It is clear to us that demonstrating integrated thinking, and therefore producing an integrated report will be difficult if the management are not thinking in an integrated way"

It does seem, in my review of this report, the lack of underpinning the need of integrated thinking is still lacking a real clarity of how to understand, measure and articulate the combined capitals.

Surely a real opportunity for those in the practice of offering training and solutions to overcome this lack of clarity? Perhaps it is about time the South African business community reached out? 

Just had an article published in the most recent issue of the Journal of Applied Corporate Finance. The theme of the issue was Sustainability and Shareholder Value. My article was entitled Intangibles and Sustainability: Holistic approaches to measuring and managing value creation. I was honored to be in great company of thought leaders from the academic and business worlds.

For me, this article represented an important journey toward bringing intangible capital thinking to a broader context. As I've been sharing in the past year, I am very inspired by the intent of the integrated reporting movement to address all the "capitals" in organizations. As part of writing this article, I developed the graphic at the right that, for me, provides a map for experts in different disciplines to coordinate our work. (Click to view the full graphic)

Here's a copy of the article. I look forward to your feedback!

Just out a paper that might offer some useful reading on the treatment of THE capitals within Banking..

The report opens with "Traditionally, reporting in the banking industry has focused on financial capital and, to some extent, human capital. With the emergence of a digitized world and the notion of the banks themselves under threat of disintermediation, careful consideration of the use of, and effects on, other capitals is increasingly important."

"This paper provides insights into current practice for banks’ reporting on the capitals, outlines leading reporting practice and articulates the value proposition for banks to report on the capitals. It is meant as a brief practical guide rather than an academic analysis. As such, the paper aims not to revisit the theoretical underpinning for the reporting of the capitals, but instead contextualizes some of the practical challenges that banks face in implementation.

http://integratedreporting.org/wp-content/uploads/2015/08/IR-Banking-Network-Publication.pdf

It has been a while since I posted onto Smarter Companies but this held my attention and has got me thinking about the wider aspects of our intangibles and the impact digitization is having on bringing this further to the fore. 

I've taken this from an extended post on my site www.paul4innovating.com as I think it has a real relevance to the community here.

The shift to intangibles within the digital age

Source of visual from http://www.hazelnutfilms.com

There was a report written in 2013 entitled and under, “The New Normal: Competitive advantage in the digital economy” written for the Big Innovation Centre, an initiative of The Work Foundation and Lancaster University.

This was rightly suggesting that the real sources of value creation and competitive advantage in the digital economy lie in fluid and constantly evolving the intangibles. We still are failing to come to grips with this, to understand its force and position in today’s thinking. Technology or digitization has been such an underlying catalyst to this shift going on.

They see through their research, that the increasing digitization of economic activities has improved the detailed measurement of business activities (which aids better strategy formulation and positioning), enabled faster and cheaper experimentation (which fosters organizational ambidexterity and increases the likelihood of spawning innovations), facilitated the easier sharing of observations and ideas (which allows for the capturing of insights and learning from network members), and increased the ability to replicate innovations more quickly (which improves transaction cost efficiency).

These they suggest are the dynamic ‘factors’ of the digital economy, and must be harnessed in addition to the conventional factors of production, if firms seek to not just survive but also thrive in the new normal.

They are also outlining in this report,that  there are seven intangible sources of competitive advantage and are in effect, interconnected and complementary.

The real sources of value creation today and gaining competitive advantage lies in fluid and constantly evolving intangibles, such as firm strategy and positioning, radical innovation and first mover advantages, intangible resources and competencies, organizational ambidexterity, network effects and externalities, transaction cost efficiency, and relational optimality.

It is the smart configurations, unique to each organization, of applying several or more of these intangibles that will create the new value in product and services and drive an even greater business model innovation change, to gain and sustain the competitive advantage.

The thinking they suggest requires a new ecosystem paradigm shift, needing a reinvention of the business model. I would suggest on the very way we manage innovation and this was part of the triggering of my extended post within a series exploring the need for a new management of innovation.

It’s been awhile since I have written regularly. I’ve been busy on some projects that I’ll be talking about in the coming weeks. For now, here’s a highlight of news and activities:

• I’ve been developing the most automated, simplest version of our stakeholder feedback platform in collaboration with a team in Europe. There’s a free version that you can try now if you’re interested (just contact me directly). Or watch for a bigger launch soon!
• I’ve also been working with The Conference Board to develop a prototype for a report on public company sustainable value creation.
• My new article “Intangibles and Sustainability” published in Journal of Applied Corporate Finance. I’ll be able to share the article later this month.
• The paper about one of my long-time client’s use of IC measurement was selected as a finalist in first-ever IC/KM case study contest at the European Conference for Knowledge Management.
• Smarter-Companies partners AKLOE in Chile and iInnovate in South Africa have begun using S-C content in college- and graduate-level courses.
• And last, but definitely not least, is the evolution in my own thinking about IC. While it’s still an important specialty, I am increasingly using IC concepts in a broader, integrated context consistent with the work being done around the world as part of the Integrated Reporting movement.

What are you up to? I look forward to getting back in touch!

During the first industrial revolution, these GPTs included the steam engine, cotton spinning and railways; during the second, electricity, the internal combustion engine and internal water supply and sanitation; and in the third, the personal computer and the internet.

The factors driving growth [in the endogenous model] are multiple, not singular. They are as much sociological as technological - skills and education, culture and cooperation, institutions and infrastructure. These factors are mutually-supporting, not exogenous and idiosyncratic. And they build in a cumulative, evolutionary fashion, rather than spontaneously combusting.One way of accommodating these broader factors is to widen the definition of "capital": physical capital (such as plant and machinery); human capital (such as skills and expertise); social capital (such as cooperation and trust); intellectual capital (such as ideas and technologies); and infrastructural capital (such as transport networks and legal systems). Growth results from the cumulative accretion of multiple sources of capital.To take a simple example, the success of the railways relied not just on the invention of the steam engine (intellectual capital), but on the materials (physical capital) and skills (human capital) to build locomotives and track. And to become a GPT, railways needed in addition a network (infrastructure capital) and the cooperation and trust of the general public (social capital).

Violent crime fell dramatically between the 15th and 18th centuries, by a factor of around five. By the time of the Industrial Revolution, it had levelled-off.

England was the birth place of the Industrial Revolution. Its parents, arguably, were English institutions well into adolescence at the dawn of the Industrial Revolution: a parliamentary system from the 11th and 12th centuries; a legal and judicial system from the 12th and 13th centuries; a central bank, the Bank of England, from the end of 17th century.

From the windmill in the 12th century, the mechanical clock in the 13th, the cannon in the 14th, the printing press in the 15th, the postal service in the 16th and the telescope and microscope in the 17th, the innovation escalator was in service well before the Industrial Revolution, albeit stepped and sticky.

it is only recently that the digital revolution may have reached critical velocity. Perhaps consistent with that, a number of transformative technologies have arrived on the scene recently, including in the fields of robotics, genetics, 3D printing, Big Data and the "internet of things". These are not new. What is new is their widening application, as they have moved from inventions to GPTs.

In the run-up to the Industrial Revolution, society became more willing to wait than in the past. That, in turn, enabled saving, investment and ultimately growth. Patience was a virtue.

During the Malthusian era, much of the population operated at close to subsistence income levels. If experimental evidence is any guide, that is likely to have generated an acute sense of societal short-termism. This may have manifested itself in, for example, a failure to invest in physical and human capital, retarding growth. Poverty and impatience would have been self-reinforcing, in a Malthusian poverty trap.The raising of incomes above subsistence levels which occurred after 1800 will have reversed that cycle. It will have boosted patience and laid the foundations for higher saving and investment and, ultimately, growth. In other words, after the Industrial Revolution patience may have created its own virtuous reward, endogenous growth style.

Technological innovation has also been found to influence patience. The invention of the printing press by Guttenberg in around 1450 led to an explosion in book production. It is estimated that there were more books produced in the 50 years after Guttenberg than in the preceding 1000 years. What followed was much more than a technological transformation.Books contributed to a great leap forward in literacy levels, boosting human capital. More speculatively, they may also have re-wired our brains. Nicholas Carr argues that the changes brought about by the printing press, and other information media, may have re-shaped our minds. Books laid the foundations for "deep reading" and, through that, deeper and wider thinking. Technology was, quite literally, mind-bending.It has been argued that this re-wiring stimulated the slow-thinking, reflective, patient part of the brain identified by psychologists such as Daniel Kahneman. If so, it will have supported the accumulation of intellectual capital - creativity, ideas, innovation. Technology will have first shaped neurology and then neurology technology, in a virtuous loop. Slow thought will have made for fast growth.

We are clearly in the midst of an information revolution, with close to 99% of the entire stock of information ever created having been generated this century. This has had real benefits. But it may also have had cognitive costs. One of those potential costs is shorter attention spans. As information theorist Herbert Simon said, an information-rich society may be attention-poor. The information revolution could lead to patience wearing thin.Some societal trends are consistent with that. The tenure of jobs and relationships is declining. The average tenure of Premiership football managers has fallen by one month per year since 1994. On those trends, it will fall below one season by 2020. And what is true of football is true of finance. Average holding periods of assets have fallen tenfold since 1950. The rising incidence of attention deficit disorders, and the rising prominence of Twitter, may be further evidence of shortening attention spans.If so, that would tend to make for shorter-term decision-making. Using Daniel Kahneman's classification, it may cause the fast-thinking, reflexive, impatient part of the brain to expand its influence. If so, that would tend to raise societal levels of impatience and slow the accumulation of all types of capital. This could harm medium-term growth. Fast thought could make for slow growth.

Our community continues to grow. For me, one of our collective strengths is our diversity. We have representatives from all over the world and from many different disciplines. This means that we each bring something different to the study of intangible capital.

But this diversity can make it challenging to find ways work together. In order to help us find channels for collective action, I would love to hear your feedback:

• What do you like/dislike about IC thinking?
• What do others think about it?
• What can we do as a group to help you with IC?

Please share your thoughts, Mary

One of the core offerings of Smarter-Companies is our training for internal and external consultants. In the past, the only way to access the training was by signing up in advance to pursue ICountant certification and licensing. I did all the training personally. That made the training very expensive and less accessible for those just looking to get a start in our field. So in recent months, I’ve worked with partners at e-Bright to create a new, on-line version of our training program. It’s called Building Smarter Companies.

It provides all the information you will need to help an organization optimize how it creates value for its stakeholders—and monetizes that value for its shareholders. The course follows the steps in a process that you can use with your clients to Model, Measure, Manage and drive results that Matter. It includes a strong theoretical background but is built around a series of exercises that you can use with your clients. The methodology takes an integrated, holistic approach that ties together tangibles, intangibles and sustainability.

The program is self-paced so you can set your own schedule. But, of course, I’m connected with the platform and available if you get stuck or have any questions.

Personalized training and certification are still available. But I’m excited to make this important curriculum available 24/7 on the web. Check it out and let me know if you have any questions. Hope to see you on line!

I was the guest speaker last night for the Massachusetts Systems Contractors Association (MSCA). The goal was to help them think about building a stronger future for their businesses.

As I like to do, most of the talk was interactive using a worksheet to help them think about the tangible and intangibles drivers of their success. I've been playing around with some new approaches and created a new worksheet that I promised to put on our website.  It's called the Value Creation Scorecard. It combines most of the elements on the Canvas with a self assessment along the bottom (and a few guides that show how these elements link back to traditional management and financial metrics). 

Please take a look and share any comments/suggestions in our Open Tools discussion section. Thanks!

Tony Clayton is Chief Economist at the U.K. Intellectual Property Office. He has led the Economics, Research and Evidence team since 2010. The UKIPO's research program and results are at http://www.ipo.gov.uk/pro-ipresearch.htm.Tony has also worked as Director of Economic Analysis at the Office for National Statistics, focusing on the economic impact of technology and innovation, productivity, and on measuring software and other intangibles in the 'knowledge economy'. He represented the UK on OECD's Working Group on ICT measurement, chairing it from 2005, and served on NSF's 'Science of Science' panel in 2009.What this talk is AboutSo why is it that the banking sector is unable to connect with the main value creating - and fastest growing - form of business investment in developed economies - Intellectual Property? And what can we do about it?Is it true that that patents cannot be valued for sale in transparent markets? Do they have intrinsic features to prevent the establishment of secondary markets for innovation? Or is it that investors are rather ignorant about patents, brands, software and are not well informed on their risk and reward structures?Technology entrepreneurs seeking to commercialize their patents often may not have necessary skill sets to communicate the value of IP. Current accounting standards that only partially reflect the value of intangible assets do not make things easier. This leads to market failure, where valuable technology either can't be exploited, or can't be scaled up to create competitive global enterprises, while investors miss out on attractive financial opportunities.Against this background, this talk discusses how we can develop financial markets which support 21st century knowledge businesses.

One of our ICountants, Vedran Antoljak, posed this question:

In case of EU, some countries (such as Hungary) have included measures of Innovation Capacities as one of criteria when evaluating projects for EU and national grants and other co-financing programs. In other words, if we would be able to push this for IC, it would tremendously increase companies' appetite for use of IC measurement tools such as iCounts. This is a tough and risky approach, but it would bring high results. Do we have any experience or examples of similar approaches in the world?

In our ICountant training, we distinguish between the innovation ecosystem and the innovation process. Our existing measures of IC are directly applicable to the ecosystem. We would have to add something for innovation processes. But that may not be necessary.

The question is whether you think that innovation capacities are primarily around how to do innovation (process) or around whether or not you have the knowledge, competencies, culture, connections, etc. to innovate (ecosystem)? The first can be taught. The second can take years to build.

My questions to Vedran and the community are:

• Is there an EU definition of "Innovation Capacities?"
• How are others measuring this?
• Are there other examples we could look to?

The Knowledge Management and Intellectual Capital Excellence Awards, will be held at the 16th European Conference on Knowledge Management this year on the 3-4^th of September at The University of Udine, Italy.

We invite submissions in the form of a brief case history of a Knowledge Management or Intellectual Capital initiative you have been involved in. The case history will include:

• Introduction to the nature of the Knowledge Management and/or Intellectual Capital initiative and its specific objectives
• The infrastructure i.e. people, systems, hardware, software etc. required to launch the initiative
• The challenges that were encountered, how they developed and how they were overcome
• How the initiative was received by the users or participants
• The efficiency, effectiveness or competitive advantage outcomes that were achieved and how they were measured and evaluated 6. Plans to further develop the initiative.

 Further details and to apply please see: http://academic-conferences.org/eckm/eckm2015/eckm15-excellence.htm

Intangible Capital (IC) is misunderstood by the federal government, universities, economists, think tanks in Washington, and other organizations such as The Conference Board. Here’s a new report by the Information Technology  and Innovation Foundation (ITIF) entitled “The Limits of the Knowledge-Based Capital (KBC) Framework” that is unaware of intangible capital frameworks such as described by SmarterCompanies .  

http://www.itif.org/publications/limits-knowledge-based-capital-framework

The federal government and other organizations have been studying how IC is linked to the GDP and to innovation. The ITIF report correctly cites the work, research and prolific publications of Carol A. Corrado of the Conference Board and Charles R. Hulten of the University of Maryland and the NBER. Unfortunately, the ITIF report makes the mistake of assuming that the only KBC framework that describes intangible capital is the one defined by Corrado, Hulten and Daniel Sichel (CHS). The report is unaware of the framework for IC described by SmarterCompanies and other frameworks that integrate IC with innovation.

The link between innovation and IC has been established and described  in the fourth generation of innovation management (4G) to emerge as best practice since 2000. Since 1900, there have been four generations of best practice. 4G has been described in Wiley’s Encyclopedia of Technology and Innovation Management in Chapter 21.  In 4G, innovation is driven by capabilities which are combinations of tangible and intangible capital. 4G capabilities are people with knowledge, tools that are developed and bought with tangible capital, technology and processes.    

With architectural rules, capabilities in 4G are structured into “stacks” of services, applications, products, platforms, components and technologies combined with knowledge and processes. “Stacks” are linked together to form projects, organizations, business models, and industry structures such as value chains.  In 4G, capabilities evolve into dominant designs that govern new markets.  4G has twelve principles and one is that innovation hubs that typically have more than 50 partners such as the Department of Energy (DOE) innovation hubs and the Apple hub for their iPhone family that coordinates service providers and third party supplier of applications are required to create new dominant designs.

Chipotle recently announced that it was dropping pork from its menus in many of its restaurants because a key supplier was not raising its livestock according to their standards. It's a public way of saying that the chain means what it says about emphasizing healthy conditions for pigs and other livestock.

In intangible capital language, the organization's had to stay true to its purpose (strategic capital) and brand (relationship capital) by walking away from its supplier. The supplier had moved from an intangible asset into an intangible liability.

The move was reportedly taken after a routine audit. Companies like Chipotle have to manage their intangible capital carefully and so use disciplined management like these audits. 

Chipotle would be just like any other fast food restaurant without its intangible capital. There are lessons and opportunities in stories like these....

Thanks to Oxfirst and Ken Jarboe for an interesting webinar today on Maximizing IP Value.

The short version of our message is that stand-alone IP generally has a much lower value than IP associated with a strong IC ecosystem. You want to build that ecosystem whenever possible. But to really maximize the value, you've got to be able to tell the story about that ecosystem so people have confidence that it's there. The slides are on the home page of the Athena Alliance. In the webinar, Ken and I highlighted two Smarter-Companies open tools - the Canvas and an IC for IP self-assessment.

We were thrilled by the number and depth of questions.  The webinar will be posted on the Oxfirst website soon (I'll add the link when it's available).