Monday, April 11, 2016

Whats the Value of Your Firms Intellectual Capital?

As the knowledge economy takes hold intellectual capital will be an important part of organizational success. Our machines might pump out the product but our brains developed the idea in the first place. From getting conked on the head with Newton's Apple to imagining warp speed in the space-time continuum humans are creatures that think. Measuring a company's human capital helps them know where they fit in terms of competitiveness.

Intellectual capital is an intangible asset that is difficult to measure and get a solid grasp on. Something akin to a greased pig. No single measurement can truly say what a person knows, what a person thinks, and when they are going to use it. Intellectual capital does have some avenues of that include human capital, relational capital and structural capital ( Pulic & Sundac, 1998).

The components represent different aspects of understanding high knowledge companies that need to continue to improve their assets; intangible or otherwise. Human capital is the knowledge, skills and experience of employees. Structural capital is the information systems, image, data analytical capacities, patents, etc... Relational capital is associated more with client relationships.

Education is important but not a total measurement in itself as the degree represents assumed knowledge level. The same can be said of patents, brand image, etc...Decision-making moves beyond many of these ideas to incorporate actual innovative adaptation. Because no measure can truly encompass all the intellectual capital it is necessary to use multiple measurements.

It is difficult to measure the value of intellectual capital in a firm. Firms by their nature are made up of people and in turn seek to create a profit by putting all of their assets to work. Financial statements have a difficult time explaining the internal communication networks, thinking processes, and organizational changes processes that keep new products fresh and the business moving forward.

The score card offers an opportunity to pull those measurements that are most important for the organization. For example, a company that needs highly innovative people that have an existing level of knowledge may measure the inputs and the outputs in an attempt to create a correlation; possibly a causation. Inputs could be education or experience while outcomes are patents and departmental financial performance.

It is possible to get a better grasp on intellectual capital by following a few guidelines:

1. Try and measure the most obvious like education, experience, I.T. expenditures, create a core measurement structure. Continue to adjust and test this structure to add or remove measurements.

2. Review broad job/classifications in terms of skill and knowledge and compare this to the intellectual and financial outputs at other companies.

3.  Focus on smaller units such as departments and individuals and then draw measurements from multiple areas within the organization to see if there is correlation.

Measuring intellectual capital is a growing research topic but still pails in effectiveness. Science is a long process where multiple measures will eventually move toward more concise measures as new connections between elements are created. As of date, it is still necessary for companies to find their own imperfect models or borrow the imperfect models of others. Measuring intellectual capital is still an intuitive process with a few nuggets of hard core data.

Pulic, A., & Sundac, D. (1998). Intelektualni kapital, I.B.C.C., Rijeka.

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