Knowledge valuation analysis

Thomas J. Housel (Naval Postgraduate School, Monterey, California, USA)
Sarah K. Nelson (Intellectual Capital Ventures, LLC, Chicago, Illinois, USA)

Journal of Intellectual Capital

ISSN: 1469-1930

Publication date: 1 December 2005

Abstract

Purpose

The purpose of this paper is to provide a review of an analytic methodology (knowledge valuation analysis, i.e. KVA), based on complexity and information theory, that is capable of quantifying value creation by corporate intellectual capital. It aims to use a real‐world case to demonstrate this methodology within a consulting context.

Design/methodology/approach

The fundamental assumptions and theoretical constructs underlying KVA are summarized. The history of the concept, a case application, limitations, and implications for the methodology are presented.

Findings

Although well‐known financial analytic tools were used to justify IT investment proposals, none provided a satisfying result because none offered an unambiguous way to tie IT performance to value creation. KVA provided a means to count the amount of corporate knowledge, in equivalent units, required to produce the outputs of client core processes. This enabled stakeholders to assign revenue streams to IT, develop IT ROIs, and decide with clarity where to invest.

Practical implications

When stakeholders can assign revenue streams to sub‐corporate processes, they have a new context for making IC investment decisions. “Cost centers” and decisions based on cost containment can be replaced. Concepts such as a knowledge market, the knowledge asset pricing model, k‐betas, and a sub‐corporate equities market can be developed and applied. Some of the limitations related to real options analysis can be resolved.

Originality/value

This paper introduces an approach to measuring corporate intellectual capital that solves some long‐standing IC valuation problems.

Keywords

Citation

Housel, T. and Nelson, S. (2005), "Knowledge valuation analysis", Journal of Intellectual Capital, Vol. 6 No. 4, pp. 544-557. https://doi.org/10.1108/14691930510628816

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Publisher

:

Emerald Group Publishing Limited

Copyright © 2005, Emerald Group Publishing Limited

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