HOW VALUE IS CREATED THROUGH INTELLECTUAL CAPITAL
It is equally useful to examine the transformation processes by which these assets are converted to value. Consider first a hypothetical example of how important a seemingly mundane intellectual asset such as validated test procedures can be. Professor Stern, who teaches chemistry at a small college in Delaware, has synthesized and patented a new molecule, which is of a class that has previously shown biological activity as an insecticide. However, he has no clue as to how to demonstrate its efficacy or how to test for possible safety problems.
On the other hand, a firm that develops and markets pesticides, such as Acme Chemical, has been testing new chemical entities for biological activity for decades. It would be straightforward for them to test this substance on a spectrum of insect species and also to screen it for key environmental properties such as biodegradability and fish and avian toxicity. Acme scientists would be able not only to quickly quantify each property but also to place the results in the context of hundreds of other experimental and commercial materials! Their database and methods, which took decades to develop, now confer a huge advantage over any rival that might be starting from scratch. It would behoove Stern to make a deal with Acme rather than to
form his own company to commercialize this material.
In effect, Acme has invested in a transformation process for converting a new chemical entity into a product—in this case a pesticide. When combined with Stern’s property, that process has an opportunity to create value.