Leif Edvinsson

Expert on Intellectual Capital (Skandia Futur Center)

«Financial markets already assess Intellectual Capital (IC) but do not want to share this information. It is trade secrecy»

As an introduction, do you think economic growth will be intangible in the future?
It already is intangible. It was evident in the last days on the Stock exchanges. As an example, Bear Stearns, stopped existing. Basically, the assets are not very different from what they were a week before but the perception of them is different. This is probably the most intangible dimension. Quickly after the information on Bear Stearns, in Asia, people were uncertain about some of the future issues. The world is moving towards more interconnectedness. This is a second dimension. And this is why the intellectual capital (IC) ratings become so important. Because if you think about the outcome if there would have been an IC rating on the subprime loans, another story could have emerged. What is the social cost for not applying the IC ratings?

Economic growth amounts to around 2% in Europe. If we are able to work more carefully on our IC, could we arrive to a better growth performance? What would be the influence on employment?
There is an endless potential in leveraged human capital and structural capital. If you amount to an important level of those, you can reach a higher level of GDP growth as well as a higher level of employment. But the latter part is being challenged by something called Wikonomics. This is the name of a book about the network economy based on observation, among others, related on Wikipedia. Wikipedia employs 8 people but is operating 24 hours a day around the world. Network structures and volunteers are challenging traditional employment structure.

Could you give us some very practical examples of a kind of a co-creation of value between Europe and Asia, far from a notion of competition?
One of the most fashionable examples I know is Manchester United and Asia. Manchester United has a tremendous trademark and has an even larger fan club, or relational capital, estimated at around 700 million people. They have 140 million viewers a week, especially in Asia. They are leveraging into flights between Bangkok, Kuala Lumpur and Manchester. The biggest market to the European club is Asia! This is an illustration of the new entertainment industry on a global scale.

How much of what Manchester United have done is luck and how much is because they thought of IC?
It is probably not only luck. It is a kind of intuition. What they are lacking is the taxonomy to describe it in proper terms. The taxonomy is necessary for other people to understand it. It should be more standardized, but is in progress. See http://www.incas-europe.org/
 
In your opinion, what are the main intangible assets?
I think the most important intangible asset is the bridge between people inside and people outside a company and that is also called organizational capital. It depends on this relation whether business flow is accelerating or not. Therefore, it is extremely important to go into the organizational bridge, which includes also leadership and culture.
The combination between human capital inside and relational capital outside, and the bridge between them represents the regional dimension.  This is why cities and regions are also very important. Paris, for example, is not rated as a nice, clean city anymore, though it still has a certain very intangible appeal. Louvre has however now a proven distinct export value

How do you judge the level of awareness of the financial markets, which are major actors in the world economy?
They are very conservative. It is about re-thinking what is valued, what capital means and imply, i.e. head value or future capabilities. The issue starts with understanding that there is new paradigm and this paradigm is common sense.

Is it likely that financial markets will arrive to a point at which they will balance between financial and extra financial criteria?
I think it is already applied. However, the financial analysts are not doing this in an explicit way. They do not want to share this information. It is a so called professional trade secrecy.

It is extraordinary for financial markets, which are by definition public, to keep such strategic information secret in their methodology!
You know that the value is in the secret.  If you make it too explicit, then you lose the secret. One should not forget that the profit lies there.

We understood that when we are speaking about intangible assets, at the same time we are speaking about long-term investments perspective. Is there some kind of antinomy between this long-term perspective and the financial markets, which are very short-term oriented?
Of course, this is why there is an issue about sustainability. You can have a very good harvest in a short time and then you get the tremendous bonuses paid out to some of these financial institutions. But what about sustainability? UBS or Bear Stearns made a lot of money but it was short-time based.

What are your criteria for measuring Intangible Assets?
We are going towards a navigation measurement, that is position, direction and speed. You can give the position in the traditional accounting system but it does not give the direction of the future potential and, furthermore, it does not give the time issue. Therefore, the criteria or indicators should be related to position, direction and speed. One should also bear in mind the cost of opportunity that is the cost of not doing something. This is the risk dimension. This leads to the next and more complicated measurement: the corporate longitude dimension, which is the third dimension where you measure position, direction and speed but also longitude as added to altitude and latitude. The beauty of the IC rating is to get the process going to this point.

Is joy the fourth dimension?
Very good! CEO now means Chief Endorphin Officer.

What would you like to say to the future managers that will be the students of Sciences-Po?
I would like to ask those questions. First “what do you think is behind a little equation 1+1=11?” And the second question is “what are the most powerful dynamic dimensions of your enterprise? Is it goodwill or is it something else? And finally, how do you imagine your own place in the knowledge society?”

Propos recueillis par Antoine Rousseau et Adam Turowski. Juin 2008