Intellectual Capital is the excess of Enterprise Value over the value of the physical assets and various financial assets. That is, it is the difference in value between tangible assets (physical and financial) and unlevered market value. Intellectual Property is but one component of Intellectual Capital. Measuring the real value and the total performance of Intellectual Capital’s components is essential for any corporate executive who knows how high the stakes have become for corporate survival in the knowledge and information age. Success depends on how an organization can affect the firm’s value using the leverage of Intellectual Capital, which is commonly classified as follows:
Human Capital is the value that the employees of a business provide through the application of skills, know-how and expertise. It is an organization’s combined human capability for solving business problems. Human Capital is inherent in people and cannot be owned by an organization. Therefore, Human Capital leaves an organization when people leave. Human Capital also encompasses how effectively an organization uses its people resources as measured by creativity and innovation. A company’s reputation as an employer affects the Human Capital it draws.
Structural Capital is everything in an organization that supports employees (Human Capital) in their work. Structural Capital is the supportive infrastructure that enables Human Capital to function. Structural Capital is owned by an organization and remains with an organization even when people leave. Structural Capital includes such traditional things as buildings, hardware, software, processes, patents, and trademarks. In addition, Structural Capital includes such things as the organization’s image, organization, information system, and proprietary databases.
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 and intangible assets. Intellectual Property includes protected commercial rights such as patents, copyrights and trademarks. Intangible assets are all of the other talents and theory by which an organization is run.
Relational Capital or Customer Capital is the strength and loyalty of customer relationships. The notion is that Customer Capital is separate from Human and Structural Capital, and indicates its central importance to an organization’s worth. The relationship with customers is distinct from other relationships either within or outside an organization.
– Measuring Intellectual Capital is critical to all stakeholders. Tangible assets return 7.0%, and intangible assets return 10.5%, according to Baruch Lev at the Stern School. In 1975, 17% of the S&P 500 was due to Intellectual Capital. Now it is 80%.
– Leif Edvinsson, former director of Intellectual Capital Management at the Swedish firm Skandia, pioneered a system for visualizing and developing intellectual, intangible and organizational business assets, which it used to both manage the business internally and to report to the public: “Navigator”, a kind of Balanced Scorecard which consists of five value-creating fields which present and measure key performance indicators for each area.