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MEASURING THE VALUE OF INTANGIBLES. to discover the roots of company’s future success. Geneva, July 11, 2006. When we want to assess future potential of a company, what shall we look at?. LOOKING BEYOND FINANCIAL ASSETS. - PowerPoint PPT Presentation
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MEASURING THE VALUE OF INTANGIBLESMEASURING THE VALUE OF INTANGIBLES
Geneva, July 11, 2006
to discover the roots of company’s future successto discover the roots of company’s future success
2
When we want to assess future potential of a company, what shall we look at?
LOOKING BEYOND FINANCIAL ASSETS...
• Managing an organisation by focusing simply on its financial assets would be like driving a car looking just in the rear mirror.
• Profits are fruits of the past performance – so what indicators do you have about potential and future value of a company?
3
What are the intangibles?
DEFINITION OF INTANGIBLES
The factors not shown in the traditional balance sheet,
but which are of critical importance for the company’s future success.
We believe that future value of company depends mainly on intangibles.
Different methods were developed to assess and allow benchmarking of areas that are of
critical importance for the future of organisations, but still are not shown in
traditional financial or operational reports.
4
Market value, book value and intangibles
TOTAL VALUE = Financial
capital + Intangible capitals
PaeseMarket value
Book Value
% tangibile
Brand value
Altri intangibles
% intangibile
Coca Cola US 104,8 11,8 11% 69,64 23,36 89%
Microsoft US 264,9 55,8 21% 64,09 145,01 79%
IBM US 138,2 22,8 16% 51,19 64,21 84%
General Electrics US 277,4 63,9 23% 41,31 172,19 77%
Intel US 112,3 35,3 31% 30,86 46,14 69%
Nokia Finland 71,1 15,4 22% 29,97 25,73 78%
In $ billionsSource: adaptation from AIAF, 2005
Country
tangible intangible
Other intangible
s
5
Measuring the value of intangibles
Companies have to develop and utilise new accounting methods, since those that have been implemented so far: Are too focused on the past Miss anticipatory “power” Capture critical changes too late• Don’t take into adequate
consideration some resources, such as intangible assets
Elaboration from Sveiby, 2001.
Non-monetary methods
Hol
isti
c M
etho
dsAt
omis
tic
Met
hods
Monetary Methods
AFTF TM
TVC TM
The Valueexplorer TM
IntellectualAsset
ValuationTechnology
Broker
InclusiveValuation
Methodology
CitationWeightedPatents
IC - index TM
Value ChainScoreboard TM
IntangibleAssetsMonitor
HumanCapital
Intelligence
BalancedScorecard
SkandiaNavigator TM
Tobin’s Q
Market toBook value
IAMV TM
.
KnowledgeCapital
Earnings
EVA TM
CalculatedIntangible
Value
VAIC TM
HRCA
Main Intangible Assets Measuring Models
6
IC RatingTM background: the Value Platform
Relationalstructural
capital
Humancapital
Organisational structural
capital
BusinessRecipe
Value
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
There are 3 main perspectives behind IC Rating Platform:
1) Human CapitalPeople, employees
2) Organisational Structural CapitalAll processes, procedures, systems and culture that are left when employees are not in place
3) Relational Structural CapitalNetwork of clients, suppliers and partners.
All these 3 perspectives work in the framework of particular Business Recipe (market, strategy of the firm), which is individual for every company.
Good performance in all these areas builds Financial Capital in the future.
7
IC Rating™ Platform
KEY ISSUES
Demand from competitors
Contribution from I.P. (attract customers & employees)
Protection of I.P.(long term/ hard to copy)
KEY ISSUES
Structured and docu-mented knowledge (methods, routines and systems)
Organisation & culture
KEY ISSUES
Business related skills
Internal leadership
Co-operation and comple-mentary experiences in the mana-gement team
KEY ISSUES
Business specific knowledge
General competence
Contribution to develop-ment of structural capital
KEY ISSUES
Loyalty
Potential
Strength- image enhancing- demanding
Dependence
KEY ISSUES
Awareness
Reputation
Relevant differen-tiation
KEY ISSUES
Business critical networks and alliances(excluding current customers)
IntellectualCapital
BusinessRecipe
Human Capital
OrganisationalStructural Capital
Network Brand Custo-mersProcesses
RelationalStructural Capital
Emp-loyees
Manage-ment
IntellectualProperties
KEY ISSUES
Business environment; - Competition - Entry threats
Business idea
Strategy
Vision
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
8
IC Rating™: three perspectives
Present day
Accounting
1 .Effectiveness
Present value of IC effectiveness in creating future financial value
2. Risk
Threat against present effectiveness * probability of threat coming true
3 .Renewal and Development
Efforts to renew and develop present effectiveness
Future
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
9
IC RATING™ is done using well-known Standard & Poors scales
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
10
IC RATING™ is mainly based on interviews with people
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
PROCEDURE:
• Rating is primarily based on interviews with carefully select 35-50 respondents who knows most about this company, of which
2/3 is external (customers, lobby organizations, competitors, suppliers, partners, etc.)
1/3 is internal (employees),
• rating of intellectual capital is weight average of answers for more than 150 questions that are strictly connected to business performance of the company,
• rating usually takes 4-6 weeks.
11
IC RATING™ and IP assessment
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
• 17 questions out of about 150 are focused on IP evaluation
• Examples of key issues to be pointed out during the evaluation process:
Market awareness about company's IP
IP influence on company’s brand
Company's IP “replaceability”
Time period during which the IP has value
IP contribution to rise barriers to entry
Etc.
12
Case Study: Effectiveness perspective
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
Process Management Employees Network Brand Customers
Human RelationOrganisationBusinessRecipe
IntellectualProperties
Intellectual Capital
A BBBBB
BB
CC
A
BBB
BBCC
C
BBB
Selected findings: This rating was done for start-up company. As in case of most young and small companies, structural capital is almost non-existent. But, company is operating in market with good perspectives. Good score in relation box shows that company’s network is a main source of its current advantage. Customers base as well can be assessed as satisfactory.
13
Case Study: Risk perspective
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
Selected findings: Organisational Capital shows almost no risk as its efficiency is to low to be threatened. Although efficiency of relation capital was average (BBB), the risk perspective shows that it’s strongly threatened by some aspects. It may be that there are very few customers or customers are heading to bankruptcy or many more. To discover true reason we must look closer to the Customer box and see answers to the questions of which the box is composed.
Process Management Employees Network Brand Customers
Human RelationOrganisationBusinessRecipe
IntellectualProperties
Intellectual Capital
- R
RR-
R RR RRR
RR
RR
RRR
--
14
Case Study: Renewal & Development perspective
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
Selected findings: In renewal and development perspective we can see substantial efforts in the Human Capital box. These means that company currently conduct several initiatives, which are focused on improving human capital effectiveness. Poor renewal efforts can be observed in the brand box, which together with not so good efficiency (only BB) should make management put more attention in this area.
Process Management Employees Network Brand Customers
Human RelationOrganisationBusinessRecipe
IntellectualProperties
Intellectual Capital
A
A BBB
BB
BBBB
BB
BBB
A CCC ABBB
15
Case Study: Customer relations box decomposition
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
Selected findings: It turned out that main threat for customer effectiveness comes from two things: being a strategic supplier and vulnerability for the changes. The company itself had one big customer, which generated most of the revenues. Relations with this customer was great, duration was long, it was process competence and image enhancing customers. The only thing that made the risk so high was that customer was preparing to conduct services offered by the company itself.
80
75
79
78
7873
71
77
57 86
79
54
2511
81
76
5631
Relation
Interaction
Duration of
Customer
RelationImage CreatingCompetence Enhancing
ProcessStrengthening
StrategicSupplier
Non-vulnerability
Share ofbudget
Company
Benchmark
16
IC RATING™ - A Comprehensive View
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
BB +
BB
BB BB BB
BBBBB + BBB
BBB BBB CC A
BB
BB BB +
B B
B B B
BBBB
BBB CCC
RR
RR RR
RR RR RR RR
R R
R R-
8059
3236
74
50
55
Affärsmiljöns tillväxt på 5 års sikt
Affärsmiljöns lönsamhet på 5 års sikt
Affärsmiljöns konkurrenssituation
Potentiella hot mot affärsmiljön
Vår tillväxt med utgångspunkt i vårt affärsrecept
Vår lönsamhet med utgångspunkt i vårt
affärsrecept
Vår position i affärsmiljön94
77
72
77
77
8677
100
79
5937 51
3570
454867
86
4955
Processer för intern administration
Processer för kundhantering
Processer innovation
Processer för distribution och logistik
Processer för utveckling av medarbetarna
Processer för försäljning
Processer produktion
IR:s förmåga att skapa inträdesbarriärer
IR:s förmåga att göra oss oberoende av
konkurrenternas prissättning
IR:s varaktighet
8584
79
82
7776
80
75
7559
58
626151
55
61
59
Ledningens fokusKundhantering
Effektivitet
Ledningens samspel
Tydlighet i ledarskapetInternt ledarskap
Affärsegenskaper
Intern atmosfär
Sakkunskaper92
8286
94
8576
8584
81
86
8065
6365
22
6755
6967
47
7571
Nätverk för försäljningNätverk för personal
och kompetensLeverantörs- och
distributionsnätverk
Kännedom
AnseendeRelevant
differentieringKundlojalitet
Kundbaspotential
Sårbarhet mot kundavhopp
Imagekunder
Kompetensutvecklande kunder
• • •Förmåga att förmedla visioner, värderingar, strategier och mål:”De har långsiktiga mål och vill vara fristående och oberoende.””Ledningen skulle vinna på att bli mer synlig i organisationen, att gå omkring i högre utsträckning ochtala med medarbetarna.”
Dedikering:”Man har löst de problem som uppkommit på ett rakt och snyggt sätt. Man är engagerad på alla nivåer.””Företagets högsta ledning engagerar sig personligen i kunderna och bryr sig.”
Ledningens incitament:”De får sina incitament genom den ökande börskursen.””Optionsprogram som fungerar väl.”
Samspel och gemensamma mål:”Väl fungerade samspel.””Bra kommunikation i ledningen men ej bra kommunikation nedåt. Ledningen måste ändra sig och fåaffärsidé och strategi att genomsyra hela organisationen.””De har delat upp ansvarsområdena väl men VD har det övergripande ansvaret.””De har en gemensam målbild till 90%.”
Ledningspersonerna kompletterar varandra:”Bra att kvalitetschefen är personligen ansvarig för processer och metodik, dvs uppbyggnad avprocesskapitalet.”
Delegeringsförmåga:”De är bara fyra stycken i ledningen vilket är mycket bra.”
Förmåga att förmedla visioner, värderingar, strategier och mål:”De har långsiktiga mål och vill vara fristående och oberoende.””Ledningen skulle vinna på att bli mer synlig i organisationen, att gå omkring i högre utsträckning ochtala med medarbetarna.”
Dedikering:”Man har löst de problem som uppkommit på ett rakt och snyggt sätt. Man är engagerad på alla nivåer.””Företagets högsta ledning engagerar sig personligen i kunderna och bryr sig.”
Ledningens incitament:”De får sina incitament genom den ökande börskursen.””Optionsprogram som fungerar väl.”
Samspel och gemensamma mål:”Väl fungerade samspel.””Bra kommunikation i ledningen men ej bra kommunikation nedåt. Ledningen måste ändra sig och fåaffärsidé och strategi att genomsyra hela organisationen.””De har delat upp ansvarsområdena väl men VD har det övergripande ansvaret.””De har en gemensam målbild till 90%.”
Ledningspersonerna kompletterar varandra:”Bra att kvalitetschefen är personligen ansvarig för processer och metodik, dvs uppbyggnad avprocesskapitalet.”
Delegeringsförmåga:”De är bara fyra stycken i ledningen vilket är mycket bra.”
Förmåga att förmedla visioner, värderingar, strategier och mål:”De har långsiktiga mål och vill vara fristående och oberoende.””Ledningen skulle vinna på att bli mer synlig i organisationen, att gå omkring i högre utsträckning ochtala med medarbetarna.”
Dedikering:”Man har löst de problem som uppkommit på ett rakt och snyggt sätt. Man är engagerad på alla nivåer.””Företagets högsta ledning engagerar sig personligen i kunderna och bryr sig.”
Ledningens incitament:”De får sina incitament genom den ökande börskursen.””Optionsprogram som fungerar väl.”
Samspel och gemensamma mål:”Väl fungerade samspel.””Bra kommunikation i ledningen men ej bra kommunikation nedåt. Ledningen måste ändra sig och fåaffärsidé och strategi att genomsyra hela organisationen.””De har delat upp ansvarsområdena väl men VD har det övergripande ansvaret.””De har en gemensam målbild till 90%.”
Ledningspersonerna kompletterar varandra:”Bra att kvalitetschefen är personligen ansvarig för processer och metodik, dvs uppbyggnad avprocesskapitalet.”
Delegeringsförmåga:”De är bara fyra stycken i ledningen vilket är mycket bra.”
17
IC RATING™ and financial performance
Source: Intellectual Capital Sweden
www.intellectualcapitalsweden.se
Rxy = .80; p< .01
Increase in turnover 2001 (%)Increase in turnover 2001 (%)
IC R
atin
gIC
Rat
ing ™™
200
020
00
• A high IC RATING value, indicates a high turnover growth in the years to come.
• IC RATING alone is a better predictor of future profits, than methods only using financial input data.
18
Beyond IC RATING™: IP “monetization” and brand equity
• Monetary evaluation of some IP forms (e.g.: brands) can complement methods like IC RATING that basically provide qualitative findings and point out improvement areas
• There are many methods to evaluate the brand equity: Based on cost criteria, oriented to the past and to the resources
spent on the brand Based on the “benefits flows”: the value of the brand is
determined by the cash flows that it generates Based on market indicators and, therefore, on ex post
performances• The monetary assessment of the brand allows the company to have
immediate benefits, e.g.: Further financing from investors trough specific financial tools
(e.g.: sale-lease back) A better rating according to Basel II criteria
