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The Intellectual Capital Model



All the IC measurement systems have some features in common. They all tie the choice of metrics to the strategy of the organization and are situation or organization specific. To measure IC without focus is an impossible, though theoretically attractive, endeavor. Focus is introduced by first identifying, and later monitoring, factors that are critical for the organization to meet its strategic goals. The IC measurement systems become a tool to implement strategy and convert the organization's vision into action by zeroing in on what needs to be done and how to accomplish it.

Consequently, the process for choosing indicators or metrics used by the measurement systems is similar and follows these general steps:

1. Use one of the IC models or adopt some classification of IC.

2. Identify the assets that will be monitored under each of the classes by      determining the desired outcomes.

3. Determine the key success factors (KSFs) that will enable the attainment of the     desired outcomes, and link them to financial performance.

4. Design indicators that monitor the KSFs.

5. Measure and track the indicators over a defined period of time.

6. Review and adjust.

In addition, all of the models stress that their real value lies in the message that management sends out to internal and external stakeholders on the value of the organization's IC and its capability to succeed in the future. The message is that financial measures alone do not reflect the real value of the organization or reflect its ability to perform and succeed. Using measures that monitor levels of employee competency, process or operational effectiveness, and customer satisfaction over and above financial measures sends the message that management is serious about leveraging the organization's IC.

Finally, all the measurement systems discussed here stress that despite the great value of and need for IC measurement systems they should not be used as control mechanisms or tied to employee evaluation or appraisals. Measures, no matter how balanced, are still subjective. Strict adherence and dependence on them when it comes to the management of human capital can stifle employee innovation and undermine morale.

The similarities of the systems makes one wonder how they are different. The U.S. Navy in its knowledge management model allows the use of any measurement system, presumably because of their striking similarities. The difference the Navy introduces is in defining what should get measured instead of how, as explored in Chapter 5. Nonetheless, looking at the development and purpose behind these systems highlights their different approaches. Differing approaches of these systems make them attractive to different types of organizations, which are distinguished by industry, size, and culture.