Intellectual Capital

Intellectual Capital: Explanation and concepts in detail.


Intellectual capital is one of the important areas for developing the competitive advantage of organizations. It includes the knowledge, expertise and the skills of the employees of the company which can be used for achievement of the goals. It is an asset for the organization, and include all the informational resources that can be used to conduct the operations. Thus, in short, it can include, intangible assets of the company, employee’s knowledge and expertise and the organizational process. In this assignment, our experts from Assignment Help UK will tell you everything about intellectual capital in detail.

There are several international institutes and bodies which have tried to define intellectual capital. The Organization for Economic Co-operation and Development indicates that the intellectual capital is the “economic value of various categories of intangible assets that an organization use for its progress.” It has some of the important characteristics which are:

  • Invisible- The aspect of intellectual capital is that it is invisible and therefore cannot be seen by the employees or the management.
  • Sustainability- One of the important features of intangible assets is that it helps in the future growth of the organization. Thus companies with quality human capital and information capital have a higher chance of continuing their operations for the long term.
  • Use of knowledge- One of the differentiating features of the intellectual capital is that it uses the knowledge of the employees and the technology to create growth for an organization.
Intellectual Capital
Intellectual Capital

Aspects of intellectual capital

Some of the important aspects of intellectual capital include the following:

Human capital- It a type of asset for the organization which is not provided on the balance sheet. It includes the economic value of the skills and the experience of the employees of an organization. Some of the human capital include loyalty, health, punctuality, the intelligence of the employees. The main idea is that all the employees are not equal, but the quality of this asset can be increased by investing in training, education, abilities, and experience of the employees. This capital is an important asset for an organization, as it can help to improve the profitability and productivity of the company. There in the globalized environment of the 21st century, several companies have been investing in the development of human capital.

Some of the experts also believe that human capital is important for the success of an organization. Their knowledge and skills can lead an organization towards innovations and success. These resources are managed by the human resource department of the company who handle various activities like, acquisition, recruiting, managing and influencing the employees towards better performance. The role of the human resource department has been increasing as the companies are becoming more complex, and have different levels of the hierarchy of employees.

Some of the experts also believe that there is a growing concern about the migration of the talent to the developed nations. The people with good quality education and skills often migrate to foreign countries, for better work positions and salaries. This trend is called as, “brain drain”.

One of the distinguishing features of this capital from the other capital is that these cannot be calculated accurately in monetary terms. It is calculated through the return on investment of the training and development programs of human capital. Like other assets, this capital also depreciates, if they are unable to keep up with the innovation and technologies.

Brand awareness

Brand equity is one of the important intellectual capital which is possessed by the companies due to its brand image. The awareness and likeness for a brand help to build the brand image of the organization. This is an important intellectual capital as it helps in the sale of the goods and services of the organization. A brand which is highly known has a higher chance of achieving sales targets than an organization with lesser-known brad. This is termed as an important capital by the modern financial experts and professionals.

One of the important aspects of brand equity is the differential effect. It creates a space in the minds of the target customers about the offering of the company. The development of the brand helps to create the difference. Another key factor why brand awareness is important intellectual capital is through the knowledge it provides to its customers. When the customers appreciate the differentiation, it helps to build an asset for the organization.

Information Capital- Informational capital is that capital, is linked with the sharing of information among the organization and its subsidiaries. It is an important concept which identifies the intrinsic value of the knowledge or the information as possessed by an organization. This capital enables the exchange of knowledge and information for the future success of the organization.

In companies, this capital is defined as the data or the information which has high value and can be used for making important decisions for the company. These data are often stored data storing systems or servers. And are accessed through the company information-sharing networks, internet systems, and database. This is a type of capital resource which is used by individuals and the companies. A simple example is that an individual can store his data related to monthly expenditure and compare them to get useful information about his expenditure trend. The effectiveness of this capital is dependent on the way the companies use them and integrate them with the information technology of the organization. Therefore the multinational companies which have an efficient information technology system will be able to use such capital to improve its competitive advantage.

The market for this capital is a commercial market, where the data and information are bought and sold. This market provides the information or data needed by the business organization to evaluate important information about the markets. There are a set of laws like the Data Protection Directive, the Data Protection Act of 1998, which is used to limit any inappropriate usage of data. These laws have been introduced to control the flow of information which may bring personal damage to any individual.

The concept of information capital is relatively new as companies are finding the importance of data and information for making vital decisions for the company. The most basic form of information market was established by Credit bureau organizations which were involved in exchanging personal information in the finance industry. However, over the years, there has been a great transformation in the information market. There has been higher use in the data aggregation systems which are based on electronic devices. These are easily accessed by individuals, organizations, government, and sectors. One of the famous information markets is Social Safe Ltd. This platform allows the individual to download the data from a variety of sources and utilize them for gaining information.

Instructional Capital

Instructional capital is another important form of intellectual capital which is generally used in the educational institutes for the development of the learning materials. It represents the knowledge of the trainers which can be invested to generate the revenue for the company. This capital is defined as the act to restrict, guide, or limit by the people or the equipment. Thus this resource can help an individual or an organization to refrain from doing what is not good or destructive.

This form of intellectual capital is generally used in the development of the curriculum in educational institutions or schools and colleges.

Components of Intellectual Capital

  • Structural Capital- This is also known as Internal Capital or Organizational capital. These include policies, information systems, culture, process and database which is used to conduct the operations of the organizations. Thus in most basic form, it is the knowledge which is included in the processes and the organizational structure of the organization.
  • Human Capital – Human capital in an organizational context is an important component of intellectual capital. It includes the skills, training, experience and the education system in a company which improves the competency of the employees in the performance of the activities. Thus it helps in the success of the company through the achievement of the goals.
  • Relational Capital- Relational capital includes the capital resources such as the relationship with the customers, relationship with the managers and the peer members. These capital resources, improve the efficiency of the operations. For example, when there is a strong and positive relationship with the customers, the company can provide better solutions and services. This ultimately helps in the success of the organization through a higher satisfaction level of the customers. Similarly, when there are strong bonding and co-operation among the colleagues, and members of the company, it helps in improving the delivery of the solutions. These employees can easily coordinate with each other in a project and help in the success of the company through the achievement of the goals. Now our experts from Instant Assignment Help will tell you how to measure intellectual capital.

Measurement of Intellectual Capital

There are several methods which have been invented and adopted for the measurement of the intellectual capital in an organization. These have been developed by the experts in the field and include the academicians and consultants. Some of the important models which are used for the measurement and reporting of the intellectual capital include the following:

  • Skandia’s Value Scheme- It is one of the methods through which the companies calculate the intangible assets. This model has been able to develop a national intellectual capital idea. It can be used effectively irrespective of the size and the type of item of analysis. This model is based on Edvinsson’s model, which has been used as the foundation model. It includes the concept of intellectual at the macro-economic level. This model is generally adopted by the company as it is easy to modify and adapt according to the requirements of the company.
  • Kaplan and Norton’s Balanced Scorecard- It is a measurement model for ascertaining the strategic performance of an organization in terms of its human capital capabilities and skills. The model was developed by David Norton and Robert Kaplan. It helps in translation of an organizations objectives and mission into actionable steps. It provides information about the information and the human capital of the company which can be used for the achievement of the goals. Some of the important perspectives which are included in this model include customer perspective, internal business process, financial perspective and the learning and growth of the organization. This model aims to create an equilibrium, between the short term and the long term objectives of an organization. It identifies the critical success factors which are important for the success of the organization.
  • Intangible asset monitor by Karl-Erik Sveliby’s- This model for understanding the intellectual capital was developed by Swedish Community of Practice. It was used to measure the non-financial assets of the company. These indicators can be included in the management information system to know about the changes in the intellectual assets of the company. It is used by the companies to present the indicators which can be used to assess to internal capabilities of the organization. These indicators for intellectual capital was known to provide vital information for the success of the organization. This model is based on the idea that people are important agents in the business. The continued existence of an organization is highly dependent on the growth of human capital resources. The economic value of the relation among the employees and with the customers is no longer invisible. Now companies can identify that through establishing long term relationship with the customers, it can achieve its goals. This model for calculating intellectual capital has the following features:
  • Internal structure- The internal structure or the relationships among the different levels of an organization is important to determine the success of the organizations. These act as an important resource or capital for the achievement of the goals.
  • Competency of the employees- The model calculates or analyses the competency of the employees, which is an asset for the organization. These competencies are valuable as it helps to develop the competitive advantage of the organization. The level of competency also helps to determine the level of compensation which is important to retain such talent.
  • Importance of external structure- This model identifies the importance of the external structure of the organization for the achievement of the goals.

These models for intellectual capita has been developed from traditional capital models and concepts. Different professionals hold different idea about the effectiveness of these models. As the concepts of intellectual capital include, the material and the non-material concepts, it has been integrated with physical capital to include a holistic approach. The base of the intellectual capital is from the revolutionary development of the human capital in organizations.

Alternatives to Intellectual Capital

There are several terms which are used to describe intellectual capital. The most common is “Intangible Assets”. These assets are referred to in accounting literature to represent the resources of human and information capital available to an organization. It represents the intangible value which exists in relationship with the customers, among the employees, competency of the employees. Intellectual capital is not only used to represent the internal process and structure of the organization but also represent the external structure of the organization. These are also sometimes referred to as knowledge assets or Knowledge Capital. For more detailed information related to Intellectual Capital or any other research-related help for any subject, our Online Assignment Help.