According to the IC model, to create value from managing IC, it is essential to transfer individual knowledge, or human capital, into organizational knowledge and practices (i.e., structural capital) that can then be passed on to customers in the form of new products and services. This in turn will expand the organization's customer base and market share and maximize the intangible revenue from these customers. The value creation/maximization cycle is the most important cycle for a business because it provides the key to achieving greater return on investment (R.OI). It follows that the key is not to be found in the three circles but in the triangle that denotes the value platform,7 illustrated in Exhibit 2.1 (see also about capital management ).

Value creation depends on transfer of HC to CC, CC to SC, HC to SC & vice versa

EXHIBIT 2.1 Value Creation Under the IC Model

The principle underlying the value platform is that value does not reside in the development of one form of IC but in the transfer of one form to another, and hence the relationship between them. This means the focus should not be on the management of the individual forms of IC but rather the interrelationship between them, since strengthening one strengthens the other and vice versa. One way of managing this interrelationship is that developed by Skandia (see also about capital management).

Leif Edvinsson, newly appointed as Skandia's director of ICM in the early 1990s, found the triangle insufficient to unlock the value of IC. Instead, Edvinsson developed a system he called "the Navigator," using a "house" depiction to explain the relationship between the various forms of IC as shown in Exhibit 2.2. Though based on the three circles classification model, Edvinsson developed a unique classification system for it. He broke structural capital into smaller components, customer and organizational capital, wherein organizational capital includes process and innova­tion capital.

With IC broken down into smaller parts, Skandia recognized that value is created by the flow between the parts.9 Based on this more detailed classification of IC, Skandia's Navigator showed that creation of value from IC depends on navigating the organizational strategy through five focuses-financial, human, process, renewal, and development. Under the Navigator, the human focus drives financial results and future growth, since it is the only one that enables interaction between the other focuses.

Human focus (i.e., employees) transforms customer input and knowledge into new processes and products through innovation, and sets in motion the renewal and development of the organization, which in turn leads to positive financial results. Employees also build and develop organizational capital by creating business processes and routines as well as intellectual assets that are owned by the organization. The Navigator model places most of the emphasis in the value creation cycle on human capital as the generator and facilitator of value. Although this model and the value platform principle make sense, they fail to provide more than general guidance to management on how IC can be managed for value creation.

RENEWAL & DEVELOPMENT FOCUS

EXHIBIT 2.2 The Skandia Navigator

Andriessen10 challenged the IC model classification and its underlying premise about the role of IC in value creation. Instead, Andriessen applies the core competency theory advanced by Pra-halad and Hamel11 to the IC concept to explain that breaking IC into its component parts in the way suggested by the IC models ignores the fact that the value of an organization's IC lies in its unique grouping of the various forms of IC under a single core competency.