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Guideline

Intellectual capital statement Made in Germany


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Published by

Federal Ministry ofEconomics and Labour11019 Berlin

Internet: www.bmwa.bund.de

Project team

Kay Alwert, Fraunhofer Institute for Production Systems and DesignTechnology IPK, D-10587 BerlinDr. Manfred Bornemann, Intangible Asset Management Consulting, A-8010 GrazMart Kivikas, Wissenskapital Edvinsson & Kivikas EntwicklungsunternehmenGmbH, D-91097 Oberreichenbach

Internet: www.akwissensbilanz.org

Advisory Board

Prof. Leif Edvinsson, Lund University, SwedenDipl.-Sozw. Peter Heisig, Fraunhofer IPK, BerlinProf. Dr.-Ing. Kai Mertins, Fraunhofer IPK, Berlin

Editors and design

AWV-Arbeitsgemeinschaft fr wirtschaftliche Verwaltung e. V.65760 Eschborn

Dr. Ulrich Naujokat/Jrgen Klocke/Karin Scheu

Printed by

Harzdruckerei, Wernigerode

Translated by

Neil Mussett, Alfter

August 2004

Federal Ministry of Economics and Labour


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Intellectual Capital Statement Made in Germany

Guideline 1.0on the preparation of an intellectual capital statement

Documentation Nr. 536


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Contents

Contents

Foreword ............................................................................................................. 3

1 Intellectual Capital Statement Made in Germany ............................ 7

2 What is an Intellectual Capital Statement? ......................................... 11

3 Why report on intellectual capital?....................................................... 12

3.1 For whom should an intellectual capital statement be drawn upand why? ..................................................................................................... 12

3.2 What are the benefits from the drafting process? ............................. 13

4 What preconditions should be met? ..................................................... 14

5 How is an intellectual capital statement drawn up? .......................... 15

5.1 The intellectual capital statement model of Project Group .............. 15

5.2 Six steps to drafting an intellectual capital statement ...................... 16

5.3 Preparing intellectual capital statements What needs to betaken into account? .................................................................................. 16

5.4 Step 1: Describing the initial situation .................................................. 18

5.5 Step 2: Assessing intellectual capital ..................................................... 21

5.6 Step 3: Evaluating intellectual capital ................................................... 24

5.7 Step 4: Finding and evaluating indicators for intellectual capital .. 285.8 Step 5: Communicating intellectual capital ........................................ 30

5.9 Step 6: Managing intellectual capital ................................................... 33

6 Outlook ....................................................................................................... 36

7 Further information ................................................................................. 38

7.1 What developments form the basis of the intellectual capitalstatement? An overview .......................................................................... 38

7.2 The pilot enterprises involved ................................................................ 39

7.3 Glossary ....................................................................................................... 43

References .......................................................................................................... 45

Acknowledgements .......................................................................................... 47


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The ability to make the best possible use of both internal and externalknowledge is vital to small and medium-sized enterprises. The intellectual capitalstatement (or report) offers a strong foundation for this, providing the means toachieve a comprehensive inventory and evaluation of an enterprises intangibleassets.

Such intellectual capital statements have been drawn up in recent monthswith the support of the Federal Ministry of Economics and Labour in a number ofsmall and medium-sized enterprises. The experience, lessons and

recommendations for action gleaned from these pilot projects have been used tocompile this Guideline. I hope that its publication will provide a sustained impetusfor the broad implementation of the intellectual capital statement and ofknowledge management in both small and medium-sized enterprises, and in thetrades sector.

Rezzo Schlauch

Foreword

Foreword

Parliamentary State Secretary at the

Federal Ministry of Economics and Labour and

Commissioner of the Federal Government for Small- and Medium-Sized Enterprises


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Who does the Intellectual Capital State-

ment Guideline 1.0 address, andwhat objective does it pursue?

The Intellectual Capital Statement Guidelinetargets small and medium-sized enterprises (SMEs),as well as other forms of organisation which have acomparable structure. In particular, it targets alldecision-makers in an organisation, from themanaging director via the controller and thoseresponsible for personnel matters, to the qualitymanagement commissioner, strategy managers,knowledge managers, as well as the heads of salesand marketing.*

The Guideline aims to offer help to thoseresponsible for drafting an intellectual capitalstatement. This support is provided by explainingimportant principles and useful methods whichhave already proven themselves in otherorganisations. It also provides a large number oftips and practical guides to drawing up anintellectual capital statement.

What is the structure of the Guideline,

and how can it be used?

The Guideline discusses in practical terms thevarious aspects of the intellectual capitalstatement. In addition to explaining the main termsand preconditions, it contains the tried-and-testedintellectual capital statement model drawn up bythe Intellectual Capital Statement Project Group(AK-WB). The lions share of the Guideline is takenup by a detailed description of the experiencegathered in implementation in order to offerguidance for a companys own implementation. AGlossary and an Annex with references and furtherdetails make it easier to understand. The Guidelineis supplemented by a collection of case studies andimplementation reports which can be accessed byvisiting the Intellectual Capital Statement ProjectGroup Website (www.akwissensbilanz.org).

In order to make the circumstances describedin the text more understandable, as well as toprovide a feeling for practical relevance andimplementation, the Guideline offers a largenumber of examples in text boxes

TheTip symbol in the page margin isused to refer to extremely importantexperience which has been gatheredin the implementation of the

intellectual capital statement to date.

In order to be able to double-checkat the end of each chapter whetherall points have been adhered to andensure that nothing has been leftout, the pictogram with the

question mark at the edge of the page is usedto easily identify questions in a checklist.

Definitions of the central terms

for the intellectual capital state-ment can be found in blue boxesand are marked with a D symbol.

* For reasons of legibility, no distinction is made in the text

between male and female staff members. The project

report addresses both genders equally.

In using the Guideline, we suggest that yougo through the individual questions contained inthe chapters, look for partial answers, takesuggestions from the examples and follow the tipswhen you draw up your own statement. In additionto this document, helpful documents and up-to-date forms can be obtained on the Web atwww.akwissensbilanz.org.


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1 Intellectual Capital Statement Made in GermanyThe political arena, economists and the

public appear to agree on one thing: The future ofGermany as an industrial location can only besafeguarded in the face of internationalcompetition by ensuring high-quality work andinnovation. This means that the much much-vaunted information and knowledge society is nolonger simply an abstract play on words. Constantchanges as a result of globalisation, increasing useof technology and shortening product lifecycles

already mean that for many enterprises theirheadstart in terms of knowledge is often theironly competitive advantage. German SMEs inparticular rely on quickly recognising changes in

the economic environment and countering themwith solutions that meet current demand, as well aswith up-to-date structures and technologies. Onemissed development or opportunity can sound thedeath knell in economic terms. And in contrast tomultinational groups, in most cases small andmedium-sized enterprises (SMEs) cannotcircumvent domestic cost pressures by quicklyrelocating abroad. For these companies, retainingthis future earning capacity and innovation in

Germany as an industrial location is therefore amatter of their own economic survival. As withcustomer satisfaction or employee motivation, theknowledge headstart and innovative potentialof an enterprise is however difficult to report interms of hard data and facts, and is hence not easyto manage. For instance, the often owner-managed SMEs and their bosses are frequentlyleft with no option but to rely on classicalmanagement methods or to trust to theirentrepreneurial instincts when it comes to medi-um- and long-term survival in the market.However, in an environment which is both chan-ging and becoming increasingly complex, the rightstrategy cannot always be at their fingertips. Andeven if the direction of the organisations strategicdevelopment is clear and corresponding measureshave been initiated, traditional controlling andmanagement tools cannot provide information onwhether the desired targets are being achieved ornot. This is partly because classical financialreporting is orientated towards the past, and partly

because the intangible assets which constitute thelions share of innovative potential are not yetrecorded in such statements. In this context, but atthe latest in the critical transition phase from afamily-run enterprise to a management-operatedcompany, the question of the soft success factorsand their systematic management becomes moreand more significant. For a variety of reasons, notonly the management and employees, but alsoexternal target groups, such as potential lenders orpartners, demand transparency on internalstructures, competences, the corporate culture and

other factors which may exert a sustained influenceon future added value.

Portraying and evaluating these intangiblecorporate values in a structured manner is hencethe supreme goal of intellectual capitalstatements. An intellectual capital statementbasically shows the assets of an enterprise whichare not directly accessible, but which are vital to



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future economic success. The existingknowledge of an organisation that is critical tosuccess, the so-called intellectual capital plays avital role in the creation of innovative products orservices in the coming financial years which can besold at a profit. The targeted promotion of theindividual employee skills, valuable customerrelations and market-orientated productdevelopment are thus among the critical successfactors in a knowledge-driven economy. In additionto other newer management tools, many SMEs

hence already rely on knowledge management asa consistent approach in order to identify, selectand target the availability of internal and externalknowledge and to integrate it in the added value.The method put forward here for intellectualcapital statements also calls on tools that arealready available and supports initiatives that havealready been launched. Strengthening enterprise-

specific core competences can be planned andsupervised in the intellectual capital statement tosystematically ascertain the measures that arerequired. Here, the existing benchmarks can also beused, such as from a Balanced Scorecard Model orfrom benchmarking. The intellectual capitalstatement evaluates strategically-valuable

customer relations (Customer Relationship Ma-nagement), as well as strategic alliances withpartners and suppliers.

Hence, the intellectual capital statement ison the one hand a tool for the systematicdevelopment of strategy and of the organisation. Itmakes it possible to targetedly manage projectsand initiatives internally so as to improveintellectual capital management.

On the other hand, it can be used forexternal communication in order for instance toacquire funding for future investments. Sinceclassical balance sheets have to date only includedpast events and largely tangible assets such as realestate or technical plant, entrepreneurs, banks andother investors are in fact faced by a dilemma. Theinformation which they need for an investmentdecision is not available, and purely tangible assetsas reported in customary balance sheet accountsare not sufficiently authoritative in forecasting thepotential earnings and innovation of an enterprise.For instance, the (subjective) opinion of financialanalysts as to this criterion which is vital when itcomes to buying shares or granting a loan and to

the management of small and medium-sizedenterprises remains at present based solely onintuitive lobbying for their idea. The consequence isthat either no loan is granted, or that the cost offunding it is (too) high. This problem is made worseby the new guidelines on granting loans containedin Basel II which is to officially enter into force atthe end of 2006. Previously, large groups andcorporations were able to objectivise their creditworthiness and future ability via ratings. Theintellectual capital statement is an aid here to SMEs.It offers a structure for the presentation and

evaluation of competences that are critical tosuccess and the innovative potential of theenterprise. The intellectual capital statementportrays the intangible assets, and hencesupplements the traditional balance sheet with thecriteria missing today. If an enterprise is able tomake its intellectual capital transparent on thefinancial market in such a form, it becomes easier to



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take up loans, and funding costs for innovative andrisk-prone investments will be reduced. Forinstance, it will also become possible for small andmedium-sized enterprises to report their entirecorporate value including the intangible assets. Atthe same time, the intellectual capital statementoffersbanks and investors a better basis for theirdecision-making on investments in theseenterprises.

In addition to the efforts on the administrati-ve policy side, such as the EUs Lisbon agreement onEurope as theworlds most dynamic knowledge-based economic area or the Federal

Governments innovation offensive, enablingenterprises is a decisive step on the path towardssupporting Germany as a successful location forinnovation. For this reason, the project supportedby the Federal Ministry of Economics and Labourentitled Intellectual Capital Statement Madein Germany is pursuing the goal of providingGerman SMEs with an aid which will enable eachenterprise to clarify and refine its specific strengthsand innovative potential in a precisely targetedfashion. For instance, it is to be hoped that acontribution will be made to reactivate the Made

in Germany trademark as a seal of quality and asan innovative promise once more, and to prepareGermany to compete in terms of knowledge.

This Guideline for the preparation ofintellectual capital statements was developed inthe framework of Fit to compete withknowledge initiated by the Federal Ministry ofEconomics and Labour. This initiative concentratedon the following goals:

q targeted development of intellectual capital inGermany as a location for innovation,

q support in systematic management oforganisational trends,

q the possibility for SMEs to improve their Basel IIrating by providing complementary information ontheir intellectual capital,

q early awareness creation among SMEs of thesignificance of knowledge as a resource andpreparation for coming statutory amendments andstandards (cf. IAS 38, DRS 12),

q support in employee acquisition and skill-building by increasing transparency about theknowledge offered and needed, and

q increasing productivity and competitiveness byactivating as yet untapped potential.

This Guideline was drafted by a projectconsortium consisting of the Knowledge Manage-ment Competence Center of the Fraunhofer Institu-te for Production Systems and Design Technology(IPK), Wissenskapital Edvinsson und KivikasEntwicklungsunternehmen GmbH and IntangibleAsset Management Consulting. Building on the

methods of the Scandinavian intellectual capitalstatement pioneers and all available experience1 ,the consortium implemented a pilot project toadjust the preparation of intellectual capitalstatements to the German situation and to test it inreality as it is faced by small and medium-sizedenterprises. To this end, prototype intellectualcapital statements were drafted together with 14representative German SMEs. This Guideline 1.0 isthe result of this cooperation and summarises theproject to draft an organisation-specific intellectualcapital statement.

At the beginning I didnt have

the faintest idea, but then I

started to find it highly

interesting to see how it all fits

together, how important indivi-dual factors such as product

innovation are for us and what a

lever they can be. (Development

Project Manager)

(Xcc Software AG)


1 An overview of the references and examples used can be found in the References Annex.


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When working together on thepilot project, it was above all the

valuable suggestions and dis-cussions that brought us a variety

of new conceptual approaches to

deal with knowledge, which is the

capital of our future, even more

successfully in future.(reinisch AG)


Furthermore, the following statements canbe made as a result of this project, based on theexperience of the project consortium and of theenterprises involved:

q The implementation of an intellectual capitalstatement was perceived by all organisations as apositive contribution to the competitiveness andthe development of an organisation.

q The drafting of an intellectual capital statementmakes possible efficient communication with avariety of target groups (stakeholders) describingknowledge that is important to competition bymeans of a structured portrayal and knowledge-orientated language.

q The intellectual capital statement methodproposed by the project team has proven its valueto for all SMEs involved.

q The enterprises involved benefit from theimplementation of an intellectual capital statementby gaining a perspective of the enterprise which inmost cases is entirely new, and implementmeasures derived from it very soon aftercompletion of the project.

q The intellectual capital statement is compatiblewith other existing management tools, but does notexplicitly build on them. It can therefore also beused as an independent management tool.

q In the course of the project, it was possible tomassively reduce the implementation effort for theSMEs by using the approach described in thisGuideline.

Many of the 14 pilot firms have recognised inthe first intellectual capital statements that the

transparency of contexts and interactions of thesoft factors, as well as the impact on businesssuccess to be anticipated, offers more than awell-founded basis for decision-making formanagement. Above all, it has convinced manymanagers in the SMEs involved that this tool alsomakes organisational changes quantitativelymeasurable, which in turn means that theeffectiveness of measures to strengthen intellectualcapital can be measured to determine their success.Furthermore, the discussions in the intellectual

capital statement workshops have shown that thecommon language concerning the companysintangible assets already promotes a structureddebate on them, and that the intellectual capitalstatement as a whole can hence be used as anexceptional medium for internal and externalcommunication of competences and soft successfactors. It was also important to openly interpretthe methods to be applied from the outset; thismeans that it was important for most of thedecision-makers responsible for the intellectualcapital statement in the small and medium-sizedenterprises involved to be able to define individualinfluencing factors which were directly related to

their specific added value process. 13 out of the 14pilot firms are using the intellectual capitalstatement for internal management of theirintangible resources, and 10 enterprises eitherwould like to use the intellectual capital statementfor external portrayal of their intellectual capital, orare already doing so. It is to be hoped that readingthis Guideline will encourage many otherenterprises in Germany to implement theintellectual capital statement tool and reap itsbenefits, both in terms of their competitiveness andof their innovative potential.


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2 What is an Intellectual Capital Statement?

If one considers current internationalpractice followed in preparing intellectual capitalstatements2 and evaluates the common factors, itcan be established that intellectual capitalstatements show an organisations intangibleassets. These are mostly taken as resources, and inline with the structure of intellectual capital, aredistinguished as follows into human capital(employee skills, employee conduct, etc.),

structural capital (IT, intellectual property,organisational culture, process organisation, etc.)and relational capital (customer relations,relations with suppliers, relations with the public,etc.). Many current intellectual capital statementsincorporate the intellectual capital in a value-added model which takes account of the strategy(knowledge strategy), the performance processes,the results and the impact achieved.

Accommodating common practice andknowledge from the project, the following

definition is proposed:

Definition of an intellectual

capital statement3

An intellectual capital statement isan instrument to precisely assess

and to develop the intellectual capital of anorganisation. It shows how organisationalgoals are linked to the business processes, theintellectual capital and the business success ofan organisation using indicators to visualizethese elements.

Tip: Dont be put off by the terms.Most organisations discover entirelynew perspectives through theintellectual capital statement and

give these names of their own. Work shouldstill concentrate on increasing added value.

The statement combines knownfacts/processes from a fresh point

of view. The conclusions reached

from these, in particular for

management, were amazing. The

clarity of the statement is

surprising in light of the complex

nature and variety of the data

entered.(ACTech GmbH, HKR)

What is an Intellectual Capital Statement?

2 Links to intellectual capital statements can be found at www.akwissensbilanz.org

3 An intellectual capital statement is not a balance sheet in the classical financial sense. It gives

account for the use of intellectual capital and balances target achievement. It also does not refer to

knowledge in the sense of content. Problems of understanding with regard to the meaning of

intellectual capital statement can be explained in historical terms by difficulties in the translation

of the English terms Intellectual Capital Statement and Intellectual Capital Report.


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3.1 For whom should an

intellectual capital statement

be drawn up and why?

The target group of an intellectual capitalstatement can be all interest groups and personswho are of importance to the organisation. Theycan be divided into internal and external targetgroups. The internal groups include, in addition tomanagement, above all employee andorganisational units, whilst the intellectual capitalstatement for external purposes largely addressesinvestors, potential employees, customers andpartners.

For optimum use of the intellectual capitalstatement, a variety of information-related needsmust be met for each target group. In addition tothe content and structure, design and layout canalso play a major role here in order to bring across

the desired message attractively and usefully.

Experience shows that three questions are atthe centre:

q What are the target groups interested in?

q What can we offer at all?

q What do we want to pass on?

Answers to these questions are dealt with indetail in Chapter 5.8.

There are quite different motivations fordrafting an intellectual capital statement. These arecharacterised by the starting situations with whichenterprises are confronted, and which increasinglybecome a challenge for small and medium-sizedenterprises in particular:

q systematic management of the organisation,

q acquisition of loan and equity capital,

q meeting legal requirements,

q employee recruitment and retention,

q developing cooperation, and

q customer acquisition and retention.

Systematic management of the

organisation: Any systematic management ofintellectual capital depends on measuring andevaluating it. Without corresponding tools, thefuture development is left to coincidence or to theintuition of individuals.

Acquisition of capital: The more transpa-rent an organisation is, the lower is the risk forinvestors. They can understand how resources are

invested and where the added value comes from.Competition imposes boundaries on transparencyby describing those to whom one does not permit tohave access to the complete set of information.

Meeting legal requirements: National andinternational accounting standards (such as IAS 38,DRS 12 and E-DRS 20)4 already recommend showingintellectual capital in the Notes of the classicalbalance sheet. A law has been in force in Austriasince 20045 which obliges institutes of highereducation to submit intellectual capital statements

in order to give account of their business activities.

Employee recruitment and retention: Thehunt for so-called high potentials shows thatwhilst financial aspects play a major role foremployees, the intangible factors may be decisivein more and more cases, such as the publicreputation of the enterprise, expertise,advancement opportunities, the corporate cultureand the concomitant working climate.

3 Why report on intellectual capital?

Why report on intellectual capital?

4 cf. Ref eren ces

5 Austrian Universities Act (Universittsgesetz), UG 2002, section 13 Performance agreement


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Developing cooperation: Development ofglobal added value chains requires much bettercommunication with the business environment.Authoritative information on expertise, corporateculture and existing relations with the market playsa major role in developing a sustainable businessrelationship.

Customer acquisition and retention:

Customers want to know from whom they areacquiring a product or service. Greatertransparency and certainty as to advertisingpromises through showing facts and figuresregarding the promised performance and

competences are a strong advantage in acquiringnew customers and retaining existing ones.

3.2 What are the benefits from the

drafting process?

Many organisations which have drawn up anintellectual capital statement report that a numberof further beneficial aspects can be expected tofollow from the very process of drafting:

q The drafting of the intellectual capital statementacross hierarchical levels heightens understandingof how the enterprise works. Management receivesan impression of what is happening in operativebusiness, and employees are given an impression ofthe challenges faced by management. This leads toimproved coordination of joint goals and futuretasks, in turn making for permanent (and mostlydecentralised) decision-making.

q Covering and defining the most importantinfluencing factors makes it possible to find a

common language which avoidsmisunderstandings and promotes constructivediscussions.

q Agreeing at the outset on only a few influencingfactors and knowledge of the contribution whichthey make towards the result makes it easier tofocus learning and improvement activities.

q Questioning and reflecting on establishedprocedures and processes is an important startingpoint for designing and improving processes.

q Discussing the influencing factors andperformance drivers in operational teams createssynergies and makes for an innovative atmosphere.

q Concentrating on customers and knowledge oftheir needs permits a better orientation towardsadded value and competitive advantages.

q A holistic perspective of the organisation andlinks existing between employees, structures,relationships and ultimately business success

makes clear the status of the individual influencingfactors and makes it possible to prioritise necessaryactivities and measures.

q An open, frank discussion of strengths andweaknesses, as well as a sound, honestmeasurement of intellectual capital, createstransparency and confidence between employees,organisational units and functions.

Tip: Many of the benefit-related

aspects listed are due solely to theprocess of drafting the intellectualcapital statement. Therefore, look on

the workshops and discussions needed to draft theintellectual capital statement as an opportunity forcommunication and discussion of the situation ofthe enterprise, and allot sufficient time for them.

Tip: The right composition of theproject team and the employees

involved is vital to the process ofdrafting intellectual capital statements.

Ensure that everyone who wants to take partalso receives the opportunity to do so and thatthe important opinion-leaders are supportive.This ensures a holistic view and promotesacceptance of the results by those members ofstaff who are not involved.

Why report on intellectual capital?


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4 What preconditions should be met?

An intellectual capital statement is a tool forknowledge-intensive organisations which want tosteer their future development by systematicallyinvolving their intellectual capital. In order toguarantee an optimum drafting process and thebest possible cost-benefit efficiency, somepreconditions should be laid down.

For a quick assessment of whether the

intellectual capital statement is the right tool foryou, you will find here a fitness check (Table 1).Answer the questions in the right-hand column ofthe table with yes (1) or no (0). The ratio between thepositive and negative answers shows the degree towhich the requirements are met. The column withthe comparative values shows how the projectteam evaluates the 14 pilot enterprises involved inthe project as regards meeting the conditions. Thiswill permit you to see how you evaluate yourself incomparison to the pilot enterprises.

The more questions are answered positively,the easier it will be to drafting the intellectualcapital statement. If the majority of the answers isnegative, it will make sense to give particularattention to preparing the drafting process of theintellectual capital statement in these areas.

Checklist on the preconditions:

What benefit can we expect fromintellectual capital statements?What goals do we want to achieve,

and what goals can we achieve withintellectual capital statements?What are our prospects for success?What preconditions do we already meet, andwhich ones do we still have to work on?

Table 1: Fitness check on the preparation of an intellectual capital statement

What preconditions should be met?

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5 How is an intellectual capital statement drawn up?

5.1 The intellectual capital

statement model of Project

Group

The preparation of an intellectual capitalstatement requires careful planning. It is importantthat the basic concepts and principles on whichorganisations are based should be understood. For

this, it is important to deal with important sub-areas of the organisation and to understandcontexts. In order to make this step easier, theIntellectual Capital Statement Project Groupproposes the model described (cf. Fig. 1).6

This model offers two things: Firstly, it servesto provide assistance in decision-making since itclarifies the various aspects contributing tobusiness success. Secondly, it can be used as a tool totake stock of the intellectual capital used in theenterprise.

The starting point is the vision and strategyof the organisation with a view to the possibilitiesand risks encountered in the businessenvironment. The organisation derives from this a

number of measures describing how it wishes toposition itself as to the various dimensions ofintellectual capital, namely human, structural andrelational capital.

In this process, human capital characterisesemployee competences, skills and motivation.Structural capital covers all those structures andprocesses which employees need in order to be

generally productive and innovative, in otherwords all those intelligent structures which remainwhen employees leave the organisation at the endof a working day. The relational capital constitutesthe relationship with customers and suppliers, as

well as with other partners and thepublic.

The intellectual capitalstatement measures and evaluatesall these dimensions. It also coversthe interactions between thedimensions of intellectual capital,the knowledge processes. Thisshows the status enjoyed by theindividual factors for theorganisation, which of them areparticularly risk-prone or whichhave a stabilising effect. This makesit ultimately possible to show theadjustable screws and generatorswith which the organisation canplan a successful future.

The interaction of business and knowledge-

based processes, together with the other tangibleand financial resources which are not observed inthe intellectual capital statements, leads tobusiness success. From this result, the organisationdraws conclusions for the future which can lead tochanges in visions and strategies. The knowledgegained from the intellectual capital statement onthe knowledge processes and the relevantresources make it easier to derive measures in anew cycle and to facilitate the sustainedorientation of the organisation.

How is an intellectual capital statement drawn up?

Fig. 1: The intellectual capital statement model developed by theIntellectual Capital Statement Project Group (AK-WB)

6 The relevant basic literature can be found in the Annex in the chapter References. It is

recommended as a source of references.


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5.2 Six steps to drafting an

intellectual capital statement

The complete intellectual capital statementis drafted in six steps with four milestones.Milestone I is the intellectual capital statement inits simplest form. As shown by Fig. 2, three steps areneeded to achieve it: The first step is to assess theinitial situation relating to business environmentand strategy, of intellectual capital, and self-evaluation of intellectual capital. The target groupof Milestone I is the management of theorganisation which can extract measures forimprovement on the basis of the results.

Milestone II targets the same group, but goesone step further in supporting the self-evaluationwith indicators. In this way, self-evaluation is givenfurther concrete form and supported using facts bymeans of which changes can also be measuredindependently of the employees self-evaluation.The collection and assessment of indicators is at thesame time preparation for internal or externalcommunication.

Milestone III provides a processeddocument or a presentation of the organisationsintellectual capital. It is adjusted towards a specific(external and/or internal) target group anddescribes the most important informationattractively and in a structured form.

Milestone IV works out a full intellectualcapital statement which is also suited to monitorthe organisation. It integrates amongst otherthings correlation analyses and assessments whichprovide information on how long it will take until

measures which have been initiated ultimately leadto business success.

The first drafting of the intellectual capitalstatement is best effected in a cohesive step-by-stepproject over a period of between four and twelveweeks. Different time allocations can be calculatedfor the effort, depending on the initial situation andnumber of individuals involved. As a minimum,Milestone I demands an effort of half a man-month.Up to three man-months can be required for full

implementation up to Milestone IV. The goalspursued with the intellectual capital statementsshould in any event be compared with themilestones. This makes it possible to implement theintellectual capital statement in a cost-benefit-effective and step-by-step manner.

5.3 Preparing intellectual capital

statements What needs to be

taken into account?

Some fundamental principles are to be takeninto account in drafting the intellectual capitalstatement in order to support the trouble-freeoperation of the project. In particular when anintellectual capital statement is drafted for the firsttime, is important that the person responsible forthe project should deal with these principles indetail.

His/her function will be to coordinate andmoderate intellectual capital statements. He/sheshould accordingly have understood the overall

approach well and be able to familiarise the otherpeople involved with the methods and aims.

Definition of the system boundaries

In particular when an intellectual capitalstatement is drafted for the first time, the part of theorganisation on which the work concentratesshould be considered. There are almost alwayspossibilities to define boundaries, be it locations,functions, markets or indeed individual processes.For reasons of the availability of employees, or


Fig. 2: Process steps and milestones in intellectualcapital statements


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because of risk considerations, it may make sense tostart with a prototype and then in the second phaseto transfer what has been learned to the rest of theorganisation. Whatever the decision taken, itshould be carefully documented, and it should beclearly stated in order to avoid misunderstandingsas the process continues.

Putting the team together

The view of the organisation as perceived bythe team members will be reflected later in theintellectual capital statement, and should thereforebe representative. Where possible, you shouldhence integrate into the intellectual capital

statement project team representatives of all partsof the enterprise and levels of the hierarchy. Ensurethat operative employees are also involved, and notonly managers. This will ensure that the discussionhas its feet on the ground, and does not reflect onlythe management teams self-perception.

Depending on the size of the organisation,the work may be done by one or more teams. It isthen however important for those teams toregularly exchange information on newknowledge and the status of their work. Over andabove this, sufficient time should be planned forcombining the results since there will beconsiderable potential for discussion.

Example of typical team composition:

q Chairman of the Board/managing directorq Representative of controlling/

corporate planningq Representative of sales service/

Strategic marketingq Representative of Public Relationsq

Project management employeeq Representative of Personnelq Branch headq Sales employeeq Specialist worker

On principle, the involvement ofmanagement in the team has proven to be decisiveto success, although the intellectual capitalstatement project leadership itself does notnecessarily have to come from management.

Project management

Coordination of a heterogeneous and teamwhich spans the different levels of the hierarchy isnot an easy task. Allot sufficient time to findappointments and to coordinate employees andwork packages. Professional project managementmakes a significant contribution to the success ofthe project.

Implementation

Time is money. This simple truth naturallyalso applies to drawing up the intellectual capitalstatement. Depending on the goals of theintellectual capital statement, the Pareto rule

should not be forgotten: 80 % of the results areachieved with 20 % of the resources necessary for a100 % solution. This level should be sufficientinitially to draft the intellectual capital statement. Ahigher level should not be targeted until specificadvantages for the organisation are identified andfurther details required. Assess this even whenassembling the team and plan the course ofintellectual capital statements accordingly.

General approach

The drafting of intellectual capital

statements is a learning process for anorganisation. A holistic view of intellectual capitalin the overall context of the organisation requiresmanagement of complex contexts and leads tomany realisations which frequently become clear toindividual participants only after discussions withcolleagues in a workshop. New arguments andproposals for adjustment will emerge. You shouldtherefore allow sufficient time to adjust the resultsthat have been worked out. These loops areimportant to compare the content to be found laterin the intellectual capital statement with reality,

and to keep it as complete as possible. Theintellectual capital statement should not be asnapshot of a one-off meeting which no one canbuild upon later. Virtually no additional effort isthereby incurred. You should only take care that

you allow one to two weeks time between theteams meetings and allocate the participants thetask of reflecting once more on the discussion andthe results during this period. End the loops whenno further important arguments come whichinfluence the result.



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Checklist on the principles:

For which part of the organisationdo we want to draft an intellectual

capital statement, what is still part of it andwhat is not?

Who do we involve in the project team? Whatis its role?

How do we organise and coordinate the project?

At what level of detail should we proceed?How do we guarantee cost-benefit efficiency?

How do we deal with adjustments broughtabout by new knowledge?

The following chapters are sub-dividedaccording to the process steps (cf. Fig. 2) of theintellectual capital statement and describe theindividual steps towards drafting it.

5.4 Step 1: Describing the initial

situation

Firstly, the initial situation of theorganisation is measured and documented. This,analogous to Fig. 2 (p. 16), forms the starting pointfor intellectual capital statements and in additionto possibilities and risks in the businessenvironment also shows the current strategicorientation of the organisation. This is particularlyimportant to develop the knowledge strategy,which should be in line with the business strategy.The discussion on the current situation and futureorientation of the organisation forms the basis forall further steps.

5.4.1 Possibilities and risks in the

business environment

The possibilities and risks in the businessenvironment of an organisation typify its activities.They form the basis of the intellectual capitalstatement, since they typify the future orientation

of the organisation and the development ofintellectual capital. In almost all organisationsthere are documents and further considerationsregarding developments and trends of the marketsbeing observed, and hence indirectly alsodiscussing possibilities and risks. These documentsare to be collected and studied in advance.

The following information need to be considered: :

q competitors,

q customers,

q suppliers,

q employees (existing and potentially available),

q social environment,

q economic cycle (growth/internationalisation), aswell as,

q political trends and legal provisions, etc.

The discussion of possibilities and risksshould be implemented in a workshop with thecomplete intellectual capital statement team. It is

helpful if you start collecting most of theinformation in advance from the availabledocuments and let the participants have these afew days before the meeting, so that they can thinkabout them in their preparation.

The main questions which should be discussed andanswered are:

q Is there sufficient market demand for ourproducts and services, or are they at a disadvantagebecause of better solutions provided by third

parties?

q Is there potential for new, promising fields ofbusiness and services? Under what conditions andin what circumstances are these relevant?

q What is the general cyclical situation on themarket as concerns prices and competitors, andwhat are the consequences for us?



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q What social and political contexts influence ourbusiness?

q How high is the risk of losing parts of ourintellectual capital (such as losing importantemployees, customers and cooperation)?

q How great is the risk of our intellectual capitalbeing copied or becoming obsolete (such as bycompetitors copying procedures andtechnologies)?

q How is the organisation per se to survive (such assuccession arrangements, finance, etc.)?

Example of possibilities and risks:

A sales representative speaks about animportant customers plans to develop a newfield of business in another location(possibility). For management, the questionarises of whether and how to deal with thecustomer: Should we focus on the existingbusiness, or change with the customer? Do the(financial and intellectual) prerequisites forgrowth exist at all? What is the risk of losing

the customer altogether if we do not growwith him? What investment volume will berequired, and how big is the risk of it not beingrepaid? (risk)

The decision must be taken within two monthsbecause the customer will need roughly thisamount of time to finalise his ownpreparations.

The managing director calls a short-noticemeeting of employees who can make acontribution to this important topic. By usingthe questions, the opportunities and risks can

be discussed in a structured manner and theresults recorded.

Tip: The technique of including theindividual questions in a documentand listing possible answers to themin a brainstorming session with the

whole project team is well tested and proven.The collection is then subsequently furtherspecified and worked out by a small team.

5.4.2 Strategic considerations

Then, the considerations regardingopportunities and risks from the previous stepshould be related to the organisations vision andstrategy. The business strategy describes how to acton the market in future, which investments areneeded for this, at which locations work is to becarried out covering which products and services,which research and development activities are tobe introduced and implemented, and more. If thecomparison of the opportunities and risks againstthe vision and the strategy leads to unansweredquestions, the strategy must be adapted and

revised.

For the long-term successful orientation ofthe organisation in a knowledge society, however,still further considerations are required regardingintellectual capital. The knowledge strategyderived from the business strategy is developed tothis end. The knowledge strategy describes theorganisations position with regard to sub-areas ofintellectual capital. It forms the basis of its care andfurther development. Answers to the followingquestions can help to develop the knowledge

strategy:

q What made us strong in the past?

q In very specific terms, what intellectual capitaland what knowledge do we need to implement ourbusiness strategy?

q How must the strategy be developed as regardscustomers and competition?



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q What part of it is unique and ensurescompetitive advantages, what is vital to maintainour place in the market?

Fig. 3 shows the intellectual capitalstatement integrated in the strategy cycle. Itbecomes clear that the knowledge strategy isderived from the business strategy and steers themeasures to develop intellectual capital. Thesuccess of the steps taken is measured andevaluated in the intellectual capital statement, andin addition to changes in the business environment,forms the starting point of a new cycle.

Fig. 3: The strategy cycle in connection with theintellectual capital statement

Example of a knowledge strategy

After a few considerations on the fundamentalstrategic orientation, it becomes clear that thefirm is able to complete the existing contracts

very well, but that there is no more demandfor core services because of the re-orientationof this important customer. Possibilities toplace the existing products with othercustomers have either been exhausted, orwould require considerable investment.

Suddenly management is faced by thequestion of what intellectual capital, and in

specific terms which knowledge, is needed tobe able to comprehend and deal with the re-orientation by the customer? After detaileddiscussions in the intellectual capitalstatement team, the following knowledgestrategy is first of all determined:

We will focus and specify our corecompetences (software engineering) and pushforward product innovation with and for ourcustomer. To this end, we will deliberatelyexpand our external cooperation in the shapeof freelance programmers and learn fromtheir specialist expertise specifically in orderto meet the new challenges.

Tip: The wording of the knowledgestrategy benefits from several roundsof improvements. An acceptableworking definition is sufficient at the

outset if during the project, work is still beingdone on the wording of the details!

Checklist on the starting

situation:

Where do we want to be in 510years?

What characterizes our business environmentnow, and what will characterize it in ten years?

What is the market situation, and where arethe opportunities and risks?

What is our vision and strategy for futuredevelopment?

What parts of intellectual capital are ofstrategic significance, and to what goal do wehave to develop them?



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5.5 Step 2: Assessing intellectual

capital

Example of assessing intellectual capital

A short time later, the managing director isalone in his car once again on his way to visit acustomer. The recent discussion is still in hismind: If we take up the challenge with ourcustomer, what do we have to change in ourservices and products? What part of this isaffected, and what do we have to change

internally in order to be able to meet the newrequirements? Will our employees cope withthe change? How can we build up thenecessary relationships, and what is theconsequence of this in terms of changes in ourinternal working atmosphere? The managingdirector decides to reconvene the intellectualcapital statement team this very week and tocompile these important influencing factorsin a structured manner.

5.5.1 Performance processes

Organisations are as a rule constructed on adivision-of-labour basis. All measures and steps aimto provide a product or service that is useful to thecustomer. It is also possible to describe this as theperformance process, which usually commenceswith an order and leads via purchasing necessarycomponents and preliminary services, as well asprocessing them (production or service) through to

the actual product of the organisation. The Salesdepartment ensures that the products are sold tocurrent or potential customers. Consequently, theperformance processes are the central, mostimportant processes of an organisation aroundwhich all other processes gather. It is thereforeimportant, first, to be clear about these processes inorder to be able to better evaluate the impact ofchanges.

Tip: In order to obtain an overview ofthe most important business processesand their contexts, it is possible toconsult existing business process

models. Most organisations already have suchmodels in one form or another. For instance, ifquality management (QM) is already in use,such models and services may be found in thequality management documents.

In order to gain an impression of the diffe-rent processes involved in performance provision,a workshop may be used to answer the followingquestions:

q What products and services do we sell on themarket?

q What central processes are needed to providethese services?

q How much do the individual performanceproduction processes differ, and in what way dothey differ?

q Where are there weaknesses already known inprocesses?

Example of the performance processes of an

organisation

At the start of the workshop, the teamdiscusses the main business processes whichare affected by the change. To provide astarting point, an employee has obtained thebusiness process model from the qualitymanagement documents, and presents the

individually-listed processes for discussion.After a short period, it emerges that it issoftware development that is mainly affectedby the changes, but that relocating the businesshowever also has an impact on service, since inthe long term a move to the location of thecustomer will become necessary.



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Furthermore, the services would have to beadjusted in line with the requirements of thenew product, meaning that additional internaleffort is needed for basic and further training.

The group therefore decides to proceed byobserving both central performanceprocesses: software development and service.

5.5.2 Influencing factors of intellectual

capital

In addition to performance itself, there are alarge number of further (intangible) influencingfactors which affect the efficiency and effectivenessof performance and the success of the organisationon the market. They are a part of the organisationsintellectual capital.

Fig. 4: Intellectual capital influences businessprocesses

Definition of influencing factor

In the event of changes,influencing factors affect business

success and the organisations achievement ofits goals. They can also relate to tangible (suchas plant and machinery), financial (forinstance loan and equity capital flows) andintangible assets (such as employee skills andorganisational culture).

Tip: If a change in one factor does noton principle lead to other changeswithin the organisation, it should not

be considered as an influencing factor for theintellectual capital statement.

It is important to cover the influencingfactors from the areas of human, structural andrelational capital, in other words the intangibleassets, in the intellectual capital statement. To thisend, an initial brainstorming session is used toidentify the factors which have the greatestinfluence on the processes of production andstrategically-defined business success. Questionswhich in one shape or another almost everyentrepreneur asks him/herself at some point help tostart off the brainstorming session:

Human capital

q How are suitable employees found, recruitedand retained?

q How are employees trained and given further

skills?q How are the competences and skills of employeessystematically strengthened and refined?

q How is employee motivation and satisfactionensured?

q How is employee performance promoted andchallenged?

q . . .

Examples of typical influencing factors:

human capital,

basic and further training of employees,

building staff experience,

building social skills,

motivating staff, and

building management competence.



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Structural capital

q How is interaction and communication managed?

q How are processes supported by IT?

q How do activities target customers andinterested groups?

q How is the quality of processes and resultsensured?

q How do we use our intellectual property?

q How are knowledge and experience sharedamong employees?

q How is knowledge exchanged within the parts ofthe organisation (departments, working groups, ...)?

q How do we create product innovations?

q How are processes and procedures improved?

q How do we ensure that innovations are sustained?

q . . .

Examples of typical influencing factors:Structural capital

developing product innovations (research &development),

developing process and proceduralinnovations,

organising management processes,

developing a corporate culture,

cooperating and communicating internally,

providing information technology and

explicit knowledge, andtransferring and ensuring knowledge.

Relational capital

q How is performance communicated tocustomers?

q What do our customers appreciate about us?

q How are partnerships with customers built upand maintained?

q How are customer wishes met and used toimprove performance?

q How are external sources of knowledge madeaccessible?

q How is individual knowledge made accessible toothers?

q What external impact should be achieved withcustomers, partners and the public?

q

. . .

Examples of typical influencing factors:

Relational capital

caring for customer relationships,

caring for supplier relationships,

pursuing social commitment, work withassociations and public relations,

caring for relationships with investors andowners, and

integrating external knowledge.

The questions help to improveunderstanding of the three key terms of human,structural and relational capital. The better thisunderstanding, the easier it is to process all theother steps.

The influencing factors are assessed in aworkshop with the entire project team. This shouldstart with a brainstorming session in which each

participant tries to write answers to the question bythemselves on cards. The answers are collected by apre-determined moderator and put togetheraccording to the criteria of types of capital (human,structural and relationship). Then, the cards arediscussed and further grouped so that similarfactors form a group. Per type of capital no morethan 35 groups should be created which should begiven as memorable a name as possible asinfluencing factors and given definitions.



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Example of assessing the influencing

factors

In the workshop with the intellectual capitalstatement team, it was possible very quickly toidentify 50 influencing factors, all of whichinfluence the result of the organisation insome way. The factors and their importancewere actively discussed, especially themeaning of the terms. This discussion wasused as input for combining and defining theinfluencing factors. After two hours, the teamhad agreed on and defined the 18 mostimportant influencing factors from thedimensions of intellectual capital, the businessprocesses and business successes.

Tip: Make sure that the typical

language of the organisation is usedwhen naming and defining thesefactors. This ensures that the

influencing factors and their definitions arealso understood by employees who are notparticipating.

Checklist for assessing

intellectual capital:

What are our main services andproducts?

What important business processes do we useto produce them?

What is the intellectual capital that makes ussuccessful?

How do we define the influencing factors ofintellectual capital so that these areunderstood by all employees?

5.6 Step 3: Evaluating intellectual

capital

In order to obtain a quick overview of thestrengths and weaknesses of intellectual capital,the rapid and tried-and-tested method of self-evaluation is used in preparing the intellectualcapital statements. An evaluation however requiresa benchmark which determines against whatbackground something is evaluated as tending tobe better or worse. The intellectual capitalstatement makes use of two possible and typicalreferences to evaluate intellectual capital:

q Operative business: How is the orientation of ourinfluencing factors to be evaluated as they relate tothe trouble-free running of our operative business?As sufficient, insufficient or indeed as better thannecessary?

q The strategic orientation of the organisation:How is the orientation of our influencing factors tobe evaluated as they affect our strategicorientation? As sufficient future requirements,insufficient or indeed already better than needed?

Ideally, each influencing factor is evaluatedin relation to both perspectives. The operativeperspective ensures that the current business, aswell as the product and service provision, workwithout impediment at all times, and thatcustomers can at present be satisfied sufficiently.The strategic perspective ensures that theenterprise is fit to face the future and is preparedfor the changes which can be expected. The self-evaluation is implemented by a representativegroup of employees which ensures that aheterogeneous picture of the organisation is

created and that where possible all arguments aretaken into account.

The following questions help develop theinitial evaluation relatively quickly:

q Is the quantity/volume of the influencing factorsufficient? Do we have enough to achieve ourgoals?



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q Is the quality of the influencing factorsufficient? Do we have the right factor, and is thequality of that factor right in order to achieve ourgoals?

q How systematically are we already developingthe influencing factor? Are there defined, regularmeasures and routines to care for and improve thefactor?

Tip: Depending on the concretedefinition of an influencing factor, itmakes sense to adjust these

questions. Sometimes, the evaluationof quantity or quality is difficult, for instancewith corporate culture.

In the simplest case, a table (cf. Table 2, p. 26)is prepared which contains all the influencingfactors identified so far. In addition, there are twocolumns for each evaluation dimension (quantity,quality and system), in one of which the estimatedorientation is entered on a scale between 0 and 120,and in the other, written reasoning as to why the

value is so high or so low. Table 2 also containsexamples of reasoning for the assessments. Theseare created in the context of the internal discussion,and are mostly only to be understood internally. Forexternal communication concerning Milestone III,these statements must be reviewed and edited.

The following scale can be used as anevaluation scale for the orientation:

0 % The quality, quantity or system cannotbe sensibly identified or is not (yet) available

30 % The quality, quantity or system ispartly sufficient

60 % The quality, quantity or system ismostly sufficient

90 % The quality, quantity or system is(always/absolutely) sufficient

120 % ... The quality, quantity or system isbetter or more than necessary

All intermediate steps (e.g. 55 %) are possibleas evaluation results! Do not forget that thereference (operative and/or strategic orientation) isdecisive for the evaluation.

Evaluation dimension 120 % was introducedto make it possible to identify the influencingfactors where the potential exists to make savings.These areas can be created on the basis of changesin the business model, or simply by having receiveddisproportionately high attention in the past. Thistakes place for instance with influencing factorswhich are the hobby-horse of employees inleadership positions.

Tip: In order to be able to reach a

uniform evaluation quickly, a simplepoints card system can be used, likethose used for ski jumping or in

beauty competitions, with five coloured ornumbered cards for each person present. Themoderator sees immediately how the groupassesses the factor and can lead a discussion ofthe deviating values discussed until aconsensus is reached.



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Tip: The moderator should ensurethat no individuals dominate, butthat a balanced perspective is createdfrom all areas of the organisation.

This reasoned but nevertheless subjectiveevaluation shows how the orientation of theinfluencing factors is assessed within theorganisation. Hence, a major first milestone ispassed to develop an intellectual capital statement,and a profile of strengths and weaknesses can becreated for the organisations intellectual capital.Fig. 5 shows by way of example the result of anevaluation in a portfolio.

The quality of the factors is entered on the Xaxis, the quantity on the Y axis; the system isportrayed by the size of the circular areas. Theoptimal area is in the right-hand upper quadrants.The semi-circles lying in Fig. 5 on the axes (two onthe X axis and one on the Y axis) are influencingfactors for which in each case only quantity orquality was evaluated. Taking the example offinancial success it is possible to see that whilstthe amount of the financial success is relativelyeasy to evaluate, nothing was said in this case aboutquality. With these factors, the optimum area iseither at the top or on the right near the 90 % mark.

The evaluation also permits deductions to bemade about future trends and the sustainability ofthe organisation: Small circles show a need for

Figure 5: Evaluation portfolio/knowledge map



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action since without systematic management of theimportant influencing factors no sustainabledevelopment can be anticipated. There is even therisk that quality and perhaps also quantity willsuffer in future, since the weak factors becomeobsolete if they are not looked after andcompetition develops further.

Tip: If all evaluations withoutexception are in the green zone,there are reasons in general topresume that a very generous

evaluation was made. The probability of beingequally marked with all influencing factorsthat are critical to success is not very high anexception may be the market leader.

Tip: A normal distribution with a fewproblems, many normal values andfew peaks is an indicator of a high

capacity for self-evaluation.

Tip: It is of primary importance in theevaluation that the circumstances ofthe evaluations should match. It must

become clear which influencing factors arebetter evaluated than others. The absoluteevaluation is subordinate in this case. Youshould therefore implement evaluation in asingle workshop. Ask often whether the latestevaluation has been made in relation to theevaluations of other factors already made.

Checklist on evaluation:

What are our strengths andweaknesses in intellectual capital?

With which influencing factors ofintellectual capital do we already dealsystematically, and with which not yet?

How do we reason our evaluations?

5.7 Step 4: Finding and evaluating

indicators for intellectual capital

After the self-evaluation, the influencingfactors of the intellectual capital statement arehighlighted with measurable indicators in theshape of numbers and facts. The goal is betterverification and higher legitimisation by changesbecoming visible largely independently of workersself-estimation.

Definition of an indicator:An indicator is defined as anabsolute or relative benchmarkwhich serves to describe a

circumstance. The comparability ofbenchmarks is dependent on them beingclearly defined themselves, on their alwaysbeing calculated in the same way and on aninterpretation framework being available(mostly the operative and strategic enterprisegoals).

Indicators are always only as good as the datasources. When collecting the indicators, hence, it isbetter that fewer indicators should be used, butthat they should be assessed cleanly.

Tip: Collect information early as towhich indicators and benchmarks arealready in use in various areas of yourorganisation (such as management,

personnel, controlling, marketing, etc.).

Where necessary, a large number of thesebenchmarks can work with slight adjustmentsalso as indicators for the intellectual capitalstatement. Much less effort will be involved inthe assessment , and over and above this theintellectual capital statement will bringtogether the different views that are alreadyprevalent.



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Although for the intellectual capital statementsome indicators should be used from existing reportstructures, the new perspective from which they areregarded is important. Depending on the questionsasked, different indicators may contain relevantstatements on an influencing factor. It is not possibleto make a generally valid statement on the selection

of indictors, since this depends on the respectivecorporate context and on the influencing factorsthat are defined.

Table 3 shows an excerpt of indicators froman intellectual capital statement (human capitaland relational capital). The portrayal is borrowed

from the intellectualcapital statement of theSeibersdorf AustrianResearch Centre. Theindicators are allocatedto the individualinfluencing factors (such

as basic and furthertraining of employees,building up employeeexperience, etc.) and arehighlighted with valuesfor the different reportingperiods, an evaluation ofsatisfaction with whathas been achieved(smiley) and a goal forthe new reportingperiod (arrow or

concrete value). Theentries for the goals areoptional and only makesense if they are linked toconcrete measures.

With the evalua-tion of the influencingfactors and indicatorsassessed, the participantshave a good overview ofthe intellectual capitalthat is relevant to compe-tition. In combinationwith the defined know-ledge goals, it is possibleto establish initial priori-ties for future measuresand development. Animportant milestone wasachieved, at which it ispossible to interrupt thepreparation of an intellec-tual capital statement.Table 3: Excerpt example of indicators of an intellectual capital statement


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revonrutnisremotsucwenfoerah %9,51

noitcafsitasremotsu %8,28

remotsucrepstisivforebmuN 9,6

noitavresbotekramdnasseccatekram/gnitekraM

revonrutnistsocgnitekramfoerah 6,2

egdelwonkfonoitisiuqcadnanoitarepooclanretxE

srentrapnoitarepoocdnanoitarepoocforebmuN 3

sreilppusforebmuN 041.xorppa


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Checklist on indicators:

What (existing and new) indicatorssupport our previous evaluations?

How do we define the calculationof the indicators in detail?

Which values do the indicators have?

How are the indicators to be interpreted?

How can we assess indicators consistently andsimply?

5.8 Step 5: Communicating

intellectual capital

The results acquired in steps one to fourmake it clear that these can only be sensiblyinterpreted in context. Depending on the startingsituation and on the strategic goals set, completelydifferent conclusions can emerge. The intellectualcapital statement, which is used for communicationoutside the intellectual capital statement team,

must therefore provide a description of this contextand an interpretation which in addition to thenumbers and facts also shows the consequencesfrom the point of view of the organisation.

The results can be communicated in a varietyof ways, purely verbally in the shape of discussionsand presentations, or in writing as a living report.The important thing here is for the intellectualcapital statement to be adjusted to the targetgroup. It should not bore readers or listeners, andshould quickly give them all relevant, importantinformation on the organisations intellectualcapital.

On principle, it is possible to distinguishbetween internal and external target groups.Whilst the report for external communication is ona more abstract level, and focuses more on theimpact on the most important interested groups(stakeholders), the intellectual capital statement forinternal communication is as a rule more detailed

and specific. Table 4 (p. 31) shows a few t ypicaldifferences between intellectual capital statementsfor internal and external purposes.

Example discussion on communication

After a further meeting on final release of theindicators, there are many documents withtables, pictures and texts on the table. If ourcustomers read that, they could get acompletely false impression... the controllersays, referring to the highly critical self-evaluation. We have deliberately given

ourselves a critical evaluation in order to workout our strengths and weaknesses. Althoughthat now looks rather bad in some parts, weare still the best in the sector, as you can easilysee from the indicators. We should perhapsnot publicise our self-evaluation. But wehave to pass it on to our own people andperhaps to the owners because there are quitea lot of changes coming, interjects the qualitycommissioner.

We should nevertheless think about whetherwe should not publicise a great deal of the

information since the fact that we are todaythe best in the sector is largely a result of ouralways having been critical of ourselves. Whatis more, the intellectual capital statementshows that we have seen the signs of the timesand are deliberately changing. This puts us farahead of the competition. While they are stillbattling with their process management, weare already in the midst of the systematicdevelopment of our intellectual capital. If wetell our customers this, Im sure they willprefer to buy from us because they can see our

goals and what we have to offer now and infuture. An agreement is reached to distributea full report on the results internally to allemployees, whilst a filtered versionprepared by Marketing and containing themost important information and indicators isdistributed to the most important externalinterested groups.



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Intellectual capitalstatements offer a certainscope as to their structureand portrayal. Theinternal priorities andcore issues can becomethe focus through astrong orientation to thestrategy.

It is neverthelessimportant for theintellectual capitalstatement to have a

clearly understandablestructure and not toappear to be a purestrategy or marketingdocument. For this, thefollowing structuralproposal has proven itself:

Example structure of

an intellectual capital

statement:

1 Foreword Whyan intellectualcapital statementin ourorganisation?

2 Companydescription

3 Business successand challenges

4 Business andknowledge

strategy5 Our intellectual

capital

6 Future perspec-tives and measures

7 Collection ofindicators

ehtnosucoF

gnitroperninoitseuq

lanretnipuorgtegraT lanretxepuorgtegraT

tegratehteraohW

?spuorg

,licnuocyrosivrepusdnatnemeganaM

dnasnoitasinagroeeyolpme

stnemtraped

srednellatipacnaoldnaytiuqE

,sremotsuc,)sknab,srenwo,srotsevni(

dnasreilppus,seeyolpmelaitnetop

srentrapnoitarepooc

tegratehtodtahW

tcepxespuorg

?yliramirp

:yllanoitiddadnalanretxesA

dnaegdelwonkwohotsanoitatneirO

s'ynapmocehtecudorpotsessecorp

nI.detargetnitsebebnactcudorp

evitarepoylhgihsesacemos

ohwdnatahwswonkohw:noitavitomnacwoH:dnatahwrof"elbisnopser"si

?rettebenodebti

,noitasinagroehtnonoitamrofnI

laudividnifosessenkaew/shtgnerts

foeruliafdnasseccus,saeraegdelwonk

tnempolevedegdelwonk

?detropersitahW

ehtfo"ssenetelpmoC"

noitamrofni

eht;rettebehtdeliatederomehT

lanosrepybdemroferaseiradnuob

.noitcetorpatadottcejbusatad

nognidnepedderetlifyllacigetartS

foleveldnapuorgtegrateht

puorgtegratehtfotnemevlovni

nahteromdloterasrentrap(

)srotitepmoc

troperehtsiwoH

?deraperp

dnalayartropnI

gnissecorp

.eruhcorbrotroper,noitatneserpasA

dnaseirots,srotacidnitnatropmI

rofsesactsomnitneiciffuseraserutcip

lanretniehT.noissucsidderutcurtseht

eraperpotsuoirobalsselsilayartrop

.noitacinummoclanretxenaht

folayartropderutcurts-ylraelcehT

sitxetnocetaroprocehtninoitamrofni

ehT.noisneherpmocotlartnec

fonoitiddaticilpxelanoitidda

secneuqesnocriehtdnasnoitaterpretni

sredaerlanretxeecnistnatropmioslasi

thgisnionroelttilevahsevlesmeht

oslasitI.noitasinagroehtotni

ngisedevitcarttanaevahottnatropmi

.noitatneserpcihpargdna

tifeneblatnemurtsnI

weivfotniopehtmorf

noitasinagroehtfo

tsomruoeratahW:tnemeganaM

dnatnerrucotsasecruosertnatropmi

eweraerehW?stnempolevederutuf

oderehW?dabeweraerehw,doog

dnasrehtootnosirapmocnidnatsew

?)gnikramhcneb(ecitcarptsebehtot

tahW?odewnacdnatsumtahW

tneveehtnidetcepxeebnactcapmi

ehteralufsseccuswoH?segnahcfo

?)IOR(dnesihtotdetaitiniserusaem

tahW?eweraohW:noitacinummoC

otevahewodtahwdnaodewnac

eweratahW?doogewerayhW?reffo

?htrow

Table 4: Various target groups and criteria of communication



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This structure represents the model of theintellectual capital statement portrayed above (cf.Fig. 1) and shows on the basis of the strategy and the

challenges faced by the organisation howintellectual capital leads to business success andinfluences the future of the organisation.

A number of elements have proven theirvalue for an interesting portrayal of the intellectualcapital statement, in addition to the results fromthe work packages:

q personal style,

q short stories and anecdotes from theorganisation,

q professional, memorable design,

q illustrations of important statements and

contexts, and

q diagrams to visualise the indicators.

The intellectual capital statement is anindividual document that is highly specific to theorganisation. It should therefore have a personalstyle and communicate We as an organisation.Pictures and statements by individual employees

support this and can considerably increaseidentification with the intellectual capitalstatement, and hence also with the organisation.

A major section of the culture of anorganisation is also reflected in anecdotes andstories of special events or situations. Theseanecdotes can be used to communicate thestrategy. A story in which the employees canrecognise themselves can have a greater internalimpact than all indicators together.

The picture of the organisation should alsobe reflected in the design and in the layout. It istherefore recommended to draft the intellectualcapital statement within the organisationsCorporate Design (CD) or Corporate Identity (CI).Illustrations have also proven their worth. They areoften more quickly understood and show contextsbetter than text. Also, tables of indicators canquickly become boring. Here too it is thereforerecommended to use diagrams to portray thenumbers and facts. It becomes particularlyinteresting when some indicators have alreadybeen followed over a number of years and a trendline can be shown.

Checklist on communication:

For which target group can weprovide an improvedunderstanding of our organisation

using the intellectual capital statement?

How do the intellectual capital statement andother communication media complement oneanother (such as marketing documents,annual report or business plan)?

How should our intellectual capital statementbe structured?

Is all important information interpreted, andwhat scope remains?

What details should be for internal use only,and which should also be communicated tothe outside?



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5.9 Step 6: Managing intellectual

capital

The results of work packages one to fiveprovide a structured report on the status quo ofan organisation. It shows the current situation andbasic potential for development for the future ofthe organisation.

The management of the organisa

6544 ICR Made in Germany

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