Intellectual capital. Management approach in ICS Ltd
| DOI | https://doi.org/10.1108/14691930510628780 |
| Pages | 489-509 |
| Published date | 01 December 2005 |
| Date | 01 December 2005 |
| Author | S. Pike,L. Fernström,G. Roos |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Intellectual capital
Management approach in ICS Ltd
S. Pike, L. Fernstro
¨m and G. Roos
ICS Ltd, London, UK
Abstract
Purpose – The purpose of this paper is to demonstrate how the ICS intellectual capital methodology
was developed starting from the underpinning academic theory.
Design/methodology/approach – The approach is founded upon a number of theoretical strands.
The basic intellectual capital approach is based on a development of the resource based theory of the
firm. Most intellectual capital approaches have problems with meaningful measurement. ICS
addresses the valuation of intellectual capital resources by using axiology and multi-attribute value
theory to produce a valuation framework and measurement theory to ensure that the results are
reliable.
Findings – The ICS intellectual capital approach generates navigators (maps) of how resources are
used in companies which have proven to be very useful. It has also demonstrated the value of deeper
analysis of the intellectual capital resources. The measurement part, which is often used independently
(known as the Conjoint Value Hierarchy (CVH), is shown as a powerful aid to decision making as well
as to more straightforward valuation.
Research limitations/implications – The limitations are that the navigator and its associated
analyses are non-rigorous while the CVH is rigorous, transparent and auditable. This mismatch can
lead to problem and the challenge is to integrate them.
Originality/value – While parts have been reported previously, this paper is the first integrated
review of ICS’ methodology.
Keywords Intellectualcapital, Measurement
Paper type Research paper
The development of our concept of intellectual capital
The paper begins with a review of the historical background to resource-based
accounting and intellectual capital. This is then used as the starting point for a
description of the intellectual capital approach used in ICS Ltd[1]. Aspects of
measurement are then discussed as they apply to intellectual capital methodologies.
The paper concludes with a review of the key barriers to the development of
intellectual capital thinking as seen by ICS Ltd and some initial views on the important
issues to be talked as matters of priority.
Intellectual capital has a surprisingly long history, one founded in the
meso-economics of the first third of the twentieth century which was then developed
in the second third into the micro-economic (firm-based) views. Chamberlin and
Robinson (Chamberlin, 193 3; Robinson, 1933) and later Pen rose (1959) were
contributors in this early work. Schumpeter’s work of 1912 (Schumpeter, 1934)
predates this work and sees the use of new resource combinations by entrepreneurs as
the foundation of cyclical economic growth. However, Schumpeter’s perspective was
macro-economic and invention, as distinct from innovation, was treated as exogenous
to the firm. Examination of the contributions of Robinson and Chamberlin show how
the concepts they developed have survived to the present. For example, Chamberlin
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.emeraldinsight.com/researchregister www.emeraldinsight.com/1469-1930.htm
Management
approach in
ICS Ltd
489
Journal of Intellectual Capital
Vol. 6 No. 4, 2005
pp. 489-509
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930510628780
identified that some of the key capabilities of firms included technical know-how,
reputation, brand awareness, the ability of managers to work together and particularly,
patents and trademarks, many of these are common in relatively recent strategy and
marketing literature (Day, 1994; Hall, 1992). Edith Penrose’s much cited work on the
theory of the growth of the firm dismissed the view that a firm was just an
administrative unit and saw it instead as productive resources at the disposal of
managers. She suggested that a firm is best gauged by some measure of the productive
resources it employs. This led directly to the development of ideas concerning
competitive advantage in the last third of twentieth century.
The concept of sustainable competitive advantage based on the utilisation of
resources is simple and stems from the assumption that the desired outcome of
management is a sustainable co mpetitive advantage. Sust ainable competitive
advantage demands the possession of certain key resources and that they have
characteristics such as quality or value, high barriers to duplication and so on (Barney,
1991). Sustainable competitive advantage can be achieved if the firm effectively
deploys and maintains these resources in its field or operation. The key issue and the
most important feature of useful intellectual capital[2] approaches is one of exposing
strategic choice.
Penrose’s work provided further guidance for the development of intellectual capital
as an approach to business management. For example the clear definition of what a
resource can be and how it differs from activities and services is crucial. This led to the
notion that services yielded by resources depend on the resources that are used. A
given resource can be used in different combinations with other resources to give
different services or generate a variety of other resources. Furthermore, the
development of a firm is constrained to an extent by the nature and qualities of the
resource it currently posses. This thinking led others to consider the development and
deployment of resources (Amit and Schoemaker, 1993; Barney, 1986, Barney and Zajac,
1994, Lei et al., 1996; Schoemaker, 1992) and the relationship between resources and the
scope of the firm (Chatterjee and Wernerfelt, 1991; Markides and Williamson, 1996;
Prahalad and Hamel, 1990; Robins and Wiersema, 1995).
The term “resource-based view of the firm” was first used in 1984 in a paper
(Wernerfelt, 1984) which was later awarded the Strategic Management Journal award
for best paper. It was also in this decade that the rise of the new economy gathered pace
and the traditional Porterian structures were found to be inadequate to describe firms
and the performances of firms even in the same industry (Cubbin, 1988; Hansen and
Wernerfelt, 1989). This later observation immed iately brought in researchers
concerned with strategy and strategic decision making (Amit and Schoemaker, 1993;
Barney, 1986, 1991; Dierickx and Cool, 1989; Lippman and Rumelt, 1982; Peteraf, 1993;
Reed and DeFillippi, 1990). Interest in these issues was not confined to academi cs. In
Sweden, consultants, company chief executives and others convened what bec ame
known as the Konrad Group[3] to review the role of resources, both tangible and
intangible in value creating or maintaining sustainable competitive advantage in
firms. They issued a first publication in January 1988 entitled the New Annual Report
and issued their final report in 1989 presenting the first method on intangible
measurement, The Invisible Balance Sheet (Den Osynliga Balansra
¨kningen). The
publication presents key indicators for accounting control and valuation of know-how
companies.
JIC
6,4
490
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