Measuring and Managing Intangibles: The Scottish Intellectual Assets Centre

Introduction

The Intellectual Assets Centre is the operational arm of Scottish Intellectual Asset Management Limited. A public sector organisation developed as a joint subsidiary of the two development agencies of Scotland, Scottish Enterprise and Highlands and Islands Enterprise. The Centre is based in Glasgow and is sponsored by the Scottish Government and part-financed by the European Union. In one Centre it brings together a range of expertise to help organisations realise their potential through managing their intellectual assets. The Intellectual Assets Centre employs a highly professional team of 10 people, whose responsibilities reflect the company's commitment to the highest standards of efficiency, business effectiveness and their key strategic role in Scotland's economic future The Centre was established in 2003 to develop awareness of Intellectual Assets (IA) and to increase the level and effectiveness of IA management and exploitation amongst Scottish businesses, public sector and voluntary sector organisations. As part of its portfolio of activities the IA Centre undertakes structured programmes of interventions aimed at improving the management of IA by Small and Medium Sized Enterprises (SMEs) in Scotland. To achieve this, the IA Centre acts as a catalytic and evangelizing body that is setting out to develop a high profile as a Centre of Excellence in IA issues. It seeks to be seen as a resource that complements and adds value to the activities of public and private sector intermediaries who support businesses and economic development. The Centre has a key role in assisting in the development of public policy and the economic and innovation development framework in Scotland and acts in an advisory and consultative role in this regard. However, the Intellectual Assets Centre is itself an organisation that heavily relies on intangible assets. It has to manage and measure its own non-financial value drivers. This case study outlines how the Intellectual Assets Centre, in collaboration with the Advanced Performance Institute, visualised their strategy with all its intangible value drivers and identified Key Performance Questions™ and key performance indicators to better manage their intangibles going forward. The Intellectual Assets Centre applied the methodology of strategic performance management1 including VCMs, performance questions and indicator templates. The case study outlines each step of this process in detail, extracts the key learning points, and presents the final VCM and list of Key Performance Questions™ and key performance indicators.

Why Measure and Manage Performance?

The Intellectual Assets Centre is subject to standard reporting requirements to ensure that it is wholly accountable for the use of public funds. Its services, roles and functions are monitored and reviewed to ensure that they develop in line with both market needs and Scottish Government policy in this area. Performance indicators to measure the performance of the Centre relate directly to the stated objectives of the Centre's strategic plan. These focus on four key areas: • Increasing the awareness of IA within the corporate community in Scotland • Increasing IA management activity within that community • Increasing supplier / intermediary activity • Raising Scotland's international profile as a leading exponent in this field An early priority for the Centre was to develop a baseline position from which to measure increases in IA awareness and activity. A further priority was to be able to identify, measure and exploit its own intangible assets. The development of a performance management framework was a key element in demonstrating its development of intangible assets and allowed the Centre to understand whether its intangible assets are both captured and utilised to best effect.

What are Intangible Assets?

The growing importance of intangible assets is underpinned in theoretical terms by the resource-based view of strategy, which argues that the most valuable resources are those that provide a unique competitive advantage, supporting the organisation's core competencies. Intangible assets2 are non-tangible resources that are attributed to an organisation, support its competencies and thus contribute to delivery of value to its stakeholders. Intangibles are often split into human, relational and structural resources. Below we provide some examples of what each of these might include.

Human resources: all resources that are linked to people in organisations. They include the workforce's skill-sets, depth of expertise and breadth of experience; as well as their aptitudes, attitudes, flexibility, loyalty and motivation.

Relational resources: all relationships, including relationships between an organisation and outside organisations, groups and key individuals - customers, alliance partners, pressure groups, investors and so on. Both formal and informal relationships are crucial to the effective operation of modern, frequently global, supply chains. Brand image, corporate reputation and service / product reputation reflect the quality of such relationships.

Structural resources: all intangible resources an organisation 'owns'3, including its intellectual property (often protected by law), information and database content, processes and policies, and to a certain extent the leadership and management style, culture and values, practices and routines. The above outlined classification of 'intangible assets' highlights that these resources represent the critical success factors in most organisations, whether commercial or not-for-profit, and form the basis for capabilities and core competencies. However it is important to remember that their significance as value drivers is context-dependent and will change over time, and in conjunction with the tangible resources with which they interact. In order to identify which intangibles matter the most it is therefore important to understand and clarify the strategy.

Clarifying and Mapping Strategy

The IA Centre wanted to clarify its strategy and identify the critical intangibles and the way they help to drive competencies and value creation. For that purpose they produced a Value Creation Map (VCM). A VCM is a visual representation of the organisational strategy and outlines the most important components within a strategy - namely stakeholder value proposition, core competencies, and key resources. Most importantly it places them in relationships with each other, identifying any cause-and-effect relationships between them. The fact that a VCM has no pre-prescribed perspectives and presumed business logic means that it can be applied to any organisation, be it a government agency or a multi-national corporation.

It is important to emphasise that no two VCMs should ever be the same since they represent the unique strategy of an organisation at a specific point in time. Someone looking at a VCM should be able to answer the following questions:• Who are the key stakeholders of this organisation and what value is the organisation delivering to them? Basically, why does this organisation exist and what are its roles and deliverables?• What are the core competencies of the organisation? Basically, what are the few vital things the organisation has to excel at?• What are the key resources that underlie the above core competencies? Fundamentally, what are the enablers in terms of monetary, physical, and intangible resources?The VCM for the IA Centre was designed based on the input of all staff, managers and directors of the Centre as well as a review of existing strategy and planning related documents. The key steps taken in designing the VCM for the IA Centre are outlined below (see also Figure 1):1. Scoping - firstly the project was scoped and planned. As part of this it was decided who to involve in the strategy development process. Based on the small size of the organisation and in order to get a broad and balanced view of the organisation it was decided to involve all employees in this process. 2. Data Collection - an experienced external interviewer conducted individual in-depth and semi-structured interviews with all members of staff. In addition observation data and document reviews (e.g. business plans, strategy reports, etc.) were collected and used to triangulate the interview data. 3. VCM Creation - the interview data was transcribed and coded in order to extract themes, constructs and insights to design a draft VCM. A feedback workshop was used to present the draft VCM back to all staff. Feedback was collected during the workshop which led to minor amendments of the map. Further feedback was collected in the weeks following the workshop which led to the final version of the VCM. In a subsequent meeting the new strategy captured in the VCM was agreed. For the first time the IA Centre had a visual representation of an agreed and clearly defined strategy outlining its value proposition, core competencies and intangible enablers of future performance. 4. Element Definitions - once the VCM had been created additional information was required for each of the elements on the map as to what they really meant. For that purpose

a one or two paragraph definition was created for each element to provide further detail. This was achieved in a series of meetings and workshops. A smaller 3-member project team was used to take this part forward and to draft the definitions in close collaboration with the other relevant members of staff. Feedback loops were used to ensure staff and directors were informed about the progress and were able to provide feedback and suggestions.

IA Centre's Value Creation Map

The final VCM that staff and managers of the IA Centre agreed on was signed off by their board in a board meeting in December 2006. Figure 2 outlines the final VCM for the IA Centre. Below we provide the definitions for each of the elements (using the terms created by the IA Centre at the time).

Stakeholder Value Proposition 1.1 The overall objective of the IA Centre is to help build a smart successful Scotland by helping Scottish organisations to maximise the economic potential of their intellectual assets.

Core Competencies2.1 One of their core competencies is raising awareness of the importance of Intangible Assets. This involves stimulating activities in the market as well as clear and effective communication.

2.2 Another core competence of the Centre is the effective relationship management and engagement with stakeholders. This goes hand in hand with the first core competence as only through leveraging their networks are they able to raise the appropriate awareness and make effective interventions.

Key Enablers or Value Drivers3.1 To provide one-to-many outputs - especially appropriate proactive quality media coverage, reports, and events - with the aim of furthering people's understanding and to build awareness.3.2 To provide information in particular on our website as well as face-to-face. This is about communicating, and helping our customers to understand the importance of IA. It includes, in particular, proactive, managed one-to-many communication, but also includes one-to-ones. 3.3 To identify our key stakeholders and get a handle on whom we should build relationships with. We need to prioritise stakeholders, both, on demand and supply side.

3.4 To develop processes of how to engage with our key stakeholders, from both, the supply and demand side. This is about having the right means to build the relationships and the appropriate terms of engagement. 3.5 To build a national and international reputation. A good reputation helps us to better communicate and build better relationships. An international reputation helps us to gain a national reputation - esp. on a political level. 3.6 To develop the appropriate advice and tools. The advice, tools and methodologies developed by the Centre are part of an innovation system, where constant review is required in order to meet the emerging and changing needs of Corporate Scotland. 3.7 The culture is one in which they are happy to be managed by objectives (team objectives, project objectives) and like to work together to deliver them. They are a supportive and evolving organisation in which people are passionate and share a vision and identify. 3.8 To continuously develop and share their knowledge. A great asset is their fusion of perspectives on the area of IA which need to be shared and brought into one cohesive body of knowledge. It also includes discussing IA on an international stage and bringing new insights back. 3.9 To secure sustained funding for the organisation and ensure that it complies with the public sector regulatory framework and legislation.

Aligning Projects and Prioritising Initiatives

Once the strategy was defined and agreed, alignment and prioritisation of organisational initiatives and programmes needed to take place. To enable this process a heat map was created. A heat map is a colour coded VCM. Each strategic element on the VCM was colour coded using red, amber, yellow and green - indicating poor performance, significant performance problems, minor performance problems and good performance. This heat map was then used to guide prioritisation of corporate initiatives, projects, and programmes. In order to facilitate the process all existing corporate initiatives, projects and programmes were identified and mapped onto the VCM. This was a powerful process as it provided insights such as: • Some elements of the new strategy had few or no initiatives, projects or programmes linked to them - indicating that new initiatives would be needed in order to deliver on the strategy. • Some projects could not be mapped against any of the strategic elements on the strategic map - indicating that such projects would not contribute directly to the implementation of the new strategy. The implication of a mismatch between strategy and projects can be twofold - either the strategy has to be revised because important elements of the organisation are missing, or - which is more likely - a serious discussion needs to take place about the reasons for doing projects which are not aligned with the current strategy. • The balance of projects/initiatives was wrong. A few of the strategic elements had the majority of the projects linked to them, whereas others - often the red or amber ones - had few projects, initiatives or programmes linked to them. This triggered a discussion about readjusting the balance.

This process of identifying, mapping and prioritising initiatives, projects and programmes became the basis for the business planning going forward. The initial colour codes for the heat map were based on the interview data. In future, colour coding will be determined by carefully selected key performance indicators.

Designing Key Performance Questions™ and Key Performance  Indicators

The government sector in the United Kingdom is riddled with performance metrics and performance targets. However, one problem is a poor linkage to the strategies or priorities of individual organisations. In order to overcome this problem and design meaningful indicators the IA Centre started from the corporate VCM. However, instead of just brainstorming possible indicators for each element on the map, a vital step was introduced between the creation of the strategy and the design of performance indicators: the organisation designed Key Performance Questions (KPQs)™4. KPQs are questions managers and employees would like to have an answer to in relation to performance of each of the strategic elements on the VCM. Articulating key performance questions is a powerful process and ensures that any subsequent performance indicators will help to answer these questions and by default, should therefore be relevant and meaningful. A project team was set up within the IA Centre to take the design of KPQs™ forward. In close communication with both staff and managers, a set of KPQs™ was drafted. Once the questions were finalised, the same team facilitated the design of performance indicators to help answer the Key Performance Questions™. Key performance indicators were designed to answer the Key Performance Questions™ and were designed using an indicator design template. The template ensures that performance indicators are well defined and their relevance and limitations are understood. Figure 3 shows the generic indicator design template which was completed for each key performance indicator.

When designing indicators it was emphasised that it was about the generation of useful management information. This often requires experimentation and continuous refinement of the way information is collected and performance is measured. People were encouraged to identify new ways of collecting relevant information, drop indicators that were not providing meaningful information, and change the way performance was measured in order to provide better information. The Appendix shows a list of the KPIs for each of the KPQs.

Key Learning Points and Next Steps

The focus of the development of the performance management system was to introduce a better way of engaging staff and stakeholders with the performance management of the Centre. However, the engagement process was often difficult, due to time pressures on the Centre. This meant that performance was not discussed as frequently as it should have been. Also, developing a performance management approach that attempts to measure both the activity level and the impact of its actions is difficult in an environment where the nature of the activities required and the impacts expected are still emerging. Difficulties of engagement are common across highly operationally focused SMEs which often means they haven't got enough time to stop and check whether they are still moving into the right direction and whether they are focusing their attention and resources on the things that matter the most. Despite the difficulties of continuous engagement the performance management system has led to a number of important benefits for the IA Centre as a whole. The fact that the IA Centre has taken the time to develop their strategy and put in place a monitoring framework has been very beneficial to them. Most importantly it has allowed the Centre to achieve clarity about strategy with closely interconnected and mutually reinforcing objectives. This is rarely the case in SMEs. The strategic clarity allowed the Centre's employees and managers to focus on what actually matters the most and better manage their intangible enablers of performance. This strategic focus has been instrumental in helping the IA Centre to position itself as a major promoter of intellectual asset management nationally in Scotland, the UK as well as internationally. Also the discipline of designing KPQs was instrumental in designing meaningful performance indicators. The process forced employees and managers to reflect on how to collect data with real information value instead of just counting anything that is easy to measure. The collection of the evidence for the performance management system has identified some key issues for the Centre's development. The Centre is still in the process of improving its management information by refining its indicators and by designing new ways of collecting information. One example is a complete redesign of their employee survey which is now based on the Key Performance Questions™. The collection of improved management information has also led to improved reporting of performance, both internally as well as to external stakeholders. Ensuring that any reporting is based on the VCM and guided by Key Performance Questions™ allows communication to be much clearer and relevant and allows a much easier communication of the aims and objectives of the IA Centre. The overall learning is that an understanding and clarity about strategy, including outcomes and intangible performance drivers, in conjunction with relevant and meaningful performance information, can play a key role in small and medium sized enterprises. However, this process of strategic performance management can not be seen as a one-off exercise. In order to generate future value, processes have to be put in place and time and efforts have to be spent to ensure that the information is used, is relevant and kept up to date. Both the strategy and the performance indicators have to be continuously refined and improved and the resulting management information has to be used to inform decision making and learning. Strategic Performance Management can be a powerful tool for SMEs, however, benefits will not be derived automatically and will only materialise if sufficient attention, time and resources are spent to make it work.

Bernard Marr is a globally regognized big data and analytics expert. He is a best-selling business author, keynote speaker and consultant in strategy, performance management, analytics, KPIs and big data. He helps companies to better manage, measure, report and analyse performance.
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