What is Intellectual Capital Management (APICC Whitepaper #2)


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What is Intellectual Capital Management (APICC Whitepaper #2)

  1. 1. What is Intellectual Capital Management (ICM)? By Dr Gordon McConnachie, Founding Chairman of Scottish Intellectual Assets Centre and Chief Technology Officer of Asia Pacific Intellectual Capital Centre and Alan Lung, Director & General Manager of Asia Pacific Intellectual Capital CentreIntellectual Capital Management links scientific and technology R&D, innovation andintellectual property rights in a holistic management concept. However, it is not justtechnology oriented companies that will benefit from ICM. The capitalised value (i.e.stock market value) of many global companies such as Coca-Cola is many times aboveits fixed tangible assets and the only way to explain the difference is …What is Intellectual Capital business relationships will startManagement1 (ICM)? bringing in cash flow and other factorsIntellectual Capital is defined as all that will contribute to future growth.knowledge within an organisation whichhas the potential to create value when In a nutshell, the Intellectual Capitalapplied in line with the mission, vision Management process involves:and goals of the organisation. It refers to • Analyzing existing enterprisethe intangible capital (i.e. other than knowledge, updating it and recordingfinancial capital) owned by companies: it as far as possible and making it• Human Capital: This is the value sharable within the enterprise in order people bring to current operations and to better fulfill the business plans. This future growth, becomes the enterprise’s ‘structural• Structural Capital: Also referred to as capital’; Organisation Capital, this is the • Creating the climate in which supporting infrastructure currently knowledge workers can best perform; supporting the company and the • Identifying possible sources of human capital, revenue that could be extracted from• Network Capital: Also referred to as existing structural capital and Customer and Supplier Capital, this is developing marketing plans for them; where strength and loyalty of • Optimising the value creation, customers, suppliers and other extraction and release cycles for new and existing initiatives and1 • Assessing risks involved in protecting Original concept developed in the 1990s by early the enterprise’s intellectual assets (orICM practitioners such as Sullivan, Edvinsson and structural capital) and using anSveiby building on earlier work in Japan by Hirojuki effective intellectual property strategyItami. 1 Asia Pacific Intellectual Capital Centre White Paper #2 (August 2008) © Asia Pacific Intellectual Capital Centre 2008 All Rights Reserved
  2. 2. to minimize business risk. a fundamental business management toolIntellectual Capital Management links enterprises need to harness as they movescientific and technology R&D, innovation down the road of innovation andand intellectual property rights in a creativity.holistic management concept. However, itis not just technology oriented companies Knowledge Management (KM)that will benefit from ICM. The capitalised “Knowledge Management” (KM) is anvalue (i.e. stock market value) of many almost inter-changeable term toglobal companies such as Coca-Cola is “Intellectual Capital Management”: ICMmany time above its fixed tangible assets distinguishes itself in that it is purelyand the only way to explain the difference driven by the aims of the organization andis the intangible assets such as the brand this in fact is the source of its powerfulname and business processes owned by nature. KM is a more widely known termthe company. in Hong Kong because of the work of the Hong Kong Knowledge ManagementMainland China is beginning to realise Society (founded around 1999that it has lost many of its historical www.hkkms.org). In the earlier days ofbrands 2 and has been encouraging the the introduction of ICM concepts to Hongdevelopment of “Self-initiated Brand Kong, KM is commonly associated withNames” since the inauguration of the 11th and driven as part of “InformationFive Year Plan (2007-2012). There have Technology” or “Human Resourcealso been many Asian cases, such as Management”.“Esprit” of Hong Kong and “Red Bull” ofThailand that made extremely smart useof ICM (but not necessary a lot of scientific Another View of Intellectual Capitaland technology research) to take the great TOWARDS INNOVATIONleap from being local brands to becomeglobally recognised brands. Intellectual Knowledge & Innovation IntellectualICM, particularly the creation and use of Property Assets Know-How (Intellectual Capital)intellectual property (including registeredtrade marks from which brands are built)is the foundation on which knowledgeeconomies of the world are built upon and Intellectual Capital: Knowledge that can be used to create value. Intellectual Asset: Codified knowledge to be used to create value. Intellectual Property: Legally protected intellectual capital.2 At one stage, Shanghai Toothpaste leased a 38 year Internationally, there are also manyold brand name of Maxam Tooth Paste to Unilever as a schools of thought as regards KM, forform of cooperative joint venture but later reclaimed it example, “Social Network Analysis”,in 2001, claiming deliberate attempt made by its “Information Theory”, “Complexitybusiness partner to down-play the Maxam brand that Approach”, “System Thinking” andresults in market share loss. 2 Asia Pacific Intellectual Capital Centre White Paper #2 (August 2008) © Asia Pacific Intellectual Capital Centre 2008 All Rights Reserved
  3. 3. “Capacity Based Approach”. The most itself as a “killer management application”.useful and dominant school links KM to It is still not perceived as somethingthe conversion of internalised tacit companies must do for the sake of theirknowledge into explicit codified own long-term survival. Some say “KM”knowledge, thus allowing successful is for dreamers probably because KMknowledge sharing (see Ikujiro Nonaka of practitioners in Hong Kong have yet toJapan). link “Learning” and “Sharing” to the hardnosed business of making a businessIt should be noted that the term profit (i.e. the emphasis on “Value“Intellectual Capital Management” (ICM) Extraction” as practiced by Americanwas introduced by Tom Stewart through Companies).an article on Intellectual Capital publishedin Fortune magazine in October 1994 after Intellectual Assets Managementit was first mentioned in discussions in his Intellectual Assets are the codifiedpresence. The key creators of the term (documented) knowledge of companiesICM are: Leif Edvinsson (Sweden), and organisations. Some refer toGordon Petrash (USA), Hubert St. Onge Intellectual Assets as the “Structural(Canada) and Patrick Sullivan (USA). The Capital” of companies. Intellectual Assetfirst company to adopt a full ICM Management (IAM) broadly refers to theapproach was Skandia (a Swedish “Value Extraction” process of ICMInsurance company) in the 1990s under practice. The Scottish Intellectual Assetsthe leadership of Leif Edvinsson. The early Centre describes IAM as “the process ofpioneers (seven companies that include both capturing and managing knowledge,Dow Chemical, DuPont, Hewlett-Packard, and fully exploiting it for commercialHughes Space and Communication, gain.” In Japan, the ICM practice is knownHoffman LaRoche and Skandia) also got as Intellectual Asset-Based Managementtogether in January 1995 to exchange notes (Ministry of Economy, Trade and Economyand formed the first ICM Gathering in (METI). ICM practitioners in Asia PacificBerkeley, California, USA. From the should also take note of a term call “IP“Value Creation” stream as practiced in Asset Management and Utilization”, as anEurope by ICM gurus such as Leif initiative that will be driven by theEdvinsson and the “Value Extraction” Intellectual Property Rights Experts’stream as practiced by leading American Group of the APEC Committee on Tradecompanies a holistic approach now and Investment.embracing value creation, value extractionand value release has emerged as a The first IC Centre in Asia is the IPpowerful business tool which is new and Academy of Singapore acting inmore powerful modern Intellectual co-operation with several GovernmentCapital Management. Business Development agencies. Founding members of this very importantIn Hong Kong, KM has yet to establish IC Centre in Asia probably felt that 3 Asia Pacific Intellectual Capital Centre White Paper #2 (August 2008) © Asia Pacific Intellectual Capital Centre 2008 All Rights Reserved
  4. 4. Intellectual Property ought to be the (IPD) is the government unit in charge ofstarting point when IP Academy of administering IPR systems and policies atSingapore was founded in 2003. The the HKSAR Government level, while theScottish IA Centre (launched in November national level organization for China is2004) felt that it should be focusing on The State Intellectual Property OfficeIntellectual Asset as it is probably more (SIPO) of the People’s Republic of China.difficult to deliver tangible economic Hong Kong has independent tradebenefits to Scottish enterprises if they representation status in manywere to cast the net too wide at the international organizations and is abeginning and include “Value Creation” member of nearly all of them, except the(or innovation) processes from the very World Intellectual Property Office (WIPO)start. However, it should be noted that the which, as a United Nations (UN)practices of the IC Centres of the world are organization, only recognizesmerging and both IC and IA are offered in representative offices from sovereignmost IC Centres. Asia Pacific Intellectual nations. In the case of WIPO, IPDCapital Centre (APICC) chose to call itself commonly participate as part of thean IC Centre (instead of an IP Centre or IA People’s Republic of China’s delegation inCentre) as it envisages that equal cooperation with SIPO and the Ministry ofemphasis will be put on the “Value Foreign Affairs of China.Creation” (IC) , the “Value Extraction” (IA)and the “Value Release” processes. There are many institutes around the world that offer IPR education, forIPR Management example the WIPO IP Academy. The IPIntellectual Property Rights (IPR) include: Academy of Singapore was also createdcopyrights, design, patents and on the premises of delivering an IRRtrademarks. IPR Management can be seen management capacity to Singapore. IPRas the “legal stream” of Intellectual Management Services is commonlyCapital Management (ICM), while offered by law firms that specialise in IPRservices offered by many IC Centres management. The interests of the “legalaround the world are more closely related stream” and the “business stream”to the “Business Stream” of ICM. The overlap when enterprises wish to exploitexception is the IP Academy of Singapore the value of their Intellectual Assets (IA).which has a strong focus on IP aspects.Hong Kong SAR is a unique territory in APICC does not intend to offered legalChina as it has a long established rule of services that are related to the legal streamlaw tradition (including IP law dating of IPR Management, but will work withback to 1873) and it operates an IPR the legal sector on policy issues relating toregime that is independent of the legal how to make best use of Hong Kong’ssystem in mainland China. unique legal systems to help develop the Knowledge Economy in Hong Kong andThe Intellectual Property Department Mainland China. 4 Asia Pacific Intellectual Capital Centre White Paper #2 (August 2008) © Asia Pacific Intellectual Capital Centre 2008 All Rights Reserved