The Conundrum of Valuing a Company's Intellectual Capital: The Role of Taken-for-Granted Indicators

The Conundrum of Valuing a Company's Intellectual Capital: The Role of Taken-for-Granted Indicators

Luiz Antonio Joia (Brazilian School of Public Business Administration of Getulio Vargas Foundation and Rio de Janeiro State University, Brazil) and Paulo Sérgio da Silva Sanz (Brazilian School of Public Business Administration of Getulio Vargas Foundation, Brazil)
DOI: 10.4018/978-1-60566-270-1.ch005
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Since the early 1990s, research has been conducted in an attempt to establish a viable and reliable manner of measuring the intangible assets, also referred to as the intellectual capital, of companies. Several models have been devised, most of them using indicators to evaluate the intangible assets of a given undertaking. In this chapter, exploratory field study methodology is used to analyse the behaviour of the “customer retention” indicator, which has been widely used to evaluate a company’s relationship capital. Two of the largest Brazilian e-retailing groups are analysed in order to obtain an in-depth insight into the behaviour of their frequent customers via their digital channel. Conclusions are presented, indicating that the role of frequent customers in e-retailing companies can sometimes be widely divergent from that presented in existing academic literature. Finally, recommendations are made in order to reach a clearer understanding of the conundrum of valuing a company’s intellectual capital via taken-for-granted indicators.
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The consolidation of intellectual capital as an actual knowledge field is still in progress. It should be remembered that years ago, some mavericks foresaw the importance of intangible assets for a company, laying down the initial foundations for this very recent discipline.

In 1945, Frederick Hayek presented research about the use of knowledge in society (Hayek, 1945). In a seminal work, Fritz Machlup from Princeton University produced an eight-volume work in 1962, under the general title: “Knowledge: Its creation, distribution, and economic significance” (Machlup cited in Stewart, 1997, p. 11). In this work, using data gathered in 1958, it was established that 34.5% of the gross national product of the United States could be ascribed to the information sector. In 1993, Peter Drucker analysed the new knowledge economy and its consequences (Drucker, 1993). Consequently, academics, researchers, and practitioners have increasingly highlighted the importance of the intangible assets of a corporation and even those of both countries and other organisations, including nonprofit entities.

A watershed was reached in July 1994, when a meeting took place in Mill Valley with a view to establishing how the knowledge of an organisation could be measured. Knowledge may be intangible, but that does not mean that it cannot be measured. Markets do precisely that when they value the stock of highly knowledge-intensive companies way above their book value.

In 1995, Skandia, the largest insurance and financial services company in Scandinavia, released its Intellectual Capital Annual Report, based on its Navigator framework (Edvinsson & Malone, 1997). Some other companies, like Dow Chemical, the Canadian Imperial Bank of Commerce, Posco, and so forth, to name but a few, also entered this new era.

Several research articles have been published, and timely praxis has been developed to measure the intellectual capital of an enterprise, such as Sveiby (1997); Roos et al. (Roos, Roos Dragonetti, & Edvinsson, 1997); Bontis et al. (Bontis, Keow, & Richardson, 2000); Guthrie and Petty (2000); Low (2000); Sánchez et al. (Sánchez, Chaminade, & Olea, 2000); Guthrie (2001); St Leon (2002); Rodov & Leliaert (2002); Hunt (2003), among others.

In order to understand the peculiarities associated with the measurement of intangible assets better, this chapter sets out to prove that some indicators used to measure the intellectual capital of a company cannot be taken for granted as effective measures for doing so, nor can they be adopted in these valuation models as a rule of thumb. This chapter posits that more rigour is required to verify whether or not these indicators are truly valid, that is, if they really contribute to explaining the final results of a company, namely its financial performance. The “customer retention” indicator, widely used in several methodologies to measure intellectual capital, is specifically analysed in this chapter in order to verify whether it can always be considered a valid measure for assessing intangible corporate assets.

The chapter is organised as follows: firstly, a bibliographical reference section is reviewed in order to elucidate the rationale used for this study; secondly, the research design, based on an exploratory field study, is described, as well as the hypothesis to be tested; thirdly, the data-set collected is presented and analysed, which leads to several findings. Lastly, conclusions are drawn and recommendations made in order to reach a clearer understanding of the conundrum of valuing a company’s intellectual capital via indicators.

Complete Chapter List

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Patricia Ordóñez de Pablos
Table of Contents
Chapter 1
Jakob Lauring, Toke Bjerregaard
This chapter deals with the role of language use and knowledge sharing in the context of international subsidiaries. The chapter analyzes the role... Sample PDF
Knowledge Sharing and Sociality: On the Linguistic Embeddedness of Knowledge Exchange in International Subsidiaries
Chapter 2
Ruth Alas
This chapter analyzes organizational changes and organizational learning in Estonian companies. During the last decades, Estonia has transformed... Sample PDF
Organizational Learning During Changes in Estonian Organization
Chapter 3
Giovanni Schiuma
Today’s global business is characterised by interconnectedness, interdependence, and an increasing level of complexity that force organisations to... Sample PDF
Strategies for Assessing Organisational Knowledge Assets
Chapter 4
Poul Houman Andersen
In order to capture market dividends and stay at par with the competition in the knowledge-based economy, firms must constantly develop their skill... Sample PDF
Division of Interfirm Activities in the Knowledge-Based Economy: The Crucial Role of Knowledge Processors
Chapter 5
Luiz Antonio Joia, Paulo Sérgio da Silva Sanz
Since the early 1990s, research has been conducted in an attempt to establish a viable and reliable manner of measuring the intangible assets, also... Sample PDF
The Conundrum of Valuing a Company's Intellectual Capital: The Role of Taken-for-Granted Indicators
Chapter 6
Tongo Constantine Imafidon
This chapter avers that over the past years, monolithic organizations, as opposed to multicultural organizations, have been created by many top... Sample PDF
The Multicultural Organization: A Historic Organizational Theory for Gaining Competitiveness in Global Business Environment
Chapter 7
Arla Juntunen
This chapter focuses on the challenges of developing a knowledge management platform to support organizational memory and knowledge transfer. The... Sample PDF
Developing a Corporate Memory as a Competitive Advantage in the ICT-Sector
Chapter 8
Corrado lo Storto
This chapter reports the findings of an empirical study whose purpose is to identify the attributes of the organization infrastructure that support... Sample PDF
Learning Organizations or Organizations for Learning? How Small Firms can Learn from Planned and Random Technical Problem-Solving: Implications for Technical Education
Chapter 9
Ernesto Villalba
The present study explores the relationship between the knowledge-enabling environment and the demand of training in 18 small private companies... Sample PDF
Learning at the Core: Knowledge Management as an Employer Strategy for Lifelong Learning
Chapter 10
Dimitris Bibikas, Iraklis Paraskakis, Alexandros G. Psychogios, Ana C. Vasconcelos
The increasing pressure of today’s highly globalised markets has lead organisations to continuously compete for knowledge and innovation. Despite... Sample PDF
An Integrated Knowledge Innovation Process Management Model: The Case of Skandia
Chapter 11
Christian Nielsen, Robin Roslender, Per Nikolaj Bukh
During the last decade, many calls for improving disclosure practices, in relation to intellectual capital and intangibles, have been uttered in the... Sample PDF
Intellectual Capital Reporting: Can a Strategy Perspective Solve Accounting Problems?
Chapter 12
Huei-Chen Hsu
The main points of this chapter are probing for the combination of information technology and virtual work, and how to change the distribution of... Sample PDF
Managing the Information Technology: Knowledge Transfer in Virtual Teams
Chapter 13
Miltiadis D. Lytras, Patricia Ordóñez de Pablos
Multinational companies (MNCs) are facing important challenges within the current economic context. Rapid technological changes, the globalization... Sample PDF
The Building of the Intellectual Capital Statement in Multinationals: Challenges for the Future
Chapter 14
Pedro López Sáez, José Emilio Navas López, Gregorio Martín de Castro
During more than a decade, the literature has provided several intellectual capital models. Nevertheless, empirical evidence is still necessary in... Sample PDF
Intellectual Capital in Knowledge-Intensive Firms: Exploring the Concept and Main Components in Boston's Route 128
Chapter 15
Weiling Ke, Kwok Kee Wei
This chapter uses organizational learning as a lens to study how firms implement the enterprise system. The core research questions are: What are... Sample PDF
Organizations and Learning Process: Its Antecedents and Consequences in Enterprise System Implementation
Chapter 16
Kholekile L. Gwebu, Jing Wang
Improvements in technology have led to innovations in training such as Electronic Learning (E-learning). E-learning aims to help organizations in... Sample PDF
The Role of Organizational Environmental, and Human Factors in E-Learning Diffusion
Chapter 17
Mikel Sorli, Dragan Stokic
Managing of knowledge for innovation in an extended enterprise (EE) environment is a key issue. This in turn requires effective utilization of... Sample PDF
Supporting Innovation Through Knowledge Management in the Extended Enterprise
Chapter 18
Luis Felipe Luna-Reyes
Contemporary organizations face the challenge of growing and advancing in a complex and changing environment (Johannessen, Olaisen, & Olsen, 2001;... Sample PDF
Government Innovation Through Knowledge Management
Chapter 19
Marc Henselewski, Stefan Smolnik, Gerold Riempp
Today’s business environment is characterized by highly transparent markets and global competition. Technology life cycles are decreasing due to the... Sample PDF
A Technology-Focused Framework for Integrating Knowledge Management into Strategic Innovation Management
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