Social innovation capital

Publication Date01 Mar 2002
AuthorMark W. McElroy
SubjectAccounting & finance,HR & organizational behaviour,Information & knowledge management
Journal of Intellectual Capital,
Vol. 3 No. 1, 2002, pp. 30-39.
#MCB UP Limited, 1469-1930
DOI 10.1108/14691930210412827
Social innovation capital
Mark W. McElroy
Macroinnovation Associates, LLC, Windsor, Vermont, USA
Keywords Intellectual capital, Innovation, Management, Organizational learning
Abstract Current conceptions of how to measure and manage intellectual capital (IC) suffer
from a failure to take ``social capital'' rigorously into account. This is a shortcoming of current
thinking in the IC arena. Of particular concern is the absence of ``social innovation capital'' (SIC)
from the scope of leading IC schemes. SIC, the collective capacity of a firm to innovate, is arguably
the most valuable form of IC because it underlies a firm's fundamental capacity to learn,
innovate, and adapt. Using one leading IC scheme as a basis for analysis (Skandia's), the absence
of social capital, and SIC in particular, is highlighted, along with a description of what Skandia's
taxonomy would look like if it were to take social capital fully into account. Finally,
recommendations are offered on how managers can build and manage SIC, thereby enhancing
their organizations' capacities to learn, innovate, and adapt in the marketplace.
Part I ± redefining intellectual capital
With companies around the world now routinely trading at levels far beyond
their book values, senior managers, accountants, and other business executives
have been increasingly focusing on the new field of intellectual capital.
Intangible assets, or ``goodwill,'' as it is sometimes referred to, have always
played a role to some degree or other in corporate valuations, but the
proportion of such intangibles in today's ``market caps'' has reached
unprecedented levels. The aggregate price of the Dow Jones 30 Industrials in
1997, for example, exceeded the combined book values of the member
companies by a factor of three-to-one. For many companies today, this ratio is
much higher.
Not surprisingly, managers interested in getting their arms around
intellectual capital are searching for ways to describe, measure, and manage
their intangible assets with a particular emphasis on capturing their favorable
effects on the bottom line and on shareholder values. Chief among these
intrepid pioneers has been Leif Edvinsson, former Corporate Director of
Intellectual Capital at Skandia AFS, and current Visiting Professor of IC/
Knowledge Economics at Lund University's School of Economics and
Management in Sweden, who along with Michael Malone, co-authored the
influential text entitled, Intellectual Capital (Edvinsson and Malone, 1997). In
their fine treatise of the subject, Edvinsson's experiences at Skandia in
developing an intellectual capital (IC) management scheme are meticulously
described. Of particular interest is the manner in which Skandia chose to map
its IC territory (see Figure 1).
In Edvinsson's scheme, IC is composed of two major elements: human
capital and structural capital. According to Edvinsson's view of IC (shown in
Figure 1), human capital refers to the value of knowledge, skills and
experiences held by individual employees in a firm; structural capital consists
of what Edvinsson and Malone (1997) refer to as the ``embodiment,
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