PracticeConsultingComment – Colour of intellectual capital

Comment - Colour of intellectual capital

In a knowledge-driven economy, intellectual assets can be more pivotal to a company's business than physical ones. Terry Joint explains how this can be used to advantage.

The need to identify and assess the value of capital assets is well understood. Indeed, a business that did not put a value on its capital assets would not only be viewed as careless, but even irresponsible.

Every business bases its financial stability and market valuation on the strength of its balance sheet, its brand and the ‘goodwill’ of customers and partners. But what happens in the knowledge-driven economy, when infrastructure is reduced drastically, and a company’s assets lie in its intellectual – rather than its physical – capital?

How do you put a value on the knowledge and know-how that your organisation depends on for its success, especially when that know-how may be in the heads of a very small number of individuals?

Only a handful of businesses have carried out an audit of intellectual assets within their company. As a result, they do not have a clear understanding of how the value of their business could be damaged if a few individuals left overnight. Many are far from having a robust intellectual asset management strategy in place, which means knowledge is not shared, nor is it stored and recorded in a format that can be exploited if its originators are no longer part of the company.

Faced with these issues, company auditors will be increasingly concerned with the way organisations manage their people and their knowledge. Auditors will look not only at the value of a company in terms of its current financial performance and its investment in assets, but also how much at risk it is from losing valuable intellectual assets.

They are also likely to look at how assets have been strengthened year on year, and how the organisation is going about recording the way that people gain client/project experience and relevant training. Looking ahead, they will need to value how companies will meet market requirements that will exist in two to five years’ time.

To assess that value, auditors will need to ask whether the company has the right skills to adapt to the future, how cross-trainable its people are, and how expensive it will be to carry out that process. Organisations need to look at the way they value their assets and people. They also need a way of ‘date-stamping’ training and project experience, and a strategic approach to intellectual asset management and the management of knowledge workers.

The pressure is on for organisations in the increasingly service-centric economy to put a real value on intellectual capital. But without the right foundations in place, they are highly unlikely to be able to anticipate the implications of that new requirement, let alone satisfy the needs of the auditors.

Terry Joint is EMEA MD of Infinium Software.

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