Companies need to value their intellectual capital

BUSINESSES do not have appropriate systems to either value accurately or manage their intellectual capital, the professor of international management at Britain's Open University, Mr Keith Bradley, has told the IPD conference in Galway.

"Today all companies rely heavily, perhaps too heavily, on techniques of financial accounting which have formed the standard performance measurement system for companies for more than 200 years," he said. "Accounting numbers are still translated into management behaviour and it is this which drives most companies."

However, it was now widely accepted that traditional financial reporting was very inefficient and it was making capital markets less and less efficient. Analysts and investors had to increasingly turn to other sources of information, he said.

Increasingly, companies and investors would have to assess the intellectual capital of companies. In the future people would be the key determinant in a company's success. Wealth was now being generated by knowledge based skills rather than commodities and finance.

"We require a new philosophy of performance measurement, where financial figures are not the only basis for decision making by managers and investors. Financial figures should be supplemented by measures of customer satisfaction, quality, market share and human resources."

While accepting there were problems in measuring concepts like customer satisfaction as a capital asset, or human assets, Mr Bradley said it was not impossible. Customer capital, for instance, might be measured by indices such as a satisfaction index, longevity of their relationship with the firm and their financial wellbeing.

Human resource indices could include revenue per employee, number of new products created per year, and rates of cost reduction.