It used to be that a corporation's capital consisted of tangible assets such as buildings, machines, and finished goods. But in the information economy, value has shifted rapidly from tangible to intangible assets, such as management skills and customer loyalty. But how do you measure intangible assets?

Karl Erik Sveiby began trying to answer that as a magazine publisher in Sweden and went to become Scandinavia's leading authority on knowledge based businesses. In his latest, book, The New Organizational Wealth, he offers insights into valuing and managing intangible assets.

Noting that Microsoft Corporation, the world's largest software firm, once traded at an average share price of $79 at a time when its book value was $7, Sveiby asks: "What is it about Microsoft that makes it worth 10 times the value of its recorded assets? What is the nature of that additional value that is perceived by the market but not recorded by the company?"

Sveiby's answer is intangible assets, which he defines as employee competence, internal structures (systems, patents, etc.), and external structures (customer and supplier relationships and the organization's image). Because of these factors, it follows that owners hold a kind of intangible equity in the company, in addition to tangible assets such as cash and accounts receivable.

Since knowledge is a key intangible asset, the ability to transfer knowledge from one employee to another, or from outside sources to employees, is a key business capacity, in Sveiby's view. The greater the transfer method for transferring knowledge, the more overall employee competence improves. The best method for transferring knowledge, says Sveiby, is through direct experience with a subject rather simply listening to someone or reading about it.

Experience enables learning more than overt teaching because people acquire knowledge tacitly, by observation and listening in an unstructured environment. And, he adds people will more readily learn from an activity if they enjoy it.

Once the flow of information within an organization is managed properly, the competence of the organization increases, and the relations with customers improve. But Sveiby also points out that knowledge and information are not the same thing. Information has no value until it becomes integrated knowledge and there fore useful.