Analyzing Intellectual Capital: A Business Development Essay Overview

This essay delves into the multifaceted concept of intellectual capital, emphasizing its crucial role in fostering a competitive advantage for organizations. It defines intellectual capital as encompassing the knowledge, expertise, and skills of employees, alongside informational resources and intangible assets. The essay explores various aspects of intellectual capital, including human capital (employee skills and experience), brand awareness (brand image and equity), and information capital (data and information sharing). It also covers structural capital (organizational processes and culture) and relational capital (relationships with customers and colleagues). The essay further examines methods for measuring intellectual capital, such as Skandia's Value Scheme, Kaplan and Norton's Balanced Scorecard, and Karl-Erik Sveliby's Intangible Asset Monitor, highlighting their significance in assessing an organization's intangible assets. The essay underscores the importance of intellectual capital in the modern business landscape.

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Intellectual Capital
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.
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.
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 have 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.
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.