Intellectual capital is combination of the Intellectual property (IP) held by a business and the people in that business that can exploit and increase it. An early (1994) use of the term defined the complement to IP as ‘... what walks out of door at the end of the day.’. The term became wider known in the context of assessing the wealth of organizations. A metric for its value is the amount by which the market value of a firm exceeds its tangible (physical and financial) assets less liabilities. This contrasts with physical and financial forms of capital; all three make up the value of an enterprise. Measuring the real value and the total performance of intellectual capital's components is a critical part of running a company in the knowledge economy and Information Age. Understanding the intellectual capital in an enterprise allows leveraging its intellectual assets. For a corporation the result will optimize its stock price.
Intellectual capital is normally classified as follows:
- Human capital, the value that the employees of a business provide through the application of skills, know-how and expertise. Human capital is an organization’s combined human capability for solving business problems and exploiting its Intellectual Property. Human capital is inherent in people and cannot be owned by an organization. Therefore, human capital can leave an organization when people leave, and if management has failed to provide a setting where others can pick up their know-how. Human capital also encompasses how effectively an organization uses its people resources as measured by creativity and innovation.
- Structural capital, the supportive non-physical infrastructure, processes and databases of the organisation that enable human capital to function. Structural capital includes processes, patents, and trademarks, as well as the organization’s image, organization, information system, and proprietary software and databases. Because of its diverse components, structural capital can be classified further into organization, process and innovation capital. Organizational capital includes the organization philosophy and systems for leveraging the organization’s capability. Process capital includes the techniques, procedures, and programs that implement and enhance the delivery of goods and services. Innovation capital includes intellectual property such as patents,trademarks and copyrights, and intangible assets. Intellectual properties are protected commercial rights such as patents, trade secrets, copyrights and trademarks. Intangible assets are all of the other talents and theory by which an organization is run.
- Relational capital, consisting of such as customer relationships, supplier relationships, trademarks and trade names (which have value only by virtue of customer relationships) licences, and franchises. The notion that customer capital is separate from human and structural capital indicates its central importance to an organization’s worth. The value of the relationships a business maintains with its customers and suppliers is also referred as goodwill, but often poorly booked in corporate accounts, because of accounting rules.
For a business translating the potential of its intellectual capital is crucial. Works that focus on the subset, namely the Patents, Copyrights, and Trade Secrets ignore the benefits of their use with the business. The term Intellectual Capital is not yet common, other terms are Intangible Assets. In order to profit from intellectual capital Knowledge Management has become a task for management. Often intellectual capital, or at least rights to it are moved off-shore for exploitaion, which entails risks that are hard to value. The transfer of rights to Intellectual Capital to offshore subsidiaries is major enabler of corporate tax avoidance.
An intellectual capital audit is an audit of a company’s intellectual capital for monitoring and overseeing the intellectual capital of a firm in order to capitalize on intellectual capital already within the company, and identifying opportunities for increasing the intellectual capital of the company.
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