1. What is Intellectual Capital
Management (ICM)?
By Dr Gordon McConnachie, Founding Chairman of Scottish Intellectual Assets Centre and
Chief Technology Officer of Asia Pacific Intellectual Capital Centre and
Alan Lung, Director & General Manager of Asia Pacific Intellectual Capital Centre
Intellectual Capital Management links scientific and technology R&D, innovation and
intellectual property rights in a holistic management concept. However, it is not just
technology oriented companies that will benefit from ICM. The capitalised value (i.e.
stock market value) of many global companies such as Coca-Cola is many times above
its fixed tangible assets and the only way to explain the difference is …
What is Intellectual Capital business relationships will start
Management1 (ICM)? bringing in cash flow and other factors
Intellectual Capital is defined as all that will contribute to future growth.
knowledge within an organisation which
has the potential to create value when In a nutshell, the Intellectual Capital
applied in line with the mission, vision Management process involves:
and goals of the organisation. It refers to • Analyzing existing enterprise
the intangible capital (i.e. other than knowledge, updating it and recording
financial capital) owned by companies: it as far as possible and making it
• Human Capital: This is the value sharable within the enterprise in order
people bring to current operations and to better fulfill the business plans. This
future growth, becomes the enterprise’s ‘structural
• Structural Capital: Also referred to as capital’;
Organisation Capital, this is the • Creating the climate in which
supporting infrastructure currently knowledge workers can best perform;
supporting the company and the • Identifying possible sources of
human capital, revenue that could be extracted from
• Network Capital: Also referred to as existing structural capital and
Customer and Supplier Capital, this is developing marketing plans for them;
where strength and loyalty of • Optimising the value creation,
customers, suppliers and other extraction and release cycles for new
and existing initiatives and
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• Assessing risks involved in protecting
Original concept developed in the 1990s by early
the enterprise’s intellectual assets (or
ICM practitioners such as Sullivan, Edvinsson and
structural capital) and using an
Sveiby building on earlier work in Japan by Hirojuki
effective intellectual property strategy
Itami.
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Asia Pacific Intellectual Capital Centre White Paper #2 (August 2008)
© Asia Pacific Intellectual Capital Centre 2008 All Rights Reserved

2. to minimize business risk. a fundamental business management tool
Intellectual Capital Management links enterprises need to harness as they move
scientific and technology R&D, innovation down the road of innovation and
and intellectual property rights in a creativity.
holistic management concept. However, it
is not just technology oriented companies Knowledge Management (KM)
that will benefit from ICM. The capitalised “Knowledge Management” (KM) is an
value (i.e. stock market value) of many almost inter-changeable term to
global companies such as Coca-Cola is “Intellectual Capital Management”: ICM
many time above its fixed tangible assets distinguishes itself in that it is purely
and the only way to explain the difference driven by the aims of the organization and
is the intangible assets such as the brand this in fact is the source of its powerful
name and business processes owned by nature. KM is a more widely known term
the company. in Hong Kong because of the work of the
Hong Kong Knowledge Management
Mainland China is beginning to realise Society (founded around 1999
that it has lost many of its historical www.hkkms.org). In the earlier days of
brands 2 and has been encouraging the the introduction of ICM concepts to Hong
development of “Self-initiated Brand Kong, KM is commonly associated with
Names” since the inauguration of the 11th and driven as part of “Information
Five Year Plan (2007-2012). There have Technology” or “Human Resource
also been many Asian cases, such as Management”.
“Esprit” of Hong Kong and “Red Bull” of
Thailand that made extremely smart use
of ICM (but not necessary a lot of scientific Another View of Intellectual Capital
and technology research) to take the great TOWARDS INNOVATION
leap from being local brands to become
globally recognised brands.
Intellectual Knowledge & Innovation
Intellectual
ICM, particularly the creation and use of Property Assets Know-How
(Intellectual
Capital)
intellectual property (including registered
trade marks from which brands are built)
is the foundation on which knowledge
economies of the world are built upon and Intellectual Capital: Knowledge that can be used to create value.
Intellectual Asset: Codified knowledge to be used to create value.
Intellectual Property: Legally protected intellectual capital.
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At one stage, Shanghai Toothpaste leased a 38 year
Internationally, there are also many
old brand name of Maxam Tooth Paste to Unilever as a
schools of thought as regards KM, for
form of cooperative joint venture but later reclaimed it
example, “Social Network Analysis”,
in 2001, claiming deliberate attempt made by its
“Information Theory”, “Complexity
business partner to down-play the Maxam brand that
Approach”, “System Thinking” and
results in market share loss.
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Asia Pacific Intellectual Capital Centre White Paper #2 (August 2008)
© Asia Pacific Intellectual Capital Centre 2008 All Rights Reserved

3. “Capacity Based Approach”. The most itself as a “killer management application”.
useful and dominant school links KM to It is still not perceived as something
the conversion of internalised tacit companies must do for the sake of their
knowledge into explicit codified own long-term survival. Some say “KM”
knowledge, thus allowing successful is for dreamers probably because KM
knowledge sharing (see Ikujiro Nonaka of practitioners in Hong Kong have yet to
Japan). link “Learning” and “Sharing” to the
hardnosed business of making a business
It should be noted that the term profit (i.e. the emphasis on “Value
“Intellectual Capital Management” (ICM) Extraction” as practiced by American
was introduced by Tom Stewart through Companies).
an article on Intellectual Capital published
in Fortune magazine in October 1994 after Intellectual Assets Management
it was first mentioned in discussions in his Intellectual Assets are the codified
presence. The key creators of the term (documented) knowledge of companies
ICM are: Leif Edvinsson (Sweden), and organisations. Some refer to
Gordon Petrash (USA), Hubert St. Onge Intellectual Assets as the “Structural
(Canada) and Patrick Sullivan (USA). The Capital” of companies. Intellectual Asset
first company to adopt a full ICM Management (IAM) broadly refers to the
approach was Skandia (a Swedish “Value Extraction” process of ICM
Insurance company) in the 1990s under practice. The Scottish Intellectual Assets
the leadership of Leif Edvinsson. The early Centre describes IAM as “the process of
pioneers (seven companies that include both capturing and managing knowledge,
Dow Chemical, DuPont, Hewlett-Packard, and fully exploiting it for commercial
Hughes Space and Communication, gain.” In Japan, the ICM practice is known
Hoffman LaRoche and Skandia) also got as Intellectual Asset-Based Management
together in January 1995 to exchange notes (Ministry of Economy, Trade and Economy
and formed the first ICM Gathering in (METI). ICM practitioners in Asia Pacific
Berkeley, California, USA. From the should also take note of a term call “IP
“Value Creation” stream as practiced in Asset Management and Utilization”, as an
Europe by ICM gurus such as Leif initiative that will be driven by the
Edvinsson and the “Value Extraction” Intellectual Property Rights Experts’
stream as practiced by leading American Group of the APEC Committee on Trade
companies a holistic approach now and Investment.
embracing value creation, value extraction
and value release has emerged as a The first IC Centre in Asia is the IP
powerful business tool which is new and Academy of Singapore acting in
more powerful modern Intellectual co-operation with several Government
Capital Management. Business Development agencies.
Founding members of this very important
In Hong Kong, KM has yet to establish IC Centre in Asia probably felt that
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Asia Pacific Intellectual Capital Centre White Paper #2 (August 2008)
© Asia Pacific Intellectual Capital Centre 2008 All Rights Reserved

4. Intellectual Property ought to be the (IPD) is the government unit in charge of
starting point when IP Academy of administering IPR systems and policies at
Singapore was founded in 2003. The the HKSAR Government level, while the
Scottish IA Centre (launched in November national level organization for China is
2004) felt that it should be focusing on The State Intellectual Property Office
Intellectual Asset as it is probably more (SIPO) of the People’s Republic of China.
difficult to deliver tangible economic Hong Kong has independent trade
benefits to Scottish enterprises if they representation status in many
were to cast the net too wide at the international organizations and is a
beginning and include “Value Creation” member of nearly all of them, except the
(or innovation) processes from the very World Intellectual Property Office (WIPO)
start. However, it should be noted that the which, as a United Nations (UN)
practices of the IC Centres of the world are organization, only recognizes
merging and both IC and IA are offered in representative offices from sovereign
most IC Centres. Asia Pacific Intellectual nations. In the case of WIPO, IPD
Capital Centre (APICC) chose to call itself commonly participate as part of the
an IC Centre (instead of an IP Centre or IA People’s Republic of China’s delegation in
Centre) as it envisages that equal cooperation with SIPO and the Ministry of
emphasis will be put on the “Value Foreign Affairs of China.
Creation” (IC) , the “Value Extraction” (IA)
and the “Value Release” processes. There are many institutes around the
world that offer IPR education, for
IPR Management example the WIPO IP Academy. The IP
Intellectual Property Rights (IPR) include: Academy of Singapore was also created
copyrights, design, patents and on the premises of delivering an IRR
trademarks. IPR Management can be seen management capacity to Singapore. IPR
as the “legal stream” of Intellectual Management Services is commonly
Capital Management (ICM), while offered by law firms that specialise in IPR
services offered by many IC Centres management. The interests of the “legal
around the world are more closely related stream” and the “business stream”
to the “Business Stream” of ICM. The overlap when enterprises wish to exploit
exception is the IP Academy of Singapore the value of their Intellectual Assets (IA).
which has a strong focus on IP aspects.
Hong Kong SAR is a unique territory in APICC does not intend to offered legal
China as it has a long established rule of services that are related to the legal stream
law tradition (including IP law dating of IPR Management, but will work with
back to 1873) and it operates an IPR the legal sector on policy issues relating to
regime that is independent of the legal how to make best use of Hong Kong’s
system in mainland China. unique legal systems to help develop the
Knowledge Economy in Hong Kong and
The Intellectual Property Department Mainland China.
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Asia Pacific Intellectual Capital Centre White Paper #2 (August 2008)
© Asia Pacific Intellectual Capital Centre 2008 All Rights Reserved