Knowledge valuation analysis. Applications for organizational intellectual capital
| DOI | https://doi.org/10.1108/14691930510628816 |
| Pages | 544-557 |
| Published date | 01 December 2005 |
| Date | 01 December 2005 |
| Author | Thomas J. Housel,Sarah K. Nelson |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Knowledge valuation analysis
Applications for organizational intellectual
capital
Thomas J. Housel
Naval Postgraduate School, Monterey, California, USA, and
Sarah K. Nelson
Intellectual Capital Ventures, LLC, Chicago, Illinois, USA
Abstract
Purpose – The purpose of this paper is to provide a review of an analytic methodology (knowledge
valuation analysis, i.e. KVA), based on complexity and information theory, that is capable of
quantifying value creation by corporate intellectual capital. It aims to use a real-world case to
demonstrate this methodology within a consulting context.
Design/methodology/approach – The fundamental assumptions and theore tical constructs
underlying KVA are summarized. The history of the concept, a case application, limitations, and
implications for the methodology are presented.
Findings – Although well-known financial analytic tools were used to justify IT investment
proposals, none provided a satisfying result because none offered an unambiguous way to tie IT
performance to value creation. KVA provided a means to count the amount of corporate knowledge, in
equivalent units, required to produce the outputs of client core processes. This enabled stakeholders to
assign revenue streams to IT, develop IT ROIs, and decide with clarity where to invest.
Practical implications – When stakeholders can assign revenue streams to sub-corporate
processes, they have a new context for making IC investment decisions. “Cost centers” and decisions
based on cost containment can be replaced. Concepts such as a knowledge market, the knowledge
asset pricing model, k-betas, and a sub-corporate equities market can be developed and applied. Some
of the limitations related to real options analysis can be resolved.
Originality/value – This paper introduces an approach to measuring corporate intellectual capital
that solves some long-standing IC valuation problems.
Keywords Intellectualcapital, Knowledge management, Measurement
Paper type General review
Introduction
The fundamental building material and engine of wealth of the modern corporation is
the creation and utilization of knowledge. The real challenge in the Information Age is
to understand how to accelerate the conversion of knowledge into money through
understanding how to measure knowledge assets (Kanevsky and Housel, 1998, p. 1).
According to King and Zeit haml (2003, pp.1-2), curre nt knowledge resource
identification and measurement tools (such as patent or citation counts) are “crude
and often inadequate.” Yet, knowledge resources are a source of competitive
advantage, i.e. valuable, rare, inimitable, and lacking substitutes (Barney, 1991). A
knowledge based theory of the firm requires knowledge to be “defined precisely
enough to let us see which firm has the more significant knowledge and explain how
that leads to competitive advantage” (Spender, 1996a, p. 49).
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
JIC
6,4
544
Journal of Intellectual Capital
Vol. 6 No. 4, 2005
pp. 544-557
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930510628816
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