SIXTH ASIA PACIFIC KNOWLEDGE
MANAGEMENT CONFERENCE
INNOVATION AND HUMAN CAPITAL:
THE BASIS OF INTELLECTUAL CAPITAL
Combining Intellectual Capital with
Complementary Business Assets to Create Value
Hong Kong, 18th November 2004
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Dr Gordon McConnachie
iCMG/Scottish Intellectual Asset Management
gordon@gmcconnachie.com
gmcconnachie@icmginc.com
www.gmcconnachie.com
Office:
+-49-2429-908-122
Cellphone +-49-151-1410-3505
© Gordon McConnachie iCMG 2004
The Aims of this Presentation





Describe how innovation works and
the importance of intellectual capital
Show why ICM along business lines
is necessary
Indicate how to value intangibles
Show that ICM is vital to value
creation in the global economy
Stimulate you to act
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
Innovation


“Innovation is the completion of
a new technical or organisational
event, not simply its discovery”.
Schumpeter, Economist, Austria,
20th Century.
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
The Components of Intellectual Capital: A Spectrum of
Knowledge Assets
When legally protected these are Intellectual Property
When codified these are Intellectual Assets
Trademarks
Patents
Publishing
Rights
Brand logos
designs
Copyrights
Trade
Secrets
Information
Databases
Confidential
Information
Industrial
Design
Software
Platforms
Technology
Structural
Capital
Most
Source: PricewaterhouseCoopers
Hong Kong 18 November 2004
Customer
Capital
Unpatented
Research
Knowledge
Providing
Value
Human
Capital
Culture
Least
Tangible
Sixth Asia Pacific KM Conference
Know-How
© Gordon McConnachie iCMG 2004
A View of Intellectual Assets
Knowledge &
Know-How
Intellectual Assets
Intellectual
Property
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
INTELLECTUAL
CAPITAL
What Is Intellectual Capital?
Intellectual Capital, knowledge that can be converted
into profits, has two components:
Intellectual Capital
Value Creation
Human
Capital
Value Extraction
Intellectual
Assets
Intellectual
Property
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
The Interaction of Intangible and
Tangible Assets to Create Earnings
Intellectual
Assets
Intellectual
Property
Structural Capital (generic)
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
Sales Force
Human
Capital
Value Extraction
Distribution Capabilities
Value Creation
Complementary Business
Assets (differentiated)
Manufacturing Facilities
Intellectual Capital (unique)
$
Sources and Conversions of
Value
Sources of Value
• Innovations
• Complementary
Business Assets
– Purchasing
– Manufacturing
– Distribution
– Sales
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
Conversion
Mechanisms
• Sale
• Out-license
• Joint Venture
• Strategic Alliance
• Integrate with
Current Business
• Create New Business
• Donate
• Barter/Trade
© Gordon McConnachie iCMG 2004
$
Converting Ideas Into Cash
$
Integrate
No
Competitors Better
Positioned in Marketplace?
Use IP as source
of funding through
Securitisation
Yes
Strategic
Alliance
Yes
Complementary Assets
Available?
No
Joint Venture
Yes
Specific Complementary
Assets Required?
No
Out-license
or Contract
Yes
Adequate IP Protection
Available?
No
Store
Yes
Invention
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
Meets Market
Need
No
Store
Adapted from David Teece, 1986.
© Gordon McConnachie iCMG 2004
Aligning Capabilities
Vision
Strategic Framework
IP Objectives/Roles:
Strategies
Innovation
Strategies
Value
Creation
Cash Value
Value
Extraction
Positioning
Value
Where does Intellectual Capital fit into this?
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
Developing an ICM Capability
1.
2.
3.
4.
5.
6.
7.
8.
9.
Accept there is a need and a sponsor
Create inventory
Evaluate present contribution
Set IC tactics
Check systems and management support
Create IC packages in strategy context
Determine value release route
Execute the plan
Report success to stakeholders
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
ICM Toolbox









Business strategy and plan
Technology audit
IC and R&D processes
Information mining
Tactical decision making
Valuation in context
Brand strategy evaluation
Data systems integration
Coaching in
communications and
managing the change
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004









IC Tactics to met plan
Portfolio Management
Identifying and packaging
deal elements
Negotiating business deals
Audit technology licenses
Effective scenario planning
Dynamic cash flow analysis
Measurement of success of
ICM activity
Value reporting to
stakeholders
© Gordon McConnachie iCMG 2004
Value-in-Use

The value of any combination of
tangible and intangible assets is
specific for a given context and time
frame … it is a “value in use” and not
a “fair market value”. This must be
taken into account when valuing
anything
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
Valuing a Combination of Tangible
and Intangible Assets
1.
2.
3.
Value in use
Business model
Probability
adjusted valuation
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
1.
2.
3.
Qualitative
Net Present Value
Probability
adjusted NPV
© Gordon McConnachie iCMG 2004
ICM and GLOBALISATION

Globalisation of world markets
creates a more level playing field and
makes ICM more essential in order to
squeeze out the very last drops of
competitive advantage, academic
advantage or national culture
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
Case Study: Dow Chemical
INTELLECTUAL
ASSET
STRATEGY/
TACTICS
DOW INTELLECTUAL
ASSET PORTFOLIO
BUSINESS
STRATEGY
BUSINESS
INTELLIGENCE
&
TECHNOLOGY
ASSESSMENT
BUSINESS
VALUE
ASSESSMENT
R&D
INTELLECTUAL
ASSET
GENERATION
ALTERNATIVE
VALUE
GENERATION
TECHNOLOGY
INVESTMENT PLANS
Five Phases
1 Portfolio
2 Strategy
3 Business Intelligence &
Technology Assessment
4 Valuation
5 Investment
TECHNOLOGY
PROCUREMENT
Source: Dow Chemical
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
An Effective Licensing Program
- IBM



“IBM earns more from an Apple Powerbook equipped with a disk, display screen and
PowerPC chip from IBM - than Apple earns
from the same product.”
“The whole ideal is to put IBM’s technology
into the marketplace as soon as we can.”
“Behind the technology supply deals is IBM’s
continuing investment in research. The
technologies that other companies are buying
today were nurtured in IBM’s labs for years.”
Source: NY Times 6/10/99
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
CASE STUDY: NXT
DOMINATING A NEW MARKET






Technology licensed from UK Defence
for flat audio speakers
Plans to dominate the market by
licensing rights to global speaker
manufacturers
Has sold hundreds of licences worldwide
and licensees now have product in the
market place.
Has built a patent wall around the
technology and protected its franchise
with the trade marks SurfaceSound®,
SoundVu® and 2020Speech®.
The market has expectations of
peformance.
Website: www.nxt.co.uk
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
© NXT plc, UK
Neste Technology Audit
Source: Fortum Oy and iCMG
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
TOYOTA
Intellectual Capital Optimised







Technological prowess
Inventiveness
Customer focus
Reliability
FI presence
Manufacturing best-in-class
A success story
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
Intellectual Assets Centre
“to assist Scottish businesses to maximise the
economic potential of their intellectual assets”
•
A new Scottish organisation
•
Independent, impartial, a facilitator
•
Funded by the Scottish Executive
•
First of its kind in Europe
Intellectual
Assets
Centre 2004
Sixth©Asia
Pacific KM
Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
The IA Centre’s aims
• “To increase awareness and understanding of IA
issues among Scottish businesses and other
organisations, enterprise agencies and private
sector intermediaries”
• “To enable Scottish businesses to manage and
exploit the untapped potential of their IA for
competitive advantage”
• “To encourage the development of a strong, private
sector-led supply of IA management services to
support Scottish businesses”
Sixth Asia Pacific KM Conference
© Intellectual Assets Centre 2004
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
What will the IA Centre offer?
• Awareness raising activities
• Assistance to help companies diagnose their IA
issues
• Tools for companies to learn more about IA
management processes
• Signposting to IA management providers
Intellectual
Assets
Centre 2004
Sixth©Asia
Pacific KM
Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
Other roles for the IA Centre
• Briefing the Scottish Enterprise Network, private sector
intermediaries and Scottish Executive in IAM
• Encouraging the development of a strong private sectorled supply
• Developing Scotland's international profile as a leading
exponent of IA management and exploitation
Intellectual
Assets
Centre 2004
Sixth©Asia
Pacific KM
Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
Scottish Intellectual Asset
Management Limited
What will the IA Centre do?
Raise awareness and understanding
Demonstrate how IA impacts upon business
How will the IA Centre deliver?
Educate-IA events, training, seminars and information
Provide tools to answer questions about IA
What are its aims?
Guide, direct and signpost Scottish companies to suppliers
Encourage the development of a strong private sector-led supply of
IA management products and services
Develop Scotland’s international profile as a leading exponent of IA
management and exploitation
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
Case Study: Dyson – Entrepreneur
Leveraging Technology and IP
An example of what you can do when it all goes wrong!







James Dyson’s vacuum cleaner wars are legendary.
Dyson invented the revolutionary vortex vacuum cleaner
and, having tried unsuccessfully to market the idea in the
UK industry, protected his technology with a battery of
patents.
Dyson has applied his technology to build a business and a
market leadership position.
January 2001 Dyson prevailed in court over Hoover,
stopping their triple Vortex sales but was not successful in
stopping Hoover using the trade mark Vortex®.
Dyson products went on sale in the USA on 29th August
2002.
James Dyson has now designed a revolutionary washing
machine.
www.dyson.co.uk
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
A THOUGHT TO TAKE AWAY!
Systematically managing your intellectual capital……….
……………………..in a business driven manner, is……..
A Hidden Asset
Increasing in Value
Increasing in Importance
What Are You Doing About It?
What Are Your Competitors Doing About It?
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004
Thank you!
Sixth Asia Pacific KM Conference
Hong Kong 18 November 2004
© Gordon McConnachie iCMG 2004