No longer “out of sight, out of mind”. Intellectual capital approach in AssetEconomics Inc. and Accenture LLP
| DOI | https://doi.org/10.1108/14691930510628843 |
| Date | 01 December 2005 |
| Pages | 588-614 |
| Published date | 01 December 2005 |
| Author | R.J. Burgman,G. Roos,J.J. Ballow,R.J. Thomas |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
No longer “out of sight, out of
mind”
Intellectual capital approach in
AssetEconomics Inc. and Accenture LLP
R.J. Burgman and G. Roos
AssetEconomics Inc., New York, New York, USA
J.J. Ballow
Shareholder Value, Accenture LLP, New York, New York, USA, and
R.J. Thomas
Accenture Institute for High Performance Business, Accenture LLP, Wellesley,
Massachusetts, USA
Abstract
Purpose – The purpose of this paper is to describe the logic and processes for identifying, measuring
and managing intellectual capital resources along side traditional economic resources to achieve
sustainable outcomes valued by investors.
Design/methodology/approach – The approach is founded on classical finance theory and draws
on and multi-attribute value theory, system dynamics and the strands of thought known as intellectual
capital in order to produce a grounded framework that both produces reliable results as well as
achieves acceptance in the financial community.
Findings – The findings from this approach, the FVMT Methodology, provide a comprehensive
management framework that is agnostic as to the form of resources being utilized and the activities
that are involved in the transformation of one resource form into another on the way to achieving
sustainable outcomes valued by investors.
Research limitations/implications – Whilst the approach has proven to work well the limitations
are that it requires both effort and access to market makers.
Practical implications – The implications is that for the first time an approach is now available
that provides the same rigor for managing the future value component of a firm’s share price as there
already exist for managing the current value component of the firm’s share price. This means that
managers can both reduce the volatility surrounding their share price as well as predict the value
outcomes of a given set of actions.
Originality/value – The authors believe that this is the first presentation of a methodology
grounded in classical finance theory for the managing of the future value component of a firm’s share
price.
Keywords Return on investment,Shareholder value analysis, Intellectual capital
Paper type Case study
1. Introduction
“Managing for shareholder value” is widely accepted as the capital market’s raison
d’e
ˆtre for management for publicly listed firms. This assertion can be made even
though there is continued debate over the basis for this norm in law, which is
illustrated in the legal literature (Green, 1993; Bainbridge, 1993, 2002; Roe, 2001;
Fairfax, 2002; Fisch, 2004). Notwithstanding, this norm is the basis for the regulation
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
588
Journal of Intellectual Capital
Vol. 6 No. 4, 2005
pp. 588-614
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930510628843
initiatives introduced by the US Securities and Exchange Commission (Gla ssman,
2003) and permeates US management thinking (Welch, 2001).
The financial management disciplines that have been developed around the
shareholder value maximization norm have now extended to all other forms of
enterprise. For example, demonstrably creating value, though not necessarily financial,
has become a major management focus for Government agencies worldwide. This
focus is illustrated in the USA through the President’s Management Agenda,
announced in 2001 and managed through the United States Executive Office of the
President (2002, 2004a, b), supported through the United States General Accounting
Office (2000) and in Canada through the Treasury Board of Canada (2002) and in the
UK through HM Treasury et al. (2001).
“Managing for value” is in the management lexicon of the management of all types
of enterprises. The question is then: “What does it mean to ‘manage for value’?”. This
was the question posed by Accenture and AssetEconomics some years ago. The
simultaneous interest and the fact that the two organizations approach the area from
complementary directions lead to a cooperation aimed at bringing to the market a set of
tools, complementary and wider reaching than the existing ones, that would assist
managers in addressing this issue.
2. Evolution of the intellectual capital concept
In the section below we briefly explore how the concept of intellectual capital has
evolved in both organizations.
2.1. Evolution of the intellectual capital concept at AssetEconomics
The principals of AssetEconomics have had a shareholder value management
advisory practice for the last 15 years plus. The principals of the practice have used
standard firm-level economic performance frameworks and metrics, such as Economic
Value Addede(EVAe), and market-level shareholder value creation metrics, such as
Market Value Addede(MVAe), as the basis for client strategic insight
development[1].
During the late 1990s, at the time of the dot.com boom, it was increasingly clear that
a few things were occurring:
.The companies that represented the leading edge of the new economy, firms like
Microsoft, Cisco Systems and Lucent Technologies, could be typed as being
“knowledge-based” as distinct from manufacturing or natural resource-based.
.Not surprisingly, these knowledge-based companies were “asset-lite” in the
conventional accounting balance sheet sense. Clearly, these companies were
leveraging other resources to create shareholder value.
.Very substantial proportions of total enterprise value were represented by future
expectations for earnings and not by current earnings performance.
According to Stern Stewart economic performance ranking data, of the 22 companies
that represented the “new economy” (Fortune Magazine, 1999) in 1999, Microsoft was
the most successful shareholder value creating company of any in the US with a MVA
(enterprise value less capital employed) of $629.5 billion. Indeed, the 22 companies,
with a combined MVA of $2,275.6 billion, accounted for some 31.8 percent of the
Intellectual
capital approach
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