Intellectual Capital

Modern Day Currency of Knowledge-Based Enterprises

The wealthiest companies of modern society are undoubtedly shifting from capital-based enterprises to knowledge-based enterprises. Within these firms, intellectual capital are the collateralized assets replacing tangible fixed assets of the previous generation.

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In “The Firm of the Future: A Guide for Accountants, Lawyers, and Other Professional Services”, Ron Baker and Paul Dunn explain the concept of intellectual capital by breaking it down into three (3) categories, as follow:

  • Human Capital,
  • Structural Capital, and
  • Social Capital

HUMAN CAPITAL

A firm’s people, and the knowledge they possess, are the most important component of its intellectual capital. Given the difficult nature of knowledge worker’s duties and responsibilities in knowledge-based enterprises, people can no longer be treated as interchangeable parts in an assembly line (as was the status quo during the industrial revolution era).  Instead, employers must treat employees as “human capital investors”, or “volunteers” that have chosen to invest their knowledge, skill, and intellect with their firm.  This is an imperative distinction to make because it is employee’s “knowledge, skill, and intellect” that is being sold to customers (in other words, it is the “inventory” of the enterprise).

STRUCTURAL CAPITAL

The processes and systems of a firm serve to create a structure for the purpose of capturing the tacit knowledge that exists within its human capital and placing it where those who may need it in the future can reuse it.

Capturing the tacit knowledge that exists in the heads of your human capital and making it part of your firm’s structural capital will ensure that your firm knows what it knows, and can deploy it quicker and at a lower marginal cost.

It is intellectual capital (IC) that is the ultimate lever in the firm of the future, and firms have to begin to understand this fundamental economic truth of wealth creation.

Capturing the tacit knowledge of human capital and converting it into structural capital preserves this knowledge even if your human capital should depart.

SOCIAL CAPITAL

The network of people connected to the firm give rise to its social capital. A company’s social capital stems from relationships with the following constituents:

  • Customers,
  • Reputation & Brands,
  • Referral sources & networks,
  • Suppliers & Vendors,
  • Financiers (i.e., investors, shareholders, lenders, etc.), and
  • Joint Venture Partners & Alliances

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