Business

intellectual capital

What is intellectual capital?

Intellectual capital is the value of a company’s employee knowledge, skills, business training, or any proprietary information that might provide a company with a competitive advantage.

Intellectual capital is considered an asset and can be broadly defined as the collection of all information resources a company has that can be used to drive profits, acquire new customers, create new products, or otherwise improve the business. It is the sum of employee expertise, organizational processes, and other intangible assets that contribute to the company’s bottom line.

Some subsets of intellectual capital include human capital, information capital, brand awareness, and teaching capital.

key takeaways

  • Intellectual capital refers to the intangible assets that contribute to a company’s profitability. These assets include employee expertise, organizational processes, and the sum of the knowledge contained within the organization.
  • There is no standard way to measure intellectual capital, and metrics vary from organization to organization.
  • Intellectual capital includes human capital, information capital, brand awareness and teaching capital.
  • Businesses can increase intellectual capital by hiring better employees, developing training programs for employees, and developing new patents.

Understanding Intellectual Capital

Intellectual capital is a business asset, although measuring it is a very subjective task. As an asset, it is not recorded on the balance sheet as “intellectual capital”; instead, it is included as much as possible in intellectual property (as part of the intangibles and goodwill on the balance sheet), which is itself Hard to measure.

Companies spend considerable time and resources developing management expertise and training employees in specific business areas to increase the “mental competency” of their businesses. Capital used to enhance intellectual capital provides companies with returns that, although difficult to quantify, can contribute to business value over many years.

Measuring intellectual capital

There are many ways to measure intellectual capital, but there is no uniform standard in the industry. For example, the Balanced Scorecard is an industry performance indicator that measures four perspectives of employees as part of its efforts to quantify intellectual capital. These perspectives are financial, customer, internal process and organizational capabilities.

On the other hand, Scandia Denmark sees the transformation of human capital into structural capital as the mission of intellectual capital. The company designs house-like structures that measure intellectual capital with finance as the roof, customer at the center, process at the wall, people at the center, and regeneration and development at the center.

Due to the ambiguous nature and defining characteristics of intellectual capital, it is also known as intangible assets and environment.

Types of Intellectual Capital

Intellectual capital is generally divided into three categories: human capital, relational capital and structural capital.

Human capital includes all knowledge and experience of employees within an organization. It includes their education, life experience and work experience. It can be increased by providing training.

Relationship capital encompasses all the relationships an organization has, including its employees, suppliers, customers, shareholders, etc.

Structural capital refers to the core belief system of an organization, such as mission statement, company policy, work culture, organizational structure, etc.

example of intellectual capital

Examples of intellectual capital include the knowledge accumulated over the years by workers on a production line in a factory, a specific way to market a product, a method to reduce downtime on a critical research project, or a mysterious secret recipe (eg, Coca-Cola soft drink). Companies can also enhance their intellectual capital by hiring qualified people and process experts who contribute to their bottom line.

For example, a mechanic graduates from technical school and starts working at an auto manufacturer. Their intellectual capital consists of what they learned in school. After a year on the job, their intellectual capital has increased due to the experience they have gained through their work and the specific application of their knowledge. Two years later, the mechanics participated in a training program focused on new technology and increased efficiency. The intellectual capital of the mechanics, as well as the company, increased further.

As technology and process improvements become more of a differentiator in modern companies, intellectual capital becomes an important factor for success in a competitive marketplace.

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