Thought Leadership

Evaluating the intangibles

Business India, August 27, 2006
A new age consulting firm helps companies to move beyond the traditional balance sheet

Gopalan : measuring and managing Intellectual 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.

In 1999, Gopalan put aside his corporate colors and turned entrepreneur. He set up his own firm dawn consulting to provide strategic and financial consulting. It was during the course of his engagements with different clients that Gopalan realized that while assessing an organization’s worth one needs to go much beyond financials.

Incomplete solutions

Says Gopalan: "the standard methods of valuation have their own inherent limitations and one needs to go beyond the balance sheet." prior to entering into a partnership with Intellectual Capital, Gopalan had looked at companies specializing in areas like intellectual property rating (ipr), brand and human resource evaluation for a possible alliance. But he felt that while these did give some indicators beyond the balance sheet they were incomplete solutions. In IC rating™ Gopalan found just what he was looking for since it looked at disparate elements in a holistic manner.

After signing up with Intellectual Capital, Gopalan sounded the idea to three other friends and former colleagues, P. P. R. Rao, J. Suri and Anal Jain. All three, who have their own consultancy firms, bought into the idea and together they set up Bizworth – a company that they describe as the next generation consulting company specializing in evaluation and management of Intellectual Capital.

In a nutshell, Intellectual Capital includes all factors that are critical to the future success of a company but are not shown in the traditional balance sheet. And it is these intangibles that ‘IC rating™ ' measures for a company. Geeta iyer guha, principal consultant who leads Bizworth's executive team points out that a standard and poor index of the us indicates that the value of the intangibles of its listed companies as a percentage of the total market value has risen from 20 per cent in 1980 to 75 per cent in 2002.

Says Guha: "Intellectual Capital is the currency of the 21st century and for it to be managed well it first needs to be measured. An organization that optimizes its Intellectual Capital will be able to optimize its long term profitability."

Guha adds that ‘IC rating™ is a globally calibrated methodology and has been validated across more than 300 companies around the globe across sectors.

'IC rating™' primarily assesses an organization on three fronts: the organizational structural capital comprising intellectual properties and processes, the human capital comprising the management and. Employees and the relational structural capital comprising the brand, customers and the network of associates. All these parameters are assessed in the context of the company's business idea and strategy and the external business environment. Further, these parameters are measured from three perspectives - effectiveness, risk and renewal. The methodology consists of interviews and questionnaires of around 50 people across different categories of stakeholders. These include the top management, employees, customers, partners etc. The whole process takes around 12 weeks.

At present Bizworth has four clients. These include e4e, mind tree consulting and bhoruka power. By march next the Bizworth team expects to increase this number to 25. Says P. P. R. Rao: "at the concept level IC rating™ ' is very well understood and accepted. The real challenge will be to make people commit their time and resources. We believe that the market will respond well."

Sridhar Mitta, managing director, e4e agrees. Says Mitta: “Intellectual Capital is an important element of the overall economy and unless we measure it we will not be able to manage it. Just like we now have globally accepted standards to measure performance and quality, in the coming years evaluating Intellectual Capital too will become a necessity.”

For more information contact SR Gopalan at +91 80 41142626
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