Intellectual Capital–Real or Ruse?

Intellectual Capital–Real or Ruse?

By C. Warren Ferguson, Smallworld Systems Inc.

Customers take charge, competition gets tougher and change is constant. These are the three fundamental business drivers around the world today. These factors have created a hypercompetitive marketplace and forced utility companies to accelerate the implementation of new technologies. They are quickly learning that digital strategies can change fortunes overnight.

As utility leaders seek increased productivity from their staff, improved customer service, better-than-average operational results and the flexibility to succeed in the years ahead, they know information technology must be exploited in ways that integrate complex applications with business processes. For example, spatial resource planning integrated with outage/network management, utility business geographics or operational support systems.

Yet, the impact of new ways of doing business on people throughout an organization is routinely underestimated, and taking stock of intellectual capital is frequently overlooked. An investment`s value in mainstream information technology projects can not be properly described without fully understanding its impact on intellectual capital. Intellectual capital accounting provides techniques and methodologies for valuing these major contributions to organizational flexibility and competitiveness, improved customer relationships and individual productivity.

What is intellectual capital? It is the intellectual material–experience, knowledge, information and intellectual property–that can be used to create value. Intellectual capital is an economic product of the information age where knowledge and communication are the fundamental sources of wealth. Stated differently, intellectual capital is the difference between a company`s balance sheet net worth and its market capitalization (number of shares outstanding times share price). Intellectual capital includes: human capital (the combined knowledge, skill, innovation and ability of the company`s employees to meet the task at hand); plus customer capital (the value of its ongoing relationships with the people or organizations to which it sells); plus structural capital (company images, trademarks, patents, software and proprietary databases, organizational structure and other organizational capabilities that support employee productivity). Interestingly, neither human capital nor customer capital is owned by the company. These two elements of intellectual capital may be the most critical aspects for success in the years ahead.

Why should intellectual capital be measured? It should be measured because substantial intangible benefits accrue from strategic investments in mainstream technologies. Intellectual capital accounting tools and techniques can appropriately value these intangibles. The resulting measures can be used to:

Validate the organization`s ability to achieve its goals,

Plan research and development,

Provide information for reengineering programs,

Provide focus for organizational education and training programs,

Assess the value of the organization, and

Expand the organizational memory.

While only a few corporate balance sheets presently record intellectual capital, knowledgeable market analysts treat nonfinancial performance data as leading indicators of future financial performance.

As the successful utilities introduce new spatial resource planning technologies in order to integrate complex applications with business processes, they will achieve previously unattainable benefits, but only if they understand intellectual capital. Winners in the hypercompetitive utility marketplace will understand its importance. Organizations that understand intellectual capital accounting can more effectively exploit their opportunities, provide greater value to stakeholders and succeed in the hypercompetition that exists today. Those who don`t won`t be around.

Author Bio

Ferguson has been Smallworld Systems Inc.`s president and chief operating officer since September 1996. He is responsible for American operations. Mr. Ferguson joined the company in June 1995 as North America Business Development vice president. Prior to joining Smallworld Systems, he was Plangraphics Inc.`s (a GIS consulting company) vice president.

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