INTELLECTUAL CAPITAL MANAGEMENT

Introduction

This is a knowledge era. The value of a business depends on innovation, knowledge

capturing, business information systems & other intangible assets’ operation. Intangible
assets, which form more than 80% of a company’s total value, are the main source of a
company’s competitiveness and sustainability. Through systematic management, these
intangible assets will play a critical role in driving the companies’ wealth growth. However,
the traditional management practices which narrowly focus on financial performance misled
so many companies overlooking the value of their invisible assets.
Traditionally, the only intangible assets recognised in financial reporting statements were
intellectual property, such as patents and trademarks, and acquired items such as goodwill.
Although it is still not possible to assign monetary values to most internally generated
intangible assets, they nevertheless need to be considered if the process of value creation is to
be properly understood. Failure to do so can have damaging consequences at all levels. For
an individual firm, not understanding how value is generated can lead to inefficient resource
allocation. It means the company does not fully understand its business model and may
therefore be unable to assess the value of future business opportunities. On a wider scale,
it can lead to anomalous market behaviour: if the markets don’t get the information they need
through “official” channels they may resort to rumours and speculation, which could lead to
volatility. There may also be a misallocation of resources on a macro level in terms of market
investments.

Many companies have come to realize that market value multiples associated with its
intangible assets (patents, trade-marks, trade secrets, brandings, etc.) are often many times
higher than the multiples associated with the cash flows generated from its tangible assets in
isolation. The challenge facing these companies is to implement business practices and
systems to manage and exploit these intellectual assets as traditional approaches to
accounting, physical asset tracking and inventory systems are geared towards managing
tangible assets. Most companies have not equally developed processes, organizations or
systems to effectively manage and leverage intellectual assets, and opportunities are missed
to realize the greatest possible value from them.
Intellectual capital management is an effective management and operation tool assisting
businesses to visualize their own intellectual capital. It integrates and manages a company’s
core competence, knowledge and business strategy systematically and transforms their
potential values into wealth.

As intellectual capital gained ground against tangible assets has been widely accepted that it
is the new fundamental basis of competition: it is the most essential factor in the creation of
economic value and competitive advantage. Currently, intellectual capital in its various forms
is the most important resource for all types of company. When intellectual capital has become
the primary driver of sustainable competitive advantage in today's economy, different
researchers in the intellectual capital management field they proposed a variety of models of
managing intellectual capital in order to help managers in managing intellectual capital that
exists within their companies (Pienaar & Du Toit, 2009, pp. 121-137). However, while there
is a great deal of research reporting the models for managing intellectual capital, there are
only a few models showing steps to make. The overall objective of the research is divided
into three research questions that have different perspectives on the same phenomenon: the
description of the concept of intellectual capital management, the importance of intellectual
capital management and existing models for managing intellectual capital. The research
questions are studied through literature and propose a new model for intellectual capital
management, which by applying it in practice getting the final results sustainable competitive
advantage. The proposed model attempts to overcome the limitations of conventional models
are used to explain, measure, and manage organizational competitiveness, without taking into
account maintaining leading position. The most important contribution of the research is the
description of how to apply intellectual capital management in a company without any
intellectual capital management model.

Komponen Intellectual Capital

Brooking (1997) menyatakan bahwa intellectual capital merupakan fungsi dari empat
tipe asset yakni : 1) market assets; 2) intellectual property assets; 3) human-centered
assets; 4) infrastructure assets. Sedangkan menurut IFAC (1998), intellectual capital
terdiri dari human capital, customer (relational capital), dan structural (organizational)
capital yang terbagi atas dua kelompok yakni intellectual property dan infrastructure
asset.
Human Capital

The principal sub-components of an organization’s human capital are its workforce’s skill
sets, depth of expertise, and breadth of experience. Human resources can be thought of as the
living and thinking part of intellectual capital resources. These can therefore walk out at night
when people leave; relational and structural capital on the other hand remains with the
organization even after people have left. Human capital includes the (a) skills and
competencies of employees, (b) their know-how in certain fields that are important to the
success of the enterprise, and (c) their aptitudes and attitudes. Employee loyalty, motivation,
and flexibility will often be significant factors too, because a firm’s ‘expertise and experience
pool’ is developed over time. A high level of staff turnover may mean that a firm is losing
these important elements of intellectual capital.

Relational Capital

Relational capital includes all the relationships that exist between an organization and any
outside person or organization.These can include customers, intermediaries, employees,
suppliers, alliance partners, regulators, pressure groups, communities, creditors, and
investors. Relationships tend to fall into two categories – those that are formalized through,
for example, contractual obligations with major customers, suppliers and partners, and those
that are more informal. Although the former tended to be predominant in the past, today, the
latter have a more important impact on how the enterprise is managed. In today’s integrated
economy, with just-in-time supply chains, relationships with trading partners and suppliers
can be crucial. Brand image, corporate reputation, and product/service reputation, which
reflect the relationships between organizations and their (current and potential) customers,m
also fall into this category.

Structural Capital
Structural capital covers a broad range of vital elements. Foremost among these are usually
(a) the organization’s essential operating processes, (b) how it is structured, (c) its policies,
information flows, and content of its databases, (d) its leadership and management style, and
(e) its culture, and (f) its incentive schemes. They can, however, also include legally
protected intangible resources. Structural capital can be sub-categorized into Culture,
Practices and Routines, and Intellectual Property.
Organizational culture is fundamental to achieving organizational goals. Organizational
culture provides a common way of seeing things, sets the decision-making pattern, and
establishes the value system. Cultural resources include corporate culture, organizational
values, and management philosophies.They provide employees with a shared framework to
interpret events, a framework that encourages individuals to operate both autonomously and
as a team to achieve the company’s objectives.
Processes and Routines, which reflect shared organizational knowledge, can be important
organizational resources. Practices and routines include internal practices and processes;
these can be formal or informal (tacit) procedures and rules. Formalized routines can be
reflected in process manuals that provide codified procedures and rules; informal routines
include understood (but unstated) codes of behavior and workflows.
Intellectual property – owned or legally protected intangible resources – is becoming
increasingly important. Patents, copyrights, trademarks, brands, registered designs, trade
secrets, database content, and processes whose ownership is granted to the company by law
have become a key element of competition. Intellectual property is owned by the organization
and not its employees. It represents the tools and enablers that help to define and differentiate
an organization’s unique offering to the markets in which it operates.
Klasifikasi Intellectual Capital
Structural Capital Relational Capital Human Capital
 Organizational culture  Formal relationships  Knowledge and skills

➢Corporate values  Informal relationships  Work-related experience

 Social networks  Competencies
➢Social capital  Partnerships  Vocational qualification

➢Management philosophy  Alliances  Employee engagement

 Brand image  Emotional intelligence
 Processes and routines
 Trust  Entrepreneurial spirit
➢Formal processes  Corporate reputation  Flexibility

➢Tacit / informal routines  Customer loyalty  Employee loyalty

 Customer engagement  Employee satisfaction
➢Management processes  Licensing agreements  Education
 Intellectual property  Distribution  Creativity

➢Brand names agreements

 Joint ventures
➢Data and information

➢Codified knowledge
 ➢Patents / copyrights

➢Trade secrets

INTELLECTUAL CAPITAL MANAGEMENT (ICM)

Defining intellectual capital management

In an era sudden changes, success depends very much on the organization's ability to
manage intangible assets that exist in the company in an efficient manner. Thus, managers
need to know the concepts which operate intellectual capital. In their help come various
researchers which propose a lot of definitions related to intellectual capital management.
By examining the various definitions of literature, the authors present the evolution of the
concept of intellectual capital since 1997 and until now, Table 1. It can be seen that the
definitions involve common and different imperatives. Most definitions integrate three
emerging constructions: value creation, extracting value and maximizing the value. So, all
definitions show a positive relationship between intellectual capital and competitive
advantage. Intellectual capital management offers managers a way to turn the phrase
"people are the most important assets" from words into reality (Senyucel, 2009).

Intellectual Capital Management (ICM) adalah penunjuk arah bagi transformasi pemicu nilai
dari human capital dan relational capital ke dalam structural capital sebuah organisasi.
Proses yang ada di perusahaan seperti rekruitmen, pelatihan dan kompensasi membantu
mengembangkan kreativitas dan inovasi. Bersama-sama dengan teknologi yang tepat dan
structural capital, ICM membantu mencipta dan membagi pengetahuan organisasi, yang
ketika dieksploitasi dan diterapkan pada pengetahuan eksternal maka akan membantu
mencipta keunggulan bersaing perusahaan. Sedangkan output dari knowledge management
adalah inovasi atau aset intelektual, seperti paten, merk dagang. Bersama dengan structural
capital (teknologi, prosedur, proses, dll), aktiva berwujud, dan relational capital, aset
intelektual dikelola untuk menciptakan produk dan jasa baru yang menghasilkan laba. Oleh
karena itu, mengkonversi intellectual capital management ke dalam aset intelektual akan
meningkatkan nilai perusahaan (Roos, et al, 1997, Edvinsson and Malone, 1997).
The roles of the intellectual capital management

In the current economy more and more managers combat the financial crisis, trying to find
all kinds of solutions to increase company value and intellectual capital management is of
major importance, even vital for certain companies. This new era of technology, new
inventions and innovation has a great impact on the strategies, objectives and goals of many
companies; so many researchers in economics see intellectual capital as a reliable source of
increasing the value of companies. The literature shows in many papers the importance of
intellectual capital management in organizations (eg. Kianto et al., 2013, pp 112-122;
Mitchell, 2010; Sánchez et al., 2000, pp. 312 – 328). In this regard, Ulrich (1998) identified
several reasons why intellectual capital management is important:

• Intellectual capital management is implemented across hierarchical levels and increases

understanding about the functioning of an organization. The manager receives a feedback
about what is happening in operational activities. This leads to improved coordination gaps
and future goals, favoring the adoption of permanent decisions.

• In the management process is defined the most important factors in creating value,
making it possible to find a common language to avoid misunderstandings and promotes
constructive discuss.

• The processes and procedures established in the management of intellectual capital are
an important starting point for layout and process improvement.

• The demand for knowledge worker in a growing service economy is on the rise (entities
linked to human capital), creating synergy and striving for innovative atmosphere.

• Learning and innovation become increasingly important in the new economy

• The first line become increasingly important in relation to customer value (entities linked
to networks), so is intended to know customer needs allowing better orientation towards
added value and competitive advantages.

• Knowing the strengths and weaknesses of the firm creates transparency and trust
between employees, organizational units and functions.
Management Accounting Guidelines (MAG), published by American Institute of Certified
Public Accountants (AICPA), provides simple practical tools and techniques that help the
managers and accountants to gain the necessary management and accounting skills for
successful management of intellectual capital of their organizations .

The growth profitability and other sustainable competitive advantages, is not the result of
the investment in physical assets such as factories, offices or facilities, but it is the result of
investment and management of intellectual capital. The success of leading companies such
as Amazon, Google, Micro Soft, eBay and Wal-Mart is based on their intellectual capital.

Physical assets such as distribution of warehouses, office buildings and shops are important,
but not as much important as knowledge about computers and the technology. For
example, large organizations likeWal-Mart with a huge infrastructure store, can not work
well enough if it does not have the knowledge and science to build stores in the correct
location, awareness of consumers for convenient storage of products and expertise and to
replace goods. Intellectual capital allows the organizations to improve their tangible
resources. Identifying and improving management of intellectual capital is the main
distinction between a successful, average and falling enterprise, and will be. However,
before we can identify, measure, manage and report the intellectual capital, we need to
understand themeaning of this phrase. Intellectual capital includes all types of non-tangible
resources that belong to the organization and help the organization to fulfill value creation.

FIVE STEPS TO SUCCESSFUL INTELLECTUAL CAPITAL MANAGEMENT

For a positive influence on the future value of the organization we need a better
understanding of intellectual capital and the latest tools available to identify, measure and
manage this important factor - intellectual capital – in value creation. Guidance the five
basic steps formanaging intellectual capital that will determine success:

1. Identifying the Intellectual capital of the organization,

2. Tracing the key factors of value,

3. Measuring Intellectual Capital,

4. Managing the Intellectual capital, and

5. Reporting intellectual capital.

The first step is to identify the organization intellectually. this point includes its value
measurement. All intellectual capitals are not worthwhile for an organization automatically.
These assets are valuable when they help advance the goals of the organization. Intellectual
capital can be identified through interviews, workshops or through online polls. When
intellectual capital is identified, we can measure its value. When rating intellectual capital
must consider it that the value of intellectual capital depends on the strategy of the
organization and is dynamically interacted with other resources and is dependent on them.

The next step, mapping the value creation that has two primary functions:

• Making shore that strategies are coherent and in close contact with all elements of the
intellectual capital

• Enabling easy communication for strategies and the role and importance of intellectual
capital in advancing the strategies.

After identifying and tracing the elements of the value of intellectual capital, organizations
can begin to measure them. Many tools and techniques are available to measure
intellectual capital. A model using the key questions of performance and key performance
indicators. When intellectual capital is measured, we can manage it. We can get to know
current levels of performance by relevant evaluations, we can understand whether
intellectual capital has been declining or improving, and explore what activities or programs
have influenced the performance. This information can be used in decision-making,
reviewing and testing strategies and managing risks associated with intellectual capital.

Final step, is reporting the intellectual capital. The objective of reporting intellectual capital,
is to provide information about an organization's intellectual capital for its stakeholders.
Traditional financial reporting can not describe the value of intellectual capital. Many
attempts have been made to disclose the Traditional financial reporting limittations on
intellectual capital reporting, but still no standard has been agreed. As a result, various
organizations have offered voluntary reporting and realized the obvious benefits such as
improved stakeholders understanding of the strategies, and improving the image and
reputation of the organization, have come.
Kesimpulan

Implikasi penelitian ini bagi perusahaan adalah bahwa manajemen haruslah

mengembangkan sistem akuntansi manajemen dan akuntansi manajemen strategi agar
dapat memberikan informasi yang bermanfaat kepada manajemen untuk pengambilan
keputuan. Selain itu perusahaan juga harus mengembangkan komponen-komponen
intellectual capital karena terbukti dengan tingkat intellectual capital yang tinggi, maka akan
sangat memperhatikan praktik praktik akuntansi manajemennya yang dapat berdampak
pada kinerja bisnis.

In essence, the power of an organization to achieve wealth lies not in equipment, machinery
and other capital goods that they posses, but it exists in distinct knowledge, the power to
clarify various issues, and offer a unique response. Given the changing role of intangible
assets in modern organization, Alvin Toffler and Heidi Toffler believe that as long as
backward sectors of industry investors still consider traditional tangible assets - plants,
equipment, stocks, as critical, investors from IT sectors and fastest growing is based on
factors totally different to sustain investments (Toffler & Toffler, 2007, pp. 253-286). As a
result, the profit of the organization is primarily the consequence of the good relations it has
with its employees, suppliers, customers and even its competitors. Intellectual capital
management enables identification of effectiveness with which the company has developed
intangible and tangible resources. Directions are closely related to the organization's
strategic logic and therefore the type of resources and changes that are fundamental to
creating value within the organization and hence competitive advantage. A further
contribution of the research is to test and validate the model of intellectual capital
management in small and medium enterprises.

Factors such as development of new economy, communities passage from the industrial age
to the age of information and increasing differences between book value and market value
of companies have increased the importance of intellectual capital. Studies indicate that
measuring intellectual capital is not so easy, and is taking the initial steps of development.
Although measurement models are developing through experience and numerous studies,
none of the models canmeet all the desired objectives and each method depends on the
existing target and position. Despite the importance of intangible assets in the information-
based economy, these assets are not identified in the traditional accounting model and it
implicates the inadequacy of the conventional balance sheet in accounting components of
this type of capital.