Measuring intellectual capital: a new model and empirical study
| Date | 01 March 2004 |
| Published date | 01 March 2004 |
| DOI | https://doi.org/10.1108/14691930410513003 |
| Pages | 195-212 |
| Author | Jin Chen,Zhaohui Zhu,Hong Yuan Xie |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Measuring intellectual capital:
a new model and
empirical study
Jin Chen
School of Management, Zhejiang University, Hangzhou, China
Zhaohui Zhu
Hangzhou University of Commerce, Hangzhou, China, and
Hong Yuan Xie
School of Management, Zhejiang University, Hangzhou, China
Keywords Intellectual capital, Measurement, Modelling, Quality, Indexing, China
Abstract The groundwork of intellectual capital (IC) management, measuring IC, attracts much
attention from academics and practitioners. The purpose of this paper is to design a measurement
model and a qualitative index system of IC, so as to provide a good tool for enterprises to manage
their IC. Based on a review of several IC measurement models proposed by western researchers, IC
is classified into human capital, structural capital, innovation capital and customer capital, and
thereupon a qualitative index system for the above four IC elements is designed through an
analysis of their contents. Through an empirical study, it is found that there is a significant
relationship between the scores of the four IC elements of a company and its business performance,
which proves the validity and rationality of the IC measurement model and the qualitative index
system. In the meantime, the empirical study further proves that there is a remarkable relationship
between the four IC elements. Therefore enterprises must manage and improve their IC from an
integrative perspective.
Introduction
The pattern of global economic growth has fundamentally changed since the
1970s with the rapid development of high technology, especially in
communication, computer and biology engineering. Knowledge thereupon
has taken the place of monetary capital, land, and material capital as the most
important capital, especially in the competitive high-tech realm.
Although widely used in literature, the concept of intellectual capital (IC) has
not become popular until recently. The burgeoning field of IC is becoming an
exciting area for both researchers and practitioners, but before the mid-1990s a
great deal of work is purely descriptive of what was happening in various
organizations without specifically relating the generalized comments to an
organizational context. Since then, investigations deal mainly with the process
of managing and measuring IC (Petty and Guthrie, 2000).
From a strategic perceptive, IC is used to create and enhance the
organizational value, and success requires IC and the ability to manage this
scarce resource controlled by a company. From another point of view, IC
measurement focuses on constructing an effective measurement model (Roos
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
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Measuring
intellectual
capital
195
Journal of Intellectual Capital
Vol. 5 No. 1, 2004
pp. 195-212
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930410513003
et al., 1997), in which financial and non-financial indices are combined together
to reflect thoroughly a company’s operations under the influence of knowledge
economy and to offer more accurate information for knowledge management.
As the groundwork and prerequisite of IC management, IC measurement is
of great significance in business administration:
.It can more thoroughly and accurately measure company’s value and
performance. In a knowledge-based society, knowledge constitutes a
large part of a product’s value as well as a company’s wealth. Traditional
accounting methods, which are based on tangible assets and historical,
transaction-based information, are inadequate for valuing IC, which is the
largest and most valuable asset for many enterprises. Indeed, traditional
accounting tends to understate the value significantly (Sullivan and
Sullivan, 2000). According to Lev (1997), the average proportion of market
value to book value in the late 1970s was 2:1, in the mid-1990s it was 3:1,
and in 1997 the market value is more than six times the book value.
Therefore “the traditional model of accounting which so beautifully
described the operations of companies for a half-millennium, is now
failing to keep up with the revolution taking place in business”
(Edvinsson and Malone, 1997). Compared with the traditional financial
method, this IC measurement covers such important non-financial
contents as, for example, human capital, customer satisfaction and
innovation. The IC approach is therefore much more comprehensive for
companies to be well-informed of their value and performance. The
differences between the two approaches are significant: IC measurement
is oriented towards the future while financial accounting is supposed to
look backwards. IC measurement captures soft facts (qualities), while
financial accounting measures hard facts (quantities). IC measurement
focuses on the value creation, while financial accounting reflects the
outcome of the past transactions and realized cash flows.
.It has been gradually acknowledged that traditional financial
measurement is inadequate in guiding strategic policy making
(Waterhouse and Svendsen, 1998). They need to be supplemented or
even replaced by IC measurement, which enables managers to be
well-informed of the status quo of IC management, finding out the
strength and weakness of existing IC through benchmarking with which
the manager can afterwards exert all the strength and remedy the
weakness. In detail, IC measurement is helpful in verifying the company
’s ability to achieve its strategic objective, laying out its R&D, providing
background information for project readjustment, and confirming the
emphases of a company’s education and training program. As a crucial
means of strategic business and marketing management, IC measurement
would be more useful as an internal management tool than as an external
communicative vehicle to shareholders or investors (Bontis, 2001).
JIC
5,1
196
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