Value-Driven Intellectual Capital How to Convert Intangible Corporate Assets into Market Value

by Sullivan, Patrick H.

• ISBN13: 9780471351047
• ISBN10: 0471351040
• Edition: 1st
• Format: Hardcover
• Copyright: 2000-03-10
• Publisher: Wiley

Summary

How do firms like Hewlett-Packard, DuPont, Dow Chemical, IBM, and Texas Instruments routinely convert the ideas of their employees into profits that sustain the corporation? How can buyers and sellers calculate the assets of the acquired firm in a merger or acquisition? How can an organization affect the firm's stock price using the leverage of intellectual assets? Identifying a firm's assets, especially its intellectual assets-the proprietary knowledge expressed as a recipe, formula, trade secret, invention, program, or process-has become critical to a company's overall vision and strategic plan and essential in such transactions as stock offerings or mergers. In the era of the knowledge-based company, where the firm's genius and future lies in its ideas, a firm's collective know-how has become a measurable commodity-and as much a part of its bottom line as the condition of its cash investments, plant, and equipment. Extracting and measuring the real value of knowledge is essential for any corporate head who knows how high the stakes have become for corporate survival in the information age-where the innovative idea is as good as, if not better than, gold! Value-Driven Intellectual Capital is a corporate and financial executives' handbook to the new world of intangible assets-what they are and how to convert them into cash or strategic position. Written by one of the seminal thinkers in the field, and the key organizer of the ICM Gathering, a group of leading-edge knowledge-based companies, Value-Driven Intellectual Capital explains the new, boundary-expanding world of intellectual assets-where translating an innovative idea into bottom-line profits involves a tightly focused strategy with clear directives for making it happen. A blueprint for turning corporate knowledge, know-how, and intellectual property into a sustainable competitive weapon that will build a firm's reputation and market share, this practical, insightful book outlines: * Basic concepts underlying IC (intellectual capital) and corporate value creation * The linkage between IC, business strategy, and profits * The different kinds of value-including qualitative and quantitative -firms realize from their IC * Activities required to produce the value firms desire from their IC * Methods for calculating the dollar value of companies-for market capitalization and mergers or acquisitions * An economic model of an IC company The book's appendix is a valuable distillation for corporate and financial executives, managers, researchers, and analysts of IC's basic working concepts and definitions, including the principles underlying value creation and value extraction, the concepts and strategies used by successful companies, the sources of value for knowledge companies, and the mechanisms used to convert that value into real profits. And since it is managerial talent that turns intellectual property into business assets, the book provides an arsenal of key concepts, methods, and processes for aligning with and using intellectual property as an active element of a firm's business strategies. It concludes with a discussion of how value is extracted from human capital, focusing on its elusive magnetic core: creativity and productivity. In an era in which firms are increasingly accountable to shareholders and success is judged solely by stock price, knowing how to measure and extract the value of a firm's intellectual assets has become one of the most critical and essential skills needed by CEOs today. Reflecting the most innovative thinking from some of the most sophisticated firms in the world, Sullivan's Value-Driven Intellectual Capital is a manifesto, a clarion call to excellence for any corporate or financial executive, merger and acquisition partner or investor who understands how much future corporate survival and success depends on the simple enduring genius of a good idea and the need to co

Author Biography

<b>PATRICK H. SULLIVAN</b> ([e-mail]) is an expert at creating profits from intellectual assets and is considered one of the leading conceptual thinkers in extracting value from intellectual capital. He is a founding partner of the ICM Group, a Palo Alto, California-based consulting company focused on managing intellectual capital to maximize value. He is also cofounder of the ICM Gathering, composed of managers of intellectual capital for large, diverse international companies who meet to exchange information on new and innovative management techniques.<br> a frequent speaker on a range of topics concerning the management of intellectual capital including stock value, licensing, and developing profits from IC. He is a member of the Licensing Executives Society (where he was the founding chairman of its Intellectual Capital Management Committee), the World Intellectual Property Trade Forum, and the American Bar Association Intellectual Property Licensing Section, and a fellow of the American Council on Education. He is a frequent contributor of articles on intellectual capital management for leading journals, the author of Profiting from Intellectual Capital, and the coauthor of Technology Licensing: Corporate Strategies for Maximizing Value, both published by Wiley.

Table of Contents

Part I The Relationship Between Intellectual Capital and Corporate Value
Introduction	3	(20)
What is Intellectual Capital?	4	(3)
How Does IC Bring Value to a Firm?	7	(2)
Strategy and Its Effect on Value	9	(4)
A Brief History	13	(3)
The ICM Gathering	16	(2)
Overview of the Book	18	(5)
A Framework for Intellectual Capital Management	23	(24)
The IC Framework	25	(1)
The First Dimension: Context	26	(2)
The Second Dimension: Non-Accounting Models of the Firm	28	(3)
The Structure of Knowledge Companies	31	(2)
One Approach to Extracting Value from a Firm's Intellectual Capital	33	(1)
The Third Dimension: IC Activities	34	(4)
How to Use the IC Framework	38	(1)
Begin with Vision and Strategy	39	(7)
Summary	46	(1)
Linking Intellectual Capital With Value	47	(14)
The Value Brought by IC	48	(2)
A Menu for Value	50	(9)
Summary	59	(2)
IC Value Chain	61	(22)
The IC Value Chain	62	(5)
Examples of IC Value Chains	67	(5)
Creating Value Chains	72	(2)
Allocating Internal Investment Resources	74	(1)
The Relative Importance of IC Activities	75	(2)
Summary	77	(6)
Part II Valuing Knowledge Companies
Valuing Knowledge Companies (Basic Concepts)	83	(18)
The Relationship Between IC and the Dollar Value of a Firm	84	(1)
What Is Value?	85	(2)
What Affects Value?	87	(2)
Time	89	(1)
One-Time versus Ongoing Value	90	(2)
Why the Difficulty in Valuing IC?	92	(1)
Frameworks for Determining Qualitative Value	93	(2)
Frameworks for Quantifying Value	95	(1)
Measuring Intellectual Capital	95	(6)
Valuing Knowledge Companies For Merger Or Acquisition	101	(10)
Introduction	101	(2)
The Importance of Complementary Business Assets	103	(3)
Defining the Purchase Price Using the IC Perspective	106	(1)
Calculating the Purchase Price Using the IC Perspective	106	(3)
Summary	109	(2)
Linking Intellectual Capital with Stock Price	111	(16)
Why the Shift Toward Intangibles?	112	(3)
Determining the Value of a Knowledge Company	115	(3)
An Intellectual Capital Approach to Valuation	118	(6)
Summary	124	(3)
Part III Managing Intellectual Capital
Extracting Value From Intellectual Property	127	(28)
Historical Perspective	128	(1)
Extracting Value from Intellectual Properties	129	(6)
A Hierarchy of IP Activity	135	(2)
The Roles of Intellectual Property in Corporate Business Strategy	137	(6)
The Intellectual Property Management System	143	(1)
Components of an Intellectual Property Management (IPM) System	144	(6)
Alternative Methods of Protection (Extra-Legal)	150	(2)
Summary	152	(3)
Extracting Value From Intellectual Assets	155	(18)
Intellectual Assets	156	(1)
Codified Knowledge	157	(2)
Commercializable Intellectual Assets	159	(1)
Intellectual Assets and Structural Capital	160	(3)
Managing Intellectual Assets	163	(1)
Measuring and Valuing Intellectual Assets	164	(3)
Quantifying Value in Monetary Terms	167	(3)
Summary	170	(3)
Extracting Value From Human Capital (Basic Concepts)	173	(18)
Knowledge and Intellectual Capital	175	(2)
A Knowledge-Based Model of Intellectual Capital	177	(1)
The Relative Importance of Different Kinds of Knowledge	178	(1)
Value-Added Knowledge	179	(2)
Direct-Support Knowledge	181	(1)
Indirect-Support Knowledge	181	(1)
How Knowledge Is Used	181	(3)
Value Creation and Value Extraction	184	(1)
Balancing Value-Creation and Value-Extraction Activities	185	(3)
Summary	188	(3)
Extracting Value From Human Capital (Advanced Concepts)	191	(16)
Core Human Capital	192	(1)
Creativity vs. Productivity	193	(1)
Focus for Human Capital	194	(9)
The Usefulness of Software Tools with Creativity-Focused Human Capital	203	(1)
The Productivity Focus for Human Capital	204	(1)
Summary	205	(2)
Making It Happen	207	(18)
The Foundation	208	(1)
The Context	209	(4)
Defining the Role of Intellectual Capital	213	(1)
Designing the System	214	(7)
Communicating the Value of IC to the Firm	221	(2)
Summary	223	(2)
APPENDIX BASIC DEFINITIONS AND CONCEPTS	225	(42)
Basic Concepts and Definitions for IC and ICM	225	(13)
A Brief History of the ICM Movement	238	(9)
Management Concepts	247	(20)
Bibliography	267	(4)
Index	271