Transcript Developing and Implementing an Effective Business Plan in

Knowledge Assets:
Can you measure the intangible?
Mary Adams
Trek Consulting LLC
KM Forum, July 20, 2006
Measuring Knowledge Assets
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Why?
What?
How?
Case studies
The need to measure knowledge
assets is acute
Components of S&P 500® Market Capitalization
14,000
S&P 500 Market Cap ($ billions)
Market Premium
12,000
10,000
Intangible Book Value
Tangible Book Value
8,000
6,000
4,000
2,000
-
1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Data: Ned Davis Research, Inc.
Today, 80% of corporate value is
“intangible”
S&P 500® Intangible Value as % of
Market Capitalization
79.7%
100%
68.4%
80%
60%
40%
32.4%
16.8%
20%
0%
1975
1985
1995
2005
Data: Ned Davis Research, Inc.
Our information paradigms are
based on an antiquated system
Accounting systems provide
several distinct advantages:
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Objective standards
Quantitative measures
Consistent methodology
Consolidated presentation
Pacioli helped us measure value
creation based on tangible capital
Today, the
value creation
process is
driven by
intellectual
capital
Human capital
is the creative
engine
Relationship capital connects you
with the market
Structural capital is the holy
grail
Structural capital is an “infinite”
resource
The value of structural capital is
limited only by its market potential
The last, critical
element is the
business recipe
Organizational
Structural
Capital
Human
Capital
Financial
Capital
Relational
Structural
Capital
What to
measure?
The full IC
value
system
Business
Recipe
How to measure?
Pacioli
would
advise us to
start with an
inventory
Pacioli’s “Summa” as seen in http://www.martini-drapelli.it/lucapacioli1.htm
Today there are three available
approaches:
• Valuations
• Scorecards
• Assessments
Valuations
Scorecards start by mapping
intangible drivers of financial
performance
Financial
Perspective
Customer
Perspective
Internal
Perspective
Learning and
Growth
Perspective
Source: Kaplan, Robert S. and Norton, David P., Strategy Maps:
Converting Intangible Assets into Tangible Outcomes, (Boston, MA:
Harvard Business School Press, 2004
Metrics are
assigned for
each category
Source: Kaplan, Robert S. and Norton, David P., The Balanced Scorecard: Translating
Strategy into Action, (Boston, MA: Harvard Business School Press, 1996).
Assessments look at the full IC
portfolio
Intellectual
Capital
Business
Recipe
Organizational
Structural Cap.
Intellectual
Properties
Process
Relational
Structural Cap.
Human Capital
Management
Employees
Network
Brand
Customers
By Pacioli’s standards…
Objective
Quantitative
Consistent
Methodology
Valuations
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Scorecards
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Assessments
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Consolidated
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Quantitative measures are only part
of the picture
Case Study:
IC Rating™
Events business
IC Rating looks at three perspectives
1. Efficiency
2. Risk
3. Renewal and Development
Present day
Accounting
Present value of IC efficiency in creating future financial value
Threat against present efficiency * probability of threat coming true
Efforts to renew and develop present efficiency
Methodology
• Interviews with internal (1/3) and external
(2/3) stakeholders
• Questions include:
– Closed questions that lead to a letter rating
– Open questions that yield answers that are
summarized anonymously in final report
Scale similar to bond or credit ratings
Efficiency
Renewal
Risk
AAA
AA
A
AAA
AA
A
_
BBB
BB
B
BBB
BB
B
RR
CCC
CC
C
CCC
CC
C
D
D
R
RRR
Event Co.’s overall IC had high
efficiency
Intellectual Capital
A
Bus. Recipe
Organisational
AA
BBB
I.P
Human Capital
Relational
A
BBB
Process
Management
Employees
Network
Brand
Customers
BBB
BBB
AA
BB
A
BBB
IC renewal/development were
rated average
Intellectual Capital
BB
Bus. Recipe
Organisational
BBB
BBB
I.P
Human Capital
Relational
CCC
BBB
Process
Management
Employees
Network
Brand
Customers
BBB
BB
CC
B
AA
BBB
Risk of decline in IC efficiency is
moderate
Intellectual Capital
R
Bus. Recipe
Organisational
R
R
Human Capital
Relational
R
R
I.P
Process
Management
Employees
Network
Brand
No value
R
RR
R
RR
R
Customers
Employee competence is high…
High-touch culture
85
Knowledge of storytelling
85
Creative problem solving
77
Service quality
87
Fundraising
71
Long range vision
71
ID/cultivate talent
84
Strategic networking
76
Community dev.
78
Event planning
93
0
20
40
60
80
100
Employees need support to prepare
for new challenges…
Experience in core
competencies
83
Renewal of productivity
74
57
Ability tackle new projects
39
55
Vulnerability defection
Training/education
74
Equal competence level
Management is an important
force…
Strong driving force
85
Ability to handle loss of a key
manager
59
Focus on business
idea/strategy
34
57
Inspires support for strategic80
goals
49
Delegation ability
Internal communication
Comments from Stakeholders
• The sky is the limit in this market.
• We could be dead in the water if something
happens to our founders.
• S. has an intuitive sense for picking talent.
• The brand is still not known in the media.
• Big issue is the ageing of both the our
performers and our audience.
• The pricing strategy is brilliant…set in relation to
comparable training opportunities.
• As long as they are in the business of selling
hours they will be susceptible to problems. The
biggest opportunity is in information products.
Issues on the table at Event Co.
• How to connect with the huge market
opportunity
• How to profit from latent IP
• New business/old business balance
• Management succession plan
IC Rating™
Case Studies
Process innovation
Situation
Action
Result
• A large entertainment
• IC RatingTM showed a
• 5 major areas for internal
company wanted to cut
varying degree of potential,
cross-learning have been
costs, without jeopardizing and a variety of issues in
identified
value offering
the business units.
• Used IC RatingTM to learn
future potential in all
business units
• Through benchmarking,
possible improvement
areas and opportunities for
cross-learning were
targeted
• In each targeted area,
development budgets were
reduced, since
systems/know-how could
be leveraged from another
business unit to another
• In total, costs have been
cut by >Euro30 million
• Management is convinced
that this was achieved
without jeopardizing value
offering
Competitiveness
Situation
Action
• A company was facing new • IC Rating™ displayed
competition and felt the
severe problems in the
need to improve its image
corporate culture and the
and service levels.
management’s internal
practices.
• The company used IC
Rating™ to identify areas of
potential improvement in
order to become successful
in a competitive
environment.
• On the other hand, the
management was rated as
strong. The company
network and brand also
received strong ratings.
• With this result at hand the
executive team identified
and pursued a number of
initiatives.
Result
• By strengthening the
internal leadership with
new management and
training, the employee
pride for the organization
was enhanced and service
improved – in the end
increasing productivity by
almost 20%.
Strategic Fit
Company
Profile
- Wholesale subsidiary of a large food and low-temperature
warehouse and logistics company
- Market suffering from low margins and severe competition
Situation
• Used IC RatingTM to identify
current strengths and
weakness as well as its future
potential
• Wanted to use the results of IC
RatingTM to support merger
talks with another large food
wholesaler.
Action
Result
• IC RatingTM showed strength in
the sales force and
merchandizing abilities, backed
by the strong leadership of
CEO
• The sales organization was
changed to solution-based,
from the old style
”geographic-based” sales
units
• Weakness was identified in the
process area. Since potential
merger partner was famous for
its state-of-the-art systems, the
rating strengthened the
perception of potential
synergies.
• Also introduced Skandia’s
Navigator (and Dolphin
system) to become more
focused on the vision and
strategies
• Helped get the merger deal
done at favorable terms
Market Valuation
Situation
Action
Result
• The number three IT
• IC Rating™ divided the IT- • The Group’s overall goal of
company on the OM
Group into four different
10% margins was
Stockholm Stock Exchange categories for potential.
individually revised
aimed to help the market
depending on the potential
better understand its
shown in IC Rating™.
potential as a knowledge• By supplementing this
based company.
information to the annual
report they increased
• The day when the result of
transparancy: both strong
the rating was first shown,
• All 35 subsidiary
and weak sides were
the share value of the IT
companies which comprise exposed, increasing
company increased by 8%.
the Group were rated
understanding for potential
as well as increasing trust
of the Group.
• The Group used results to
benchmark and navigate
the companies into the
future.
Buy-side support
Situation
Action
• Major investment fund with • IC RatingTM showed a very
two similar companies in
high potential (high rating),
the portfolio, Company A
in Company A. Company B
and Company B
had serious issues,
particularly in the process
capital area.
• Only interested in
continuing with one of them
in a second round
• The recommendation was
clear: support Company A
in second round. Divest
• Used IC RatingTM to
Company B.
evaluate future potential in
both companies
Result
• The investment fund kept
Company A
• Company A financially
outperformed industry
averages after the second
round
• Company B, despite finding
funding elsewhere,
underperformed and
eventually went bankrupt
• The investment fund ROI
exceeded 60%
Sell-side support
Situation
Action
• A large communication
• IC RatingTM showed a
company needed to sell off varying degree of potential
five business units
in the business units.
• There was no interest from
the market so the seller
• Seller was very
withdrew the companies
transparent, presenting
and did an IC Rating™ on
potential buyers with the
each
full range of findings
TM
• Used IC Rating to identify including strengths and
future potential in all five
weaknesses, opportunities
business units
and risks
Result
• All five units were sold
• In total, a 20% premium was
on the P/E multiple was
received, compared to
similar deals at the same
time
• The buyer attributed the
premium to the
transparency, which
reduced buy-side risk.
Measuring knowledge assets helps
you find the path to future success
For more information
Visit www.icrating.com
Visit www.icknowledgecenter.com
Contact Mary Adams
781-729-9650
[email protected]