A DEA‐based method to enhance intellectual capital management

Abstract In these days of ever increasing competitiveness and constantly evolving markets, the way a company leverages and measures its Intellectual Capital is crucial to its success and indeed to its survival. For investors, intangible assets represent indicators of the future performance, potentialities and, at the same time, weaknesses of a firm's business model. Although several methods for Intellectual Capital measurement and management exist, most of these methods are not able to identify and quantify the cause–effect link between Intellectual Capital management and business performance improvement. Following this lead, the paper suggests a methodology to overcome the lacks of the existing methods. A linear programming model (Data Envelopment Analysis (DEA)) and the choice of inputs and outputs, properly correlated to components of the Intellectual Capital, allow us to determine the relative efficiency of an enterprise in comparison to other enterprises operating in the same business sector. Moreover, the optimal value of efficiency, that highlights a Best Practice, indicates, in term of percentage, the quantity of productive factors that an enterprise should use to become efficient. This approach offers the advantage of allowing us to make a direct comparison between firms of the same industry in the perspective of improvement through benchmarking. The paper concludes with the application of the DEA model to the evaluation of the productivity of intangible assets, trying to establish if the investments in Intellectual Capital have indeed achieved an increase in business performance significant enough to justify the sustained financial expenditure. The results show that enterprises that invest more in intangible assets are not automatically the ones that get better business performance, but there is a cause–effect relation only when an enterprise manages its intangible assets optimally. Copyright © 2008 John Wiley & Sons, Ltd.