What do shareholders look at when they invest in your company’s shares? Is it the balance sheet or something that goes deeper than mere financial figures? If it were balance sheets that attracted the investors then Amazon.com would not be worth what it is. Wipro need not have been the share market "Goliath" that it is today.

The thing that drives shareholder expectations then is the value people put in the capability of a company to constantly deliver value in the future.

When one talks of "capability to deliver value," one means the ability of the employees, the efficiency of the systems and processes of the company and the relationships that it has built over the years with its dealers, vendors, and shareholders.

Another name for this capability is Intellectual Capital (IC), which comprises human capital (competence of employees), structural capital (brand value, intellectual property, and efficiency of systems and processes), and customer capital (relationships with customers, vendors, and dealers). The distinction between IC and knowledge management needs to be made here. The latter is primarily the harnessing of the former in order to create value, while human, structural, and customer capital is the form in which IC manifests itself.

While the IT industry is booming and its stocks are high, no one really knows how long the honeymoon will last. Sooner or later, there is bound to be a shakeout and then, the market will only allow those companies that have the capability to deliver this value to stay.

IC and IT

The current situation is that of the top 200 companies in the Internet 500 selected, by Inter@ctive Week (15 November 1999), money losers outnumbered profitable online enterprises by almost 2 to 1. Some of the Net’s best-known brands—Beyond.com, E*Trade Securities, eToys, Infoseek, Lycos, Prodigy, and Value America—have losses in the tens, if not hundreds, of millions of dollars.

More and more IT companies are realizing the value of their IC and are working at increasing its worth. Most dotcom executives, when given a choice, chose customers and revenue generated over profitability as their favourite measurements. Brand equity, customer base, and market share are all forms of structural and customer capital.