SME Union, 7 October 2008, Brussels
Relevance of SMEs’
Intellectual Capital Statements
for the Financial Market
Markus Will M.A.
Fraunhofer IPK
Division Corporate Management
Director: Prof. Dr.-Ing. Kai Mertins
Pascalstraße 8-9
10587 Berlin
Germany
 Fraunhofer IPK, Berlin
Markus Will
Agenda
1. The InCaS Project
2. Does Intellectual Capital
Reporting Matter to Financial
Analysts?
3. SME Benefits of Intellectual
Capital Statements (ICS)
 Fraunhofer IPK, Berlin
Markus Will
The InCaS Project (2006-2008) – Objectives
 Strengthen European SMEs’ competitiveness
and innovation potential
 Establish Intellectual Capital Statement (ICS)
as the strategic management and reporting
tool for the knowledge driven economy
 Develop a pragmatic methodology for
European SMEs
 Implement, test and improve the method
 Provide a European ICS Guideline and
supporting software “ICS toolbox”
 Fraunhofer IPK, Berlin
Markus Will
What is Intellectual Capital (IC)?
Human Capital
 Professional competence
 Leadership and social skills
 Employee motivation
Structural Capital
 Internal co-operation and knowledge transfer
 Product innovation
 Process innovation
 Information technology and explicit knowledge
 Corporate culture
Patente
 Fraunhofer IPK, Berlin
Relational Capital
 Customer relationships
 Relations to suppliers, partners
 Relations to investors and the public
Markus Will
Financial Market Study: Research Design
Action
Resources
Stage 1
Preliminary Study

Literature survey
Stage 2
Expert Workshop

9 invited experts
evaluation
Stage 3
Questionnaire Survey

68 respondents from banks and
chartered accounting
Stage 4
Case Study Experiment

17 selected experts from capital
markets and chartered accounting
 Fraunhofer IPK, Berlin
on
enterprise
Markus Will
Stage 2: Structure of an Intellectual Capital
Statement (ICS) as Required by the Financial Market
Content
 Fraunhofer IPK, Berlin
1
Summary
2
Data related to market and industry (business environment)
3
Description and explanation of the business strategy
4
Definition and explanation of the most relevant drivers of
intellectual capital
4.1
Data about the current status quo of intellectual capital
4.2
Analysis of intellectual capital
4.3
Measures for the utilization and development of poor
performing drivers of intellectual capital
5.
Appendix
Markus Will
Stage 3: The Most Important IC Indicators for the
Financial Market
 Fraunhofer IPK, Berlin
#
Indicator
1
2
3
4
5
6
7
8
9
10
11
12
13
Education and qualification of employees
Fluctuation (recruits and exits)
Turnover per customer segment
Customer satisfaction based on surveys
Number of customer complaints
Number of new products in development
Average costs of capital
Dependency on key suppliers
Rate of absence and illness
Financial rating
Defined successors for top management and key personnel
Share of turnover with new products
Structure of customer base (regular vs. new)
Markus Will
Stage 4: Main Results of Financial Market Impact
Test (Case Study Experiment)
High rating
Case A
13,0
Case B
3,5
A12,50
12,11
12,0
3,2
BBB +
11,0
BBB
2,9
10,0
BBB -
2,6
Standard Deviation
Mean Value
3,06
2,39
9,0
2,27
BB +
Low rating
8,63
 Fraunhofer IPK, Berlin
2,3
2,17
8,22
8,0
2,0
BB
Without intellectual
capital report
With intellectual
capital report
Without intellectual
capital report
With intellectual
capital report
Markus Will
Impact of ICS on Assessment of Future Earnings
Potential
Case A
Case B
100%
Negative
Negative
Neutral
Neutral
90%
80%
70%
60%
50%
40%
30%
Neutral
20%
10%
Positive
Neutral
Positive
Positive
0%
Without intellectual capital
report
 Fraunhofer IPK, Berlin
With intellectual capital
report
Without intellectual capital With intellectual capital
report
report
Markus Will
ICS Qualification Concept for Quality Assurance
Certified ICS-Auditor
(Level 4):
Certified ICS-Trainer
(Level 3):
 ICS audit method
 Attended 2 audits
ICS-Trainer (Level 2):
ICS-Trainer (Level 1):

Basics ICS method

Case Studies
 Fraunhofer IPK, Berlin
 Moderation of 2 ICS
 1 approved ICS
 Additional theory
 Moderation of 2 ICS
 Written and oral
examination
 Submission of 1 ICS
as exam paper
 Written and oral
examination
Markus Will
ICS Audit Objectives
Certification of ICS by an external third party…

to ensure the reliability of ICS so that financial
analysts will consider this information as a valid
input for their rating decisions,

to encourage sustainable usage of ICS as an
internal management tool by checking the
progress of realisation of measures,

to support IC Management by suggesting further
improvement recommendation.
 Fraunhofer IPK, Berlin
Markus Will
Benefits of ICS for SME Management
 Diagnosis:
ICS as an instrument for analysing strengths
and weaknesses of strategic IC factors.
 Decision Support :
ICS as an instrument for prioritising fields of
improvement with highest impact.
 Optimisation & Innovation:
ICS as an instrument for implementing actions
for organisational development.
 Internal Communication:
ICS as an instrument for enhancing
transparency and employees’ involvement.
 Monitoring & Risk Management:
ICS as an instrument for controlling strategic
risks and measuring success of actions.
 Reporting:
ICS as an instrument for communicating
corporate value to stakeholders.
 Fraunhofer IPK, Berlin
Markus Will
The InCaS Implementation Procedure in 5 Steps
Define major strategic objectives
Evaluate most influential IC factors
Make them measurable
Derive measures compliant with strategy
Communicate ICS internally and externally
 Fraunhofer IPK, Berlin
Markus Will
SME Union, 7 October 2008, Brussels
Thank you for your attention!
Markus Will M.A.
Wissensbilanzen
Intellektuelles Kapital erfolgreich nutzen
und entwickeln
Eds.: Mertins, Alwert, Heisig
Including contributions from over 20 wellknown experts.
Knowledge Management
Concepts and Best Practices
Eds.: Mertins, Heisig, Vorbeck
Including recommendations and project
results,
Siemens, Aventis, HP and many more
 Fraunhofer IPK, Berlin
Fraunhofer Institute IPK
Division Corporate Management
Director: Prof. Dr.-Ing. Kai Mertins
Pascalstraße 8-9
10587 Berlin
Germany
 markus.will@ipk.fraunhofer.de
 +49(0)30 / 390 06 171
 +49(0)30 / 393 25 03
http://www.um.ipk.fraunhofer.de
Markus Will