The IC Rating™ model by Intellectual Capital Sweden
| Date | 01 December 2005 |
| Pages | 570-587 |
| Published date | 01 December 2005 |
| DOI | https://doi.org/10.1108/14691930510628834 |
| Author | Kristine Jacobsen,Peder Hofman‐Bang,Reidar Nordby |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
The IC Ratingemodel by
Intellectual Capital Sweden
Kristine Jacobsen and Peder Hofman-Bang
Intellectual Capital Sweden AB, Stockholm, Sweden, and
Reidar Nordby Jr
Norsk Tipping A/S, Hamar, Norway
Abstract
Purpose – The purpose of this paper is to introduce the IC Ratingeapproach as a management
consulting approach to measure intellectual capital and to report on the implementation and
experience in one case study firm.
Design/methodology/approach – The paper describes the IC Ratingemodel in the context of the
exiting literature in the field of IC measurement and uses a case study to demonstrate its practical
application.
Findings – Based on the presented case study as well as implementations in other organizations we
find the IC Ratingemodel a useful tool to facilitate the analysis and discussion about intellectual
capital in organizations.
Practical implications – The article gives a complementary view to the most commonly used score
card methods and guidelines for intangibles on how intangibles can be measured. IC Ratingefocuses
on the comparability between companies and industries as well as a simplification of how to interpret
intangible measures.
Originality/value – The original idea for the paper was to answer the question “Why do companies
really need to measure and develop intangibles?”. The answer is “To improve company financial
performance”. The IC Ratingemethodology is therefore based on the answers to two other questions:
“Which parameters does an executive manager need to have insightful knowledge of, in order to make
the right decisions for the future?” and “From where and whom should the executive manager receive
this information?”.
Keywords Intellectualcapital, Modelling, Management technique
Paper type Case study
Introduction
Traditionally, most methods used to analyze an organization are primarily based on
financial figures. The system used for financial reporting dates back to the fifteenth
century, when Luca Pacioli invented double entry Italian bookkeeping (Macve, 1996).
Mr Pacioli’s system was later popularized during the industrial era, as it was widely
appreciated for its clarity and auto-corrective features.
Now, the information era is unarguably replacing the industrial era. Evidence of this
is that an increasing share of company assets cannot be found in the balance sheet, like
for instance patents, customer base, brand, etc. (Andriessen, 2004).
Knowledge is the main source of competitive advantage; the management of a
company is becoming more about managing people than it is about managing physical
and monetary assets. Today’s companies show only a limited amount of their assets on
their balance sheet relative to the value they produce and they often apply different
strategies than more traditional companies.
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
570
Journal of Intellectual Capital
Vol. 6 No. 4, 2005
pp. 570-587
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930510628834
In this paper we present the The IC Ratingeapproach, which was developed by
Intellectual Capital Sweden[1] to enable firms to manage their intangible assets better
and to give companies a practical tool to use when discussing, analyzing and
measuring intellectual capital (IC). The remainder of this paper is organized as follows.
We first discuss what we understand as IC before we outline our IC Ratingetool and
present a case study of how it was applied in practice.
What is IC?
The IC field is awash with different terms, concepts and metaphors that can often be
more confusing than enlightening (see, e.g. Marr, 2005). What is for instance the
difference between intangible assets and IC? Do non-financial assets and immaterial
assets mean the same?
For the purpose of this paper we will use the following definition for IC:
All factors critical to an organization’s future success that are not shown in the traditional
balance sheet.
The IC model
The Intellectual Capital model (see Figure 1) is originally based on ideas put forth by
Sveiby (1997) indicating a division in internal, external and market assets, and the
groundbreaking work done by Leif Edvinsson at Skandia in the beginning of the 1990s
(Edvinsson and Malone, 1997). Most IC models today use this division, but the words
and details might vary. The IC Ratingemodel contains three main areas of IC;
organizational structural capital, human capital and relational structural capital. These
will be discussed in more detail below.
Human capital
The core of the IC model is the human capital. In the knowledge-based economy, this is
becoming the most important intangible asset for most organizations. Key value
drivers for human capital are employee knowledge, skills, abilities, innovativeness and
experience. In today’s marketplace, companies are looking for knowledge workers, for
people with specific capabilities that they can apply within the organization. The key
then becomes to capture that knowledge in the company’s structures, so it is
transferred from individuals, to groups, to the entire organization and becomes part of
the organization’s “structural” capital. As we will later see, this includes compa ny
practices, methods, and processes that yield competitive advantage.
The IC model further divides the human capital into two parts: the management and
the employees. There are two reasons for this:
(1) They have different roles. If you believe that optimizing your IC optimizes your
future success, the role of the management must be to optimize the IC. The role
of the employee is then to contribute to this IC. Research has for instance shown
that 70 percent of the variation in the companies’ ability to retain key people can
be traced to leadership and employee commitment.
(2) Experience from working with the IC Ratingehas shown that the management
is extremely central to a company’s success. It is therefore separated out so that
it can be analyzed in more detail.
The IC Ratinge
model
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