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Making the Business Case forManaging Intellectual Capital

Instructor: Dr. Ijaz A. Qureshi Submitted By: Ayesha Khan Registration No: 51/FMS-

MSTM-2014

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What is Intellectual Capital?

Intellectual capital is the group of knowledge assets that are attributed to an organization and most significantly contribute to an improved competitive position of this organization by adding value to defined key stakeholders.

Marr and Schiuma (2001)

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Explicit knowledge Processes Culture ReputationNetworks

Implicit knowledge Skills Attitude Customer

capital

Total Capital

Intellectualcapital

Human Capital Structural capital Relational capital

Structure of Intellectual Capital

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HUMAN CAPITAL

Know How

Education

Vocational qualification

Work related competencies

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STRUCTURAL CAPITAL

Intellectual property Patents

Copyrights Design rights Trade secrets Trademarks Service marks

Infrastructure assetsManagement philosophyCorporate cultureManagement processesInformation systemsNetworking systemsFinancial relations

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Relational Capital

It is the value inherent in a company's relationships with its:

CustomersVendorDistribution channelsBusiness collaborationsLicensing agreements

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Methods for Estimating value of intellectual capital

• A very simplified estimation of the value of the IC of a company is based on the difference between its stock market value (MV) and its classical book value (BV):

Intellectual capital(IC)=Market value(MV)−Book value(BV)

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Market Value and Book Value for Various Company Types

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Matching assets to earnings Baruch Lev method

Professor Baruch introducing a method using actual earnings independent of MV.

Baruch Lev’s method uses both earnings and assets as data sources rather than relying purely on assets.

By matching assets to earnings, organizations would be left with a figure they can use for comparisons with other companies, or for indicating that their own earnings from IC are going up or down.

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The Balanced Scorecard ( BSC )

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The Skandia IC Key Figure: Skandia Navigator

Source : Adapted from data from Leif Edvinsson 12 and Skandia annual reports 1996, 1997

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