Major reports misunderstand intangible capital and the linkage to innovation and economic growth

Intangible Capital (IC) is misunderstood by the federal government, universities, economists, think tanks in Washington, and other organizations such as The Conference Board. Here’s a new report by the Information Technology  and Innovation Foundation (ITIF) entitled “The Limits of the Knowledge-Based Capital (KBC) Framework” that is unaware of intangible capital frameworks such as described by SmarterCompanies .  

http://www.itif.org/publications/limits-knowledge-based-capital-framework

The federal government and other organizations have been studying how IC is linked to the GDP and to innovation. The ITIF report correctly cites the work, research and prolific publications of Carol A. Corrado of the Conference Board and Charles R. Hulten of the University of Maryland and the NBER. Unfortunately, the ITIF report makes the mistake of assuming that the only KBC framework that describes intangible capital is the one defined by Corrado, Hulten and Daniel Sichel (CHS). The report is unaware of the framework for IC described by SmarterCompanies and other frameworks that integrate IC with innovation.

The link between innovation and IC has been established and described  in the fourth generation of innovation management (4G) to emerge as best practice since 2000. Since 1900, there have been four generations of best practice. 4G has been described in Wiley’s Encyclopedia of Technology and Innovation Management in Chapter 21.  In 4G, innovation is driven by capabilities which are combinations of tangible and intangible capital. 4G capabilities are people with knowledge, tools that are developed and bought with tangible capital, technology and processes.    

With architectural rules, capabilities in 4G are structured into “stacks” of services, applications, products, platforms, components and technologies combined with knowledge and processes. “Stacks” are linked together to form projects, organizations, business models, and industry structures such as value chains.  In 4G, capabilities evolve into dominant designs that govern new markets.  4G has twelve principles and one is that innovation hubs that typically have more than 50 partners such as the Department of Energy (DOE) innovation hubs and the Apple hub for their iPhone family that coordinates service providers and third party supplier of applications are required to create new dominant designs.

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Comment by Mary Adams on January 23, 2015 at 2:54pm

Thanks Bill for taking on this subject.

It's unfortunate that the authors don't see the value in the CHS approach. This system has been so important because they are gathering all the available economic data about intangibles in one place. Indeed, how can the authors prove their contention that some intangibles are more important than others without good data?

Like the CHS approach, the Smarter-Companies classification takes a holistic view to capture all the key intangibles. In fact, some of the CHS economists see our classification as the organizational/strategic version of their approach.

In all these cases, we are trying to help people see and measure the drivers of innovation, growth, performance and value.  It's great to test the importance of individual elements. But it's wrong to dismiss the others as unimportant until we all have a lot more data...

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