What are the types of intellectual capital?
Over the recent years, intellectual capital has become more popular and is used in different economies. According to Nadeem et al. (2019), “Intellectual capital (IC) is recognized as a vital contributor to the financial performance of a firm” (p.1). It has previously been ignored because conventional accounting standards such as Financial Reporting Standards restrict the disclosure of intangible assets (except goodwill) on firms’ balance sheets” (p.1). Nadeem et al. (2019) also stated that “it is only recently that researchers have started to explore this topic and have realized that IC is not only the driver of a firm’s progress but also enables a firm to build a competitive advantage” (p.1). “Different researchers define IC differently; however, IC is generally recognized as the intangible assets that play an important role in the wealth creation process of a firm but which are not recorded on the firm’s balance sheet like physical assets; In other words, IC is the totality of all those skills and competencies possessed by its employees that create wealth for a firm (Nadeem et al., 2019 p.1). Nadeem et al. (2019) “argue that knowledge and skills have started replacing physical assets in knowledge-based modern economies, and in this regard, nothing will be more important to the future of Europe than the ability of countries’ governments, employees and firms to modernize a system that depends on the efficiency of decision making and the quality of human capital (HC)” (p.1). “The shift from physical resource-based economies to knowledge-based economies, that is, the evolution of resource-based theory and the increasing gap between firms’ market to book value, has caused researchers to look for different models to measure and manage the value of intangibles; This quest ˚ for better management of IC resources has led to several IC measurement models such as Skandia Navigator as a non-monetary measure by Public as a monetary measure” (Nadeem et al., 2019 p.1). “The major benefit of using monetary-based models to measure IC efficiency is that these models provide numerical results that are comparable within departments and across industries” (Nadeem et al., 2019, p.1). Intellectual capital includes an organization’s intangible assets, like customer loyalty and skills. The types of Intellectual capital include human capital and structural capital.
One of the types of Intellectual capital include human capital. According to Goldin (2016), “Human capital is defined in the Oxford English Dictionary as “the skills the labor force possesses and is regarded as a resource or asset.” (2). It encompasses the notion that there are investments in people (e.g., education, training, health) and that these investments increase an individual’s productivity. According to Kianto et al. (2017), Interrectual capital “includes an organization’s employees and their attributes, such as their knowledge, experience, commitment and motivation capital is not owned or even in the strict sense controlled by the firm since it ‘walks out’ the company’s door each night or when employees change jobs” (p.6). Kianto et al. (2017) also stated that “human capital is generally considered to be the most significant element of IC because a firm can accomplish nothing including innovation without it because a critical portion of the knowledge and skills required for innovation resides with and is used by individuals; This is because since developing new knowledge requires some level of existing knowledge, employees’ skills and expertise are important predictors of organizational innovation” (p.6). “Creative and knowledgeable employees are more likely to develop new and innovative ideas or to question existing ways of conduct and act as organizational change agents” (Kianto et al., 2017, p.6). Thus, one type of Intellectual capital includes human capital, which encompasses the notion that there are investments in people.
Structural capital is another type of Intellectual capital. According to Kianto et al. (2017), “Structural capital, sometimes called organizational capital, comprises ‘all the non-human storehouses’ of knowledge within organizations, accumulated and distributed through organizational structures, processes, systems and manuals” (p.6). “It is the knowledge that stays with a firm when staff leaves; This stock of institutionalized knowledge and codified experience can increase innovation because the production of new products, processes or methods usually involves combining and applying different pieces of existing knowledge” (Kianto et al., 2017 p.6). “Having developed an “organizational memory” will help companies to find out and combine all the relevant bits of knowledge that have been generated or acquired in the past and that are now needed to produce the expected innovation; This is because established structures, norms and routines support the systematic documentation and retention of knowledge that organizations can use to produce and test new ideas continuously” (Kianto et al., 2017 p.6). “Information and communication technologies also facilitate innovation by enabling there to be information search, retrieval, storage, transfer, analysis and dissemination; structural capital supports innovation by providing a (collective) infrastructure for knowledge development activities within an organization” (Kianto et al., 2017 p.6). Thus, Structural capital is another type of Intellectual capital which comprises all the non-human storehouses of knowledge within organizations
In conclusion, Intellectual capital plays an essential role in the success of any organization because it enables the organization gain knowledge-based economy. Intellectual capital is essential in any organization because they give the organization a competitive advantage. The management of Intellectual capital is difficult because it requires an approach that encourages the culture of innovation in an organization. The types of Interrectual capital include human capital and structural capital. Through Interrectual capital, organizations gain the skills to innovate new and advanced methods which then gives it a competitive advantage thus making the organization to succeed.
Goldin, C. D. (2016). Human capital.
Kianto, A., Sáenz, J., & Aramburu, N. (2017). Knowledge-based human resource management practices, intellectual capital and innovation. Journal of Business Research, 81, 11-20.
Nadeem, M., Dumay, J., & Massaro, M. (2019). If you can measure it, you can manage it: a case of intellectual capital. Australian Accounting Review, 29(2), 395-407.