Intellectual Capital

Topics: Capital, Capital accumulation, Knowledge management Pages: 27 (8980 words) Published: October 6, 2006
1.1. Definition of intellectual capital and a brief history of IC management

Before someone can measure something, he/she has to know what to count. So how should intellectual capital be defined? A universally accepted definition is the first step toward standardization, but still it is hard to find the best one for "intellectual capital". In this section I'll define intellectual capital and study the history of its development.

Intellectual capital is knowledge that can be exploited for money-making or other useful purpose. The term combines the idea of intellect with the economic idea of capital, the saving of benefits to be invested in producing more goods and services. Intellectual capital includes the skills and knowledge a company has developed about how to make its goods or services; individual employees or groups of employees whose knowledge is deemed critical to a company's continued success; and its aggregation of documents about processes, customers, research results, and other information of value to a competitor that is not public knowledge. [22]

According the article of Andrew Brown and others "Managing Intellectual Capital", intellectual capital not only includes what are commonly known as legally enforceable intellectual property rights (e.g., patents, trademarks, copyrights) but also all tangible and intangible aspects of intellectual information that a company has developed and accumulated over the years. Most of the resources propose such a formula for identifying the value of IC: •The value of a company's IC assets is the difference between the company's book value and market value.

Illustration 1 illustrates an IC pyramid, which shows that intellectual capital comprises not only legally protected rights but the firm's tangible and intangible assets. It is crucial that a company's information protection practices be tailored to address the risks associated with a global marketplace, rapid advancements in technology and telecommunications, and business relationships including outsourcing.

Tangible assets are assets that may be physically or electronically conveyed in or out of a company. This includes all information resources such as databases and business records, as well as documented procedures that embody the knowledge, skills and experiences of a company's former and current employees. Since the information revolution of the 1990s, firms have been generating and communicating vast amounts of data at an exponential rate each year. This poses significant challenges for firms seeking to manage the internal and external communication of information to appropriate stakeholders in a manner that protects the firm's overall IC. [3]

Intangible assets are the goodwill and relationships between a company and its customer/suppliers; the innovative ideas that ensure the viability of a company, and; the company's human capital. Although intangible assets have no physical form, they are as valuable as the legally enforceable IP rights and tangible assets. But protecting the intangible assets is more difficult and is highly dependent on the firm's human assets. Success in the 21st century business environment requires significant emphasis on managing intangible assets as strategic tools. [1, 2, 6]

The Conceptual Thinkers
Trying to think backwards of the roots of defining IC, Patric H. Sullivan in his article talks about the evolution of intellectual capital management as a discipline...

References: 2. Granof H. Michael. Financial Accounting Principles and Issues. New Jersey: Prentice Hall Inc., 1997. 463-465 p.
3. Wood Mark. Reuters Glossary of International Financial and Economics Terms. UK: Longman, 1994. 68p.
Internet sources:
4. Al-Ali Nermien. Comprehensive Intellectual Capital Management. New York: John Wiley & Sons, 2002. Internet Access through:
5. Bernhut Stephen. Measuring the Value of Intellectual Capital. Business Journal, 2001
Internet Access through: EBSCOhost
10. Koenig Michael. The Resurgence of Intellectual Capital. Long Island: Information Today, 2000. Internet Access through:
11. Mouritsen J., Larsen H.T., Bukh P.N., Johansen M.R
13. Sullivan H. Patrick. A Brief History of the ISM Movement. Wiley: Patrick H. Sullivan, 2000. 238-244 p. Internet Access through:
14. Šaponja Dmitrovi´c Ljiljana, Šijan Goran
Enterprise of the Future. Serbia and Montenergo, 2003. Internet Access through:
15. The management and measurement of Intellectual Capital
17. Zambon S. Accounting, Audit, and Financial Analysis in the New Economy. University of Ferrara: First Report, 2002. Internet Access through:
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