Measuring the Intellectual Capital of a University

Background
Intellectual capital has become a major driver for competitive advantage, not only for business but for universities and other service industries. Universities are major players in the knowledge producing and innovation systems. As knowledge producers, universities face the challenges of globalization, and the financial resources needed to maintain its competitive advantages.

In Indonesia, Universitas Siswa Bangsa Internasional (USBI) is a newly established university with perspectives. High competitive pressure from larger and older universities creates the need to seek competitive advantages. Intellectual capital of USBI can serve as one of them.

Definition of intellectual capital
The end of the 20th and the first decade of this century have characterized by the rapid development of a new area of economy, the knowledge economy. A phenomenon of intangible assets and intellectual capital has convincingly proved to be effective on the example many rapidly growing company, like Microsoft, Apple, etc.

Intangible asset is an accounting term, whereas intellectual capital was coined in the human resources literature. Both terms refer to the same intangible value in the employees’ heads regarding their working capability to perform task for an organization.
The term intellectual capital is used to cover all the intangible, or non-physical, assets and resources of an organization, including its process, innovation capacity, patents and the tacit knowledge of its members and their network of collaborators and contacts. So, intellectual capital has been defined as the combination of the human, structural and relational resources and activities that allows an organization to transform a bundle of material, financial, and human resources in a system capable of creating stakeholder value.

The elements of intellectual capital:

IC
Following are the descriptions for the different elements of the intellectual capital and the intangible assets that belong to such elements are listed.

Human capital
Human capital is refer to the set of all knowledge and routines carried within the minds of the members of the organization and includes skills/competencies, training and education, and experience and value characteristics of an organization’s employees.

HC
Structural capital
Structural capital refers to the knowledge embedded in organizational structures and processes, and includes patents, research and development, technology and systems.

SC
Relational capital
Relational capital comprises elements of an organization’s customer relations: relationship with customers and suppliers, brand names, trademarks and reputations.

RC
Case studies in universities around the world
Intellectual capital management provide an efficient methodology to identify, measure, manage, and spread knowledge (intangibles) as a proper way to improve internal management and transparency at universities. Some interesting experiences are:

  • Observatory of European Universities
  • Intellectual capital reports in Austrian Universities

Observatory of European Universities (OEU). One of the aims of the OEU is to understand better the importance of managing intangibles in order to improve their level of quality and competitiveness. The overall objective is to provide universities with adequate tools for governance of their research activities.

Intellectual capital reports in Austrian Universities. Austrian public universities are the first higher education institutions in the world that are obliged to produce and diffuse intellectual capital reports. The report aims at evaluating the intangible assets of each university.

Why measure the intellectual capital of USBI?
In a metaphorical comparison, the measurement of intellectual capital of a university resembles the examination of physical health of the physician employed in the hospital. It is (wrongly) assumed that all medical staff applies all the latest knowledge relating to their well-being. Similarly, the academic community, as well as the general public, assumes that the intellectual capital of a university must be reaching the highest level of excellence and does not require any kind of interference. The reality falsifies this statement. Today’s universities are slow to innovate.

The intellectual capital of USBI should be measure for the following reasons:

  • Intellectual property rights in USBI need to develop to a higher level. The current funding systems which use traditional resources like students’ fee and government grants are unable to meet these requirements. Whenever public funds are engaged, full access to information in an essential right of stakeholders.
  • USBI as knowledge producer is in the competitive market to attract funds. The main input and output of USBI is knowledge, which consists of intellectuals (intangibles).
  • A new comparable system can create a common language. This ‘common grounds’ would enable academics and business practitioners to develop mutually beneficial relationship.

Furthermore, measuring intellectual capital can help USBI to identify what does not work properly and to improve what works.

Recommendation
This paper strongly recommends USBI to start measuring, and later on managing and reporting of intellectual capital information to meet the global and competitive challenges ahead. Since the main input and output of universities are intangibles, the disclosure of intellectual capital facilitates accountability to stakeholders. It is suggested that by incorporating disclosure of intellectual capital elements into the annual reports, accountability and transparency to the stakeholders will be improved.

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