Structural capital is the embodiment, empowerment, and supportive infrastructure of human capital. It provides the environment that encourages individuals to invest their human capital to create and leverage its knowledge. It encompasses the organizational capacity, including the physical systems used to transmit and store intellectual material. It is all of an organization's organizational capital, innovation capital, and process capital.

Intellectual capital by itself is of littie value without the lever­aging effect of the firm's supporting structural capital resource. In the approach that focuses on intellectual capital extraction, a major component of structural capital also includes what is called comple­mentary business assets. These are the business assets of a firm that are used to create value in the commercialization process, and include manufacturing, distribution, and marketing capabilities.

Value: sources and conversions

An enterprise has two sources of intellectual capital value that it can convert into profits: its innovations, and the business practices and processes that convert those ideas and are applied to those innovations. At the same time, an organization has seven mechanisms available to it that it can use to convert its innovations into cash: direct sales, out-licensing, joint assets, strategic alliances, integration with current business, creating a new business, and donating the innovation, which produces a tax write-off.

To optimize the value of their intellectual capital, companies need to look at the largest numbers of types of combinations for its innovations and practices and determine the best set of conversion mechanisms that will yield an optimal cash or strategic advantage to the enterprise. It can then choose which sets of choice best advance its strategic goals. A company can consider seeking to use an innovation to bolster a strategic alliance in one setting, licensing it in another, and establishing a joint venture in a third market.

KEY THINKERS

Leif Edvinsson

Leif Edvinsson is a key contributor to the theory and practice of intellectual capital. He is the founder and CEO of UNIC (Universal Networking Intellectual Capital AB) whose mission is to generate new insights as to what an organization's intellectual capital is, as well as how to grow, appraise and better understand how to commercialize it. His sees himself serving as a catalyst for the possibilities inherent in the new era of intangible wealth.

Edvinsson was formerly the corporate director of intellectual capital at the Skandia Group, where many of the fundamental ideas of intel­lectual capital as a whole organizational framework were developed and put into operation. He held the first position of its type in the world of director of intellectual capital at Skandia, AFS in 1991- During his tenure at Skandia, he oversaw the creation of its first Intellec­tual Capital Annual Report supplement, which outlined how Skandia used this hidden, intangible value for the benefit of customers and shareholders.

He is co-author of a defining work in the field, Intellectual Capital: Realizing Your Company's True Value by Finding Its Hidden Brain­power, as well as a contributor to numerous other books and journals. Edvinsson was recognized for his achievements by being given the "Brain of the Year" award from the Brain Trust of the UK in 1998. Edvinsson views the challenge of intellectual capital leadership as changing its mindset so it can use the structural capital of organi­zations to turbo-charge the capabilities of human capital, which, in turn, can be transformed into new structural capital. The outcome of this is the development of authentically intelligent organizations, but organizations of a very different nature. These new organizations may well evolve into becoming communities, and, instead of func­tioning as employees, its participants will become citizens of those communities.

Edvinsson is developing an intellectual capital rating tool for assessing factors supporting a company's ability to increase its competitiveness and better understand the role of intellectual capital in stock market valuations, annual reports, and credit analysis. His work on the intellec­tual capital multiplier is used to value the springboard effect that the structural capital of company offers to leverage its human talents,

Edvinsson is foremost a visionary of intellectual capital. He says, "The future is our home." A sense of the future underlies the building of a number of Future Centers throughout the world, which are experimental stations to prototype how to create the organizational capital that will be the basis for creating the wealth of the new millennium.

Highlights Books:

* (1997) Intellectual Capital, with M. Malone. Harper Business, New York.

Baruch Lev

Baruch Lev is the Philip Bardes Professor of Accounting and Finance at New York University, Stern School of Business, and the Director of the Vincent C. Ross Institute for Accounting Research and the Project forResearch on Intangibles. He earned his MBA and PhD degrees from the University of Chicago. He is a permanent visitor atEcole Nationale Des Ponts and Chaussees (Paris) and City University Business School (London).

Professor Lev began his pioneering research in the field of intan­gibles in the early 1990s as a colleague of David Teece at UC Berkeley. His work spans three books and over 75 research studies published in the leading accounting, finance, and economic journals. This research concerns the optimal use of information in: investment decisions; business valuation issues; corporate governance; and intan­gible investments (intellectual capital). In particular, his focus is on measurement, valuation, and reporting issues concerning intangible investments.

Lev lectures internationally and conducts executive seminars on finance, accounting, and intellectual capital issues, working closely with such institutions as the Securities and Exchange Commission, the Financial Accounting Standards Board, the OECD, the European Union, and the Brookings Institution.

Lev has organized annual conferences on intangibles, held at New York University, in New York City, which are significant gatherings in the field for both academics and practitioners.

As Professor Lev put it: "The new accounting has to depart from the old accounting, which is based on costs. While costs will always be important, the new accounting is based on values... The future is based on intangibles. The old accounting is a beautiful system. The virtue of the old system is that it is based on facts. The problem is that these facts are no longer relevant."

Lev is developing a methodology for measuring the value of intan­gible assets and determining "intangibles-driven" earnings. He has recently completed a report for the Brookings Institution, Intangi­bles: Measurement, Management and Reporting, which explores the nature of intangibles and their reporting, and is available on his Website.

A number of research documents, including ' 'Markets in Intangibles: Patent Licensing" and "New Accounting for a NewEconomy," are also available on Lev's Website, as well as video interviews, all of which are well worth accessing. forResearch on Intangibles. He earned his MBA and PhD degrees from the University of Chicago. He is a permanent visitor atEcole Nationale Des Ponts and Chaussees (Paris) and City University Business School (London).

Professor Lev began his pioneering research in the field of intan­gibles in the early 1990s as a colleague of David Teece at UC Berkeley. His work spans three books and over 75 research studies published in the leading accounting, finance, and economic journals. This research concerns the optimal use of information in: investment decisions; business valuation issues; corporate governance; and intan­gible investments (intellectual capital). In particular, his focus is on measurement, valuation, and reporting issues concerning intangible investments.

Lev lectures internationally and conducts executive seminars on finance, accounting, and intellectual capital issues, working closely with such institutions as the Securities and Exchange Commission, the Financial Accounting Standards Board, the OECD, the European Union, and the Brookings Institution.

Lev has organized annual conferences on intangibles, held at New York University, in New York City, which are significant gatherings in the field for both academics and practitioners.

As Professor Lev put it: "The new accounting has to depart from the old accounting, which is based on costs. While costs will always be important, the new accounting is based on values... The future is based on intangibles. The old accounting is a beautiful system. The virtue of the old system is that it is based on facts. The problem is that these facts are no longer relevant."

Lev is developing a methodology for measuring the value of intan­gible assets and determining "intangibles-driven" earnings. He has recently completed a report for the Brookings Institution, Intangi­bles: Measurement, Management and Reporting, which explores the nature of intangibles and their reporting, and is available on his Website.

A number of research documents, including ' 'Markets in Intangibles: Patent Licensing" and "New Accounting for a NewEconomy," are also available on Lev's Website, as well as video interviews, all of which are well worth accessing.