For the past two decades, the United States of North America has been on the brink of a historic transition; the old society that generated wealth in the form of capital goods and manufactured products, is giving way to a new society valued in terms of less tangible assets such as knowledge and information processing. ”
If we look back on the development of humanity, we can understand that the 19th century caused a frantic change in the productive capacities of Humanity, marking the beginning of the modern era.
Today, new information technologies are inexorably taking over heavy and manufacturing industry, as the main support for developed economies; but unlike this economy that depended on exhaustible goods such as oil, iron the new economy will develop in the direction of knowledge; therefore information and knowledge become the new formal object of science and technology, to such an extent that economy, culture and social welfare increasingly depend on the development of new information technologies.
The old pillars of the land, capital, work economy were distorted by the advent of new companies with a broad technological base such as software, services, biotechnology, etc.
A new component is then added to the production factors that are: knowledge and technology
Of course this fact has had an impact on business economic units; a company's success lies in its intellectual capital; we can see how fixed assets in companies are being relegated; the ability to manage human talent; the ability to manage the human intellect is becoming the managerial technique of the present, as a consequence of previous interest in intellectual capital, creativity, innovation and organizational learning has developed.
INTELLECTUAL CAPITAL.
The value of a business moves more and more from that of fixed assets to intangibles: Brands, patents, franchises, software, research programs, ideas, experience. Until now, interest in companies is beginning to arouse in measuring this asset, which contributes to creating an ever-widening gap between book value and market value; This change is increasingly dramatic in companies with a broad technological base (internet, software, biotechnology, etc.).
We can say that the factor that makes this difference is intellectual capital. For this purpose, we make a description of the elements that make up intellectual capital (from Leif Edvinson's perspective):
Leif makes two great classifications of intellectual capital like this:
a) Human Capital.
That corresponds to the set of knowledge, abilities, attitudes, and skills of the people who make up the organizations.
b) Structural capital.
Knowledge developed and made explicit by the organizations, made up of the following elements:
- Client capital
Assets related to customers (trademarks, customer loyalty, customer lists etc).
- Processes
Referring to the way the organization adds value through the different activities it carries out.
- Innovation capacity.
Understood as the ability to maintain the success of the organization through the development of new products or services.
The changes that have occurred at the level of knowledge are advanced; today it is recognized as high added value for organizations insofar as it generates wealth, an "asset" that must be managed and valued like others.
In the field of the new economy, intellectual capital provides a competitive margin, however these "resources" are not adequately measured; Intellectual (intangible) capital as well as physical resources necessarily need to be valued for efficiency measurements, revenue determination and company valuation
The process of "intellectual capital" formation must be considered as an economic investment activity of the same order as the formation of material capital.
In the future, the primary investment will not be in land, plant or equipment, but in personnel. This fact may further mark the need for accounting for this type of asset, as these resources will become the most important of companies.
FINANCIAL ACCOUNTING AND INTELLECTUAL CAPITAL.
Traditionally, financial accounting has been rooted in eminently legal and financial approaches, where the legal concept of property is applied, hence the word heritage.
Another aspect is that until today accounting has been using valuation methods developed in the economy to establish transaction prices. An understandable fact in the framework of an accounting interpretation of an economic nature. In its deepest conception, the theory of utility value and labor value have been used fundamentally.
The labor value theory establishes that the value of a good is determined by the socially necessary work to make it available for consumption, by the remuneration accumulated in the processes of exploitation, production and distribution; This is the origin of the concept of historical cost constituted by remuneration for labor and capital, incorporating a Marxist concept according to which labor is the sole creator of value, denying the existence of other types of valuations.
A second conception is the value of utility, according to which the value of a good is determined by the capacity to satisfy needs, a fact that implies that it is the demand for goods, the market, that determines the value. Only goods destined for the market have value, the latter being the one that determines the price of a good or service. This theory is expressed in accounting through market values, purchase, replacement or realization.
In this sense, financial accounting becomes a serious obstacle when approaching the concept of valuation, from an eminently restricted perspective of financial accounting.
Intangible-type organizational assets form the basis of the company's sustainable competitive advantage. Under the concept of intellectual capital, those intangible assets of the company are included, not reflected in the traditional accounting and financial statements, but which contribute to the creation of value. In particular, an intangible asset of strategic importance to the company is organizational knowledge. The current competitive environment in which companies navigate demands ad hoc management of this intangible asset, therefore different from traditional management of tangible assets. Companies must know what their organizational knowledge stock is, and analyze the flows between the different types of knowledge that flow in the company. For it,They are assisted by tools for measuring intellectual capital, introduced in the mid-1990s and whose development is still in the embryonic phase.
SOME DEFINITIONS OF INTELLECTUAL CAPITAL
Intellectual Capital for some researchers involves factors such as "Leadership in technology, current training of employees and in some cases involves the rapid response to customer service calls."
While for other experts they consider "not only the potential of the human brain but also include the names of products and brands and even expenses recorded in books as historical, which have become over time something more value".
For capital investor William Davidow, he says that the new accounting record systems must measure the momentum of companies in terms of market position, customer loyalty, quality, etc. In addition it affirms; that by not evaluating these business dynamics, such false evaluations are being presented, as if they were simple sum errors ”. Creating a gap between the values that companies declare in their balance sheets and the estimates that investors make about them. Differences that are more evident in companies that make intensive use of knowledge, facts that are corroborated in transactions that sometimes the acquisition prices exceed up to ten (10) times the book value,with an aggravating circumstance that companies do not have sufficient tools to manage these types of assets, given that traditional accounting systems are no longer relevant to the economy as they do not capture the reality of companies.
Generally speaking, Intellectual Capital reflects less tangible assets, such as the ability of a company to learn and adapt to new trends in the market economy and administration with an emphasis on knowledge management as the most significant act of value creation.
Recognizing the premise that Intellectual Capital is attributed to intangible assets embodied in individual skills and technical knowledge, information systems, factory brands and designs, and even relationships with suppliers, customers, and dealers.
Organizational knowledge is measured through the intellectual capital of the organization. For the Swedish Skandia Insurance Multinational, a pioneer in the measurement of intangible assets, "intellectual capital is the possession of knowledge, applied experience, organizational technology, customer relations and professional skills that give companies competitive advantages in the market."
Intellectual Capital helps explain the difference between the company's market value and book value, since intellectual capital is not included in traditional financial statements.
For Sveiby "The total market value of the company is made up of tangible visible assets plus three (3) types of intangible assets: the internal structure (organization), the external structure (customers) and capabilities (people), so that the market value of the company can be interpreted as a direct reflection of the Invisible Balance.
With the new trends in business administration, in the late twentieth century the category of intangible assets began to be recognized as the key to competing in increasingly competitive and dynamic environments. Organizational knowledge has become the quintessential resource and considered strategic for organizations by virtue of the following characteristics:
- Not marketable. Developed and accumulated within organizations. Strong tacit character and social complexity. It arises from organizational skills and learning. It is immobile and is linked to the company. Its development is dependent on levels of learning, investment, stocks of assets and previous development activities.
HOW TO MEASURE INTELLECTUAL CAPITAL
During the 90's, the new trends in business valuation focused his interest in research and developed a somewhat complex and abstract approach to the concepts of organizational learning, knowledge management, determination and measurement of intellectual capital, compromising efforts. and resources with a view to identifying and recognizing the strategic importance of intellectual capital for achieving and sustaining competitive advantages.
For the structuring, evaluation, administration, measurement and reporting of intellectual capital, the following models have been developed, among others, in the world of academia and business:
IAS 38 in response to financial accounting for the measurement of intellectual capital.
International accounting standard 38 defines intangible assets that can be valued and included in accounting; for this purpose, it defines an intangible asset as: “it is an identifiable non-monetary asset, devoid of physical substance, owned for use in the production or supply of goods or services, for rent to others or for administrative purposes.
An asset is a resource:
- controlled by a company as a result of past events through which future economic benefits are expected to flow to a company.
An important limitation of IAS 38 is that under the traditional accounting model, an intangible asset is recognized if:
- The future economic benefits are attributable to the asset that will flow to the company. The cost of the asset can be reliably measured.
Under this criterion, the restrictions of the traditional accounting model continue, that is, it would not be feasible to measure aspects such as:
- BrandsCustomer loyalty and established relationships.The Good Will (when it has not been acquired directly by the company).The knowledge accumulated in people.
Etc.
It is a limited model, which is based on historical cost valuation models.
TOBIN Q- INDICATOR.
One of the initial approaches to measuring intellectual capital was to use the "Tobin q", a technique developed by Nobel Prize winner James Tobin, which measures the relationship between the market value and the replacement value of your physical assets. Knowledge-intensive companies, like Microsoft, have higher "q" values than companies in more basic industries.
THE SKANDIA MODEL.
Designed by Leif Edvinson is a way to measure the process of creating assets in the company. Edvinson developed a theory of "Intellectual Capital" that incorporates elements from Konrad and the "Balanced Score Card" (Kaplan and Norton).
In traditional economic models, only financial capital is normally used, but the Swedish company Skandia proposes the “Skandia Value Scheme”, where it is proposed that intellectual capital is made up of:
- human capital structural capital
This in turn is divided into client capital and organizational capital, the latter referring to everything that remains when employees have gone home:, information systems, databases, information technology software, etc. Organizational capital can be broken down into process capital (processes that create value and processes that do not create value), culture and innovation capital (intangible rights, brands, patents, knowledge recipe and business secrets).
As Skandia's Intellectual Capital model points out, it emerges in a process of value creation based on the interaction of human and structural capital, where continuous renewal - innovations - transforms and refines individual knowledge into lasting value for the organization.
Edvinsson and Malone propose an equation to calculate the Intellectual Capital of the company, so that comparisons can be made between companies:
Organizational Intellectual Capital = i C, i = (n / x)
Where:
C is the value of intellectual capital in monetary units
i is the efficiency coefficient with which the organization is using said capital
n is equal to the sum of the decimal values of the nine efficiency indices proposed by these authors
x is the number of those indices.
The elements of this equation are obtained from indicators developed for each of the five approaches proposed by the Skandia Navigator.
The Balanced Scorecard model.
This model consists of a system of financial and non-financial indicators that aim to measure the results obtained by the organization.
The model integrates financial indicators (from the past) with non-financial indicators (from the future), and integrates them into a scheme that allows understanding the interdependencies between its elements, as well as consistency with the company's strategy and vision. presents four perspectives:
Financial Perspective
The model considers financial indicators as the final objective; considers that these indicators should not be substituted, but complemented by others that reflect the business reality. Example of indicators: return on capital, cash flows, analysis of customer and product profitability, risk management,…
Customer Perspective
The objective of this block is to identify the values related to customers, which increase the competitive capacity of the company. For this, it is necessary to previously define the target market segment and perform an analysis of their value and quality. In this block, the indicators are the set of values of the product / service that is offered to the clients (indicators of image and reputation of the company, of the quality of the relationship with the client, of the attributes of the services / products.
The output indicators refer to the consequences derived from the degree of adequacy of the offer to customer expectations. Examples: market share, level of loyalty or customer satisfaction,…
Perspective of Internal Business Processes
Analyzes the adequacy of the company's internal processes in order to obtain customer satisfaction and achieve high levels of financial performance. To achieve this objective, an analysis of internal processes is proposed from a business perspective and a predetermination of key processes throughout the value chain.
Three types of processes are distinguished:
1.- Innovation Processes. Example of indicators:% of new products,% patented products, introduction of new products in relation to the competition,…
2.- Operations Processes. Developed through quality analysis and reengineering. The indicators are those related to cost, quality, time or flexibility of the processes.
3.- After-sales service processes. Indicators: repair costs, response time, etc.
Organizational Learning Perspective.
The model presents the values of this block as the set of drivers for the rest of the perspectives. These indicators constitute the set of assets that endow the organization with the ability to improve and learn. The traditional accounting view is criticized, which considers training as an expense, not an investment.
The perspective of learning and improvement is the least developed, due to the limited progress of companies at this point. In any case, the contribution of the model is relevant, since it leaves a perfectly marked path and structures this perspective. Classify assets related to learning and improvement into:
- Capacity and competence of people (employee management). It includes indicators of employee satisfaction, productivity, need for training… Information systems (systems that provide useful information for work). Indicators: strategic databases, proprietary software, patents and copyrights… Culture-climate-motivation for learning and action. Indicators: initiative of people and teams, the ability to work as a team, alignment with the vision of the company…
Technology Broker
Annie Brooking, Develops an intangible asset measurement model. Intellectual Capital measures are useful for the following reasons: 1) they validate the organization's ability to achieve its goals, 2) plan research and development, 3) provide basic information for reengineering programs, 4) provide a focus for education organizational and training programs, 5) calculate the value of the company, and 6) expand the organizational memory.
Intellectual Capital is made up of four categories of assets: market assets (brands, clients, image, order book, distribution, collaborative capacity, etc.) human assets (education, professional training, specific job knowledge, skills), assets intellectual property (patents, copyrights, design rights, trade secrets, etc.) and infrastructure assets (business philosophy, organizational culture, information systems, existing databases in the company, etc.). As in the Skandia Model, the Technology Broker Model assumes that the sum of tangible assets plus Intellectual Capital make up the market value of a company. This model, unlike the previous ones, reviews a list of qualitative questions,without reaching the definition of quantitative indicators, and furthermore, affirms that the development of methodologies to audit information is a previous step to the generalization of the measurement of Intellectual Capital.
ADDED ECONOMIC VALUE
It is a measure of financial performance, which combines the traditional concept of residual income with the principles of modern corporate finance, arguing that all capital has a cost and that profits more than the cost of capital create value for shareholders.
It is related to intellectual capital in a cause-effect perspective, which we illustrate below:
INCIDENCE OF INTELLECTUAL CAPITAL IN MAKING DECISIONS.
It is clear that traditional financial accounting, on the measurement bases on which it rests today, is far from supporting decision-making in the sphere of the new economy and business processes that it is not capable of measuring. nor report.
Of course there are alternative models (administrative accounting) that have made it possible to correct this situation by measuring it on other different bases from the financial and non-financial point of view.
Such is the case of the Balanced Scorecard model, which stipulates measurement models through the methodology of financial and non-financial management indicators.
BIBLIOGRAPHY
- LEIF, Edvinsson and Michael S. Malone. Intellectual capital. Editorial 1998. MANTILLA B. Samuel Alberto. Intellectual Capital & Knowledge Accounting. ECOE Ediciones 1999.KAPLAN, Robert. Balanced ScoreCard. Editorial 2001. 1999.HARVARD Business Review. Knowledge Management. Ediciones Deusto SA 1998INTERNET www.gestiondelconocimiento.com
It is thought that the near future the dominant factor will be the speed with which knowledge is applied and not knowledge as such.
Download the original file
