10 Internal Analysis 2

8/12/2019 10 Internal Analysis 2

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Internal Context

and intangible Assets


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The material is based on theFollowing Books

An Integrated Approach to strategic ManagementHills and Jones

Strategic ManagementPeter Fitzroy and James M Herbert

Strategic Management of Health Care OrganizationsLinda E. Swayne W. Jack Duncan and Peter M. Ginter

Marketing StrategyWalker Boyd Mullins Larreche

Strategic Brand ManagementKevin Lane Keller


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We Live in a Strange Economy

Larry Page Sergey Brin

Worth US$ 11,000,000,000 eachSource: Forbes.com

Age 37 Age 37

native of Moscownative of Michigan

PhD at Stanford PhD at Stanford


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Every Company Is Like a Tree


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That Is Best Viewed Upside Down


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Companies

Intellectualcapital

Financialcapital

Tangiblecapital

Human Capital Structural Capital Relational Capital

Intellectual Capital Is the Driver of Value


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Explicit

knowledge

Implicit

knowledge

MIT Has Knowledge

Companies

Intellectualcapital

Financialcapital

Tangiblecapital



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Implicit

knowledge Skills AttitudeExplicit

knowledge

Philips Has Intellectual Property

Companies

Intellectualcapital

Financialcapital

Tangiblecapital



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Explicit

knowledge

Implicit

knowledge Skills Attitude Processes

McDonalds Has Processes

Companies

Intellectualcapital

Financialcapital

Tangiblecapital

Human Capital Structural capital Relational capital


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Explicit

knowledge ProcessesImplicit

knowledge Skills Attitude Culture

GE Has Pride and Ambition

Companies

Intellectualcapital

Financialcapital

Tangiblecapital



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Explicit

knowledge Processes CultureImplicit

knowledge Skills Attitude ReputationNetworks

Nike Does Not Manufacture Shoes

Companies

Intellectualcapital

Financialcapital

Tangiblecapital



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Explicit

knowledge Processes Culture ReputationNetworks

Implicit

knowledge Skills Attitude

Customer

capital

Rabobank Has Involved Customers

Companies

Intellectualcapital

Financialcapital

Tangiblecapital



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Brand of the Year 2005

Source: Brandchannel.com


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Four Duties of Management

Intellectual

capital

Human CapitalStructural

CapitalRelational

Capital

ManageIntellectual

Capital

MakeMoney fromIntellectual

Capital

ReportIntellectual

Capital

ProtectIntellectual

Capital


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Manage Intellectual Capital

Intellectualcapital


Managing KnowledgeProfessionals

Knowledge ManagementIntellectual Property

Management

Brand ManagementCustomer Relationship

Management

P t t I t ll t l C it l


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Protect Intellectual Capital

Intellectual capital

Human Capital Structural capital Relational Capital

Confidentiality

agreements

Employee satisfaction

P t t I t ll t l C it l


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Patents

Registered Designs

Plant Varieties

Design Rights Copyright

Gravity powered shoe

air conditioner

US Patent No. 5,375,430


http://www.patents.ibm.com/details?pn=US05375430__


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Trade Marks

Domain Names


330 N P t t Fil d E h D
http://www.guinness.ie/britain/default.asp


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330 New Patents Filed Each Day

Companies Failing to Protect IC


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Xerox failed to patent and exploit technology inventedin its famous Palo Alto Research Centre.Among these inventions are:

The Personal Computer that generated billions ofdollars for many computer companies like Compaq

Ethernet technology made 3Com famous The laser printer has made Hewlett Packard billions of

dollars WYSIWIG has made Adobe a household name in type

font software

The GUI technology became the foundation for Applecomputers Macintosh and Microsofts Windows

Operating System



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Kodaklost a billion-dollar patent (instant cameras) infringementcase to Polaroid by failure to assess properly the patent landscapebefore launching a major product-development effort.

$925 million in damages to Polaroid $1.5 billion because of shutting down manufacturing plant

700 plant workers to be laid off $500 million to buy back the 16 million instant cameras soldbetween 1976-1985

$100 million dollar to be paid in legal fees during the 14-year longbattle

$? To be written off at a total loss of R&D Effort and Investment

Companies That Made Money From IC


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At IBM

an IP management effort boosted annual patent licensing

royalties from $300 million in 1990 to more than $1 billion

today.

This was accomplished by aggressively licensing

technology and exploiting IP beyond core business

operations, as well as licensing potential competitors in the

PC hardware, semiconductors storage and software

business.



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TexasInstruments began its patent licensing efforts in the

mid-1980s when it faced bankruptcy. Since that time, it has

earned $4 billion in patent royalties and its current licensing

revenues are estimated to be in the neighbourhood of $800

million a year.

Companies That Made Mone From IC


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Coca-Cola

generates approximately $500 million annually from

its trademark-licensing program, at a profit margin

about 80%.Coke has licensed its trademark for use in clothes

and other personal items like playing cards. There

are stores that specialize in selling Coke

trademarked items.

Should IC be on the Balance sheet?


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Should IC be on the Balance sheet?

The system of double-entrybookkeeping is more than 500 years old.It was popularised by the Italian monkLuca Pacioli, and is based ontransactions with 3rdparties.

A transaction, like the sale of a

product, results in changes in the incomestatement and the balance sheet: salesrevenue and cost of goods sold expensewill rise, the inventory decreases andcash and owners equity increases.

IC only appears on the balance sheetwhen it is acquired (goodwill)

Three reasons NOT to put IC on balance sheet:


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Three reasons NOT to put IC on balance sheet:

Not allowed

Only acquired IC can be put on balance sheet

Not possible

Intangible resources are no rival assets

The value of intangibles can increase or decrease without any transaction taking

place

Intangible assets are impossible to count and keep a tally of

No need

Intention of Balance Sheet is NOT to represent the value of the company but to

match costs and revenues

External stakeholders not only use balance sheet to assess companies Current treatment of investments in IC as expenses leads to distortion in income

statement. However, distortion is often small compared with other distortions (e.g.

depreciation methods)

IC Monitor


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HCI SCI RCI

HCA SCA RCA

HCE SCE RCA

Investments

Assets

Effects

Our Intellectual Capital Monitor is based on anemerging standard

IC Monitor

Human Capital


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Public expenditure on education as a percentage of GDP (2001)

3.57

3.85

3.91

4.35

4.41

4.57

4.69

4.98

4.99

5.08

5.09

5.73

5.79

5.9

6.12

6.247.31

8.5

0 1 2 3 4 5 6 7 8 9

JP

LU

EL

IE

ES

DE

UK

IT

NL

USA

EURO-15

FR

AT

PT

BE

FISE

DK

Source: Eurostat Structural Indicators

Human Capital

Structural Capital


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Source: Eurostat, Structural indicators

Gross domestic expenditure on R&D as a percentage of GDP (2001)

0.64

0.850.95

1.11

1.17

1.71

1.89

1.89

1.91.98

2.17

2.23

2.4

2.51

2.72

3.073.41

4.27

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

EL

PTES

IT

IE

LU (2000)

NL

UK

ATEURO-15

BE

FR

DK

DE

USA

JPFI

SE

Structural Capital

IC Investments


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0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

USA

JPEURO-15

EL

ES

IT

LU

PT

IE

UK

AT

NL

FR

DE

BE

FI

SE

DK

HCI SCI

IC Investments

IC Assets


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0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80

USA

JP

EURO-15

IT

EL

PT

ES

LU

FR

DE

BE

NL

AT

IE

UK

FI

DK

SE

HCA SCA RCA

IC Assets

IC Effects


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0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70

USA

JPEURO-15

PT

EL

ES

IT

AT

BE

FI

IE

FR

SE

DK

NL

UK

LU

DE

HCE SCE RCE

IC Effects

Conclusions


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1. Investments in IC pay off

We found a strong correlation between HCI and HCA (0.470) and between

SCI and SCA (0.686)

2. HC and SC go together

HC and SC are interdependent and mutual enhancing factors

3. High value of IC assets is no guarantee for high productivityLow value of IC assets do seem to be a guarantee for low intellectual

productivity

4. Europa, compared to USA and Japan, has a long way to go

But is catching up.

Thank You!


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Dr. Daniel Andriessen

Professor of IntellectualCapital

INHOLLAND Universityof Professional Education

Amsterdam/ Diemen The

Netherlands+31-204951719

Documents

10 Internal Analysis 2