Measuring intangible assets

Studies suggest that measurement is the least developed area of knowledge management. This chapter looks at the evaluation of intangible assets, focusing on the approaches taken by several organisations including pioneers in the field, the Swedish companies Celemi and Skandia.

KEY POINTS

  • profitability, earnings-per-share and return-on-capital-employed, among others, are the traditional barometers of business performance. Some businesses, especially knowledge-based firms, are recognising that such short-term financial metrics provide a poor indication of organisational health;

  • the primacy of financial measures has given way to a basket of performance indicators - including quality, customer satisfaction and employee satisfaction. And now the effectiveness of intangible assets has also be added to the equation;

  • intangible assets account for the majority of the worth of most companies, with maximum attributable to traditional assets estimated at only 30%;

  • this rise has been fuelled by the growth of predominantly knowledge-based organisations - that is businesses whose activities are based principally on the expertise, skills and creativity of their staff rather than on the physical production of goods;

  • knowledge-based, service sector companies have few visible assets and auditors do not have the instruments to effectively value their intellectual assets. For example, what price does one assign to creativity, service standards or unique computer systems?

  • effective evaluation of knowledge management initiatives has a number of benefits. It can help to convince sceptics, boost senior management and general employee support and ensure adequate resources. It can also better enable firms to determine their future strategy;

  • an evaluation of intangible assets can also lead to outcomes that would not normally be considered when applying traditional financial considerations but which can be of long-term benefit;

  • knowledge itself cannot be measured, but proxies can be developed to assess the performance of knowledge development and creation;

  • employee competence, internal structure and external structure are the three main categories of intangible assets that should be measured. Employee competence comprises their collective and individual experience and education. The internal structure includes patents, models and computer and administration systems, as well as organisational culture, while the external structure consists of customer and supplier relationships and corporate image; and

  • few companies formally measure their knowledge activities to any great extent, although several organisations, mainly Scandinavian companies, have started to use comprehensive mechanisms to measure their intangible assets in addition to common metrics such as employee and customer satisfaction.

    Traditionally, financial indicators have been the only measure of performance that really mattered. Profitability, earnings-per-share and return-on-capital-employed, among others, were considered to be the best barometers of business performance. Some businesses, especially knowledge-based firms, are now recognising that short-term financial metrics provide a poor indication of organisational health. Current profitability provides no clue to future performance, financial or otherwise. If customer satisfaction, in terms of quality and delivery, is low, for example, then consumers will search for alternatives. The primacy of financial measures has given way to a basket of performance indicators - including quality, customer satisfaction and employee satisfaction - as organisations grapple with the ever-changing environment in which they operate. It is no longer good enough to manage tangible assets efficiently; the effectiveness of intangible assets must also be added to the equation. The bulk of intangible assets are knowledge based, including the competence of staff and feedback from customers. Importantly, and unlike conventional tangible assets, knowledge grows when it is shared.

    The growth of predominantly knowledge-based organisations - that is businesses whose activities are based principally on the expertise, skills and creativity of their staff rather than on the physical production of goods - has raised the importance of effectively measuring the so-called invisible factors that determine corporate success or otherwise. As Margareta Barchan, chief executive of Celemi, the Swedish-owned global consultancy specialising in corporate learning tools, has explained: "As a knowledge-based business, we at Celemi realised early on that our financial statement did not represent the true value of our firm. Where was it reflected that we were a team of highly skilled professionals who provided effective service to our clients? Where would a stakeholder be able to assess the value of the unique learning processes that we were creating for our clients? Where did we account for the value of our loyal and growing customer base?1 (See case study 2, Chapter five .) Barchan's reasoning echoes that of Celemi's fellow Swedish company, the financial services business Skandia. Its 1994 annual report, the first corporate statement in the world to include a supplement - called "Visualising intellectual capital at Skandia" - measuring intellectual capital, included the following assertion:

    "Commercial enterprises have always been valued according to their financial assets and sales, their real estate holdings, or other tangible assets. These views of the industrial age dominate our perception of businesses to this day - even though the underlying reality began changing decades ago. Today it is the service sector that stands for dynamism and innovative capacity… The service sector has few visible assets, however. What price does one assign to creativity, service standards or unique computer systems? Auditors, analysts and accounting people have long lacked instruments and generally accepted norms for accurately valuing service companies and their 'intellectual capital'."2

    All management systems require a means of evaluation to ascertain their effectiveness and contribution to corporate performance. As a relatively new concept knowledge management initiatives are likely to be under greater pressure to show their worth than more long-standing and proven activities. A report by the Conference Board states that: "Measuring the economic value of knowledge and knowledge management initiatives is a critical challenge for organisations."3 Unless organisations can effectively meet the challenge of measuring knowledge management, such activities will be constantly vulnerable to cost-cutting pressure and lose out in the competition for finite resources. Measurement is also important because it will identify problems and areas for improvement.

    Effective evaluation of knowledge management initiatives has a number of benefits. Assessment can help to convince sceptics, boost senior management and general employee support and ensure adequate resources. Measuring corporate knowledge also enables firms to better determine their future strategy. Indeed, research has found that better decision making is one of the most common benefits arising from knowledge management. KPMG Consulting's 1998 survey of knowledge management, for example, reported that 86% of participants with a knowledge management programme said improved decision making had been the outcome.4 Celemi describes its Intangible Assets Monitor (see figure 6.1, pp.46-47, for the 1999 results) as a "lead indicator", enabling the business "to see how we are positioned for the future".5

    One example of the use of factors other than conventional financial metrics to support business planning, is the approach taken by Skandia. Its "Navigator" system, which was developed internally, encompasses a customer, human, process, and renewal and development focus in addition to the usual financial elements to determine business. The Navigator has replaced traditional financial budgeting with what the company describes as a "real-time planning process".6 Celemi believes that measuring intangibles can provide better information to aid the development of strategy at all levels of the business. Its 1999 annual report states:

    "Using an intangible assets monitor enables us to set strategic goals for the broader global business, yet enables regional managers around the world to proactively set reasonable goals of their own based on marketplace differences. In this way, the Monitor helps us communicate priorities and strategic objectives, and gives regional managers a framework within which to work."

    Using an evaluation of intangible assets to help guide business strategy can also lead to outcomes that would not normally be considered when applying traditional financial considerations. Celemi's 1999 annual report illustrates this point. It reports that the company's sales slowed between 1995 and 1997. However, this was a period of substantial corporate growth (employee numbers more than doubled), requiring experienced senior sales staff to mentor new recruits, which reduced the time they could spend on sales activities. Nonetheless, mentoring has proved a sound investment with the Intangible Assets Monitor showing improvements in Celemi's internal structure ("Our organisation") and in developing staff competence ("Our people"), enabling the business to better meet the needs of clients. Celemi UK provides an example of how the Intangible Assets Monitor can guide activity and produce outcomes that would be unlikely under a strict financial planning regime. The UK office's decision to take a project with an organisation switching from the public to the private sector because it would support the development of its less experienced staff even though the financial benefits would be minimal is one example of a company linking its decision-making process to potential future value rather than to short-term financial performance (see case study 2, Chapter five ).

    THE RISE OF INTANGIBLE ASSETS

    Karl Erik Sveiby, an acknowledged expert on knowledge management and leading proponent of the importance of measuring invisible assets, has illustrated the growing significance of intangibles in assessing corporate performance by comparing the difference between the book value (company's value based on its tangible assets) and the market value (trading price of its equity) of several of the world's largest companies.7 This he refers to as the "market-to-book ratio". Writing in his 1997 book, The new organisational wealth: managing and measuring knowledge-based assets, Sveiby poses the question: why is Microsoft's market value 10 times its book value (in 1995, its shares were being traded at $70 against a book value of $7), while shares in firms such as Ford and Bethlehem Steel trade close to their book value? According to Sveiby, the answer lies in Microsoft's intangible assets. Laurence Prusak, co-author of Working knowledge: how organisations manage what they know and managing principal of the IBM Consulting Group, also sees the difference between a company's market value and the value of its tangible assets as a measure of its intangibles, which he believes are mainly some form of organisational knowledge.8

    Research by Baruch Lev, professor at New York University and head of the Centre for Intangible Measurement, supports the views of Sveiby and Prusak. Lev has estimated that a maximum of 30% of a company's worth is attributable to its traditional assets; the remainder consists of intangibles.8 It was noted earlier that PricewaterhouseCoopers reported in 2000 that the way the US market values its companies changed radically in the 1990s. The accountancy and consultancy business found that by 1998 intellectual assets accounted for more than 78% of the total value of the Standard & Poor 500 (S&P 500).9

    Robert Kaplan and David Norton, originators of the Balanced Scorecard approach to measuring corporate performance (see figure 6.2, p.48), believe companies that focus on their intangible assets are better able to:

  • "develop customer relationships that retain the loyalty of existing customers and enable new customer segments and market areas to be served effectively and efficiently;

  • introduce innovative products and services desired by targeted customer segments;

  • produce customised high-quality products and services at low cost and with short lead times;

  • mobilise employee skills and motivation for continuous improvement in process capabilities, quality and response times; and

  • deploy information technology, databases and systems."10

    Figure 6.2: The Balanced Scorecard

    The Balanced Scorecard, which as developed by Robert Kaplan and David Norton in a series of articles for the Harvard Business Review, assesses organisational performance from four different perspectives: customers (factors that really matter to the customer); the internal business (what the organisation must do to meet customer expectations); innovation and learning (the ability to continuously improve products and services); and the financial.17 The non-financial elements complement the financial measures and are the "drivers of future financial performance", say Kaplan and Norton. As such, a balanced scorecard approach is geared to long-term performance rather than short-term financial outcomes.

    According to the model, organisations should choose a small number of key indicators for each perspective that reflect the goals contained in the corporate vision. The customer perspective, for example, includes a mixture of quantitative and qualitative core measures - market share, retention rates, extent of new customer business, satisfaction levels and attributable profits.18 For each perspective, targets are set to be achieved within a specified period. The scorecard is designed to enable organisations to focus on a small number of critical measures, thereby preventing information "overload" - one commentator suggests that no organisation should try to "monitor or control more than 20 variables on a regular basis".19

    The integrated nature of the scorecard allows managers to assess whether improvement in one area has been to the detriment of another. For example, it could be that improved financial results have had an adverse effect on employee morale because they were achieved through job losses.

    According to Sveiby there are three types of intangible assets, which he describes as a "family" and calls employee competence, internal structure and external structure.11 People lie at the heart of each element: employees tend to direct their efforts outward by working with customers and suppliers, and inward through maintaining and developing the business. The former, which results in the development of customer and supplier relationships and the creation of a corporate image, is the external structure, while the latter is the internal structure, and includes patents, models and computer and administration systems, as well as organisational culture. Employee competence refers to the "capacity of employees to act in a wide variety of situations" and comprises collective and individual experience and education (see figure 6.3, p.49). Sveiby's approach was adopted by Celemi, which in its Intangible Assets Monitor refers to the three parts as: Our customers; our organisation; and our people (see figure 6.1, pp.46-47).

    Figure 6.3: Making invisible assets visible

    Intangible assets

    (Stock price premium)

    Visible equity

    External structure

    Internal structure

    Individual competence

    (book value) Tangible assets minus visible debt

    (brands, customer and supplier relationships)

    (the organisation: management, legal structure, manual systems, attitudes, research and development, software)

    (education, experience)

    Source: The new organisational wealth: managing and measuring knowledge-based assets, Karl Erik Sveiby (1997), Berret-Koehler Publishers, San Francisco, ISBN 1 5767 5014 0.

    Both the Balance Scorecard (BS) and the Skandia's Navigator - which is a combination of Kaplan and Norton's BS and the Intangible Assets Monitor, and was developed by Leif Edvinsson - use the same three categories of intangible assets described by Sveiby.

  • The internal structure is the internal processes perspective in the BS and the process focus in the Navigator.

  • The external structure is equivalent to the BS's customers perspective and the Navigator's customer focus.

  • Employee competence is the same as the learning and growth perspective in the BS and the human focus in the Navigator.

    MEASUREMENT'S NOT EASY THOUGH

    Despite the growing popularity of knowledge management (see chapter one) and the potential benefits of effective evaluation of intangible assets, there has not been an upsurge in the measurement of knowledge activities. The American Productivity and Quality Centre (APQC), which in 1996 published the findings of its examination of knowledge management in several major global companies, including Chevron, Dow Chemical, Skandia and Texas Instruments, reported that "measurement was probably the least developed aspect of our benchmarking partners' knowledge management efforts".12 The APQC's findings are supported by KPMG Consulting's 2000 knowledge management survey. It reported that only 23% of respondents with a knowledge management programme in place measures its intellectual capital.13

    There are several reasons why it is difficult to measure knowledge. Just as the bottom-line benefits of other human capital investments, such as training, are hard to assess because there are too many variables that can affect the outcome, the evaluation of knowledge-based activities suffers from the same problem. Aside from the problems of accurately assessing investments in human capital, the Conference Board has suggested two other potential measurement difficulties. First, most benefits from knowledge, especially dramatic results, occur over time and often in unforeseen ways. Also, it is often difficult to attribute any improvement to knowledge activities when the benefits accrue up to several years later. Second, measurement of knowledge is hard precisely because much of it is intangible.3 For example, "better decision-making, higher quality work, more sharing, better morale and more responsiveness to customers" are qualitative and therefore difficult to quantify. Another problem, and one with particular relevance to the use of knowledge tools, is assessing their impact on an employee's ability to do his or her job. Simply measuring how many times a knowledge repository is accessed or how many people download a piece of information from a database provides no indication of its value or even if it helped someone do their job better - the ultimate aim of knowledge management.

    Of course knowledge itself cannot be measured. Sveiby believes that it is possible to measure only the outcomes of knowledge through "indirect means". Organisations that do attempt to measure knowledge often use "proxies" to assess the effectiveness of their approach. Many of these are traditional metrics. For example, the Conference Board, in a survey of knowledge management in 200 companies, found that customer satisfaction (used by 70% of respondents), cost reduction and savings (52%) and employee satisfaction (47%) were the three most common ways of measuring such initiatives.14 By contrast, only a small minority of participants measured their knowledge management systems by the number of communities of practice (12%) or by the number of knowledge management initiatives established (5%). The same report also found that executives were largely unconcerned about the lack of formal knowledge management measures, although all participants agreed that noticeably improved organisational and individual productivity was expected to accrue from the investment in knowledge enablers.

    Knowledge writers Tom Davenport and Laurence Prusak have outlined five attributes against which to measure the success of a knowledge management project.11 These are:

  • growth in the resources attached to the project, including staffing and budgets;

  • growth in the volume of knowledge content and usage (for example, the number of documents or accesses for repositories, or participants for discussion database projects);

  • the likelihood that the project will be sustaining beyond a particular individual or two, that is, the project is an organisational initiative, not an individual project;

  • comfort throughout the organisation with the concepts of 'knowledge' and 'knowledge management'; and

  • some evidence of financial return, either for the knowledge management activity itself (if it is seen as a profit centre) of for the larger organisation. This linkage need not be rigorously specified and may only be perceptual.

    Among our case study organisations, there is little in the way of formal measurement of knowledge activities other than at Celemi, which first published the Intangible Assets Monitor in its 1995 annual report (see below). In the absence of more formal metrics, Marc Auckland, chief knowledge manager at BT Global, has applied his own simple test to see how far knowledge management has permeated the business. He describes how typing "knowledge management" into the company's network system would previously have uncovered only a few "hits". Now the number is in the region of 600 (see case study 1, Chapter five ). John Keeble, head of knowledge management at Enterprise Oil, recognises the difficulty of attempting to measure the success of the company's knowledge management communities, largely because the whole process involves a major cultural shift. Nonetheless, the company has undertaken a survey of staff directly involved to assess how far the ideas have penetrated. The survey results overall were very positive, with many employees providing feedback on how knowledge management has been put into practice and reporting that they appreciate the value of knowledge sharing (see case study 3, Chapter five ). Juliet Humphries, director of legal information and know-how at Linklaters, says that the pattern of usage of the knowledge systems is a good metric. This helps the legal information department to direct its efforts into what users really want as opposed to what the department thinks they want, and therefore those facilities which supports business needs (see case study 5, Chapter five ).

    Some companies have established more formal means of measuring knowledge activities. For example, Buckman Laboratories, the US biotech company, monitors its innovation by identifying the percentage of sales from products that are less than five years old.3 The company also measures the reduction in customer response times that can be credited to its communications network, the K'Netix system.

    Several organisations, mainly Scandinavian companies, have started to use comprehensive mechanisms to measure their intangibles assets in addition to common metrics such as employee and customer satisfaction. Aside from Celemi and Skandia, they include:

  • the Danish management consultancy, PLS-Consult which categorises its customers into three groups according the value of their knowledge contribution to the business. For example, satisfied customers which recommend PLS to others or clients with challenging assignment and can build the competence of PLS staff;

  • Telia, the Swedish telecoms business, which since 1990 has published an Annual Statement of Human Resources, including a balance sheet of investment, such as training.

  • WM-data, a Swedish IT company, which has little time for conventional financial metrics to guide strategy, especially at business unit level, preferring instead to link planning to non-financial indicators. These include personnel turnover and creating a good balance of staff in terms of gender, age and experience. Like Celemi, WM-data publishes a statement on its intangible assets in its annual report.15

    All of these companies base their approaches on the measurement systems devised by Sveiby and Edvinsson. The Celemi/Sveiby approach is now described in more detail.

    INTANGIBLE ASSETS MONITOR

    The basis of Sveiby's approach is that the measurement system should be tailored to the "end user" - managers, for example - and must include comparisons (eg, against a similar business, previous year's figures or a budget). Proxies or indicators to measure change (growth and renewal), efficiency and stability are applied to each of the three categories - employee competence, internal structure and external structure.

    Measuring employee competence

    Sveiby says that employee competence is not only a separate category of the three intangible assets it is also the "source of the external and internal structures."7 In the growth and renewal element of employee competence, the number of years staff have worked in the field and level of education are two important metrics.

    In the growth/renewal section of employee competence ("Our people"), Celemi's Intangible Assets Monitor (see figure 6.1 for 1999 results, pp.46-47), measures average professional experience of its "experts" - that is employees who work directly on client projects. The company also records the number of experts educated to degree level. This indicates whether the company is improving its average educational level over time (eg, recruiting a more educated workforce). Celemi also monitors what the company terms "growth in professional competence", which is the annual increase in the total number of years of professional competence. In addition, the share of revenues derived from client projects that provide Celemi experts with the opportunity to learn - called competence-enhancing customers - is recorded. Projects with these clients challenge the existing knowledge and competence of Celemi employees. These customers are valuable because Celemi staff learn from them. The company's 1998 Intangible Assets Monitor highlights the importance of this factor: "Our customers are also a very important source of competence, our people gain most of their experience in customer work".16

    The proportion of highly skilled employees, such as Celemi's experts, as a proportion of the total workforce is the key indicator for assessing efficiency. This forms the basis of a formula to calculate the revenue skilled staff generate - what Sveiby calls the leverage effect.

    Celemi measures efficiency in the employee competence section in two ways: value added per expert and value added margin on sales. Value added, which Sveiby maintains is the best measure of yield, is defined by the company as "the value produced by employees after payment to all outside vendors".

    Stability measures include employee turnover, average age of staff and seniority. Sveiby advises against letting the average age of staff creep upwards as this will restrict corporate vitality and creativity. Celemi applies these three metrics to assess its stability in this area. Expert turnover is the number leaving divided by the total at the start of the year, and expert seniority is the average number of years they have been employed by the company. In 1998, Celemi also added a fourth dimension to the stability metric, its people satisfaction index, which operates on a scale of one to six.

    Measuring the internal structure

    As was noted earlier, the internal structure consists of administration and computer systems, among others. Staff in these areas are charged with maintaining and improving these systems. Investment in functions such as marketing, especially when it is expressed as a percentage of sales, as is the case at Celemi, can be a valuable monitor of a firm's internal systems and help to control costs.

    Celemi measures the growth/renewal of its internal structure ("Our organisation") in the following four ways.

  • Organisation-enhancing customers: organisations that require solutions that are new to Celemi or large projects that involve a large number of Celemi staff. Firms in need of innovative solutions enable Celemi to enhance its creativity and research capabilities, while large initiatives foster the transfer of tacit knowledge or competence.

  • Revenues from new products: this is the share of revenues from products and concepts launched less than five years ago.

  • Research and development revenues: the amount of revenue invested in research and development.

  • Intangible investments, percentage value added: investments in research and development, marketing and information technology charged as a cost in normal profit and loss, divided by value added (see above).

    Efficiency in this section is evaluated by Celemi as the proportion of the workforce which are administration employees (all staff other than experts) and the revenues per staff in this category - that is total revenues divided by average number of administration staff.

    To measure stability of the internal structure, Celemi monitors turnover of administration staff coupled with their seniority. In addition, Celemi also operates a "rookie ratio" - that is the number of staff employed by the company for less than two years.

    Measuring the external structure

    Measurement of a company's external structure focuses almost entirely on its customers. To measure the growth/renewal of its external structure ("Our customers"), Celemi records revenue growth and the share of revenues from clients that improve the company's image or provide referrals. These are classed as image-enhancing customers: usually industry leaders whose work with Celemi enhances its reputation, thereby improving the company's potential to generate more custom which in turn enables it to reduce marketing costs.

    Efficiency is based on revenues per customer, which Celemi calculates by dividing total revenues by the total number of customers. The company measures the stability category of the external structure in the following three ways:

  • Customer satisfaction index: based on the same one to six scale as the employee satisfaction index, this metric was first used by Celemi in 1998. Sveiby says that though customer satisfaction measures are increasingly common, they are rarely used in financial forecasting.7 Yet they provide an early indication of whether corporate performance is going to improve or deteriorate.

  • Repeat orders: the share of Celemi's revenues from clients also buying from the company in the previous 12 months. A high proportion indicates the customers are satisfied and shows the firm has identified the right customer base. Old clients are also likely to be more profitable than new ones.

  • Five largest customers: the share of Celemi's revenues that are derived from its five biggest clients.

    Figure 6.1: Celemi's Intangible Assets Monitor (1999)

    Analysis of our Intangible Assets

    Looking at our monitor for 1999, our financial picture, based on our traditional financial statement, is disappointing. Several key areas are off target due in part to significant investments made during the year to acquire our partner company and to develop the competence of our learning consultants.

    Yet Celemi is a company with a very high profit potential, as supported by the lead indicators in our monitor. Some highlights:

    Efficiency

    Many efficiency indicators are in line with our target goals, which shows we are getting better at managing our intangible assets.

    Under "Our People," both the Value-Added per Expert, 890 (from 802) TSEK, are well above our strategic targets. These figures, on an upward trend, reveal growing competence of our professionals.

    We are selling more to each customer, 367 (from306) TSEK, on average (under "Our Customers), and investments made in 1997-98 to develop new tools and processes are now pulling our organisational efficiency out of the red (see "Our Organization").

    While revenues per Administrative Staff are slightly below target, we expect to reach this strategic goal in the near future.

    Stability

    The values highlighted in red under the stability section of "Our Organisation" indicate that our company is not yet stable, but we are steadily moving toward our goals as the trends are moving in the right direction in two categories. The 33% rate of administrative staff turnover is not worrisome, as this is a very small group in Celemi, and the other indicators are improving.

    All stability indicators under "Our Customers" are on track, reflecting the high priority we give to this most valued asset. Repeat orders are up, and customers indicate they are satisfied. In addition, our People Satisfaction Index under "Our People" is also high, and improving.

    Although turnover is off target for professional staff, it is still low compared to industry standards. Expert turnover could give rise to concern if it continues its upward trend. The higher rate of 14% in 1999 (13% in '98) may reflect recent strategic decisions to create a flatter organization.

    Growth/Renewal

    "Our Customers" continues to be one of our strongest intangible asset categories. Although we did not reach our strategic target for revenue growth in 1999, the trend is positive, 22% (compare 8%) and all other categories are on or above target.

    "Our Organisation" has been directly influenced by the acquisition of our long-term partner company. During 1999 we invested no less than 15% of our revenues in intellectual property, 7% thereof in the acquisition. We are now in a much stronger position, since we own all intellectual property rights to a range of high-potential tools. We expect this strategic advantage to help us boost the introduction of new products, which has been dropping since 1997. Just 17% of our revenues come from products introduced in the last 5 years, well below our strategic target.

    Our restructuring impacted the values under "Our People". The drop from 59% (in '98) to 27% (in '99) in Competence Enhancing Customers (those with challenging projects), and the rate of Growth in Professional Competence which is in the red, reflect changes in our measurement criteria. However, it is important to note that Growth in Professional Competence, 39% (from 8%), indicates that our people's competence is growing considerably and we are much closer than last year to our strategic goal in this area.

    Margareta Barchan

    1.       Administrative staff turnover: number of admin. staff leaving divided by number of admin. staff at beginning of year.

    2.       Administrative staff: employees other than experts.

    3.       Average professional experience: experts' average professional experience in number of years.

    4.       Competence-enhancing customers: share of revenues from customers with projects that Celemi's experts learn from.

    5.       Customers: categorized under three headings. Number excludes book customers.

    6.       Education level at year end: employees with primary education = 1, secondary = 2, and tertiary = 3.

    7.       Expert turnover: number of experts leaving divided by number of experts at beginning of year.

    8.       Experts with tertiary degree: no. of experts with a tertiary degree divided by total number of experts.

    9.       Experts: employees working directly with customer projects. Top management are regarded as experts.

    10.     Five largest customers: share of revenues from five largest customers.

    11.     Growth in professional competence: growth over last year in total number of years of professional competence.

    12.     Image-enhancing customers: share of revenues from customers that improve Celemi's image or give referrals.

    13.     Intangible investments % value added: investments in R&D, Marketing and IT charged as cost in normal P&L, divided by value added.

    14.     Liquid reserves: cash reserves in number of days, assuming normal business.

    15.     Net investment ratio: investment in tangible fixed assets as % of fixed assets.

    16.     Net return on equity: profit after 28% tax divided by average equity.

    17.     Number of employees: two definitions are used: average number employed during year for efficiency indicators, year-end numbers for growth/renewal and stability indicators.

    18.     Organisation-enhancing customers: share of revenues from customers that improve Celemi's organization, bring R&D or projects that can be leveraged.

    19.     Profit margin: profit before tax divided by total revenues.

    20.     Profit/value added: "real" profit divided by value added.

    21.     Proportion of admin. staff: number of admin. staff divided by number of total staff at year-end.

    22.     Profit capacity: profit adjusted for R&D charged as cost in normal P&L.

    23.     Repeat orders: share of revenues from customers buying from us also last year.

    24.     Revenues from new products: share of revenues from products and concepts launched less than five years ago.

    25.     Revenues per admin. staff: total revenues divided by average number of administrative staff.

    26.     Revenues per customer: total revenues divided by total number of customers.

    27.     Rookie ratio: number of employees with less than two years seniority.

    28.     Seniority: number of years as Celemi employees.

    29.     Solidity: equity divided by total assets.

    30.     Value added: the value produced by Celemi's employees after payment to all outside vendors.

    31.     People Satisfaction Index. Scale 1-6 (highest).

    32.     Customer Satisfaction Index. Scale 1-6 (highest).

    Note: Minor changes in calculation principles for value added and categorization of staff have been made. Earlier years have been adjusted accordingly.

    Celemi's Colour Coding System

    At Celemi, it's our job to help people see the big picture quickly. That's why we have made some noticeable changes to our Monitor this year.

    In order to improve our reporting of intangible assets, we've introduced strategic comparisons for 1999. The cells in the Monitor are coloured pink if the indicator is equal to or greater than Celemi's strategic plan target. Red cells indicate values less than 80% of target. White cells indicate values in between.

    In cases where lower values are considered better, as for staff turnover, for instance, cells are coloured pink if the value is equal to or less than the strategic plan target, and red if the value is 20% or higher. Staff turnover lower or equal to 10% is pink, above 12% is red and values between 10.1% - 12% are white.

    The overall rating is achieved by generating an index from each indicator and computing an unweighted average.

    Reproduced by permission of Celemi

    1     "How Celemi ensures strategic gains by measuring intangible assets", Margareta Barchan (1999), http://www.melcrum.com/knowledge/articles/celemi.htm

    2     Quoted in The balanced scorecard: translating strategy into action, Robert Kaplan and David Norton (1996), Harvard Business School Press, Boston, Massachusetts, ISBN 0 8758 4651 3.

    3     Managing knowledge for business success, Don Cohen, David Smith, Laurence Prusak and Richard Azzarello (1997), The Conference Board, report 1194-97-CH, ISBN 0 8237 0643 5.

    4     Knowledge management research report 1998, KPMG Management Consulting.

    5     Celemi annual report 1999.

    6     Skandia annual report 1998.

    7     The new organisational wealth: managing and measuring knowledge-based assets, Karl Erik Sveiby (1997), Berret-Koehler Publishers, San Francisco, ISBN 1 5767 5014 0.

    8     Managing knowledge in the new economy, Don Cohen (1998), The Conference Board, report 1222-98-CH, ISBN 0 8237 0671 0.

    9     PricewaterhouseCoopers, press release.

    10    The balanced scorecard: translating strategy into action, Robert Kaplan and David Norton (1996), Harvard Business School Press, Boston, Massachusetts, ISBN 0 8758 4651 3.

    11    Working knowledge: how organisations manage what they know, Thomas Davenport and Laurence Prusak (1998), Harvard Business School Press, Boston, Massachusetts, ISBN 0 8758 4655 6.

    12    Knowledge management: consortium benchmarking study, American Productivity and Quality Centre (1996).

    13    Knowledge management research report 2000, KPMG Consulting, www.kpmg/consulting.com

    14    Beyond knowledge management: new ways to work and learn, Brian Hackett (2000), The Conference Board, report 1262-00-RR, ISBN 0 8237 0711 3.

    15    "Measuring intangibles and intellectual capital - an emerging standard", Karl Erik Sveiby, 5 August 1998, http://www.sveiby.com.au/EmergingStandard.html

    16    Celemi annual report 1998.

    17    "The Balanced Scorecard - measures that drive performance", Robert Kaplan and David Norton (1992), Harvard Business Review, January-February.

    18    The Balanced Scorecard: translating strategy into action, Robert Kaplan and David Norton (1996), Harvard Business School Press, Boston, Massachusetts, ISBN 0 8758 4651 3.

    19    Keeping score: using the right metrics to drive world-class performance, Mark Brown (1996), Quality Resources, New York, ISBN 0 8144 0327 1.