Practical Considerations – Developing an IC System

"Measurement without action is worse than no measurement at all." (MERITUM project)

Summary

1.   There is a growing body of experience of developing IC measurement and reporting systems. The 112-page Danish guideline represents the most comprehensive set of guidance to date.

2.   Your organization's strategic objectives, business priorities and critical success factors should be the starting point for determining the categories of measure and high-level company-wide indicators.

3.   One of the most challenging tasks is to choose an appropriate set of IC indicators. As well as each of them being understandable, relevant and reliable, the overall set should reflect a balance of the different categories of IC, and a mix of different types e.g. inputs (resources), activities (recipes) and outcomes (results).

4.   The overall process of IC measurement and reporting should be viewed as a learning exercise and a catalyst for dialogue. Workshops focusing on IC metrics are commonly found to reveal new insights to managers about the value drivers in their organizations.

5.   A typical 'ah-ah' insight arising from exploring IC models is the importance of the 'IC multiplier' – the ratio of structural capital to human capital. While many knowledge-intensive organizations start with the assumption that people are their most important assets, it often follows that effectiveness of converting human capital into structural capital is a core value creator. It also reduces the risk associated with loss of key personnel.

6.   IC measurement should be seen as part of the wider remit of managing and developing intellectual capital to create organizational value. Good communications and constant two-way dialogue throughout the process is fundamental to developing a better understating of the role of knowledge and of gaining awareness and motivation for the process.

7.   It is important not to underestimate the time and knowledge needed to implement your first IC measurement. Critical success factors are management involvement, participation throughout the organization, good project management and effective communications and dialogue.

A few years ago only pioneers like Skandia and a few specialized consultancies had any significant experience of the measurement of knowledge assets. Since then, more organizations, particularly in Scandinavia, have embarked on serious intellectual capital measurement initiatives. As a result, there have been studies, workshops, case studies and a growing body of practitioner experience that offer useful guidelines and lessons for those that follow. In this chapter we draw on this accumulated knowledge to distil some practical consideration for those involved in developing IC measurement systems.

The briefing starts by giving an overview of the various projects and publications that offer practitioner-oriented guidelines. Specific guidelines are covered in the relevant sections later on in the chapter. There follows an overview of the general approaches to implementing an IC measurement system. The bulk of the chapter deals with practical considerations for each phase of a typical project. This draws on a synthesis of key practices and then follows with a discussion of some common problems and pitfalls. The chapter concludes with some good practice guidance and an indicator checklist. There is also an updated case study of one of the pioneers of IC measurement – Dow Chemical.

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