1 / 29

Boosting corporate financial performance with intellectual capital

Boosting corporate financial performance with intellectual capital. Dr. Kin H. Chan Senior Programme Director & College Principal Lecturer, Institute for China Business Dr. Sam Chu Associate Professor, Faculty of Education, The University of Hong Kong. 7 Sep 2011. Why this topic?.

imelda
Download Presentation

Boosting corporate financial performance with intellectual capital

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Boosting corporate financial performance with intellectual capital Dr. Kin H. ChanSenior Programme Director & College Principal Lecturer, Institute for China Business Dr. Sam Chu Associate Professor, Faculty of Education, The University of Hong Kong. 7 Sep 2011

  2. Why this topic? • When there is close interaction between these 3 categories of IC (Hermans & Kauranen, 2005) • the firm is able to create value from its business activities • and growth can be anticipated • A well-balanced combination of these three categories of IC • requires proper knowledge management.

  3. Agenda • What is IC? • How to evaluate KM utilization of an organization? • Is there a relationship between KM utilization and IC performance? • How do listed companies in HK compare with other Asian counterparts in IC performance (VAICTM)? • Q&A

  4. Background:What is Intellectual Capital • The concept of intellectual capital (IC) first appeared in a book published in 1836 by Nassau William Senior (Marr, 2007) • No single definition of IC • evolved from different academic disciplines (Marr, 2007) (Marr & Roos, 2005)

  5. Background:What is Intellectual Capital • IC – economic value of structural capital and human capital of a company (Petty and Guthrie, 2000) • IC = human capital + structural capital (Edvinsson, 1997) • IC – Difference between book and market value of a company (Edvinsson & Malone, 1997) • Book Value = Assets – Liabilities • Market capitalization = Current stock price X number of outstanding shares

  6. Background:What is Intellectual Capital • A tripartite model for IC, comprising • human capital • external capital (e.g. relationships with customers and suppliers) • internal capital (e.g. patents, technology and systems) (Sveiby, 1997)

  7. Human capital - composed of the skills and competencies of the company’s personnel. Structural capital - includes the way of organizing the company’s activities and also the intellectual property rights of the company. Relational capital - stresses the importance of external networks. (Hermans & Kauranen, 2005) Background: Components of IC 7

  8. In 1995, IBM bought Lotus for $3.5 billion. 14 times Lotus’ book value. Background: Components of IC 8

  9. Methods on measuring IC • 42 valuation methodologies on measuring intangible assets (Sveiby 2010) • Some of the more well-known methods: • Economic value addedTM, Market-to-book value, and VAICTM 9

  10. Is the worth of Intellectual Capital always reliable? When will the IC of a listed company be exaggerated? Is it when the stock price of the company goes up crazy Or is it during the period that the stock price comes down quickly? Methods on measuring IC 10

  11. Methods on measuring ICVAICTM Methodology • Ante Pulic’s value added intellectual coefficient (VAICTM) is designed to assess the efficiency of key resources in business organizations (Pulic, 2000). • adding value and creating wealth through • employing physical capital • human capital • structural capital

  12. Methods on measuring IC VAICTM Methodology • The key assumption is that human capital is an investment, not a cost. • Value-added = Output – Input • Value-added intellectual coefficient defined through its components: • human capital coefficient, • structural capital coefficient, • physical capital employed coefficient

  13. Methods on measuring IC VAICTM used by business enterprises • A Croatian company Source: http://www.ebrc.fi/kuvat/ebrf08_s3_p1.pdf

  14. Methods on measuring IC VAICTM used by business enterprises SHIPYARD ULJANIK 6 Years after 14 Source: http://www.ebrc.fi/kuvat/ebrf08_s3_p1.pdf

  15. Methods on measuring ICAdvantages for using VAICTM • Apply widely in different contexts • due to its ease of administration • Objective and financially-based measure of IC efficiency as it makes use of audited financial data (Chan, 2009a) • Standardized and objective measurement (Firer and Williams, 2003)

  16. Methods on measuring IC Limitations of the VAICTM Methodology • Inability to handle companies with negative book value of equity or negative operating profit • Interactions among the components of intellectual capital (Bontis et al., 2000)

  17. Prior studies on VAICTMPrior studies of IC outside Mainland China • UK - Zéghal and Maaloul (2010) investigated whether or not there was a correlation between IC and corporate performance in 300 UK businesses using data from the year 2005. They found a positive relationship with economic and financial performance only in high-tech industries. • TW - intellectual capital had a positive impact on market value and financial performance (Chen et al., 2005). • India - high correlation between VAICTM score and business survival

  18. Prior studies of IC in Hong Kong • Chan (2009a, 2009b) laid the groundwork for IC research and developed the framework for the empirical studies on Hong Kong • no strong association between IC and four corporate financial indicators in constituent companies of the Hang Seng Index for 2001 - 2005 • moderate association was found between the individual components of IC and corporate financial indicators

  19. Prior studies of IC in Hong Kong • Chu, Chan & Wu (2011) measured VAICTM of HK listed companies, and found it was positively associated with profitability of businesses. • In particular, structural capital played a notable part in enhancing corporate profitability

  20. Evaluation of KM utilization of an organization • KM maturity model • Knowledge Management Framework Assessment and Knowledge Journey in KPMG (2000) • KNMTM in Hsieh, Lin and Lin (2009) • KM3 in Gallagher and Hazlett (2000) • Knowledge Management Capability self-assessment Framework in Collison and Parcell (2004)

  21. KM Capability self-assessment framework (Collison and Parcell, 2004)

  22. Questionnaire

  23. Scores of KM capability self-assessment Sample mean of KM maturity level in China listed companies (N=26) (Chu et al., 2011)

  24. VAICTM vs KM scores … (Chu et al., 2011)

  25. Relationship between KM scores and VAICTM (Chu et al., 2011)

  26. Conclusion & Limitations • A clear correlation between KM scores and VAICTM was not identified. • May need to expand the study to cover many more companies • Relatively small sample size • Respondents tend to reply positively about their companies’ maturity level in KM • VAICTM based on hard data (data from financial reports) while our KM data was from a perceptual survey

  27. References 1 • Andriessen, D. (2004), Making sense of intellectual capital: designing a method for the valuation of intangibles, Elsevier Butterworth-Heinemann, Burlington, MA. • Bontis, N., Keow, W. and Richardson, S. (2000), “Intellectual capital and business performance in Malaysian industries”, Journal of Intellectual Capital, Vol. 1 No. 1, pp. 85-100. • Chan, K. H. (2009a), “Impact of intellectual capital on organizational performance: An empirical study of companies in the Hang Seng Index (Part 1)”, The Learning Organization, Vol. 16 No. 1, pp. 4-12. • Chan, K. H. (2009b), “Impact of intellectual capital on organizational performance: An empirical study of companies in the Hang Seng Index (Part 2)”, The Learning Organization, Vol. 16 No. 1, pp. 22-39. • Chen, M., Cheng, S. and Hwang, Y. (2005), “An empirical investigation of the relationship between intellectual capital and firms' market value and financial performance”, Journal of Intellectual Capital,Vol. 6No.2, pp. 159-176. • Chu, K.W.S., Wu, W.Y.W, Chan, K.H., Fu, O. (2011) “The relationship between knowledge management and intellectual capital in listed companies of mainland China”, paper submitted for 8th International Conference on Intellectual Capital, Knowledge Management & Organisational Learning, Bangkok, Thailand, October 2011. • Collison, C. and Parcell, G. (2004) Learning to Fly: Practical Knowledge Management from Leading and Learning Organizations, Capstone Publishing, Chichester, West Sussex. • Edvinsson, L. (1997), “Developing Intellectual Capital at Skandia”, Long Range Planning, Vol. 30, No.3, pp. 366-373. • Edvinsson, L. and Malone, M.S. (1997), Intellectual Capital: Realizing Your Company's True Value by Finding Its Hidden Brainpower, Harper Business, New York, NY. • Firer, S. and Williams, M. (2003), “Intellectual capital and traditional measures of corporate performance”, Journal of Intellectual Capital, Vol. 4 No. 3, pp. 348-360.

  28. References 2 • Hermans, R. & Kauranen, N. (2005). Value creation potential of intellectual capital in biotechnology – empirical evidence from Finland. R&D Management, 35: 171-185. • Marr, B., Roos, G. (2005), "A strategy perspective on intellectual capital", in Marr, B. (Eds),Perspectives on Intellectual Capital: Multidisciplinary Insights into Management, Measurement, and Reporting, Elsevier, Boston, MA, . • Marr, B. (2007), “What is intellectual capital?”, in L. A. Joia (Ed.), Strategies for information technology and intellectual capital, Idea Group Pub., Hershey, PA, pp. 1-9. • Petty, R., and Guthrie, J. (2000), “Intellectual capital literature review – measurement, reporting and management”, Journal of Intellectual Capital, Vol. 1 No. 2, pp. 155-176. • Pulic, A. (2000), “VAIC – an accounting tool for IC management”, International Journal of Technology Management, Vol. 20 Nos. 5-8, 702-714. • Sveiby, K. E. (1997), The new organizational wealth: managing and measuring knowledge based assets, Berrett-Koehler, San Francisco, CA. • Sveiby, K. E. (2010), “Method of measuring intangible assets”, available at: http://www.sveiby.com/articles/IntangibleMethods.htm (accessed 9 August 2010)

  29. Contact me • Questions? Collaborations? Dr. Sam Chu Associate Professor Division of Information & Technology Studies Deputy Director, CITE Faculty of Education, The University of Hong Kong Pokfulam Road, Hong Kong. Tel: (852) 2241-5894 Email: samchu@hku.hk Homepage: http://web.edu.hku.hk/academic_staff.php?staffId=samchu

More Related