2014 Intellectual Capital Report
The expansion of the knowledge industry, services sector, deregulation and the emergence of new information and communication technologies have brought to the fore the issue of how knowledge is created, disseminated, retained and used to obtain economic returns.
In Northern Ireland, this development is associated with a structural change from traditional industries to more new innovation-intensive activities, which rely heavily on intellectual capital. In fact these assets have become strategic factors for value creation for companies and as such are central to the economy’s growth and competiveness. The NI landscape is dominated by indigenous small and medium sized enterprises (SMEs). If innovation is to be a central driver of economic growth in NI, it is crucial for SMEs to utilise knowledge efficiently and exploit their intellectual capital.
The main objectives of this study are to gain an insight of the level of awareness amongst indigenous MATRIX industry-based Northern Irish businesses of their Intellectual Capital and examine the processes that may be employed to drive and support economic growth by exploiting intellectual capital and local innovation. Surveys were conducted with a number of
SMEs and Key Opinion Leaders (KOLs) in Northern Ireland.
The study has highlighted four noteworthy innovation and intellectual capital matters of particular relevance to SMEs.
- The majority of SMEs understand the generality of intellectual capital and particularly the vital element of human capital. Not all, however, understand how and what tools would be best to capture, manage and ultimately improve the exploitation of their intellectual capital, to contribute to the health and value of their business.
- SMEs understand the need to collaborate but mistrust it. There was a perception among some of the SMEs that collaboration with larger companies was more beneficial to the latter, with risks to the former in the possible loss of human capital, reputation and proprietary information.
- In other regions around the world, led in part by Germany, SMEs are starting to use Intellectual Capital Statements to provide readily accessible IC information. Such statements can be used to aid internal business decisions and for banks and investor decision-making. The latter has resulted in a reduction of the cost of borrowing and appropriate evaluations for German SMEs, by demonstrating lower risks, achieving lower interest rates and providing better access to loans and equity as a result. At an investment or sale event, having an IC Statement can make for a much easier due diligence process and lead to fairer evaluation.
- SMEs, particularly micro SMEs, because they are time and resource poor, and despite the efforts of programme suppliers, find the offered programmes in general to be less flexible and not as ‘end user’ friendly as they need or wish.
Geographical and sector spread of SMEs interviewed
The map shows the geographical and sector spread of the SMEs interviewed, with the number of employees. Whilst efforts were made to survey SMEs from as wide a geographical spread as possible, this was limited within the confines of the study.
For each SME, background information was obtained through a series of questions including the length of time of operation of the SME, the USPs of the SME, the keys to the success of the SME, the most important factor for competitive edge, the products/services of the SME, their life cycle, technology level and range, and the channels to market of the SME.
Responses to the survey
Intellectual Capital Road Map
A roadmap, as below, was developed from the results of the SME and KOL surveys, feedback from the MATRIX IA Panel and the analysis of the best practice models.
Recommendations are proposed, for SMEs, NI government, public sector organisations and publically-funded knowledge providers, which take into account the above matters. The recommendations have been developed from the responses received in the SME and KOL surveys and the analysis of the responses, together with evaluation of the best practice models and input from the MATRIX IC Panel.
An increased understanding, at a senior level, of the value of IC to an SME’s business enables a top-down push for employing IC tools to maximise the use of and value-extraction from the IC.
Introduce and promote SME IC Statements tailored for the NI market and encourage their use as a tangible item to complement SMEs’ balance sheets
Impetus for these actions needs to be driven by the SMEs but support for the necessary information and advice for the development of IC statements will need to come from the government and public sector organisations with support from other private sector bodies who are engaged with SMEs.
Encourage SMEs to carry out IC audits
Continue to develop and promote IC tools appropriate for SMEs, especially micro SMEs
A flexible approach to the delivery of future IC support
Expansion of the NIBUSINESSINFO website to cover new procedures and approaches to IC
Promote the need for SMEs to have internal IC procedures as part and parcel of their every day working lives.
NI government and public sector organisations and in particular Invest NI will have the primary responsibility for these actions, with support from SMEs and other private sector bodies who are engaged with SMEs.
Although collaboration can raise difficulties, it can also be of significant benefit to SMEs providing the means to acquire knowledge, skills etc. to grow their business and to import new ideas from other industries. Three areas need to be addressed in the development of a collaboration framework.
Coordinate and promote guidelines for SME collaboration
Develop and encourage the take up of collaboration agreements
Support development and improvement of SMEs collaboration skills
These actions are the responsibility of all stakeholders, including NI government, public sector organisations, publically-funded research and knowledge providers and SMEs.