Intellectual Capital Model

KPMG Hazem Hassan

Presented To: Dr. Tarek Abdeen

By: Marwa Mohamed

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Agenda
• What is Intellectual Capital?
• Classifications of Intellectual Capital.
• Characteristics of Intellectual Capital.
• Value Creating Logic
– Value Chain
– Value Shop
– Value Network
• Resource Distinction Tree
• Why should Intellectual Capital be measured?
• Intellectual Capital Model in KPMG

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 What is Intellectual Capital?
All nonmonetary and nonphysical resources
that are fully or partly controlled by the
organization and that contribute to the
organization's value creation.

Is the intangible stuff that provides your

organization with knowledge, strategy,
customer service, etc. It is becoming the
preeminent resource for creating economic
wealth.

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Classification of Intellectual Capital

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 Classification of Intellectual Capital

● Organizational Capital
 The knowledge that stays within the
firm. It comprises organisational
routines, procedures, systems, cultures
and databases.
 It is everything in an organization that
supports employees (human capital) in
their work.
 Organizational capital is owned by an
organization.

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 Classification of Intellectual Capital

● Human Capital
 As the knowledge, skills and experience
that employees take with them when
they leave.
 Human capital is an organization’s
combined human capability for solving
business problems.
 Human capital is inherent in people and
cannot be owned by organizations.

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 Classification of Intellectual Capital

● Relational Capital
 All resources linked to the external
relationships of the firm – with
customers, suppliers or partners in
research and development.
 It includes the connections that people
outside the organization have with it,
their loyalty, the market share, the level
of back orders, and similar issues.

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 Characteristics of Intellectual Capital

1. Intellectual assets are non rival assets.

2. Human Capital and Relational Capital cannot be
owned, but have to be shared with employees and
suppliers and customers.
3. Organizational capital is an intangible asset that
can be owned and controlled by managers.
4. Human, Structural and Relational Capital often
work together in judicious combinations to give
rise to core competencies that assume strategic
significance.

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 Value Creating Logic
Knowing how to use and develop resources over time to create
shareholder value is a central management responsibility.

The Value The Value

Chain Shop

The Value
Network

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 Value Creating Logic
1. The Value Chain
Companies that operate a series of input-process output activities and seek to
build sustainable competitive advantage primarily through their effective use of
monetary and physical resources. Value is created by transforming inputs into
Products.

2. The Value Shop

It produces solutions, using human capital to creatively solve unique problems.
People and the methods they use are the basis for a value shop’s competitive
Advantage.

3. The Value Network

Value networks bring individuals or organizations together and help them
transact business with each other.
The basis for value creation lies in connecting people or organizations.

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 Resource Distinction Tree
An RDT is a structure that in a step by step way breaks
down overarching resources into constituent resources
until a suitable level of granularity is achieved.

All Resources

Traditional Resources Intellectual Capital Resources

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 Why should Intellectual Capital be measured?

• A review of over 700 papers that studied Intellectual Capital

measurement related issues found five generic reasons as the
purpose of measuring Intellectual Capital (Marr et al 2003):

1. To help organizations formulate their strategy

2. To evaluate strategy execution
3. To assist in the firm’s diversification and expansion decisions
4. For use as a basis for management compensation
5. To communicate with external shareholders

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 Intellectual Capital Model
KPMG’s Vision
We will be the recognized global leader of professional service
firms by delivering innovative advisory services to our clients on
a global basis and generating superior financial results.

KPMG’s Objectives
Are to provide consistent, high quality services to multinational,
regional and local clients and to enhance the product offering in
certain previously under-serviced markets. The benefits for our
clients include being able to draw upon the best resources
available.

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 First Model
Title: Partner – Enabling Technology
Weighted Resource Distinction Tree

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 Action Table for quality and quantity

Quality Judgment

Green Yellow / Red

Quantity
Judgment

 Building  Hardware

 Image  Servers
Green
 Service Providers  Organization Structure

 Education  Know-How

 Cash

Orange/ Yellow  Experience

 Network

 Intellectual Property
Red  Clients  Innovation
 Consultants

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Normalized Transformation Matrix (ICN)

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 Second Model
Title: Senior Functional Manager – Advisory
Weighted Resource Distinction Tree

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 Action Table for quality and quantity
Quality Judgment

Green Yellow / Red

Quantity
Judgment

 Building

 IT
Green  Customers
 Reputation

 Partners

 Network
 Skills  Culture
Orange/ Yellow  Process
 Experience  Attitude
 Suppliers

Red  Know-How  Cash

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Normalized Transformation Matrix (ICN)

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 Third Model
Title: Recruitment Manager – HR Advisory
Weighted Resource Distinction Tree

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 Action Table for quality and quantity
Quality Judgment

Green Yellow / Red

Quantity
Judgment
 IT Facilities
 Office Facilities
 Org. Structure
Green  Image
 Owners
 Customer
 Capabilities

 Cash

 Network
Orange/ Yellow  Personal Networks
 Policies

 Community

 Know-How
Red
 Experience

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Normalized Transformation Matrix (ICN)

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 Consolidated Model
Consolidated Weighted Resource Distinction Tree

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 Action Table for quality and quantity
Quality Judgment

Green Yellow / Red

Quantity Judgment

 Building

 Office Facilities  IT Facilities

Green  Image  Networking system

 Suppliers  Capabilities

 Clients

 Cash

 Organization structure
Orange/ Yellow  Process
 Culture

 Attitude

 Know-How
Red  Consultants  Innovation
 Experience

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Consolidated Normalized Transformation Matrix (ICN)

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(NICN) Normalized and Cleaned transformation Matrix

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 The Pictorial Representation

                                   
Monetary
Relational
Physical Resources Resource Organizational Resources
Resources
Human Resources ∑
s
   

Physical
Resources
2.70
0.00 1.10 1.60 0.00 0.00
Monetary
Resources 1.00 0.00 0.70 1.00 5.50 8.20

Org. Resources 13.60

0.00 1.50 7.60 2.70 1.80

Relational
Resource
23.40

0.00 4.50 6.30 4.00 8.60

Human Resources 32.20

0.00 6.30 10.60 10.10 5.20

              80.10

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 The Pictorial Representation

Human
Resources
Physical
Resources

Monetary
Resources

Organizational

Relational Resources
Resources

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 Critical Review

 For KPMG, physical and monetary resources will not be the primary
basis for business success. As KPMG depends on providing advisory
services and producing solutions, using human capital to creatively
solve unique problems.

 Intellectual Capital resources and the organization's ability make use

of these resources in the most effective way to achieve its strategic
intent of becoming a more volume based business is the key to success.

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 Critical Review

 Consultants and the techniques they use are the basis for the
organization’s competitive advantage. Value creation comes from a
firm’s ability to continuously reconfigure its resources to address
problems that are qualitatively and significantly new. The shop logic
has an inherent management focus on effectiveness.

 As Shown in the consolidated Weighted RDT, all managers allocate

the highest percentage of the resources to the human resources (the
knowledge, skills and experience that the employees have ) and the
relational resources (all those relations the organization has with
entities outside the organization that influence the organization's
ability to create value).

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Thank You

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