Intellectual Capital: Meaning and 03 Components of Intellectual Capital

Intellectual Capital: Meaning and 03 Components of Intellectual Capital

Intellectual capital is considered one of the most prestigious assets an organization can hold. It is the knowledge of the organization that is usually used for the purpose of money-making or any other useful purpose that requires information or knowledge in order to achieve a competitive advantage for the business.

Intellectual capital is an asset of the organization as it is used as an informational resource when making profits, obtaining new customers to the business, designing, creating, or changing products, or improving business activities.

Intellectual capital can help the business activities by providing training for employees, develop products and production processes, goodwill building, etc. It consists of intellectual property, human capital, patents, copyrights, and any other resources that provide information to achieve maximum profitability and market share.

It is difficult to measure these factors such as goodwill, patents, and copyrights in a monitory value and considered as intangible assets. Due to that reason, these factors cannot be recognized in the organization’s accounts.

Components of Intellectual Capital

There are three main components that can be identified in intellectual capital.

01. Human Capital

Human capital includes the education measures, skills, and other production factors that can contribute to the improvement of the human resources of the organization. It consists of employees, their knowledge and skills, training and development, the relationship between the organization and its employees as well as employee satisfaction about the organization. This can be measured easily through the employee turnover rate. If the organization has a low employee turnover rate, there is a high chance that the organization has a high level of intellectual capital.

Work culture, work ethics, employee training, and development programs, management, and leadership skills, professional competencies are few examples of human capital in business organizations.

02. Relational Capital

Relational capital consists of all the valuable relationships the organization is maintaining with its stakeholders. It includes the relationships with the employees of the business, investors, partners, external entities, and suppliers of the organization.

It is important for the business to maintain a positive and win-win relationship with all the related parties for a smooth production process as well as to maintain a smooth supply chain management system. Feedback from all these parties should be obtained and continuous improvement and development should be achieved based on the feedback.

It also includes the brand names, brand equity, and the reputation of the business. The value of the brand determined based on the customer perception about the products or services under the brand holds major importance in the success of the organization.

Employee engagement and satisfaction, customer satisfaction, positive contracts with suppliers and service providers, investor engagement, community support, and engagement are few examples of relational capital.

03. Structural Capital

Structural capital is the organizational processes, policies, culture, vision, mission, values, strategies, databases, etc. that create a contribution to the capital of the organization. If the business organization has a positive culture, strategies, and values, it helps the production process and helps to achieve a competitive advantage in the target market. Apart from that, the engaged and realistic vision, mission, and values of the organization help the business activities to be aligned with the organization’s expectations and to drive the activities to achieve success.

Vision, mission, values, goals and objectives, organizational attitude towards employee development, and best practices are few examples of structured capital of an organization.

Measurement of Intellectual Capital

Measurement of intellectual capital in financial terms is difficult due to the intangible nature of the assets. Only goodwill, know-how, patents, and copyrights, etc are recognized in the business accounts only if they are measurable by the business. However, these non-financial factors are extremely important for the business organizations as it plays a major role in the success of the organization.

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