Intellectual capital has developed its own language and frameworks turning into a separate branch of business with its own employment job search. Chapter 8 provides an overview of key terms and the leading figures in the field: a glossary of intellectual capital; s key concepts; e key thinkers.
"We make doors and windows for a room. But it is the spaces that make the room livable. While the tangible has advantages it is the intangible that makes it useful."
Lao Tzo, Chinese philosopher, 600 BC
A GLOSSARY OF INTELLECTUAL CAPITAL
Capitalization - Creating financial value from intangible assets.
Complementary assets - Business assets of a firm used to create value in the commercialization process.
Culture - The combined sum of individual opinions, shared mindsets, values, and norms.
Customer capital - See Key concepts below.
Explicit knowledge - Knowledge that is articulated, codified, formal, systematic, and easily shared and communicated. It is found in the words we speak, in any written commentary, such as product specifications, scientific formulas, or computer programs, as well as in any recorded data.
Future earnings capability - Ability to create and capitalize on intellectual capital.
Human capital - See Key concepts below.
Innovation capital - The capability to renew the organization as well as the outcomes of innovation. Those outcomes include protected commercial rights, intellectual property, and intellectual assets.
Intangibles - Non-physical factors that contribute to or are used in producing goods or providing service, or that are expected to generate future productive benefits for the individuals or firms that control their use (Unseen Wealth, p. 10).
Intellectual assets - The codified tangible, or physical, descriptions of specific knowledge to which a company can assert ownership rights. Intellectual assets are diverse yet critically valuable resources that can range from intellectual property to such concepts as the organizational brand and the theory of the business.
Intellectual capital - Knowledge that can be converted into value (for definitions and a full discussion, see Chapter 2).
Intellectual property - Intellectual assets that receive legal protection, usually in the form of patents, copyrights, trade secrets, trademarks, and, in different countries, for special categories.
Knowledge - Meaningful links people make in their minds between information and its application in action in a specific situation.
Multiplicative effect - Leveraging that takes effect in the interaction between human capital and structural capital.
Organizational capital - An enterprise's investment in its systems, its operational philosophy, and its supplier and distribution channels. It is the systematized, packaged, and codified competencies of the organization as well as the systems for leveraging that capability.
Process capital - All of the processes of an organization that enable the creation and delivery of goods and services. When a process is effective in producing value it has a positive value. When a process is ineffective at producing value it will have a negative value.
Relational capital - See Key concepts below.
Structural capital - See Key concepts below.
Tacit knowledge - Knowledge that resides in an individual, often as a skill, an ability, or know-how.
Value creation - The generation of new knowledge and its conversion into innovations with commercial value. Value creation activities include education, knowledge development and sharing, innovation, creation of supporting organization structures, and managing values and culture.
Value extraction - Involves converting the created value into a form that is useful to the organization, whether it is innovations into cash or into some form of strategic position. It usually involves codifying knowledge created by the enterprise's human capital resources to build databases, create valuations, support decisions, establish and enhance capabilities, and convert for commercial purposes.
KEY CONCEPTS Customer capital
The value of the customer base, customer relationships, and customer potential.
All of the individuals' capabilities. It is the cumulative knowledge, skill, and experience of the organization's employees and managers that can be invested to meet the task at hand. Human capital cannot be owned by a company but only by the individuals that work -with it. Human capital is involved in work that is a two-way value exchange between the individual and the organization, not a one-way exploitation of an asset by its owner.
An effective knowledge-based enterprise will convert the human capital of its workforce into structural capital, which, in turn, can be repeatedly converted into financial capital. Knowledge-based enterprises motivate their human capital resources to make their knowledge and know-how explicit and codified so that it can be widely shared and internalized into the practices and structure of the organization.
Human capital is the only active capital in an organization and the source of its innovation and conversion to value. All other capital is passive. Moving from a traditional dependency, entitlement culture to one geared to self-initiatives and independence is the hallmark of knowledge organizations. Individuals have ownership of their performance in this new social contract and see themselves as a ' 'business of one." This new model is key for organizations to optimize the human capital resources of the workforce for strategic enterprise outcomes. In this equation, it is the responsibility of the enterprise to provide the context for the individual to grow and develop his or her human capital.
Intellectual capital management
Intellectual capital management is the active management of intellectual capital resources. It has three dimensions: value creation, value extraction, and value reporting. Effective intellectual management makes sure that these three endeavors are balanced to reflect meeting the goals of the organization.
Value creation enables intellectual capital to come into existence so that it can be shared and leveraged. Value extraction brings intellectual capital resources to where they can be converted into some type of value for the enterprise. Value reporting enables an accurate reflection of the value of intellectual capital for both decision-making and analysis by internal management, and externally for shareholders, the capital markets, and other stakeholders.
Intellectual capital value scheme
A model which illustrates the building blocks that collectively form the foundation of the enterprise's intellectual capital and its relationship to market value. In one view (Leif Edvinsson), intellectual capital is broken down into human capital and structural capital, which is then broken down into customer and organizational capital. Organizational capital is composed of both process and innovation capital.
A knowledge-based enterprise embeds knowledge and learning into its products, processes, and services. Knowledge-based enterprises are not solely high technology companies. All organizations are to one extent or another knowledge enterprises. Seventy percent of the value of an ear of corn is the knowledge that went into it. Thirty percent of the value of a barrel of oil is derived from knowledge inputs. Smart products and services actively leverage knowledge to create value. Hardware companies like IBM build their knowledge into their computers, while software companies like Microsoft build their knowledge into their software. It is the degree to which the knowledge is identified and leveraged for outcome that determines the degree to which an organization is a knowledge-based enterprise.
Knowledge recipes are formulas that bring together software (explicit and codified knowledge) -with hardware (physical objects used in production) and wetware (tacit knowledge and capabilities) to create value. These recipes can be replicated and shared rapidly throughout an organization or network to produce desired outcomes. There can be knowledge recipes for growing crops, establishing offices in new territories, or learning any skill. The quality and extent of knowledge recipes an organization is developing in its pipeline will determine its capacity to produce wealth over time.
Relational capital is composed of all the external relationships of the organization. This includes all of the market channels, customer and supplier relationships, as well as industry associations and govern mental regulatory bodies. As organizations move towards becoming extended enterprises, the relationships in the emerging network will enable the trust and communication necessary for any effective strategy and action. Relationship capital is also essential for an enterprise to co-create its products and services -with its customers, as they provide continuous, rapid feedback to the enterprise as to what will satisfy their needs. E-business and related technologies have created tremendous new opportunities to grow and support the management of relationship capital, by establishing extensive relational databases that can provide instant responses to customers, along with extensive customer histories and preferences.