• Report
from the Field • The Resurgence of Intellectual Capital
The emphasis shifts from measurement to management by Michael Koenig
In the early 1990s, intellectual capital
(IC) was one of the hottest topics in business literature. Businesspeople
sought ways to account for intellectual capital and make it part of the
“balanced scorecard.” This inevitably lead to the question, “How does one
measure intellectual capital?” Thomas Stewart’s articles in Fortune,
and Leif Edvinsson’s supplements to Skandia Corp.’s annual reports helped
to fuel the debate. But it soon became apparent that however attractive
measuring intellectual capital was in principle, in practice it was difficult,
and in most cases impractical if not impossible. Because of this difficulty,
the enthusiasm for IC faded. The topic diminished almost to the point of
becoming a footnote, and it seemed as if intellectual capital would be
remembered mostly as a parent of knowledge management (KM).
Since then, intellectual capital has returned with a vengeance, not
as an asset to be measured, but as an asset to be managed. Now, the new
concept is called intellectual capital management (ICM). The Conference
Board’s Intellectual Capital Management Conference held June 29–30 in New
York sought to explain this new concept and detail ways in which to use
it effectively.
What Caused the Change? Intellectual capital has made a comeback because of the following factors:
The most obvious factor has been the stunning increase in recent years
in the market value of companies compared to, and in excess of, their book
value. Something must account for that increased valuation, or else it’s
just a bubble. However, both hope and the continued good health of the
economy have conspired to convince us that it’s not just a bubble. The
only other good way to explain that increased valuation is intellectual
capital. (See Figure 1.)
A second major reason for the comeback is the recognition of the increased
importance of patents and their licensing. The watershed year was 1982,
when the federal government set up a Federal Circuit Court just for patent
disputes. The intent was to gain greater efficiency and consistency in
handling these disputes. Those goals were achieved, but there was another
important result: Allowing patent disputes to be resolved by a more knowledgeable
tribunal helped patents to become more sustainable and valuable. At roughly
the same time, there was a shift in attitude in favor of patents, with
the government less inclined to view them as instruments for restraint
of trade as it had in 1975. At that time Xerox, as a consequence of a Federal
Trade Commission consent agreement, was forced to license its photocopier
technology against its will and for trivial fees.
The third major factor in the resurgence of intellectual capital has been
the expansion of the patent domain to include both software and business
process patents.
IC as a Core Asset Now the worth of patents is a hot topic. Indeed, the name of the conference
might almost have been “Managing Your Patents as Assets.” The most frequently
mentioned fact at the conference was that IBM receives over $1 billion
per year in revenue from its patent portfolio. The most striking indication
of the new emphasis is detailed in Figure 2.
What is striking of course is that most of the classic business book-value
assets, (physical plant, raw material, inventory, etc.) appear under the
phrase “complementary assets.” The implication is clear: that intellectual
capital is the core asset. This represents not just a new emphasis on intellectual
capital, but a complete sea change in how we think about the assets—indeed
how we think about the very essence of a corporation. The thrust of the
first wave of enthusiasm for intellectual capital was that it should be
treated as one of the economic “factors” of production, alongside the traditional
factors, such as land, labor, financial capital, and energy. Now we are
beginning to see those traditional factors described as complementary assets
to intellectual capital, which is seen as the core foundation asset. IC
has not just been elevated to first-class citizenship, it’s now viewed,
at least in some circles, as nothing less than, and possible more than,
the very first among equals.
Key Points Some of the points made at the conference include the following:
Intellectual capital management is a good, solid, easy-to-sell first step
toward a larger KM program.
If at all possible, place ICM somewhere other than the legal department.
The connection between purchasing/supply chain management and ICM is an
interesting, obscure, and important relationship. The notion here is that,
increasingly, what an organization purchases is in part, perhaps a significant
portion of IC, either existing or waiting to be developed. This requires
careful thought as to who will patent and own the IC, who will have the
right to use it and under what conditions, who will defend it, etc. It
can be argued that the increased importance of intellectual capital is
driving a progression from the standard supplier relationship, to key supplier
relationship, to strategic partner, to ultimately the virtual company.
Finally, a topic of some lively discussion was the likely maintainability
of recent business-process patents. One speaker made the point that, under
the current practices, American Airlines’ “invention” of frequent-flyer
miles would have been patentable, and that indeed there are now a number
of patents that have been granted for various systems of online bonus points.
The alternative view was that while in its day the concept of S&H Green
Stamps may have been sufficiently novel enough to be patentable, frequent-flyer
miles and online bonus points are such obvious derivatives that they should
fail the “non-obvious” requirement of what is patentable. The question
is, will the present climate prevail, or will a court case soon set a higher
threshold for the non-obvious requirement than what the patent office is
currently applying? My best guess is that the odds are two-to-one in favor
of the courts setting a higher threshold.
Michael Koenig is the dean of the Palmer School of Library and Information
Science at Long Island University. His e-mail address is michael.koenig@liu.edu.
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