Exploring the Value Of Your Innovation Capital

Innovation Capital

Following on from my last post of “Place your future bets- invest in Innovation Capital” which outlined the significant contribution innovation capital plays in our economic growth, let me offer some further thoughts on its value to really capture and understand, so we can measure it within our organizations.

We have the three components; of physical capital, knowledge capital and human capital that are the innovation-related assets, these make-up Innovation Capital.

I have been arguing that innovation capital draws from the core of intellectual capital and its suggested (and broadly recognized) components of human, structural and relational capitals or social capital. I have previously discussed this converging up, as the ‘nesting effect’

Innovation capital needs assessing and measuring so we can understand the relationship between this innovation capitals (and its present and future potential) and organization performance. We need to know the innovation capital ‘stock’.

Why, well ‘stock’ can be ‘static’ and we need to make this more ‘dynamic’ so innovation can ‘flow’ from this constant renewing of our capitals and be transformed into new value.

Let me explain the innovation capital stock in (my) five parts

• It is a bundle of the firm’s resources and assets that renders complementary services in the process of new knowledge (innovation) creation and commercialization
• Innovation capital as renewal capabilities of our organizations in the form of producing intellectual properties that offer value and extracting from our intangible assets
• Innovation capital possesses attributes that make it a ‘strategic’ asset with the key lies in specifying the nature and application of these assets in relation to the new knowledge ‘flowing’ into the organization, for generating and commercializing concepts and ideas, into new forms of innovation
• The innovation capital is made up of the ‘dynamic interactions’ between the intangibles employed and ongoing development of these intangible assets.
• It is the ‘effective use’ of all the different kinds of intangibles that contribute the activity into innovation capital.

For me it is these tangible and many intangible assets that fire innovation, they make innovation combustible, to ‘spark’ new value creation.

Innovation will continue to struggle if we don’t understand its capital make-up.

Intellectual CapitalIf we don’t understand where the innovation value resides, we will certainly struggle to continue to build innovation’s position in the organization. Today innovation is still regarded as ‘expendable’, sacrificed on the altar of short-termism.

This creates a growing uncertainty, often reducing innovation down as that no real ‘sense of urgency’ and becomes ‘contained’ in discrete projects, failing to offer that real, substantial, ongoing value for the enterprise.

We simply don’t ‘unlock’ the real value of innovation. If we lack the understanding and abilities to build this sustaining operational capacity for innovation we have ongoing problems.

There is the need as its longer term goal, to be simply fully embedded inside the organization that it ‘resides’ and simply becomes indistinguishable, it becomes the operating core, constantly aligned to the strategic needs and goals. Innovation’s benefits must be outstanding and well understood.

Innovation will remain tentative, always stuttering along, lacking this absolutely organization innovation rhythm if it is not fully understood in where it generates it capital from and what new capital and stock it provides.

Actually most of our innovation capital is learning capital.

grow through learningThe more we strengthen our knowledge and value our people, the more we can generate new knowledge, build greater narratives, deepen discussions, make better connections and build our interactions out across growing communities.

The more we discover, the more knowledge we gain does leads up to determine a potentially better decision-making and value creating potential.

This should, in theory, give greater confidence, both internally and externally, that our invested financial capital is in ‘good hands’.

The power lies in the linkages we can forge, in acquisition, in assimilation and then into eventual transformation, that allows known knowledge to become new wealth-generating innovation.

Our learning capital needs to emerge and dominate future discussions in improving its quality and value contribution. We need to increase incentives for organizations and their people to learn new things or update their existing knowledge.

We need to learn how to articulate knowledge in its acquisition, assimilation and transformation and that comes back to understanding absorptive capacity.

Managing organizational learning and innovation, more ICT is needed.

ICT InfrastructureTo successfully manage innovation capital and understand the make-up of the intellectual assets, the new main role of ICT is pulling together Web 2.0/3.0, collaborative technologies, social networking tools, wikis, internal blogging and knowledge capture, so as to help people share this growing body of knowledge through common platforms and electronic storage.

As our social networks expand they become the vital source for intellectual capital and innovation understanding. These relationships and networks need to be fostered, constantly measured in their value and contribution, structured in ways to communicate and interpret outcomes for ‘directing’ future value creation.

The whole promising ‘wave’ of collective intelligence, social networking and building real useful communities of knowledge is a real challenge today to pull together. It is becoming a crucial factor and investing in the physical capital this needs, does allow for people to share knowledge through common platforms and strengthen the knowledge, with the human capital that innovation requires, to drive real growth.

For instance, EU investments in ICT’s are due to increase by about 25% under Horizon 2020 compared to FP7. This EU investment will support the whole chain from basic research to innovation that can deliver new business breakthroughs, often on the basis of emerging technologies.

We also need to recognize the work-to-be-done, not work already done!

Work to be done is the need for our future growth and well-being to be derived through innovation activities. These so much made up of intangible parts will provide the new wealth of organizations in the knowledge sharing economy of today and the near future.

We need new forms of evaluation to measure the real asset wealth of the organization to understand the points of intensity, their connected dynamics and what is required to reconfigure the changing capabilities and capacities needed to grow in the future. There is a lot of work to be done out there.

Shifting our investments into today’s more valued capital- Innovation

It is how much we are able to adapt to fast moving changes will determine our success. It is the combination of all the sum of our capitals and knowing what factors and assets contribute into making our innovation capital will determine the ‘health’ of our future.

I think it is essential going forward that we need to significantly increase our innovation capital focus, so it can be fully unlocked, so as to release the true dynamics within the system and structures of our organizations to realize innovation’s potential.

For me, Innovation Capital and its make-up is where we need to focus, to understand and invest into. It drives our ability to create and sustain value creation.

7 thoughts on “Exploring the Value Of Your Innovation Capital

  1. Hi Paul – I like the ideas here. It does indeed seem hard for companies to build real communities of knowledge, but it’s inevitable that this must happen.

    We often hear debates as to whether ‘social’ tools generate an ROI. But frankly the discussion is pointless, it’s simply a new way of working which we need to adapt to. Companies need to open the channels for people to collaborate more, even if there is no immediate ROI to be measured. The benefit is in the possibilities of exchange.

    It’s a good question regarding how to know what your innovation capital is. Should we be measuring the input, or the output. Traditionally we just measure the output, and judge a company to be innovative based on what it produces in that category.

    P.S. The link to the Horizon 2020 EU page is broken, needs a colon after http.


    • Thanks Tim, entering into the building of Innovation capital initially seems hard but once people get ‘it’ it begins to build in focus and momentum. ROI is as you know the best measure of something new and unproven and causes one of the constant problems to stop good innovations seeing the light of day. There are other ways of measuring but the acceptance of change in the way to judge needs a shift. Its a hard path sometimes to travel when ROI is so entrenched.
      I like inputs, flow-through and outputs / outcomes- all have benefits to measure but building measures for measurement sake becomes the ‘creeping’ risk.

      Fixed the broken link ,thanks for pointing this out.


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