Dr. Shahram Yazdani Structural Capital & Sustainable Development Shahid Beheshti University of Medical Sciences School of Medical Education Strategic Policy.

Dr. Shahram Yazdani

Structural Capital & Sustainable Development

Shahid Beheshti University of Medical SciencesSchool of Medical Education

Strategic Policy Sessions: 16

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Intangible Assets

Tangible Assets

The The EnterpriEnterpriseseas a as a wholewhole

Financial Capital

20%20%

10%10%

70%70%

11

70%70%

10%10%

20%20%

22

IndustrialIndustrial KnowledgeKnowledgeBasedBased

Capital Composition: Industrial vs. KB Economies

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Defining Intangible Assets

Three terms are widely used: Intangible Assets — in accounting literature, Knowledge Assets — by economists, Intellectual Capital — in management and

law literature; “and on the whole they come to the same: to

the future benefits that are not embodied materially”. B.Lev, 2004

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Measuring Intangible Capitals

If you can’t measure it, you can’t manage it.

George O. Odiorne

Measuring the value of intangible assets is the holy grail of accounting.

Robert S. Kaplan, David P. Norton

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Measuring Intangible Assets34 methods for measuring intangible assets (1950’s – 2004)

Probably, the list is not closed!

4 approaches for measuring intangibles

1) Direct Intellectual Capital methods (DIC)2) Market Capitalization Methods (MCM)3) Return on Assets methods (ROA) 4) Scorecard Methods (SC)

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Measuring the value of intangibles

Companies have to develop and utilise

new accounting methods, since those

that have been implemented so far:

Are too focused on the past

Miss anticipatory “power”

Capture critical changes too late

• Don’t take into adequate

consideration some resources,

such as intangible assets

Non-monetary methods

Hol

istic

Me

tho

dsA

tom

istic

Me

tho

ds

Monetary Methods

AFTF TM

TVC TM

The Valueexplorer TM

IntellectualAsset

Valuation

TechnologyBroker

InclusiveValuation

Methodology

CitationWeightedPatents

IC - index TM

Value ChainScoreboard TM

IntangibleAssetsMonitor

HumanCapital

Intelligence

BalancedScorecard

SkandiaNavigator TM

Tobin’s Q

Market toBook value

IAMV TM

.

KnowledgeCapital

Earnings

EVA TM

CalculatedIntangible

Value

VAIC TM

HRCA

Main Intangible Assets Measuring Models

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Market value, book value and intangiblesTOTAL VALUE

=Financial

capital+

Intangible capitals

PaeseMarket value

Book Value

% tangibile

Brand value

Altri intangibles

% intangibile

Coca Cola US 104,8 11,8 11% 69,64 23,36 89%

Microsoft US 264,9 55,8 21% 64,09 145,01 79%

IBM US 138,2 22,8 16% 51,19 64,21 84%

General Electrics US 277,4 63,9 23% 41,31 172,19 77%

Intel US 112,3 35,3 31% 30,86 46,14 69%

Nokia Finland 71,1 15,4 22% 29,97 25,73 78%

In $ billions

Source: adaptation from AIAF, 2005

Country tangible intangibleOther

intangibles

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Market Value Model

Market Value

Financial Capital Intellectual Capital

Social CapitalHuman Capital Structural Capital

McElroy’s modified IC map

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Structural capital

Structural capital consists of embodiment, empowerment, and supportive infrastructure of an organization that enhances performance of human capital.

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Special Form: Structural innovation capital

Structural innovation capital is the value of supportive infrastructure of an organization that enhances and increases the capacity of a group to innovate.

Structural innovation capital is a subset of structural capital

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Strategy

Structure

Systems

Leadership

Culture

structural capital: the elements of organizational capability

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What capital is missing in developing countries?

A large literature in development economics aims to understand the impediments to firm growth, particularly small and medium enterprises.

Standard growth theories have explored the importance of input factors such as capital and labor in the production function of firms and countries.

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Access to finance as missing capital

At the micro level empirical studies such as Suresh de Mel, David McKenzie and Christopher Woodruff (2008), Abhijit Banerjee et al (2009), and Dean Karlan and Jonathan Zinman (2009) have estimated the impact of access to finance for capital constrained micro-enterprises (see Karlan and Jonathan Morduch, 2010, for a review).

At the macro level studies by Robert King and Ross Levine (1993), Raghuram Rajan and Luigi Zingales (1998), or Marianne Bertrand, Antoinette Schoar, and David Thesmar (2007) suggest the importance of the financial system for economic growth.

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Educated citizen as missing capital

Human capital is the second traditionally studied input factor in the production function.

Most of this research has focused on how distortions in labor markets or education affect productivity.

For an example of the emerging literature that documents the effect of labor market distortions on firm productivity,

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Skilled managers as missing capital

However, the role of managerial capital for production has largely been ignored in the debate on development and growth.

Classic macro growth models like Robert Solow (1956) relegate managerial or “soft” inputs into the residual of the production function, the error term.

Famously, Moses Abramovitz (1956) called it also the “ignorance term.” Modern growth theory in contrast such as Paul Romer (1990) or Philippe Aghion and Peter Howitt (1992) are more explicit in modeling endogenous technical progress as a function of technological innovation.

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Skilled managers as missing capital

The seminal studies by Robert Lucas (1978) and Sherwin Rosen (1982) propose that “talent for managing” is an important factor of production

Managerial capital is assumed to be complementary to other firm inputs and leads to a convex distribution of returns.

Rosen (1982) in an extension of the Lucas model explicitly focuses on the internal managerial structure of firms and explains an observable relationship between firm size, earnings and firm profitability.

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Skilled managers as missing capital

managerial capital can affect the production of firms in two distinct ways.

1. firms with better managerial inputs are able to improve the marginal productivity of their other inputs, for example labor, physical capital etc.

2. The decision to access inputs like capital or labor in itself requires managerial inputs to forecast and obtain the capital needs of the firm

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This managerial capital gap can be quite significant in many situations for example in developing countries.

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managerial capital gap in developing countries

Several recent papers suggest that management education, as well as management practices, are of lower quality in developing countries than in developed countries.

Azam Chaudry (2003) reports the results from an International survey conducted in 78 different countries that asked firms to assess the quality of locally educated managers the firm had hired.

Firms in lower income countries were much more likely than firms in higher income countries to say that these managers were inadequately prepared overall and that they had lower technical skills.

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managerial capital gap in developing countries

Nicholas Bloom and John Van Reenen (2010) collected a measure of management practices for firms in a number of countries.

Firms from non-OECD countries scored significantly below firms from OECD countries on this management practices measure.

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Managerial Efficiency

Quality of entrees Quality of Programs

Quality of Vocational Courses

Quality of Managers

Standard University-based Management Programs

Vocational Management Programs

Facilitating Organizational Context

Managerial Positions

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Experiments to fill the managerial capital gap in developing countries

Two studies, Karlan and Martin Valdivia (2011) and Alejandro Drexler, Greg Fischer, and Schoar (2010), conduct field experiments that introduce exogenous variation in managerial capital across microenterprises through management training.

The training consisted of classroom-style interactive lectures

The authors find that management knowledge increased, but that no consistent improvements occurred for performance.

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Experiments to fill the managerial capital gap in developing countries

Drexler, Fischer, and Schoar (2010) test different approaches of teaching managerial skills to CEOs of firms and companies.

They find that a simple, rule-of-thumb based approach to teaching does better than a more intricate training program.

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Impact of consulting services

Bruhn, Karlan, and Schoar (2010) examine whether lack of managerial knowledge can be alleviated by providing consulting services to supplement the managerial skills of the business owners.

They conducted a randomized control trial in Mexico where firms and companies were paired with a consultant for the period of one year

Results show that the consulting services had a significant positive effect on firms’ productivity.

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impact of consulting services

De Mel, McKenzie, and Woodruff (2008) estimate a return to capital of 5 percent per month for Sri Lankan microenterprises, McKenzie and Woodruff (2008) find 20-33 percent monthly return to capital in Mexico, and Christopher Udry and Santosh Anagol (2006) find 60 percent annualized return to capital in Ghana.

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Thank You !

Any Question ?