Concept and components

Intellectual capital is the set of most important intangible assets of companies, based on knowledge, meaning knowledge is the new agent that produces economic and organizational capital.

The main elements of the intellectual capital base can be expressed as follows:

Intellectual Capital = Human Capital + Market Economy Capital + Structural Capital

The first of the three modular components of intellectual capital is Human Capital, which comprises the competence, knowledge, values, and innovative potential of individuals within the organization.

The second can be called the Capital of the Market Economy, which includes a company’s distribution and marketing channels, its network of partners through strategic alliances, and the loyalty and ability to generate ideas from its customers and suppliers.

Structural Capital is the company’s innovative infrastructure, how Human Capital and Market Economy Capital are leveraged and ultimately converted into financial capital and profit. The structural capital is part of the intellectual capital of the company that includes the capacity for change, the leadership of the managers, learning and teamwork of the organization, its strategies, vision, culture, computer systems, databases, patents, and countless intangible issues that are the true sources of value potential and comparative advantage.

In the past, the assets that appear on balance sheets, their profit and loss reports, and other tools of industrial-age management civilization were the basic area that company managers focused on. With the advent of innovative forms of trading, new markets, and the speed at which they develop, we are forced to permanently innovate our trading strategies, tamp down hidden potential value, adopt an entrepreneurial attitude, and globalize our businesses in a world without physical borders. , modernize our infrastructure and computer and telecommunication systems, to survive and be at the competitive level that is currently required.

The total assets of companies can be compared to an iceberg. Of the existing 100%, only 10% can be viewed, which includes Financial Capital. The remaining 90% that is hidden is the Intellectual Capital of the Company.

intellectual capital of the companyFigure No. 1: Total Capital of the Company

2. Management Strategies and Exploitation of Intellectual Capital

The information superhighway revolution, satellite and wireless communication, and computer technologies have changed the rules of international markets and the structure of organizations, overcoming political barriers within and between companies, allowing small businesses and countries to compete with the largest, rewriting the rules of organizational management competition and achieve strategic restructuring, create entirely new industries, reinvent how an existing industry works, and set the de facto global business standard for a developing industry.

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Companies with the belief of maintaining long-term competitive advantages in their respective businesses mistakenly direct their intellectual and financial energies into building unworkable competitive fortresses. On the contrary, continuous innovation is the company’s mechanism by which they stay at the forefront of business in their respective areas. The global hyper-competition of this time has not respected any field, and constant innovations have become a competitive necessity.

The hidden potential value of companies is the untapped Intellectual Capital that every company possesses. Creative and successful efforts to appease and discover hidden potential value require real brainpower and the ability to study your own resources with enough ingenuity and strategic intuition to discover new sources of value that produce benefits for companies. The manager’s mission is to discover these potential sources, be they human resources, inefficient manufacturing processes, and even underused existing technology. Whether the hidden value lies inside or outside the organization, the bottom line is that there are many of them.

The speed with which organizations manage to produce new business fields is an essential tool that gives them added value so that they can be superior to their competitors. The first to exploit the business field discovered has more points in favor than his peers. The rewards are extraordinary, among which the following can be named:

  •  The ability to set de facto industry standards by being first to market with innovative offerings and the ability to stay ahead by incorporating technological advances into products and services faster than your competition.
  •  The ability to respond faster to market opportunities and radically reduce business risk when introducing new offerings, to source and secure the most attractive and strategic distribution channels.
  •  The change of mentality of the personnel, granting them the power of decision, breaks the intellectual, ideological, and organizational barriers of the companies, since the problems are solved faster, improving productivity and obtaining concrete results.

Organizational barriers in companies come in three different varieties: horizontal barriers, which very often prevent collaboration between different departments and specialists; vertical or hierarchical barriers, which separate high-level executives from freelancers; and the barriers of the company itself, which separate the entire company from the other key participants in this business system such as customers, suppliers, and competitors.

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Companies will find a better mechanism to conduct their business and internal policies, by solving the problem of horizontal and vertical barriers, using new technologies that provide the infrastructure and the possibility of releasing information and breaking down hierarchies, with the ability of the executive to manage and channel this aspect.

On the other hand, strategic alliances between companies have become a way of life for large and small organizations, and the improvement of negotiation and interrelationship policies with their customers and suppliers has allowed companies to eliminate external barriers.

By overcoming these types of barriers, positive results are reflected in all marketing, distribution, manufacturing, production, alliance strategies, and most importantly, in strategies to acquire and spread knowledge value throughout the organization.

The status quo that was maintained by large organizations like IBM and AT&A due to the size of their infrastructure, stability, and industry experience is no longer enough to sustain themselves in today’s business world, the predictive instability of global hyper-competition has completely devalued the business values ​​and virtues that existed. To survive in today’s times, you need a change mindset and an entrepreneurial attitude, with new ideas and unusual management and marketing policies. Under these types of conditions, what counts is the willingness and ability to accept risk, get real-life feedback, and the need for immediate action; in other words, the ability to be entrepreneurs.

The competitive circumstances of the modern world, clearly globalized, have allowed the development of a business mentality with an international vision, business is now carried out around the world, and the geographical distance is relative due to the advancement of the media. If managers want to capture new business opportunities, they must look to new untapped markets, which are generally not in the cloistered and economically stagnant fringes of their own regions, business today is conducted in an interrelated and integrated world.

One of the sources of wealth of our times is value-knowledge, the assets and intellectual capital of most companies are likely worth more than the material value recorded in the ledgers. Successful companies are those that constantly create, acquire, and transfer new knowledge, disseminate it throughout the organization, and incorporate it into their new technologies and products. Organizational learning and therefore the strengthening of intellectual capital, becomes essential, due to the difficulty, speed, and complexity of the hypercompetitive environment of this time.

The organizational learning model integrates three key elements:

  •  The creation of problems through innovation and creative thinking.
  •  problem-solving
  •  The transfer of knowledge from the individual to the organization.
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The resulting organizational learning depends on the functioning of these three key elements. Development and coordination is the function of the manager of the 21st century, so the execution of this process translates into profits, and also into its competitiveness.

The Skandia group, one of the world’s largest financial services companies, is the first company to tap its Intellectual Capital. In 1991 he hired Leif Edvinsson as the first Director of Intellectual Capital and later added Tove Husell as Controller of Intellectual Capital. It now has a team dedicated solely to the growth and development of Skandia’s Intellectual Capital base. This organization has published some articles such as “Skandia AFS: Balanced Annual Reporton Intellectual Capital”; “Visualizing Intellectual Capital in Skandia”, so much so that now the works of Skandia’s Intellectual Capital belong to Harward Business School.

We can name other companies like Microsoft, and Netscape with their de facto businesses. Dell Computers, Ikea (Sweden), with its innovative marketing policy. Honda, with the conviction that intellectual competition only shapes and improves the final product. Toyota is the pioneer of time-based competition. Andersen Consulting and its just-in-time knowledge transfer. CNN and its speed in collecting, processing, and selling its news intellectual capital. Bell Atlantic, Xerox, Toshiba, etc.

Several professional services firms already have Knowledge Management roles defined: McKinsey, Andersen Consulting, Ernst & Young, Price Waterhouse, AT Kearney, Hewlett Packard, and Buckman Laboratories among others. Although few firms have calculated the cost of knowledge management. Companies like Robert Buckman of Buckman Laboratories estimate that his firm spends 7% of its income on Knowledge Management, while McKinsey hopes to reach the goal of investing 10% of its income in the development and management of its intellectual capital. As Matthew J. Kiernan expresses in two words in his book “The eleven commandments of 21st century management”, “innovate or die!”.

Reference: Johan Roos. Intellectual capital: the intangible value of the company. Planet Group