Intellectual Capital comprises all factors critical to an organization’s future success that are not shown in the traditional balance sheet.
If you are looking for a rating approach to intellectual capital (IC) that fits that definition, this article is still the right read for you:
The IC Rating™ model by Intellectual Capital Sweden Kristine Jacobsen, Peder Hofman‐Bang, Reidar Nordby Jr Journal of Intellectual Capital ISSN: 1469-1930 Publication date: 1 December 2005
The Intellectual Capital model is originally based on ideas put forth by Sveiby (1997) indicating a division in internal, external and market assets, and the groundbreaking work done by Leif Edvinsson at Skandia in the beginning of the 1990s (Edvinsson and Malone, 1997). Most IC models today use this division, but the words and details might vary. The IC Rating™ model provides important inspiration for investors who are interested in impact investing, social investing and sustainability.
The IC Rating model contains three main areas of IC:
- organizational structural capital,
- human capital and
- relational structural capital.
The value of the article is, among other things, that it develops a taxonomy that is relevant today and probably also in the future. The model creates order by defining elements and showing relationships between the elements. On the one hand, these are abstract enough to be generally valid, on the other hand, concrete enough to lead to a practical result.
The reader of the article will understand why a company’s intellectual capital is not just the sum of the knowledge of its employees. Instead, it is key to capture that knowledge in the company’s structures, so it is transferred from individuals, to groups, to the entire organization and becomes part of the organization’s “structural” capital.
The IC Rating™ gives the company a better understanding of non-financial assets and their importance in the company’s value creation. Intangible assets behave differently to financial and monetary assets, and should therefore be treated differently. The rating brings new insights into how businesses change and perform and how intangibles interact to create value.
The taxonomy provides for a shared language and terminology, therefore assuring a structured and pedagogical way of discussing and understanding a concept that is often perceived as blurry and unclear. A better internal management of IC and translation of a business strategy into actionable results are the consequences. As with any meaningful asset rating it helps the management make intelligent trade-off decisions with regards to investments. Companies never have unlimited funds to invest in the company and the results of an IC Rating™ will give clear indications where the investments will give the best return.