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Knowledge Assets: Can you measure the intangible?

Knowledge Assets: Can you measure the intangible?. Mary Adams Trek Consulting LLC KM Forum, July 20, 2006. Measuring Knowledge Assets. Why? What? How? Case studies. The need to measure knowledge assets is acute. Data: Ned Davis Research, Inc.

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Knowledge Assets: Can you measure the intangible?

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  1. Knowledge Assets:Can you measure the intangible? Mary Adams Trek Consulting LLC KM Forum, July 20, 2006

  2. Measuring Knowledge Assets • Why? • What? • How? • Case studies

  3. The need to measure knowledge assets is acute Data: Ned Davis Research, Inc.

  4. Today, 80% of corporate value is “intangible” Data: Ned Davis Research, Inc.

  5. Our information paradigms are based on an antiquated system

  6. Accounting systems provide several distinct advantages: • Objective standards • Quantitative measures • Consistent methodology • Consolidated presentation

  7. Pacioli helped us measure value creation based on tangible capital

  8. Today, the value creation process is driven by intellectual capital

  9. Human capital is the creative engine

  10. Relationship capital connects you with the market

  11. Structural capital is the holy grail

  12. Structural capital is an “infinite” resource

  13. The value of structural capital is limited only by its market potential

  14. The last, critical element is the business recipe

  15. What to measure? The full IC value system

  16. 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

  17. Today there are three available approaches: • Valuations • Scorecards • Assessments

  18. Valuations

  19. Scorecards start by mapping intangible drivers of financial performance Source: Kaplan, Robert S. and Norton, David P., Strategy Maps: Converting Intangible Assets into Tangible Outcomes, (Boston, MA: Harvard Business School Press, 2004

  20. 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).

  21. Assessments look at the full IC portfolio

  22. By Pacioli’s standards…

  23. Quantitative measures are only part of the picture

  24. Case Study: IC Rating™ Events business

  25. 1. Efficiency 2. Risk 3. Renewal and Development 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 IC Rating looks at three perspectives Present day Accounting

  26. 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

  27. Scale similar to bond or credit ratings

  28. Event Co.’s overall IC had high efficiency

  29. IC renewal/development were rated average

  30. Risk of decline in IC efficiency is moderate

  31. Employee competence is high…

  32. Employees need support to prepare for new challenges…

  33. Management is an important force…

  34. 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.

  35. 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

  36. IC Rating™Case Studies

  37. Process innovation Action Result Situation • A large entertainment company wanted to cut costs, without jeopardizing value offering • Used IC RatingTM to learn future potential in all business units • IC RatingTM showed a varying degree of potential, and a variety of issues in the 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 • 5 major areas for internal cross-learning have been identified • In total, costs have been cut by >Euro30 million • Management is convinced that this was achieved without jeopardizing value offering

  38. Competitiveness Action Result Situation • A company was facing new competition and felt the need to improve its image and service levels. • The company used IC Rating™ to identify areas of potential improvement in order to become successful in a competitive environment. • IC Rating™ displayed severe problems in the corporate culture and the management’s internal practices. • 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. • 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%.

  39. Strategic Fit • Wholesale subsidiary of a large food and low-temperature warehouse and logistics company • Market suffering from low margins and severe competition Company Profile Action Situation Result • 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. • IC RatingTM showed strength in the sales force and merchandizing abilities, backed by the strong leadership of CEO • 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. • The sales organization was changed to solution-based, from the old style ”geographic-based” sales units • 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

  40. Market Valuation Action Result Situation • The number three IT company on the OM Stockholm Stock Exchange aimed to help the market better understand its potential as a knowledge-based company. • All 35 subsidiary companies which comprise the Group were rated • IC Rating™ divided the IT-Group into four different categories for potential. • By supplementing this information to the annual report they increased transparancy: both strong and weak sides were exposed, increasing understanding for potential as well as increasing trust of the Group. • The Group used results to benchmark and navigate the companies into the future. • The Group’s overall goal of 10% margins was individually revised depending on the potential shown in IC Rating™. • The day when the result of the rating was first shown, the share value of the IT company increased by 8%.

  41. Buy-side support Action Result Situation • Major investment fund with two similar companies in the portfolio, Company A and Company B • Only interested in continuing with one of them in a second round • Used IC RatingTM to evaluate future potential in both companies • IC RatingTM showed a very high potential (high rating), in Company A. Company B had serious issues, particularly in the process capital area. • The recommendation was clear: support Company A in second round. Divest Company B. • 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%

  42. Sell-side support Action Result Situation • A large communication company needed to sell off five business units • There was no interest from the market so the seller withdrew the companies and did an IC Rating™ on each • Used IC RatingTM to identify future potential in all five business units • IC RatingTM showed a varying degree of potential in the business units. • Seller was very transparent, presenting potential buyers with the full range of findings including strengths and weaknesses, opportunities and risks • 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.

  43. Measuring knowledge assets helps you find the path to future success

  44. For more information Visit www.icrating.com Visit www.icknowledgecenter.com Contact Mary Adams 781-729-9650 adams@trekconsulting.com

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