DESCRIBING KNOWLEDGE ASSETS AND INTELLECTUAL CAPITAL MEASUREMENT TECHNIQUES These are the topics for today: What are knowledge assets? Why are they so important for organisations? Who should care about knowledge assets? How should we measure our knowledge assets?

INTRODUCTION We are going to look at this increasingly strategic area of business paper, decide on who is really interested and examine ways of measuring organisational performance. Knowledge assets are now considered the most important factor of wealth creation in organisations. Wealth creation will be in proportion to an organisation’s capacity to learn and share innovation. This means creating or acquiring relevant knowledge assets.

CHALLENGES FOR THE MANAGEMENT OF KNOWLEDGE ASSETS On a scale between ‘no challenge at all’ and ‘a big challenge’, the big challenges identified by organisations are: Deriving targets from strategy; Developing the appropriate culture; Finding the balance between human oriented and system oriented (generally referring to technology focused approaches) knowledge asset management practices; and Measuring performance.

WHAT ARE KNOWLEDGE ASSETS? Knowledge assets – an economist’s view of the world. Intellectual capital – for managers and lawyers. Intangibles – for the accountants among us. Are they really different?

DEFINITION OF AN ASSET A resource controlled by the entity as a result of past events, the cost of which can be measured reliably, and from which future economic benefits are expected to flow to the entity.

KNOWLEDGE ASSETS

WHY ARE THEY SO IMPORTANT?

WHO SHOULD CARE ABOUT KNOWLEDGE ASSETS? Policymakers Biased and even fraudulent financial reports Appropriate monitoring tools

WHO SHOULD CARE ABOUT KNOWLEDGE ASSETS? Managers Artifically increases cost of capital Need to have a mechanism that identifies the true cost of capital

WHO SHOULD CARE ABOUT KNOWLEDGE ASSETS? Investors Lack of appropriate knowledge Leads to losses for the less informed parties Decrease information asymmetry

HOW SHOULD WE MEASURE OUR KNOWLEDGE ASSETS? An effective performance measurement system includes critical success factors, a mix of financial and non-financial data, and a balance between different views. Effective performance measures are dynamic and therefore, apart from being subject to change at any time, will not be appropriate in every situation. At all times, however, they will always be congruent with organisational objectives, easily understood by all employees and promote intended behaviour within the organisation.

CRITERIA FOR PERFORMANCE MEASURES Elevation of the strategic importance of knowledge assets has raised the thorny issue of how to account for their management. A set of KPIs needs to be established that assesses the organisation's performance in implementing an integrative knowledge asset management strategy. In doing so, the temptation to focus only on what is easily measurable, which generally is the efficiency dimension of activities and costs, should be resisted.

KEY PERFORMANCE INDICATORS (KPI) Effectiveness (for example, quality improvement or innovation gains) Efficiency (for example, productivity increase through improved business processes) Generally, organisations having a knowledge asset management strategy and actively managing it focus particularly on the efficiency dimension as it can be operationalised more easily compared to the effectiveness dimension.

KEY PERFORMANCE INDICATORS (KPI) Every KPI, whether it is used to simply clarify the current position, guide the implementation of strategy, check the effectiveness of strategy or track changes in the image of the future, will affect actions and decisions. Choosing the right KPIs is critical to success but the road to good indicators is littered with pitfalls. Many seem right and are easy to measure but may have counterproductive consequences. Others are more difficult to measure but focus the organisation on those decisions and actions that are critical to success.

CONCLUSIONS It is time to leave the easy work and look to climb the highest mountains. Focus should be on analysis of the economics of knowledge assets and their role in organisational value creation and the enhancement of social welfare. We need to incorporate appropriate knowledge asset measurement tools into the strategic and operational control processes of an organisation.

DESCRIBING KNOWLEDGE ASSETS AND INTELLECTUAL CAPITAL MEASUREMENT TECHNIQUES Thank you for your attention to my presentation Your questions and comments are now welcomed