Transcript Increasing intellectual capital

From quantity to sustainable quality
Increasing intellectual capital: can this objective
guide policy development and can it be measured
Warsaw, 30 November 2009
Prof. dr hab. Krzysztof Rybinski
Warsaw School of Economics and Ernst & Young
Email: [email protected]
Blog: www.rybinski.eu
Not everything you count counts; not
everything that counts is counted
Albert Einstein
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Paper structure (1)
• Why GDP as a measure of country/region
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development fails to capture the most important
aspects of country and regional development in XXI
century?
How to create a policy evaluation metric that can be
easily understood by citizens and engages citizens in a
lively debate about policy outcomes?
Can intellectual capital methodology be a useful policy
evaluation metric: brief history and recent
applications to countries, regions, cities, universities
and companies.
Can evaluation methodology be
transformed/expanded to include intellectual capital
of countries/regions?
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Paper structure (2)
• Can Europe gain competitive edge in the global
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knowledge economy by adopting intellectual
capital framework in policy planning and
evaluation?
Can future Cohesion policy be based on
intellectual capital? Will it help to integrate new
Cohesion policy with post-Lisbon agenda?
Intellectual capital as a tool to generate new
strategic momentum for policies in the new
financial perspective after 2013.
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Disconnect EU citizen
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Source: Eurorometer, June-July 2009
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Example: www.gapminder.org
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Intellectual capital: brief history
• Late 1980s – early attempts to create intellectual capital
statements. Karl Sveiby’s Intellectual Asset monitor was
created. Sveiby used the term knowledge based assets
which were divided into three categories: competence,
external structure and internal structure. The model was
used by several Scandinavian companies.
• Early 1990s – Pioneering initiatives to systematically
report on intellectual capital to external parties.
Skandia’s intellectual report dates back to 1994.
• Mid-1990s – several important books on intellectual
capital are published: Sveiby (1997)
• Skandia (1994). Leif Edvinsson was appointed the first
director of intellectual capital in Scandia in 1991
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IC initially applied to companies
• Historically intellectual capital methodology was applied in the
corporate sector, to explain the difference between market value
and book value of a company listed on the stock exchange. This
difference rose over time and was explained as a price, that
investors put on corporate intangible assets, which cannot be
precisely measured today but have potential to generate value for
investors in the future.
• The branch of intellectual capital that deals with company intangible
assets reporting is most developed and researched. In December
2008 European Financial Reporting Advisory Group (EFRAG) has
invited comments on paper prepared by Australian Accounting
Standards Board, which proposed future path of changing
accounting standards to better measure corporate intangible assets
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Company market value is driven by
intangible assets
Components of S&P 500® Market Capitalization
14,000
S&P 500 Market Cap ($ billions)
Market Premium
12,000
10,000
Intangible Book Value
Tangible Book Value
8,000
6,000
4,000
2,000
-
1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
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From 80/20 in 20th century to
20/80 in 21st century
S&P 500® Intangible Value as % of
Market Capitalization
79.7%
100%
68.4%
80%
60%
40%
32.4%
16.8%
20%
0%
1975
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1985
1995
2005
IC: applications
• Measuring intellectual capital of countries (Israel,
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Poland, Sweden, Malaysia, Denmark, Finland,
multinational study of 40 countries, benchmarking of
Arab countries).
Measuring intellectual capital of regions, cities and
communities (Poland, Spain, Norway)
Measuring intellectual capital of cities (Poland, Spain)
Measuring and reporting intellectual capital of companies
(Germany, Japan, Poland, Brazil)
Measuring and reporting intellectual capital of
universities (Austria, Poland, Sweden)
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IC: definition for companies
• Intellectual Capital has been defined as the combination
of an organization’s Human, Organizational and
Relational resources and activities. It includes the
knowledge, skills, experiences and abilities of the
employees, its R&D activities, organizational routines,
procedures, systems, databases and its Intellectual
Property rights, as well as all of the resources linked to
its external relationships; such as with its customers,
suppliers, R&D partners, etc.
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Source: EU funded projects MERITUM and RICARDIS
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IC: definition for a country (PL)
• Country intellectual capital is defined as stock of intangible
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assets held by people, companies, communities, regions and
institutions. These assets, if properly used, can be source of present
and future well-being of the country.
Human capital refers to each individual competences, which
includes education, experience, attitudes, skills, which can be used
to improve present and future well-being of the country.
Structural capital refers to existing national education and
innovation infrastructure – learning institutions, research entities,
ICT infrastructure, intellectual property.
Social capital is defined by existing social norms, trust and social
engagement, which through high quality relationships contributes to
national well-being
Relationship capital comprises country perception abroad, level
of integration with global economy, country attractiveness for
external clients – investors, trade partners, tourists.
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Source: Poland Intellectual Capital Report, 2008
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IC: standards yet to be developed
• Brief review of intellectual capital methodology
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presented in my paper shows that there is no standard
of measurement. Each country or scientist uses different
definition, different set of indicators, basing on his/her
subjective judgment.
Therefore at this stage the intellectual capital
methodology cannot be easily used for policy planning
and evaluation as such. There are no commonly
accepted standards and empirical evidence is scarce.
However, as shown in the paper, the intellectual capital
methodology and framework can be used to improve the
EU evaluation and policy planning in the new financial
perspective.
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What should be measured?
• To put it in the simplest possible way. If you give money to farmers,
you need excellent measurement system of number of cows and
number of cultivated acres of land, to make sure that right people
get the right amount of money.
• In order to succeed in the global knowledge economy the EU will
have put a lot of resources into knowledge-based assets. Therefore
it will be more important to be able to properly measure the number
and quality of innovations or number of cooperation initiatives
between university and business, than to measure the number and
quality of land farms or livestock.
• So we need to develop simple and efficient measurement system to
quantify intangibles, to make sure that significant funds are given to
right people and to proper initiatives. Measurement of intangibles is
precisely the area of research covered by the intellectual capital.
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Proper measurement matters
• An obese man came to a doctor asking for help. What
should I change, he asked. Should I stop eating some
meals? Do not change anything, doctor replied. Simply
every time you eat something take down a note in a
special notebook, and then read it every evening. This
man lost 10 kg within one month without any forceful
change of his eating habits.
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EU strategic focus
• European Union vision 2020, with strong focus on
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climate, energy security and innovation
Fewer priorities, consistent with the EU vision and with
the desired global role of the EU
More flexibility
Simplification
Performance determined funds allocation and stronger
conditionality
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EU strategic planning process (1)
• Creating EU2020 vision statement and strategic goals, which
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should be in a SMART form (Specific, Measurable, Achievable,
Relevant, Timely)
Create proper metric to measure progress (e.g. green GDP,
national/regional intellectual capital, etc.)
Cascade strategic goals to countries and regions, the new
measurement metric should be used to determine what will
be country region contribution to achieving the EU strategic
goals, and accordingly what resources will be needed
Create and implement new conditionality rule, country that
contributes more to achieving EU goals receives more funds,
countries/regions that fail to perform receive less funds
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EU strategic planning process (2)
• Initially allocate only small part of the envelope to
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particular countries or regions based on ex-ante
evaluation of projects that lead to fulfillment of cascaded
strategic goals
Further disbursements of EU funds should be based on
ex post evaluation of completed projects, successful
activities should be strengthened, failing activities should
be terminated.
Local national or regional policies that do not contribute
to EU strategic goals should be funded locally.
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IC cities, city X
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Source: Rybinski, Wodecki (2008)
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City X
władze
metropolii
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City Y
władze
metropolii
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IC: proposed policy evaluation model
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Source: proposal based on Rybinski, Wodecki (2008)
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Four recommendations
• Connect to the EU citizen. Policy goals and statistical data should be
reported in terms which are important to the EU citizen. Playing
with data should be fun and easy, the good benchmark is offered by
www.gapminder.org
• Start several projects of measuring intellectual capital of selected
regions. Some 10-15 regions should suffice to account for the EU
heterogeneity. If launched soon the first results should be ready by
the end of 2010.
• Build EU intellectual capital model, which will offer a strategic
framework for the future EU policy evaluation. Cascade this model
down to member states. It will ensure that the same policy
language – connected to EU citizens – is spoken at all EU
governance levels.
• Take seriously Albert Einstein statement: “Not everything you count
counts; not everything that counts is counted”. Stop counting cows
and start measuring the quality of intangible assets.
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