What Is Intellectual Capital ? Importance Of Intellectual Capital

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After the industrial revolution, technology started to develop rapidly and it is still developing day by day. For this reason companies forced to modernize themselves to keep up the changing about time. Before 50 years, making investment to production factors which includes labor, capital and natural resources was enough to keep up the company stand. But today it is not enough, knowledge is the most important thing for every company. Therefore they need to knowledge more than production factors and the most important way to make values, keep their works without fall behind from their opponents is having knowledge. As a result of these changes, companies started to invest most of their money to intelluctal capital which means knowledge.

What Is The Intellectual Capital?

intellectual capital

The Emergence Of Intellectual Capital

While the middle of the 20th is named as industrial society, today because of developing of the technology, it is called knowledge society. The period which controlled by the companies that had big wealth is now over because of improving the importance of knowledge. Being wealthy is not enough to make companies successful alone. Today, the companies which use the knowledge in the rightest way making a huge difference at the market. WalMart, Microsoft and Toyota were not richer than Sears, IBM and General Motors yet they became huge companies because they had intellectual capital.

Definition of Intellectual Capital

John Kenneth Galbraith was the first one who use intellectual capital term in 1969. Altough there are lots of definition to explain intellectual capital, according to the most accepted definition intellectual capital is an intellectual material that can be used in order to create wealth. [2]

Today companies use three kind of capitals which includes financial, physical and intellectual. Physical capital includes factories, machines and etc. Financial capital includes investments, debts, credits, cash flows and etc. Intellectual capital means assets that is non-monetary and the added values of these assets.

If we can understand the meaning of intellectual capital correctly, we can realize how to use the knowledge to make added values. The Finn electronic company Nokia was like a giant at the market in the beginning of 21st. But today Apple and Samsung took over Nokia’s throne. The reason of this situation wasn’t nokia hadn’t as much financial power as Apple and Samsung, The reason was Apple and Samsung well managed the knowledge and intellectual capital better than Nokia. There are a lot of company that once they were huge and powerful but they couldn’t keep their places at the market and they become smaller.

One of the best examples for understanding intellectual capital is a company who had little place at the market and after that it developed something that may be sold too much just by using knowledge and ideas. This is a really good example for intellectual capital that was defined as ‘knowledge that can be transformed to value’[3] by Edvinsson. There is also a definition that ‘intellectual capital is non-monetary assets that belongs the companies.’ [4]

Intellectual property is abstract and dynamic concept. That’s why there aren’t any certain definition that is agreed by everyone for it.

Importance Of Intellectual Capital

Employees are potential success resources for companies. Intellectual capital and success of company are related very closely. Today all of the big companies which have big part of economy, employ the best talented people. Toyota, Microsoft and Wal-Mart spend at least 130 billion dollars just for education and this shows us better how intellectual capital is important for companies.

As we mentioned before, intellectual capital is the knowledge that have potential to become profit. This potential includes non-monetary resources like knowledge which was taken from educations that employees got, innovations that made by employees and creativity.

The Elements of Intellectual Capital

There are three elements that is accepted by everyone today for intellectual capital and these are customer capital, structural capital and human capital.

Human Capital

Although technology develops rapidly and automation takes place of human power, companies always need qualified, well educated and creative people. Especially in these days that is named knowledge age it is very important to have qualified employees. Everything that have potential to make value for business and make difference from their opponents by using their employees ideas, informations and talents generate the human capital.

There is a definition made by researchers who are from European universities, as per this dwhich is known as Meritum Project, ‘’ Human capital is knowledge, experiences and talents that is gone together with the employee who leave work’ [6]

In order to increase human capital, companies hire someone that qualified, well educated, creative and talented people. Also they educate their employees and make improvements to hold their qualified employees who make added values for business. For example a programmer can code a program that makes people live easier make big profit for developer. That shows how much important human capital is.

Structural Capital

Structural capital is the information that is kept in company. Database, business culture, documentation and systems are structural capital elements. The companies may have well educated, talented and high potential people but as long as they cant use these people for companies own good, it gives no benefits for intellectual capital.

The structural capital elements are as written below:

  • Patent
  • Copyright
  • Commercial Secrets
  • Logos
  • Design Rights

Infrastructure Assets;

  • Business Culture
  • Information Systems
  • Network Systems
  • Financial Relations
  • Management Philosophy

Customer Capital

Customer Capital which is known as Relational Capital by some management scientists is being compatible relations with all elements that make added values for company. These elements includes customers, investors and suppliers.

Customer loyalty is very important thing for all companies. Finding new customers is though and expensive, but keep customers that they already have is easier and cheaper. Also customers advertise free for companies by suggesting their products to people that they know. These advertisement is more effective than other advertisements which is made by their own resources.

Customer Capital elements are as written below:

  • Brands
  • Customers
  • Customer Loyalty
  • Company Names
  • Suppliers
  • Investors
  • License Agreements
  • Franchising

Making added values for companies is impossible without customer capital.

Does Intellectual Capital Is Measurable?

Intellectual Capital refers to non-monetary assets. That’s why it is hard to measure yet there are some methods that were developed. All methods can end up with different results so companies should choose the best method which is suited to them. The most common method to measure the intellectual capital is calculating the difference between the value of company at the market and the value as per accounting.

Other methods that can be used to measure intellectual capital are written below:

  • Market value / accounting value
  • Q rate of Tobin
  • Calculating the value of non-monetary assets.

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