Intellectual Capital

NEW METRICS FOR A NEW AGE

or

A NEW FAD!

Skandia Market Value Scheme

Skandia’s intellectual capital key figures: Skandia Navigator

FINANCIAL FOCUS (1)

1. Total assets ($)

2. Total assets/employee ($)

3. Revenues/total assets (%)

4. Profits/total assets (%)

5. Revenues resulting from new business operations ($)

6. Profits resulting from new business operations ($)

7. Revenues/employee ($)

8. Customer time/employee attendance (%)

9. Profits/employee ($)

10. Lost business revenues compared to market average (%)

FINANCIAL FOCUS (2)

11. Revenues from new customers/total revenues (%)

12. Market value ($)

13. Return on net asset value (%)

14. Return on net assets resulting from new business

operations ($)

15. Value added/employee ($)

16. Value added/IT-employees ($)

17. Investments in IT ($)

CUSTOMER FOCUS (1) 1. Market share (%)

2. Number of customers (#)

3. Annual sales/customer ($)

4. Customers lost (#)

5. Average duration of customer

relationship (#)

6. Average customer size ($)

7. Customer rating (%)

8. Customer visits to the company (#)

9. Days visiting customers (#)

10. Customers/employee (#)

CUSTOMER FOCUS (2)

11. Field salespeople (#)

12. Field sales management (#)

13. Average time from customer

contact to sales response (#)

14. Sales closed/sales contacts (%)

15. Satisfied customer index (%)

16. IT investment/salesperson ($)

17. IT investment/service & support

employee ($)

18. Support expense/customer ($)

19. Service expense/customer/year ($)

20. Service expense/customer/contact ($)

HUMAN FOCUS (1)

1. Leadership index (#)

2. Motivation index (#)

3. Empowerment index (#)

4. Number of employees (#)

5. Employee turnover (%)

6. Average employee years of service with company (#)

7. Number of managers (#)

8. Number of women managers (#)

9. Average age of employees (#)

10. Share of employees less than 40 years (%)

HUMAN FOCUS (2)

11. Time in training (days/year) (#)

12. Number of directors (#)

13. Number of women directors (#)

14. Number of full-time or permanent employees (#)

15. Average age of full-time or permanent employees (#)

16. Average years with company of full-time or

permanent employees (#)

17. Annual turnover of full-time permanent employees (#)

18. Per capita annual cost of training, communication, and

support programs for full-time permanent employees ($)

HUMAN FOCUS (3)

19. Full-time or permanent employees who spend less than

50% of work hours at a corporate facility (#)

20. Percentage of full-time permanent employees (%)

21. Per capita annual cost of training, communication, and

support programs ($)

22. Number of full-time temporary employees (#)

23. Average years with company of full-time temporary

employees (#)

HUMAN FOCUS (4)

24. Per capita annual cost of training and support programs

for full-time temporary employees ($)

25. Number of part-time employees or non-full-time

contractors (#), average duration of contract (#)

26. Company managers with advanced degrees: business

(%), science and engineering (%), liberal arts (%)

RENEWAL AND DEVELOPMENT(1)

1. Competence development expense/employee ($)

2. Satisfied employee index (#)

3. Marketing expense/customer ($)

4. Share of training hours (%)

5. Share of development hours (%)

6. Employee's view (empowerment index) (#)

7. R&D expense/administrative expense (%)

8. Training expense/employee ($)

9. Training expense/administrative expense (%)

10. Business development expense/administrative expense (%)

RENEWAL AND DEVELOPMENT(2)

11. Share of employees below age 40 (%)

12. IT development expense/ IT expense (%)

13. IT expenses on training/ IT expense (%)

14. R&D resources/total resources (%)

15. Customer base (#)

16. Average customer age (#)

17. Average customer education (#)

18. Average customer income ($)

19. Average customer duration with

company (months) (#)

20. Training investment/customer ($)

RENEWAL AND DEVELOPMENT(3)

21. Direct communications to customer/year

22. Non-product-related

expense/customer/year ($)

23. New market development investment ($)

24. Industry development investment ($)

25. Value of EDI system ($)

26. Upgrades to EDI system ($)

27. Capacity of EDI system (#)

28. Ratio of new products (less than

2 years old) to full company catalog (%)

RENEWAL AND DEVELOPMENT(4)

29. Ratio of new products (less than

2 years old) to product family (%)

30. R&D invested in basic research (%)

31. R&D invested in product design (%)

32. R&D invested in processes (%)

33. Investment in new product

support and training ($)

34. Average age of company patents (#)

35. Patents pending (#)

PROCESS FOCUS (1)

1. Administrative expense/total revenues (%)

2. Cost for administrative error/management revenues(%)

3. Processing time, out payments (#)

4. Contracts filed without error (#)

5. Function points/employee-month (#)

6. PCs/employee (#)

7. Laptops/employee (#)

8. Administrative expense/employee ($)

9. IT expense/employee ($)

10. IT expense/administrative expense (%)

PROCESS FOCUS (2)

11. Administrative expense/gross premium (%)

12. IT capacity [CPU & DASD] (#)

13. Change in IT inventory ($)

14. Corporate quality goal (#)

15. Corporate performance/quality goal (%)

16. Discontinued IT inventory/IT inventory (%)

17. Orphan IT inventory/IT inventory (%)

18. IT capacity/employee (#)

19. IT performance/employee (#)

110 Variables!

• Is Intellectual Capital the New Wealth or the latest Consulting Fad?

IC Voodoo! IC Evangelists

• The leading advocate is Leif Edvinsson, director of intellectual capital for Skandia, a large Swedish financial services and insurance company.

• Michael Malone, one of the IC gurus, recently wrote, IC is "not merely a new model for valuation, but a new arbiter of value....Intellectual capital renders a moral judgment on what is good and proper behavior. In doing so, intellectual capital establishes a whole new set of images through which to order the world, and to determine what behavior will be valued and rewarded and what will be dismissed

and punished." Frightening words.

SEC + FASB Love Intellectual Capital!!!

Uncertainty about the true value of

technology companies causes volatility, and

volatility worries the Securities and

Exchange Commission. Solution? Use

information that makes financial statements

increasingly relevant .i.e. IC !

Steven Wallman, an SEC commissioner.

Measuring intellectual assets12 techniques used to value intangible assets

• Relative value• Balanced scorecard• Competency models• Subsystem

performance• Benchmarking• Business worth

• Business process auditing

• Knowledge bank• Brand equity valuation• Calculated intangible

value• Microlending• “Colorized” reporting