• The foundation of the enterprise
• Grows with use
• Increases when shared
• Primary source of value
• Only solution to understanding complexity

• Usually exists in the minds of individuals
• Hidden in some forgotten report
• “Knowledge is Power”-encourages Knowledge Hoarding
• Leaves the organization with the employee
• Knowledge Management

1. Dominant group of workers in the 21st century.
2. Specialists with job-specific skills.
3. Have significant formal education or formal training.
4. Are self-directed learners
5. Require multiple, continuous learning opportunities to maintain their specialized knowledge

• Why is a company’s market value different (and higher) than it’s book value (as calculated by generally accepted accounting principles)?
• Strassmann refers to that specific difference with a term he coined and trademarked as “management value-added.” A company’s management value-added drives corporate success by making its financial capital assets exceed their book value.

• The market valuation of a company’s employee worth is largely determined by the knowledge accumulated over the course of years of daily activity from attending meetings to getting to know people, to learning a company’s processes, products and services
• None of these activities is entirely possible without the basic element of skills
• Product knowledge, customer and supplier information, and operational expertise can give a company a business advantage in its industry. Knowledge capital is the lifeline of an organization.
• Strong knowledge capital flows create value throughout an organization’s value ecosystem

1. To gauge the value of your company's knowledge capital, you can account for it the same way as traditional assets. Take, for example, a comparison between two companies: one from the industrial era, General Motors, and one from the information era, Microsoft.
2. General Motors' $40 billion market value is comprised primarily of traditional assets, while Microsoft's $70 billion market value consists of only a few traditional assets other than the buildings that make up its headquarters. IBM's purchase of Lotus is yet another example of the hidden value of knowledge capital. IBM's share price rose immediately after the purchase as investors realized Lotus held software knowledge IBM could convert to profit and business advantage.
3. An organization can begin to define its knowledge management objectives only with a clear idea of what the business as a whole is attempting to achieve.
4. To begin formulating a solid knowledge management strategy, you need to examine corporate culture, knowledge content, information technology infrastructure, and the company's success factors.

• People - Brand Advantage
• Process - Strategic Advantage
• Content - Organizational Advantage
• Brand - Mapping of Intangibles
• Alliances - Competitive Advantage
• Customers - Risk Reduction

• Derive greater value from services.
• Retain employees and customers.
• Increase intellectual property value.
• Grow organizational capacity and capabilities.
• Increase consultative and “soft” skills.
• Differentiate intangible asset value.
• Accelerate organizational and individual learning.

• Know-What is technical and product content knowledge.
• Know “What if . . ?” is hypothesis generation and testing.
• Know-How is procedural knowledge for solving problems.
• Know-When is an essential element of Know-How.
• Know-Where is where key competencies and skills reside.
• Know-Who is an organization’s social network.
• Know-Why is how people learn from experience.
• Care-Why is how people derive identity and vest in organizational values.

• Knowledge Capital ® Assessment
• Market Value to Book Value
• Tobin’s Q
• Calculated Intangible Value
• Baruch Lev’s Knowledge Capital Valuation
• Scoreboard Valuation Technique
• Livson’s Valuation of Startups

• Strengths: Valuation is forward looking. It has some predictive capability.
• Weaknesses: Requires more effort to apply

• Intellectual Capital = Market Value (Price/Share x # of shares) - Book Value (Equity - Debt)
• Strassmann’s Knowledge Capital = (Profits - Financial Capital "Rental")/(interest rate cost of long term debt)

• Calculate average pre-tax earnings for three years
• Calculate average year-end tangible assets for 3 years
• Divide earnings by assets --> company average ROA for 3 years
• Find industry average ROA
• Multiply industry ROA by company's tangible assets. Subtract product from
• company's pre-tax earnings. --> Excess return.
• Calculate 3 year average tax rate. Multiply by excess return
• Subtract from excess return --> premium
• attributable to intangible assets.
• Calculate Net Present Value of Premium. Divide premium by discount rate. (i.e., cost of capital)

• MC=Market Capital, KC=Knowledge Capital, BV=Book Value & CV=Comprehensive Value and PV=Perception Value in market perception
• CV=BV+KC
• MC=CV+PV=BV+KC+PV
• Nokia 2000: MC=$160b=$6b+$94b+$60b
• High PV=>Overvalued; Low PV => Undervalued
• Best Stock: Low PV and High KC

Reference:

1. www.strassmann.com
2. www.destinationcrm.com
3. www.cpajournal.com
4. www.nysscpa.org

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Prof.D.M.Patel
Arts & Commerce College
Prantij