Intangible assets and intellectual capital linkage opener

Intellectual Assets & it’s Capital makes up a significant part of our Innovation Capital.

BUILDING INNOVATION - BUILDING THE DYNAMIC LINKS…….OPENING VIEWPOINT

The nature of competition is rapidly changing.

In the 20th century firms could do well by developing and executing detailed strategic plans and merely reacting to threats. However, in increasingly complex and fast-changing environments the traditional competitive dimensions are no longer sufficient. Nowadays these constitute a necessary standard and the process is becoming the differentiating factor.

The pace of change we all face today and into the future Winning depends on the ability to develop new, high-value propositions for (end-) users at low cost, and the capability to do so again and again. Firms need to redefine industry boundaries before competitors do, develop new revenue models, tie partners to a global platform, and position the firm at the heart of the revenue streams, brand building, and data about end-users.

Management within organizations needs to know where this real value creation resides.

Understanding all the make up of the capitals and assets needed to be understood and applied in practical ways

Patterns of growth- how innovation spreads and grows Although patterns of growth vary in detail, they highlight four necessary conditions for putting innovative products, services and models into practice sustainably and on a large scale: •

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‘Pull’ in the form of effective demand, which comes from the acknowledgement of a need within society, they resolve the jobs-to-be-done or capitalize on unmet needs and from the recognition of that need by organisations (or consumers) with the capacity to address it; ‘Push’ in the form of effective supply, which comes from: first, the generation of innovative ideas (by creative individuals and teams, potential beneficiaries and users; second, the development of those ideas into demonstrably workable forms; and third, their communication and dissemination;

Yet we need to recognize it is the combination and the effective of linking these • •

Effective combining strategies that connect ‘pull’ to ‘push’, and find the right organisational forms to put the new innovation and concepts into practice and; Learning and adaptation to ensure that the innovation achieves social impact, and continues to do so as the environment around it changes from recognizing the increasing value of these, as they dynamically improve.

When these elements are all in sync, innovations achieve ‘resonance’ with their environment and come to appear natural, even obvious. However, many promising innovations have foundered because critical elements were missing or ‘out of sync’.

So what is Intellectual Capital made up of?

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IC highlights the importance of relationships, knowledge, leadership and communication; culture and values; reputation and trust; skills and competencies; and processes and systems.

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The relative importance of these categories depend on context, and what an organization owns is very different from what it may be able to identify and leverage to create value.

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What has happened in the past is increasingly less relevant to understanding what may happen in the future

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Knowledge leadership is necessary to avoid erosion and leverage those idle Intellectual Capital that are in waiting Source: www.intangibility.com

Work to be done, not work already done!

Firstly intangible factors such as knowledge, human capital, organisational structure which influences the way individuals interact and therefore whether they can collectively create knowledge or contribute to the diffusion of some knowledge or competence within the organisation.

Second, intangibles are both factors and assets, meaning both input and output and their combination is much more than the sum of the parts.

When demand changes what is important is the work to be done, not the work done!

How much we are able to adapt to change will determine our success

Looking at Intellectual Capital and their contribution work to be done of the firm can be defined by three elements that need combining ¨ the human capital, i.e. the knowledge and learning abilities, skills, experience that employees have and that the firm does not own, comprising knowledge (explicit and tacit), skills, intellect and talent of individuals At the core of human capital comprises competence, intellectual agility and attitude as the potential synergies of value creation. Outcomes are intimately connected to motivation to produce knowledge generation.

¨ the structural capital is the pool of knowledge that stays in the firm when employees leave (organisational routines and procedures, systems, culture, etc.); examples are innovation capacity, organisation flexibility; it provides the organizational mechanisms and architecture for retaining, packaging, reinforcing and transferring knowledge along business activities. You look to develop the capabilities to meet internal and external challenges and market requirements such as infrastructure, systems, routines, procedures, culture.

SC provides “the skeleton and the glue” of the organisation (philosophy, process, culture) for building knowledge.

¨ the relational capital (or social capital?) consists in the resources related to the external relationships of the firm, such as those with customers, suppliers and R&D partners; examples include image, alliances, customer loyalty, customer satisfaction, market power, environmental activities. . RC represents a firm’s ability to absorb, explore and exploit new knowledge from its relationships and connections made with the environment, partly to obtain new and competitive advantage positions RC also represents a firm’s accumulated knowledge and ability to create, develop and maintain conditions that serve the mutual long term interests of both the firm and its principal external partners.

Where to look for Intellectual Capital Assets

All enterprises have Intellectual Capital Assets and fundamentally we would argue that those enterprises that have a clear understanding of the following classes of Intellectual Capital have clear advantages over those who do not: 1. In capacity for innovation and change (skills, competencies and capabilities in terms of creativity, inventiveness, flexibility, judgement, ability to learn, ability to adapt, ability to form alliances, contextual awareness of customers, markets, technologies etc).

2. The management of other intellectual assets (management methods, instruction manuals, templates, trade secrets, processes, expert systems, software, databases and other similar codified procedures used to improve accuracy, reliability, quality, efficiency, effectiveness, economy etc).

3. The Intellectual Property (legally protected Intellectual Capital, such as patents, trademarks, design rights, copyrights and database rights).

4. The quality of information about customers, suppliers, partners etc.; the ability to manage knowledge; the effectiveness of relationships both within and outside the enterprise; the quality of information systems used to manage the enterprise.

5. The efficiency and effectiveness of products, processes and services in delivering value to customers and to the enterprise.

6. Ability to comply with internal and external standards (e.g. targets & Key Performance Indicators) and external standards (for example ISO and the Law).

7. The ability to make effective use of various management tools and techniques like SWOT, Balanced Scorecard and emerging models such as Business Model Canvas, Three Horizon Methodology for innovation, Competitive Intelligence Analysis Techniques, Journey Mapping, Directional and Growth Matrixes., Innovation Ambition Matrix, Design Thinking, Lean and Agile Thinking.

Developing a Strategy of Complementary between intangibles and tangible resources becomes critical

Intangible assets cannot be reduced to knowledge only. Intangible assets are also capabilities, i.e. ability, competence to set up problems, solve problems, communicate with others, and so on.

Complementaries constitute now a strategic variable to increase value and respond to the new knowledge economy and its opportunities.

It is the new combination effects that offer much more than the sum of the parts.

Knowledge without capabilities does not produce value

As (new) knowledge flows, intellectual capital builds and responds proving innovation potential so as to potentially grow a business and build at the same time a platform for sustainable competitive advantage

The need is to relate innovation to other intangible assets- why?

Innovation is a complex process, which results from the exchange, the accumulation and the collective generation of knowledge and the use of your intangible assets human capital creates ideas and therefore generates innovations; a flexible organisation may allow more autonomy to its members who have scope to collect information, interact more with each other and generate more ideas, hence higher innovation

The likely challenge for firms in the future may not be to be the first to produce new knowledge, but rather recognise, obtain, employ and complement the relevant innovative knowledge and this is where innovation comes in !

Innovation (a new knowledge) does not have value unless it is transformed into a product that is sold on the market.

In other words, innovation, the organisation of production, the organisation of commercial activities and employees (with their human capital) all contribute to the value created by this innovation, new to the market

Finding the right solutions – moving intangibles to tangibles.

Perhaps until we learn how to capture and measure intangibles true value they will remain hidden from plain sight and still constitute investment risk for many as something not understood so are they worth investing in to build?

This lack of appreciation applies to both inside the organization and in external understanding. Internally if you are not consistently measuring your capitals you don’t leverage them fully and as these capitals are often intangible, they are not well measured and externally they remain hidden and not appreciated or valued.

Equally investors are very reluctant to invest without this necessary insight to judge the organization’s real value creation potential, and so they simply rely on historical data, old formats of accounts and balance sheets and then simply apply selective discounts to the investment premium.

We need to find better solutions to quantifying and qualifying the intangibles within organizations, by making them increasingly more tangible, so all can see and value them for their real wealth creating potentials.

We need to provide tangible outcomes from managing the intangibles, as these are making up the really important wealth creating capital of the organizations and this is where internal investments need to be well positioned, clarified and defined.

You need to understand these capitals and make them tangible for everyone involved, it is the key to unlock your latent wealth.

We need to re-think the old world value delivery systems to assess organizations The value chain that is good for one day is often not good for another. It needs to be constantly challenged and changed, to meet the consistently ‘disruptive’ conditions being faced.

We need to have an effective ‘innovation machine’, we need to have increasing reliance on open networks as the new key assets and a really clear understanding of the new dynamics of power, the difficult-to-replicate capabilities and competencies that are made up with the capitals mentioned in this presentation.

Within these capitals lay the unique competitive edges that offer real advantage that cannot be duplicated or replicated or often matched easily. These need increased focus.

An organizations ability to flourish in today’s hyper competitive environment organizations will be totally dependent on their abilities to manage their different capitals, that make up most of its intangibles. Often these are left as not as fully realized in their potential value.

Unlocking these you unleash the true potential of organizations to be constantly ‘dynamic’ in their activities to adapt and respond, listen and learn and leverage their unique assets.

Innovation Capital builds from building and exploiting our Intellectual Capitals and leveraging our Intangible Assets

Paul Hobcraft provides Innovation Specialization as his Practice.

•Paul has operated at senior management level within Multinationals across six continents in challenging situations.

•The past fourteen years he has been involved in consulting and advisory work, mostly in Asia and Europe.

•He specializes in building capabilities & competencies to innovate successfully.

•He focuses 100% on building the knowledge required for clients to innovate successfully so as to provide impact & clear return.

Contact Paul Hobcraft +041 91 751 4350 paul@agilityinnovation.com