But it is not all circles. Karl Erik Sveiby introduced the first classification of intangible assets in the late 1980s while working as a consultant for the KONRAD group of Sweden. Sveiby developed the invisible balance sheet, which he uses to explain that an organization's tangible and financial assets reflected in the balance sheet are sustained and supported by intangible assets. These intangible assets, as Sveiby prefers to call them, comprise internal structure, external structure, and competency. In essence, the internal and external structures correspond to structural and customer capital, while competency corresponds to human capital. However, a closer look at Sveiby's model shows distinctions in his model that are not addressed by the other three circle models.
Though Sveiby defines individual competency as the collective skills, experience, education, and social skills of all the employees in an organization, he makes a distinction between "professional" and "support" employees. Only the former type of employees contribute to the organization's individual competency capital, while the latter are part of the internal structure. He explains that professional employees plan, produce, or process new products and solutions, so that their level of competency represents the collective organizational knowledge and expertise. Support employees, however, are those who perform general management administration, accounting, personnel services, and other activities that relate to supporting the organization's operations. Other models in which human capital encompasses the knowledge and expertise of all employees do not draw the distinction between employees' knowledge. Still, the distinction may be important, as Sveiby shows, to measure variables in the performance of both the professional and the support staff (see also about investment).
Further, Sveiby fits different types of IP under different forms of IC. He includes patents as part of the internal structure, along with concepts, models, information technology (IT) and administrative systems, routines, internal networks, and culture. Internal structure is owned by the organization, even though it has been created and updated by the support staff. In Sveiby's classification, patents are part of the internal structure, since they enable an organization to use and commercialize a particular technology, while trademarks are included as part of the external structure, since they are used to identify the source of a product or service to customers and build goodwill.
While the classification of trademarks as part of the external structure makes sense, grouping patents in the internal structure limits their use to an enabling technology. There is little doubt that with exponential growth in technology licensing, patent and know-how or trade secrets are used to build networks and alliances with external partners including suppliers and competitors. This means that patents should be seen as part of both the external as well as internal structures. The importance of grouping patents as part of the external structure cannot be overstressed because it directs the attention of management to maximize their exploitation in related markets through licensing and cross-licensing, which may be adversely affected if only seen as a technology for internal use.
Copyrights are not mentioned by Sveiby; however, using the same analogy, it seems plausible to suggest that copyrighted works that enable production, like software products, are part of the internal structure, while those used in advertising and promoting the corporate image are part of the external structure. Sveiby's classification scheme is one of the few models that recognizes and categorizes IP in the IC model. Other models hardly pay any attention to IP, thereby reducing it to merely a legal instrument. In that respect, Sveiby's system provides a more comprehensive view of IC.
Sveiby applies insightful analysis into the external structure by distinguishing between image-enhancing customers and other customers. Image-enhancing customers are leaders in their industries. Their good reputation rubs off on the organization. By endorsing the organization's products and indirectly training its professional employees, these customers bring a valuable stream of intangible revenue. Although image-enhancing customers are probably limited to the service sector, the idea of intangible revenue applies to all industries.
No matter which of the models you adopt to define intellectual capital, the differences will be minor. All models stress that the most important feature of the IC model is to understand how value is created. The interaction and transformation of IC from one form to another, or from one circle to another, creates value and enables an organization to extract maximum value from its IC. That's where the "pyramid" comes into play.