How to Maximize Intellectual Capital Investments
The thrust to maximize returns on intellectual capital investments has been a mainstay of business and performance management consultants since the early 80’s. Every corporation in America, was inundated with promises of benefits by an increased investment into understanding and creating value using the intellectual capital route. The 1990’s, or the rise of the dotcom generation largely benefited from this fad. Unfortunately, when the bubble burst, and investors were wanting to understand what had happened to their investments, no one was able to provide an answer good enough to assuage investor loss.
What was largely discovered is that the valuation method used to increase intellectual capital worth employed a huge amount of creative accounting tricks. Valuation was as varied as the number of ice cream flavors available. You all know what happened next.
Intellectual capital investment and human capital investments are considered to be distinct in today’s business environment. But in reality, they are part of the same whole and are tightly coupled to each other. Without the human factor to contribute to the intellectual capital pool, intellectual capital would exist. The dilemma of measuring or quantifying intellectual capital net-worth is that the methods used to quantify material or physical assets (GAAP) cannot capture the value of non-physical assets. (This would require an entire study and discussion). How can a company quantify the value of their intellectual net worth when the systems used to quantify value are limited to that of capturing material or physical value? Most often the value assigned to non-physical assets is arbitrary—it simply depends on the relevance of such an asset in each given context.
As the intellectual capital trend spread throughout the world, businesses began to deal with the same issues and were confronted with more problems than it was suppose to solve. The support infrastructure that existed in advanced economies such as the US, was non-existent in other parts of the world. Legislation that protected intellectual capital simply did not exist, and where it did exist, the enforceability was insufficient. Confronted with this reality, Asian businesses, in particular, are slowly moving to strengthen local legislation to allow for stricter and more enforceable guidelines to protect intellectual property rights. But much work still remains.
Integral to increasing the intellectual capital pool of organizations is the proportionate increase in human capital investments. The awareness of human capital investments began to catch on in Asia toward the mid-1990’s and has continued to grow since. Consequently, companies began to restructure their specific environments to allow them to maximize their benefit from their human capital pool. But despite the renewed emphasis on the importance of human capital, organizations are still confronted with the challenge of reducing attrition and brain drain.
While companies, focus groups, industry and trade associations have begun to educate the general public on the importance and strategic nature of human capital, there are environmental conditions that prevent organizations to implement and fully realize, much less maximize, on the human capital.
The value of human capital is not measured by the size of an organization’s employee base, but by the quality represented within that employee base. Here again we encounter the dilemma of quantifying value. It is about companies enhancing core competencies, such that their competencies are disproportionately higher than existing market demand. Admittedly, such an ideal outcome is tough to create especially in Asian companies and specifically within Philippine organizations.
The environmental conditions that prevent Philippine companies from maximizing benefits from their human capital investments are systemic in nature. Meaning, these conditions are deeply embedded in individual and collective psyche.
Let’s look into this a little more in detail…
The Philippines in general (private and public) continue to make significant investments into adopting Western management styles, policies, and forms of governance. Such investments are considered necessary for the country to remain globally competitive. Western schooled executives have an established edge over their locally schooled counterparts not because they are less competent or intelligent, but because most progressive corporations hold western schools in higher esteem than local universities and colleges. Board members seem to be more comfortable retaining foreign educated professionals rather than extend the same opportunity to executives with local experience and education. The fact is, expatriates form a larger population of top executives within Philippine companies over naturally born Filipinos. What happens when the economic focus shifts from North America to Asia and Europe (wh
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