View source for Intellectual capital

'''Intellectual capital''' is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner ([[organization]]), covering the competencies of its people ([[human capital]]), the value relating to its relationships ([[relational capital]]), and everything that is left when the [[Employment|employees]] go home ([[structural capital]]),<ref name=EdvinssonMalone1997>{{cite book |last1=Edvinsson |first1=Leif |author-link1=Leif Edvinsson |last2=Malone |first2=Michael S. |author-link2=Michael S. Malone |title=Intellectual Capital: Realizing Your Company's True Value by Finding its Hidden Brainpower |location=New York |publisher=HarperBusiness |date=1997 |isbn=9780887308413 |oclc=36024079}}</ref> of which [[intellectual property]] (IP) is but one component.<ref>{{cite conference |last=Luthy |first=David H. |title=Intellectual capital and its measurement |book-title=Proceedings of the Asian Pacific Interdisciplinary Research in Accounting Conference (APIRA), Osaka, Japan |date=1998 |citeseerx=10.1.1.200.5655}}</ref> It is the sum of everything everybody in a company knows that gives it a competitive edge.<ref name=Stewart1997>{{cite book |last=Stewart |first=Thomas A. |author-link=Thomas A. Stewart |date=1997 |title=Intellectual Capital: The New Wealth of Organizations |location=New York |publisher=Currency/Doubleday |isbn=0385482280 |oclc=35792346 |url=https://archive.org/details/intellectualcapi0000stew |url-access=registration}}</ref> The term is used in academia in an attempt to account for the value of [[intangible asset]]s not listed explicitly on a company's [[Financial statement|balance sheets]].<ref name=Brooking1997>{{cite book |last=Brooking |first=Annie |date=1997 |title=Intellectual Capital |location=London; New York |publisher=International Thomson Business Press |isbn=1861520239 |oclc=35620282}}</ref> On a national level, intellectual capital refers to [[National Intangible Capital|national intangible capital]] (NIC).<ref>{{Cite journal |doi = 10.1108/jic-02-2014-0017|title = Intangibles and national economic wealth – a new perspective on how they are linked|year = 2015|last1 = Ståhle|first1 = Pirjo|last2 = Ståhle|first2 = Sten|last3 = Lin|first3 = Carol Y.Y.|journal = Journal of Intellectual Capital|volume = 16|pages = 20–57}}</ref>

A second meaning that is used in academia and was adopted in large corporations is focused on the recycling of [[knowledge]] via [[knowledge management]] and [[intellectual capital management]] (ICM).<ref name=Khavandkar2013>{{cite book |last1=Khavand Kar |first1=Jalil |last2=Khavandkar |first2=Ehsan |last3=Mottaghi |first3=Afshin |date=2013 |title=Intellectual Capital: Management, Development and Measurement Models |edition=3rd |location=Tehran, Iran |publisher=Industrial Research and Training Center of Iran Press |isbn=9789642841646 |url=https://books.google.com/books?id=BnseAgAAQBAJ}}</ref><ref>{{cite book |last1=Choo |first1=Chun Wei |last2=Bontis |first2=Nick |author-link2=Nick Bontis |date=2002 |title=The Strategic Management of Intellectual Capital and Organizational Knowledge |location=Oxford; New York |publisher=[[Oxford University Press]] |isbn=019515486X |oclc=48429047 |url=https://archive.org/details/strategicmanagem0000unse_y7v1 |url-access=registration}}</ref><ref>{{cite journal |last=Wiig |first=Karl M. |date=June 1997 |title=Integrating intellectual capital and knowledge management |journal=Long Range Planning |volume=30 |issue=3 |pages=399–405 |doi=10.1016/S0024-6301(97)90256-9 |url=https://www.researchgate.net/publication/222186650}}</ref> Creating, shaping and updating the stock of intellectual capital requires the formulation of a [[Strategic planning|strategic vision]], which blends together all three dimensions of intellectual capital within the organisational context through exploration, exploitation, measurement, and disclosure.<ref name=Khavandkar2016>{{Cite book|chapter-url=https://mpra.ub.uni-muenchen.de/82115/1/MPRA_paper_82115.pdf|doi = 10.1057/9781137465191_14|chapter = Leading the Diffusion of Intellectual Capital Management Practices in Science Parks|title = Human Resource Management, Innovation and Performance|year = 2016|last1 = Khavandkar|first1 = Ehsan|last2 = Theodorakopoulos|first2 = Nick|last3 = Hart|first3 = Mark|last4 = Preston|first4 = Jude|pages = 213–231|isbn = 978-1-349-56307-4|s2cid = 55619748}}</ref> Intellectual capital is used in assessing the wealth of organizations.<ref name=Stewart1997/> A metric for the value of intellectual capital is the amount by which the [[enterprise value]] of a firm exceeds the value of its tangible (physical and financial) assets.<ref>[[Paolo Magrassi]] (2002) "A Taxonomy of Intellectual Capital", Research Note COM-17-1985, Gartner</ref><ref>{{cite journal|last=Sveiby|first=Karl Erik|year=1997|title=The Intangible Asset Monitor|journal=Journal of Human Resource Costing and Accounting|volume=2|issue=1}}</ref>  Directly visible on corporate books is capital embodied in its physical assets and financial capital; however all three make up the value of an enterprise.<ref name=Wiederhold>{{cite book |first=Gio |last=Wiederhold |date=2013 |title=Valuing Intellectual Capital: Multinationals and Taxhavens |series=Management for Professionals |location=New York |publisher=[[Springer-Verlag]] |isbn=9781461466109 |oclc=857407166 |doi=10.1007/978-1-4614-6611-6}}</ref> 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 of its intellectual assets.<ref name=Khavandkar2013/> For a corporation, the result will optimize its [[stock price]].

The [[International Financial Reporting Standards|IFRS]] (International Financial Reporting Standards) committee developed the International Accounting System 38 with the purpose of prescribing the accounting treatment for intangible assets. IAS 38.8 defines an intangible asset as an identifiable non-monetary asset without physical substance. An asset is a resource that is controlled by the entity as the result of past events (for example purchase or self-creation) and from which future economic benefits (inflows of cash or other benefits) are expected.

==Classification==
Intellectual capital is normally classified as follows:

*[[Human capital]], the value that the employees of a business provide through the application of [[skill]]s, [[know-how]] and [[expertise]]<ref name="Maddocks">{{cite journal |last1=Maddocks |first1=Jon |last2=Beaney |first2=Mark |date=March 2002 |title=See the invisible and intangible |journal=Knowledge Management |pages=16–17}}</ref>{{snd}} Human capital is an organization's combined human capability for solving business problems and exploiting its [[Intellectual Property|intellectual property]]. Human capital is inherent in people and cannot be owned by an organization.<ref>{{cite journal |last1=Younis |first1=Raghda |title=Human Resource Management Practices and the perceived Hospital performance The mediating role of Intellectual Capital |journal=المجلة العلمیة للإقتصاد و التجارة |volume=48 |issue=3 |pages=559–586 |doi=10.21608/jsec.2018.39411 |url=http://journals.ekb.eg/article_39411_0cbdae46d450c1785dac0b6e7bc2c5cd.pdf|year=2018 |doi-access=free }}</ref> Therefore, human capital can leave an organization when people leave, and if the [[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 [[database]]s of the organisation that enable human capital to function<ref name="Maddocks" />{{snd}} Structural capital includes processes, [[patent]]s, and [[trademark]]s, as well as the organization's image, [[Organizational structure|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 [[copyright]]s, and intangible assets.<ref name=EdvinssonMalone1997/> Intellectual properties are protected commercial rights such as patents, [[trade secret]]s, copyrights and trademarks. Intangible assets are all of the other talents and theory by which an organization is run.
*[[Relational capital]], consisting of such elements as [[customer]] relationships, supplier relationships, trademarks and [[trade name]]s (which have value only by virtue of customer relationships), [[License|licences]], and [[Franchising|franchises]]{{snd}} The notion that customer capital is separate from human and structural capital indicates its central importance to an organization's worth.<ref>{{cite journal |last=Skyrme |first=David J. |date=March 1998 |title=Valuing knowledge: is it worth it? |journal=Managing Information |volume=5 |issue=3 |pages=24–26 |issn=1352-0229 |url=https://www.skyrme.com/pubs/im0398.htm}}</ref> 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.<ref>{{cite book |last1=Levey |first1=Marc M. |last2=Wrappe |first2=Steven C. |date=2013 |title=Transfer Pricing: Rules, Compliance, and Controversy |edition=4th |location=Chicago |publisher=CCH Incorporated |isbn=9780808030928 |oclc=864709704}}</ref>

==Management==
The intangible nature of many knowledge products and processes, in combination with the increasing importance of their value in corporate balance sheets leads to a growing interest in management of intellectual capital. Creating, shaping and updating the stock of intellectual capital requires the formulation of a strategic vision, which blends together all three dimensions of intellectual capital (human, structural and relational capital) within the organisational context through exploration and exploitation, measurement and disclosure.<ref name=Khavandkar2016/> Therefore, the organisational value of intellectual capital is developed via an ongoing and emergent process focused on the capability to leverage, develop and change the dimensions.<ref>Subramaniam, Mohan, & Youndt, Mark (2005). [http://amj.aom.org/content/48/3/450.abstract The Influence of Intellectual Capital on the Types of Innovative Capabilities] {{Webarchive|url=https://web.archive.org/web/20180322044529/http://amj.aom.org/content/48/3/450.abstract |date=2018-03-22 }}. Academy of Management Journal, 48(3), 450–463.</ref> The [[Intellectual capital management|management of intellectual capital]] is conceptualised as occurring via a multiple stage process, governed by an evolutionary logic. Intellectual capital management is defined as a cycle of four inter-related sets of practices: strategic alignment, exploration and exploitation, measurement, and reporting of intellectual capital.<ref name=Khavandkar2013/>

The recognizing and managing of intellectual capital within organizations is not always evident and straightforward; for example, what IC means differ from organization to organization; thus requiring a contextual understanding.<ref>{{cite journal |last=Tyskbo |first=Daniel |date=March 2019 |title=Managers' views on how intellectual capital is recognized and managed in practice: A multiple case study of four Swedish firms |journal=Journal of Intellectual Capital |doi=10.1108/JIC-01-2018-0017|s2cid=159378981 }}</ref>

==Exploitation==
The management of intellectual capital is conceptualised as occurring via a multiple stage process, governed by an evolutionary logic.<ref name=Khavandkar2016/> For a business, translating the potential of its intellectual capital is crucial.<ref>{{cite book |last=Sullivan |first=Patrick H |date=2000 |title=Value-driven Intellectual Capital: How to Convert Intangible Corporate Assets into Market Value |series=Intellectual capital series |location=New York |publisher=[[John Wiley & Sons]] |isbn=0471351040 |oclc=42061200 |url=https://archive.org/details/valuedrivenintel00patr |url-access=registration}}</ref> Works that focus on the subset, namely the [[patent]]s, [[copyright]]s, and [[trade secret]]s, ignore the benefits of their use with the business.<ref>{{cite book |last1=Merges |first1=Robert P. |last2=Menell |first2=Peter Seth |last3=Lemley |first3=Mark A. |date=2004 |title=Intellectual Property in the New Technological Age |edition=3rd |series=Aspen casebook series |location=New York |publisher=Aspen Publishers |isbn=073553652X |oclc=50866818}}</ref> Other terms include "intangible assets".<ref>{{cite book |last=Sherman |first=Andrew J. |date=2012 |title=Harvesting Intangible Assets: Uncover Hidden Revenue in Your Company's Intellectual Property |location=New York |publisher=[[AMACOM]], American Management Association |isbn=9780814416990 |oclc=712780812}}</ref> While corporate reports often stress the value and the know-how of its staff, this crucial asset cannot be considered property. The term "[[workforce]]-in-place" can be used as a category when companies with their staff are purchased.<ref>{{cite book |last=Parr |first=Russell L. |date=2018 |title=Intellectual Property: Valuation, Exploitation, and Infringement Damages |edition=5th |location=Hoboken, NJ |publisher=[[John Wiley & Sons]] |isbn=9781119356219 |oclc=1022074952 |doi=10.1002/9781119419235}}</ref> Without that category, most of the excess purchase price over the tangible [[book value]] would just appear as [[goodwill (accounting)|goodwill]]. In order to profit from intellectual capital, [[knowledge management]] has become a task for management.<ref>{{cite book |last1=Pasher |first1=Edna |last2=Ronen |first2=Tuvya |date=2011 |title=The Complete Guide to Knowledge Management: A Strategic Plan to Leverage Your Company's Intellectual Capital |location=Hoboken, NJ |publisher=[[John Wiley & Sons]] |isbn=9780470881293 |oclc=656770760 |doi=10.1002/9781118983782}}</ref> Often, intellectual capital, or at least rights to it, are moved off-shore for exploitation, which entails risks that are hard to value.<ref name=Wiederhold/> The transfer of rights to intellectual capital to offshore [[Subsidiary|subsidiaries]] is a major enabler of [[Tax avoidance|corporate tax avoidance]].<ref>Reuven S. Avi-Yonah: Statement to Congress; University of Michigan School of Law, Permanent Subcommittee on Investigations, U.S. Congress, 20 Sep.
2012</ref>

==Measurement==
An intellectual capital audit is an [[audit]] of a company's intellectual capital to monitor and oversee the intellectual capital of a firm in order to capitalize on intellectual capital already within the company, and to identify opportunities to increase the intellectual capital of the company.<ref name=Brooking1997/>{{rp|86}}

Early methods of intellectual capital measurement include the balanced scorecard (BSC) framework, the Skandia Navigator, and the Intangible Asset Monitor. Additionally, the Value-Added Intellectual Coefficient method (VAIC) was introduced in 1993 to measure the ''value'' created by intellectual capital.<ref>{{Cite journal|last1=Gianpaolo Iazzolino|last2=Domenico Laise|date=2013-10-21|title=Value added intellectual coefficient (VAIC): A methodological and critical review|journal=Journal of Intellectual Capital|volume=14|issue=4|pages=547–563|doi=10.1108/jic-12-2012-0107|s2cid=152525052 |issn=1469-1930}}</ref>

== Intellectual capital and stock returns growth ==
Changes in stock returns are primarily determined by external factors such as inflation, exchange rates, and socioeconomic conditions. Intellectual capital does not affect a company stock's current earnings. Intellectual capital contributes to a stock's return growth.<ref>{{cite journal |citeseerx=10.1.1.652.9595 |title=The Impact of Intellectual Capital on a Firm's Stock Return: Evidence from Indonesia |first1=Ari Barkah |last1=Djamil |first2=Dominique |last2=Razafindrambinina |first3=Caroline |last3=Tandeans |journal=Journal of Business Studies Quarterly |date=2013 |volume=5 |issue=2 |issn=2152-1034}}</ref>

==References==
{{Reflist}}

{{Knowledge management}}
{{Types of capital}}
{{Authority control}}

{{DEFAULTSORT:Intellectual Capital}}
[[Category:Intellectual capital| ]]
[[Category:Intellectual property law]]