Michael D. Moberly April 23, 2012
There are countless companies that have executed well intentioned initiatives to manage and safeguard their intellectual capital (IC). There is nothing particularly new here.
An important driver of this elevated and worthy interest in intangibles is that 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability today evolve directly from intangible assets, one of which of course is internally produced or acquired IC.
IC represents the value employees provide to a company or client by applying their skills, knowhow, expertise, and the unique understanding of how best to use (exploit) that IC to create efficiencies, commercialization opportunities, and/or generate revenue and competitive advantages.
Let’s be clear at the outset though, IC is not synonymous with intellectual property, i.e., patents, trademarks, or copyrights. True, intellectual property is generally composed of intellectual capital. IC however, standing alone, is not eligible for conventional intellectual property protections unless it would be internally designated as a trade secret. Thus, having processes and procedures in place to ensure IC’s proprietary nature is preserved becomes all the more important.
IC also includes:
- Human capital which is a company’s combined (employee) capability for solving a company’s (business) problems and how effectively a company uses its employees as measured by creativity and innovation. Human capital is inherent in most employees and cannot necessarily be ‘owned’ (in a conventional sense) by a company other than through non-compete and non-disclosure employment agreements.
- Structural capital which consists of a company’s supportive infrastructure, processes, and (proprietary) databases, etc., which collectively enable human and intellectual capital to function (more) effectively through the utilization of certain hardware, software, information systems, processes, intellectual property, and a company’s image.
In some settings, structural capital can be further categorized as…
- Organizational capital, e.g.., a company’s operating philosophy and systems for leveraging and/or maximizing its capability…
- Process capital, e.g., techniques, procedures, and programs used to implement as well as enhance the delivery of goods and services…
- Innovation capital, e.g., intellectual property and other forms of intangible assets…
- Relationship capital, e.g., readily identifiable items such as trademarks, licenses, franchises, and customer/client interactions and relationships.
Unfortunately however, existing research – studies indicate that management teams, c-suites, and boards generally fall short of (a.) recognizing all of the IC held within their firm, (b.) the various formats IC can manifest itself, and (c.) ensuring effective processes – procedures are in place to counter, prevent, and/or mitigate the growing array of risks, threats, and challenges associated with safeguarding – managing (sustaining control, use, ownership, and monitoring value and materiality of) intellectual capital.
My professional interest in company’s IC focuses on those aspects which are – have become embedded in a company’s processes and procedures to produce, develop new, and/or improve existing goods and/or services. In today’s increasingly knowledge (intangible asset) based global economy, IC in my view, represents the more significant of a company’s ‘building blocks’ insofar as its ability to solve problems, achieve profitability, and contribute to sustainability.
IC, in my view, can best serve a company’s tactical and certainly strategic interests only if those aspects that contribute to value, innovation, problem solving, revenue, and competitive advantages are designated as being proprietary, effectively safeguarded, or possibly bundled for licensing or other profit-revenue delivering modes. Company management teams and other business decision makers must recognize IC is a perishable, vulnerable, and transferrable (intangible) asset (commodity). That is, it can ‘readily walk out the door with employees’.
In most instances, I encourage company management teams to put specific practices/procedures in place to sustain the proprietary status of designated IC. The intent of such an exercise is to reduce the probability that value driving IC would (purposefully, inadvertently, surreptitiously) enter the public domain or become known (acquired) by global competitors. Should either occur, it would hasten diminishment of the assets’ contributory value, revenue generating capability, as well as any competitive advantages it may have influenced.
It warrant’s saying also that conducting periodic inventories and/or audits of intellectual property is no substitute for, nor does it equate with what’s necessary for managing and safeguarding IC assets, particularly in today’s highly competitive and globally predatorial business (transaction) environment. And, with steadily rising percentages of company value, revenue, growth potential, and sustainability tied directly to the production and effective use of intangible assets, like IC, the notion of dedicating an individual and/or team to be responsible for identifying, managing, using, and protecting (a company’s) IC is becoming a prudent business decision with a strong and defensible value proposition!
Key professionals, like Mary Adams of I-Capital Advisors, are respected thought leaders, strong advocates and practitioners serving this increasingly important business arena.
Readers interested in learning more about intellectual capital management are encouraged to visit the IC Knowledge Center and/or read ‘Intangible Capital: Putting Knowledge to Work in the 21st Century’ by Mary Adams and Michael Oleksak which was the inspiration for this post.