The main aim of the paper is to provide a synthesis of the new international framework of debate dedicated to intellectual capital. New economics and knowledge-based society focus on a portfolio of intangible assets to be managed. Intellectual capital is the essential root system of competitiveness, but is often invisible in the traditional accounting systems. The paper presents some examples of how to measure, report and monitor intellectual capital.intellectual capital; management of intellectual capital; new economics

Christina Suciu

English

Research Papers in Economics

 
 
INTELLECTUAL CAPITAL AS A SOURCE 
OF THE COMPETITIVE ADVANTAGE 
  
Prof. univ. dr. Christina Suciu 
Academy of Economic Studies, Bucharest 
 
 
Abstract:  The main aim of the paper is to provide a synthesis of the new international 
framework of debate dedicated to intellectual capital. New economics and knowledge-based 
society focus on a portfolio of intangible assets to be managed. Intellectual capital is the 
essential root system of competitiveness, but is often invisible in the traditional accounting 
systems. The paper presents some examples of how to measure, report and monitor intellectual 
capital.  
  
Keywords: intellectual capital; management of intellectual capital; new economics. 
 
 
  1. The growing importance of intangibles 
 
  The competitive advantage within new economies has shifted from material 
and financial assets to intangible and non-financial assets. Traditional factors of 
production, like natural resources, labor and capital have lost significance.  At the 
same time the importance of intangible inputs, like information, intellectual capital 
(IC) and knowledge, increased. The real value lies in the knowledge and skills of the 
people who made the products, and the marketing power of the companies to sell the 
products. The real wealth of nations and organizations has to be sought in the people, 
their knowledge and skills, internal processes and the company’s reputation.  
More and more, statistical offices are faced with the problem of mapping and 
measuring the growth of today’s economy. Moreover, there have been initiated several 
projects, aiming at developing indicators for the knowledge-based economy (Brusoni, 
et al., 2002, Eustace, 2003).  
  
 
  2. Measuring intellectual capital 
 
  The main sources of competitive advantage lies on  intangible assets.  
Intellectual capital counts for numerous interpretations and definitions. The 
roots of today’s intellectual capital movement lies in the mid 1980s in the work of 
Karl-Erik Sveiby (Sullivan, 2000, Edvinsson, 2002). Evaluating the state of the field, 
we recognize an emerging standard (Sveiby, 1998, Stam, 1999, Bontis, 2002, 
Andriessen, 2004), based on the groundbreaking work of people like:  Karl-Erik 
Sveiby (Sveiby, 1997), Leif Edvinsson (Edvinsson en Malone, 1997, Edvinsson, 
2002), Thomas Stewart (Stewart, 1997, Stewart, 2002), and Göran Roos (Roos et. al., Management & marketing 
 
90
1997). Core-elements within these definitions are: 
• Intellectual capital is an intangible organizational resource. 
• Competitive advantage is based on intellectual capital. 
• Organizational value is the result of leverage of intellectual capital.  
In general we define intellectual capital as all intangible resources that are 
available to an organization, that give a relative advantage, and which in combination 
are able to produce future benefits. In order to measure and manage  intellectual 
capital, it is important to identify more precise its different components. Comparison 
of several intellectual capital models shows us that many of them are based on a more 
or less same classification (Stam, 1999, Stam, 2001). 
The logic of the  taxonomy of three is that intellectual capital is the product of 
interaction of these three different classes of intangibles: human resources, 
organizational resources and relational resources (Roos, 2003): 
• Human Resources represents anything related to the people within the organization, 
the employees, their tacit knowledge, skills, experience and attitude. 
• Organizational Resources represents the ‘tangible’ intangibles. Everything of value 
that stays behind, after the employees have left the organization, like codified 
knowledge, procedures, processes, goodwill, patents, and culture. 
• Relational Resources represents the relationship with customers, suppliers and other 
external stakeholders. The value of customer capital is mainly determined by the 
extent to which an organization is able to maintain confidence in its reputation. 
Although the terminology that is used by different academics and practitioners 
differs, the taxonomy of three could be used as a starting point for reporting and 
communicating about intellectual capital. 
 
 
3. The intellectual capital monitor at the micro level 
  
Moreover the above taxonomy of three has proven to be a sound basis for 
measuring and comparing intellectual capital on both firm (micro) and national 
(macro) level. The starting point is considered to be Nick Bontis’ proposed 
conceptualization (Bontis, 2002) of intellectual capital, in which he distinguishes 
between  human capital, structural capital and relational capital. Based on this 
taxonomy Sveiby was probably the first to use this family of three in The New Annual 
Report, 1988.  
Within the Intellectual Capital Monitor there have been added a second layer 
of classification. Each of the three classes of intellectual capital is being monitored 
from three different perspectives in order to stress the importance and differences 
between past, present and future developments: 
• Assets (present) This perspective gives an indication of the present power of an 
organization. It provides an overview of the current main assets. 
• Investments (future) This perspective gives insight into the future power of an 
organization. To maintain or strengthen its present power, organizations should  Intellectual capital as a source of the competitive advantage 
 
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invest in its potential continuously. 
• Effects (past) This perspective shows the extent to which the organization has made 
its intangibles productive during the past period 
1. 
 
A well-defined Intellectual Capital Monitor consists of a combination of 
indicators from all three classes and all three perspectives. The windows and 
perspectives are combined in a 3 by 3 matrix  Implementation of this IC Monitor 
means filling the fields with appropriate performance indicators. The power of this 
format appeared to be its simplicity, which makes it easy to implement, communicate 
and understand.  
 
 
4. Intellectual capital of a nation & competitive advantage 
 
Intellectual Capital of Nations is a concept that applies the principles of 
intellectual capital measurement and management on a macro-economic level, in such a 
way that it helps to give direction to future economic developments. An intellectual 
capital of nations report uses a system of variables (indicators) that helps to manage the 
invisible wealth and gives insight into the hidden value of a country or region of 
countries. The main motivation for measuring the intellectual wealth of a nation is to get 
insight into the relative competitive advantage of countries. This insight could help to 
develop policy in order to give direction to future economic developments. The concept 
of intellectual capital can be translated to macro-economic level because “the stories of 
our societies and of our nations are mirrors of ourselves and our organizations" 
(Edvinsson, 2002). The main difference is its level of application. Debra Amidon was 
among the first to recognize the possibilities of applying intellectual capital on a macro-
economic level (Amidon, 2001). The most rigorous work in this field until now is 
considered to be done by Nick Bontis. In his work he defines IC of Nations as “the 
hidden values of individuals, enterprises, institutions, communities and regions that are 
the current and potential sources for wealth creation” (Bontis, 2004: p.4). Examples of 
earlier IC of Nations reports are the IC report of: 
• the State of Israel (Pasher, 1999),  
• National IC Index (Bontis, 2004),  
• IC report of Croatia (2002),  
• and several IC reports in The Netherlands (EZ, 2000; EZ, 2002) (Kennisland, 2003) 
2. 
Based on the international developments in this field the IC of Nations can be  defined 
as all intangible resources available to a country or region, that give relative 
                                                 
1Effects can be further divided into output, outcome and impact. See for example the 
Intellectual Capital Report 2003 of the Swedish Center for Molecular Medicine 
2For a more detailed comparison of the reports of Australia, Israel, New Zealand and The 
Netherlands see: Cees Schouten, De Kenniseconomie Gekend, Amsterdam, 2004. Management & marketing 
 
92
competitive advantage and which in combination are able to produce future benefits. 
For the measurement of the IC of Nations, we can use the same model as on a firm 
level. However, to make it applicable on a national level, the meaning of the classes of 
intangibles are translated to an aggregate level: 
• Human Capital represents anything related to people (knowledge, education and 
competencies of individuals in realizing national tasks and goals). Education is ‘the 
basic building block of human capital’ (Bontis, 2004: p.7). 
• Structural Capital represents the ‘non-human storehouses of knowledge, which are 
embedded in its technological, information and communications systems as 
represented by its hardware, software, databases, laboratories and organizational 
structures’ (Bontis, 2004: p.8). 
• Relational Capital is the comparison of measures of one country against another, or 
of one period against another that give meaning to the figures. Although the 
intellectual capital is unique and can never be compared objectively, we can improve 
comparability by using the same conceptual models. 
The IC Monitor, based on the taxonomy of three, has proven to be a sound 
basis for measuring intellectual capital on both firm and national level. 
 
 
5. Indicators for intellectual capital in the European Union  
 
In order to achieve Lisbon's goal an overall strategy was formulated, aiming at: 
• Preparing the transition to a competitive, dynamic and knowledge-based economy; 
• Modernizing the European social model by investing in people and building an 
active welfare state; 
• Sustaining the healthy economic outlook and favourable growth prospects by 
applying an appropriate macroeconomic policy mix. 
 The  Lisbon  Agenda gives an indication of the kind of intellectual capital the EU 
wishes to create in order to become competitive and dynamic.  
 
Value of intellectual capital investment (future oriented approach)  
Europe as a whole has increased the value of its intellectual capital 
investments. The Nordic countries (Denmark, Sweden and Finland) invest the most in 
intellectual capital, whereby the focus of Denmark is on human capital and that of 
Sweden and Finland on structural capital. Denmark scores high on both investments 
in education and investments in labour market policy. Sweden and Finland score high 
on investments in R&D, being the only countries in the EU that exceed the norm of 
3% of GNP.  
There is a group of followers that includes Belgium, Germany, France, The 
Netherlands and Austria. Belgium is second in terms of investments in human capital 
but its investments in structural capital are much lower, resulting in a fourth place. 
Finally there is a group of laggards consisting of the UK, Ireland, Portugal, 
Luxembourg, Italy, Spain and Greece.   Intellectual capital as a source of the competitive advantage 
 
93
Value of intellectual capital assets (present oriented approach) 
This perspective gives an indication of the present power of a nation. Europe 
as a whole has increased the value of its intellectual capital assets with 0.05 between 
1999 and 2003.Sweden has managed to achieve the highest growth in value (0.11). 
This is largely due to an increase in human and relational capital assets. Human 
capital assets have increased as a result of progress in lifelong learning, number of 
researchers and employment. Relational capital assets have increased as a result of a 
rise in the number of foreign students and international outgoing telecom traffic. 
Second highest growth in value has been achieved by Finland and Ireland. In general 
we can conclude that the Nordic countries (Sweden, Denmark and Finland) perform 
considerably better than the others. the value of their intellectual capital assets is 
substantially higher than the value of a large group of followers (Belgium, The 
Netherlands, Luxemburg, Germany, France, Austria, United Kingdom and Ireland). 
Finally a group of laggards (Italy, Spain, Greece and Portugal) follows at considerable 
distance. This outcome is consistent with other comparable research and International 
Reports. For example, the top 3 of most competitive European countries in the ranking 
of the World Economic Forum in 2004 is Finland, Sweden and Denmark. 
Noticeable is that these three groups are geographically divided: 
• The leading group consists of northern European countries (>54° latitude),  
• the group of followers consists of middle European countries (45°-54° latitude).  
• The laggards are all southern European countries (<45° latitude). 
 
A possible cultural explanation for this could be that the Nordic countries 
throughout history have developed an attitude of looking at the future. In order to 
survive the long and severe winters they always had to plan their resources carefully. 
 
  Value of intellectual capital in the EU(past oriented approach) 
This perspective shows the extent to which the organization/ nation has made 
its intangibles productive during the past period. Europe as a whole has increased the 
value of its intellectual capital effects with 0.06 between 1999 and 2002. The biggest 
progress in value has been achieved by Denmark (0.10) mainly because of a 
substantial growth in relational capital effects: the export of services in Denmark rose 
from 16% of all exports in 1995 to 27% in 2002, and there was a substantial growth in 
the number of countries it collaborated with writing scientific publications. Denmark 
is followed by France (0.08) and Belgium (0.07). Portugal is the only country where 
the value of intellectual capital effects has decreased. 
 
6. Conclusions 
 
Our  main conclusions  with regard to the value of the intellectual capital of 
the EU-15 can be summarized as follows: 
•Investments in IC pay off 
As expected there is a strong and significant correlation between human capital Management & marketing 
 
94
investments  and human capital assets  (0.470) and also between structural capital 
investments and structural capital assets (0.686). So, countries that have a high value of 
intellectual capital investments also have a high value of intellectual capital assets. 
•Human capital and structural capital „go together” 
Leading countries (Sweden, Denmark, Finland) have considerably higher 
value of both human capital and structural capital. Laggards (Spain, Portugal, Italy) 
have considerably lower value of human capital and structural capital. This supports 
the idea that human capital and structural capital are interdependent and mutual 
enhancing factors. They „go together” in the creation of intellectual capital. This is 
what Edvinsson (2002) calls the multiplier effect. This is further supported by a strong 
and significant correlation (0.806) between human capital assets (HCA) and 
structural capital assets (SCA). However, we did not find a significant correlation 
between relational capital assets (RCA) and other types of intellectual capital. 
•High value of IC is no guarantee for high productivity 
Measurement of the extent to which intangibles are made productive reveal 
that high values of intellectual capital assets are no guarantee for high intellectual 
productivity. It seems that intellectual capital investments and assets are necessary, but 
not sufficient to make intellectual capital productive. 
  
  References 
 
 Andriessen, D.G. (2004), Making sense of intellectual capital. Elsevier Butterworth 
Heinemann, Boston 
 Bontis, N. (2004). „National Intellectual Capital Index”, in Journal of Intellectual Capital, vol. 
5, nr. 1 
 Edvinsson, L. (2002). Corporate Longitude. London: Pearson Education.  
 Roos, G. (2003). An Intellectual Capital Primer. Internet version. 
 Stam, C.D. (2001). Intellectual Capital geeft invulling aan Business Intelligence. vol. 7, nr. 3, 
pp. 10-15 
Stewart, T. A. (2002), The Wealth of Knowledge. Intellectual capital and the 21st Century 
Organization, Nicholas Brealey Publishing, London 
Sullivan, P. H. (2000), Value-driven Intellectual Capital. How to convert intangible corporate 
assets into market value, Wiley, New York 
Sveiby, K. E. (1997), The New Organizational Wealth. Managing & Measuring Knowledge-
based Assets, Berret-Koehler Publishers Inc., San Fransisco. 
 Sveiby, K. E. (1998), Measuring Intangibles and Intellectual Capital - An Emerging First 
Standard (internet version, Aug.5 1998), http://www.sveiby.com 
 
Note: This paper  has been presented to the International Conference on Business Excellence, 
27-28 October, 2006, Brasov, Romania 

An Intellectual Capital Primer. Internet version.

Intellectual Capital geeft invulling aan Business Intelligence.

Making sense of intellectual capital. Elsevier Butterworth Heinemann,

Measuring Intangibles and Intellectual Capital - An Emerging First Standard (internet version,

Intellectual capital as a source of the competitive advantage

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