Thought Leadership

What gets measured, gets managed

The Economic Times, December 31, 2005


There is a need for CEOs and CFOs to delve deeper into issues relating to Intellectual Capital and to unearth the latent value of their companies.

A NEXT GENERATION consulting company-
Bizworth India Pvt. Ltd. specializes in intellectual capital mapping and evaluation services. Bizworth brings to India an internationally - acclaimed and Validated methodology - Intellectual Capital Rating (IC rating) - which enables a company to assess,
harness, and energize its Intellectual Capital. 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 ICwith Preiti Sharma Shahane, Excerpts :

How important is human capital as a constituent of Intellectual capital?
Intellectual capital is generally divided into threesegments. At the centre is human capital which is
supported by what is getting increasingly described in the IC world as structural capital. Structural capital is divided into internal and external structural capital Internal capital is the capital that resides within the organization. This consists of processes, IPs and the like. To paraphrase 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. External structural capital resides
outside the organization but the organization is able to leverage it and to an extent belongs to it, though not necessarily in the sense of ownership. This would include dealer networks, supply chain, partnerships, customer and brand.

What are the parameters based on which IC is
measured ?
About 300 industry relevant parameters are used to assess an organization’s IC. A score is obtained for each parameter both quantitatively and qualitatively, based on in-depth interviews with people who know the organization best. These scores are then weighed using a mathematical model.

Why and when is it relevant to measure intellectual capital ?
W Edwards Deming, the legendary creator of the quality circles concept, lamented that most managers spend more than 95% of their time analyzing figures, and less than 5% of their time on the intangibles that really matter. The share of intangibles value as a percentage of total enterprises value is rising very rapidly, especially for about 74% of an enterprise’s total value. It is clear that the share of intangible value invariably gets maximized when it is properly recognized, assessed and communicated to stakeholders.

What are the benefits of measuring intellectual
capital ?
What gets measured gets managed. Measuring Intellectual Capital is the first step towards managing intangibles to drive future value.
Another major benefit of assessing Intellectual Capital will be a significant improvement in the quality of corporate governance. The key function of a board is to enhance value. Too often, however, governance is equated with compliance. When the board gets to look at both financial results and a structured assessment of intangibles it is in a better position to protect shareholder value. There can also be specific events that trigger the need for an IC rating exercise. This would include, for example, portfolio re-assessment or a merger/acquisition.

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 Intellectual 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. Midsized companies and even small companies would find it affordable.

How is IC rating quantified ?
The results are provided in the form of a rating chart across the three dimensions of effectiveness, risk and renewal. The rating is carried out for eight primary elements of Intellectual Capital.

For more information contact SR Gopalan at +91 80 41142626
Copyright © 2008 Bizworth All rights reserved.