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Understanding Intellectual Capital (Part 2)
Working Definition
According to Andriessen (2006, p. 101), the term ‘intellectual capital’ first appeared in the popular press in 1991 in an article in Fortune magazine entitled “Brainpower” by Thomas A. Stewart who later formulated the proposition that:
“Intellectual capital is intellectual material – knowledge, information, intellectual property, experience – that can be put to use to create wealth.” (Stewart, 1997).
Definitions of IC are plentiful, and this is just one of the many found. Intellectual capital may be a broad term that is also seen by some as being synonymous with intangible assets, invisible assets, knowledge assets, knowledge capital, information assets, human capital and the hidden value of companies, to name just a few (Bontis, 2001; Tseng & Goo, 2005). Other researchers such as Marr (2004), consider IC as a driver of a company’s corporate competitive advantage, and link IC to the company’s ability to manage and utilise knowledge. Rastogi (2003) refers to IC as “a dynamic nexus of a company’s human capital, social capital and knowledge management”.
Earlier attempts have been made to uncover the value of IC in monetary terms. Pioneers in the study of IC such as Brooking (1997) and Edvinsson (1997) define IC as the result of a company’s observable value in a capital market minus its net book value or:
Intellectual capital (IC) = Observable value in capital market – Net Book Value
However, this definition does not identify the IC component. In 1999, the Organisation for Economic Co-operation and Development (OEDC) proposed a definition: that IC consists of Human Capital (HC) and Structural Capital (SC) (Petty & Guthrie, 2000).
An alternative way of writing this definition is:
Intellectual Capital = Human capital + Structural capital
IC = HC + SC
Where:
SC = Structural capital, the tangible elements of an organisation such as proprietary computer systems, database, software, strategy, routines, procedures and supply chains. It is also called organisational capital. (Jashapara, 2004; Petty & Guthrie, 2000).
The OEDC’s definition makes the distinction that IC does not exactly equate to intangibles. IC is only a part of the total intangible assets pool. For example, reputation is not part of a company’s IC (Petty & Guthrie, 2000, p. 157). This classification or categorisation of IC into stocks of components has the advantage of helping organisations to understand and conceptualise what IC is, what it consists of and how it exists in practice in an organisation. Moreover, it is a working definition with the further practical dimension that the components of IC may be assigned an economic value, which may serve as a proxy for measurement and comparison purposes.
Reference
Andriessen, D. (2006). On the metaphorical nature of intellectual capital: a textual analysis. Journal of Intellectual Capital, 7(1), 93-110.
Bontis, N. (2001). Assessing knowledge assets: A review of the models used to measure intellectual capital. International Journal of Management Reviews, 3(March 2001), 41-58.
Brooking, A. (1997). The Management of Intellectual Capital. Long Range Planning, 30(3), 364-365.
Edvinsson, L. (1997). Developing Intellectual Capital at Skandia. Long Range Planning, 30(3), 366-373.
Jashapara, A. (2004). Knowledge Management: An Integrated Approach: Pearson Education Limited, England.
Marr, B. (2004). Measuring and benchmarking intellectual capital. Benchmarking, 11(6), 559-569.
Petty, R., & Guthrie, J. (2000). Intellectual capital literature review: Measurement, reporting and management. Journal of Intellectual Capital, 1(2), 155-176.
Rastogi, P. N. (2003). The nature and role of IC : Rethinking the process of value creation and sustained enterprise growth. Journal of Intellectual Capital, 4(2), 227-248.
Stewart, T. A. (1997). Intellectual Capital : The New Wealth of Organizations. (Doubleday, New York), --.
Tseng, C., & Goo, J. (2005). Intellectual capital and corporate value in an emerging economy: empirical study of Taiwanese manufacturers. R and D Management, 35(2), 187-201.
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