Thought Leadership

Mind over matter
The Economic Times, December 15, 2006

In the knowledge economy, wealth is all in the mind says Leif Edvinsson, uber-guru of the Intellectual Capital movement. Finance chiefs in Mumbai might find him less than endearing, but in the knowledge city of Bangalore, Leif Edvinsson is an instant hit.

“Why should a CFO have so much power when he is in charge of only 20% of the company’s assets?” he demands to know, eliciting happy smiles and a mild round of applause from his audience. The Swedish professor is one of the founder leaders of the global Iintellectual Capital (IC) movement, which believes that IC- defined as the factors not shown in the traditional balance sheet, but which are of crucial importance to an organization’s future success– needs to be measured, accounted for and reported. Consider this: in 1980,book value accounted for 80% of the market value of the companies in the Standard & Poor index, but now the figure is down to 20% - which is where Edvinsson’s dig at CFOs comes from.
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Rate the Future, not the past

Business Standard, November 10, 2006

Leif Edvinsson, an acknowledged global knowledge leader, is one of the founding fathers of the idea of Intellectual Capital. He became the first knowledge officer of the world when he was appointed “director —Intellectual Capital” at Skandia, the Swedish financial player, way back in 1991. Since then he has been explaining what the traditional balance sheet does not show. In 1998 he co-founded Intellectual Capital Sweden AB which developed Intellectual Capital (IC) rating, the methodology to measure and rate a firm’s Iintellectual Capital. IC rating services are being offered in India by Bizworth, the Indian partner of Intellectual Capital Sweden. Excerpts from his conversation with Subir Roy.

Why do we try to measure such an immeasurable as Iintellectual Capital?
The metaphor I have, which is shown in my business card, is of a tree which is upside down, as the roots are more important than the fruits for the future. In economics it is called opportunity cost. What is the opportunity cost of not nourishing the roots?

So what is the framework for such kind of a measurement?
At Toyota they have for many years applied a questioning model. You ask a question why, and then drill down to more and more insights. Compare that with the Wall Street paradigm of short term earnings. Financial results are lagging results based on what you did. What we probably need much more are early indicators, predictors.
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Mind over matter
Business Today, October 22, 2006

In December last year, some 30 employees of Bangalore-based MindTree Consulting spent three months getting an Intellectual Capital (IC) Rating. Tangible corporate assets have been measured and assessed for many years, but it’s only now that companies have started assessing their people and their intellects. “Businesses are beginning to recognize the value of the Intellectual Capital hidden within companies,” says Leif Edvinsson, founder of Intellectual Capital, a firm specializing in this field and the man who invented the system of intellectual capital audits.
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Evaluating the intangibles

Business India, August 27, 2006

Gopalan : measuring and managing Iintellectual Capital When S. R. Gopalan got an e-mail enquiry from the Sweden-based Intellectual Capital on the possibility of a business association in September last year he did not hesitate even for a minute

Gopalan went to Sweden, met the Intellectual Capital team and signed on the franchise partnership for their IC rating™ a tool which enables companies to assess their Intellectual Capital. For Gopalan it was an opportunity that he had in fact been looking out for. A chartered accountant and a cost accountant Gopalan has spent 23-years in the corporate world - first with union carbide for nine years and then with wipro. At wipro he held various positions including that of vice president, finance and planning at wipro InfoTech and president of wipro finance.
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Intellectual Capital-India's hidden wealth
The Hindu, Monday March 27, 2006

 WHILE ACKNOWLEDGING that foreign direct investment (FDI) and infrastructure contributed in a large measure to China's blistering growth, economists are beginning to express concern over the efficiency with which this capital is being used. They are also beginning to recognize that India makes much better use of its overall capital.

In a recent article in Financial Times, Yasheng Huang points out that in 2003 and 2004, China was investing 50 per cent of its GDP in plant and equipment — a rate twice that of India. Yet, in the period April-June 2005, by which time this investment would have started showing results, India's GDP grew at 8.1 per cent, not too far behind China's 9 per cent. The author also points out that during 2001- 05, the Shanghai stock market index dropped from 2200 points to 1135 points. In the same period, India's main stock market index zoomed from 2500 points to 10000! Not too difficult to conclude that the growth rate of wealth in India in recent years has been higher than in China. The secret: the ability of India's thought capital, or Iintellectual Capital, to unleash human potential resulting in more efficient use of physical capital.
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What gets measured, gets managed

The Economic Times, December 31, 2005

Bizworth is the India partner of Intellectual Capital Sweden AB, the creator of IC rating. S R Gopalan, founder, Bizworth India, shared the importance of measuring IC. Some excerpts:

How important is human capital as a constituent of Iintellectual Capital?
Intellectual capital is generally divided into three segments. At the centre is human capital which is supported by what is getting increasingly described in the IC world as structural capital. According to Leif Edvinnson, one of the pioneering thought-leaders in the IC space, internal structural capital is the sum total of intangibles that remain in the company when the employees leave home for the night.

Why is IC rating important for Indian companies?
The core value of Indian companies is indeed Intellectual Capital, and Indian companies often have to make up for their relative weakness in physical / financial capital compared to companies in the advanced world by highlighting their Iintellectual Capital. Hence, there is an even greater need for Indian companies to focus on IC development. Moreover, IC valuation is offered in India at a fraction of the international cost. Mid-sized companies and even small companies would find it affordable.
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The Latent Value of Corporations

Business World, December 05, 2005

There is a need for CEOs and CFOs to delve deeper into issues relating to Iintellectual Capital and to unearth the latent value of their companies. CEOs and CFOs are well aware that market capitalization represents a corporation's future value, whereas book value indicates the current value of net physical assets. The difference is explained by intangibles like goodwill, market leadership and patents. These intangibles contribute to the latent value of a corporation. Over time, the latent value of corporations has been increasing phenomenally.

Increasingly, corporations and regulatory bodies throughout the world are recognizing this perilous divide between historical financials and future value. Scandinavian countries have led the effort in this field. Thought leaders like Karl Sveiby, Leif Edvinsson and Goran Roos have researched the science of Intellectual Capital in recent years. They have developed methodologies and tools like 'IC Rating' and 'IC Value' to measure Intellectual Capital, and have refined earlier tools like the balanced scorecard. Denmark is the first country to stipulate guidelines for reporting on Intellectual Capital.

India Inc. has also begun to look into their latent value and manage Iintellectual Capital in a formal way. Companies like Infosys, Mind Tree and even e4e are pioneering these efforts. In its annual report, Infosys states the value of its human capital and brand, while e4e and Mind Tree are working on their IC Rating.
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It's all in the mind
The Economic Times, September 16, 2005

A company’s brands, talent, customer loyalty and processes are no longer considered Intangible assets. Intellectual capital is now being measured and accounted.
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