6.9 Edvinsson's KM Model

6.9 Edvinsson’s KM Model of Intellectual Capital

          Leif Edvinsson of Skandia achieved notoriety in the field of Knowledge Management after being named the first CKO in 1991. He publicized his work within Skandia and later developed his thinking in a series of publications. The focus of Edvinsson’s interest is intellectual capital management and the valuation of knowledge assets. His core model is a scheme for organizing organization’s assets, which defines four major components of intellectual capital and their interactions for value creation.

          Edvinsson’s scheme, Intellectual Capital (IC) is composed of two major elements: human capital and structural capital.  According to Edvinsson’s view of IC, human capital refers to the value of knowledge, skills and experiences held by individual employees in a firm; structural capital consists of what Edvinsson and Malone (1999) refer to as the “embodiment, empowerment, and supportive infrastructure of human capital.” As such, it includes all the things that support human capital in an organization. And last, customer capital is the value of customer relationships.

          The dynamic aspect of this model relates to the creation of value, for which Edvinsson proposes there are two fundamental sources. The first are those innovations which are generated by the organization’s human resources into legally-protected intellectual assets, and the second the products and services which result from the commercialization of innovations.    

          Discussing the drawbacks of Edvinsson’s model, Mark W. McElroy (1999; 2000; 2002; 2003) (President, Macroinnovation Associates, LLC)   argue that despite the groundbreaking advances made by Edvinsson and his team at Skandia AFS since they started in the early ‘90s, their model fails to take into account a fourth major component of intangible value now commonly recognized on other fronts: social capital. Unlike the other forms of IC, social capital points to the value of relationships between people in firms, and between firms and other firms. Trust, reciprocity, shared values, networking, and norms are all things that, according to social capital theory, add value in a firm, or between firms, by speeding the transfer of information and the development of new knowledge. In a sense, what Edvinsson refers to as customer capital is merely a form of social capital by another name, albeit only between a company and its customers. But social capital can take other forms, the combination of which unquestionably adds value to a firm; is intangible; and clearly warrants a prominent place in the taxonomy of IC.