How much is your business worth? Its valuation will give you a good indication of the knowledge capital it possesses. Many publicly quoted firms have a market capitalisation that is a multiple of annual earnings – typically anywhere between ten and thirty times – some higher and some lower. It doesn’t require too much analysis to show that this is really a measure of the knowledge capital the firm possesses.
Take a new business in the biotech industry for example. A company of this type can attract very high valuations, for the simple reason that investors believe that its pipeline of new products will deliver significant profits. The products are simply the result of knowhow, and this knowhow attracts a high valuation. The actual hard assets such a business owns will be almost negligible compared with its perceived value.
It is no coincidence that all types of business are investing in technology which boost knowledge capital. The managers will almost certainly not think of it in this way, but this is the driver behind big data, analytics, business intelligence and many related technologies. Big data is especially attractive in this respect. Businesses are investing in the belief that the ever growing volume of data hides information that will enhance the skill they display in their markets. In reality it is the analytics which deliver the value, the actual ability to handle big data is just a data plumbing exercise.
Already we hear of businesses using big data analytics to spot selling opportunities, retain customers, enhance marketing activities, detect fraud, and a hundred other applications. The commodity that is desperately sought is knowledge, with the ultimate aim of driving increased sales, profits and business valuation.
As time progresses big data analytics will enhance new product development initiatives, help with production optimisation, anticipate market activity and even help with recruitment. The valuations of businesses that develop competence will inevitably rise, as profits increase and investors perceive increased knowledge assets.
The notion of knowledge capital is not new. What is new is the portfolio of technologies that can create new knowledge capital. Google is perhaps the finest example of this, but the opportunity is open to every business capable of exploiting the technologies with skill and imagination.
Knowledge capital is the only real capital – no one is really interested in the value of machinery, office equipment and other resources which simply act to facilitate the application of knowledge. Big data analytics used with diligence will inevitably mean big knowledge capital.