Intellectual CapitalTheory & Its Practical Implications

Intellect

-the power or faculty of the mind by which one knows or understands, by which one feels and by which one wills; the understanding; the faculty of thinking and acquiring knowledge.

Capital

-a factor of production that is not wanted for itself but for its ability to help in producing other goods

Intellectual Capital:the intangible assets

-Collective knowledge (whether or not documented) of the individuals in an organization or society.

Intellectual Capital

It consists of the stocks & flows of knowledge, ability, skill & competence available to an organization.

It consists of factors other than the physical ones that contribute to the value generating process of a firm.

It incorporates the value of all relationships inside & outside the organization.

It covers values such as Goodwill, Corporate image & Brands.

Key IdeasThe information age is a

revolution.

Knowledge circulates at every level of a business (human, structural, customers).

An economy based on knowledge gives rise to a new type of business, new workers and new professions.

The importance of the Intangible asset

Intellectual capital is the sum of everything everybody in a company knowledge that gives it a competitive edge.

Intellectual capital is intellectual material-knowledge, information, intellectual property, experience can be put to use to create wealth.

It’s collective brainpower.

Thomas Stewart

What does this signify?????

It’s what you can’t see that says the most about a company’s long-term health

For the tree to flourishand bear high quality fruitwell into the future…

…it must be nourished by a strong, healthy root system

Intellectual Capital!

Elements of Intellectual Capital

Human Capital

Social Capital

Organisational Capital

Human Capital

Human Capital

Can be ‘made’ or ‘bought’

It represents the ‘human factor’ in the organisation.

It gives organisation its ‘distinctive character’.

Ensures long-term survival of the organisation.

Human Capital Theory emphasises on the ‘added value’

Regards people as assets

The theory encourages the philosophy of HRM.

OriginThe idea of Human Capital was

first developed by Adam Smith.The term was coined by Schulz.Davenport Model:Total Human Capital Investment =(Ability + Behaviour) * Effort *

TimeThe innate abilities, behaviours &

personal energy make up the human capital.

Contd..

Ownership of Human Capital

2 Way Exchange Process.

Investments, Returns & Related Costs

Investment: -Development of skills.

Returns: -Higher level of earnings -Greater Job satisfaction -Better Career prospects -More secure employment

Costs involved

Psychological CostsSocial CostsMonetary costs

Measuring Human Capital

Measures of human Capital have been strongly guided by what it is possible to measure, rather than by what it is desirable to measure.

Need for measuring Human Capital

It constitutes a key element of the market worth of the company

It will focus the attention of the organisation on what needs to be done

It can provide basis for resource based HR strategies

It can be used to monitor progress & evaluate effectiveness.

Human Asset Accounting

-’quantify the economic value of people to the organisation’

HRA Models

Cost model

HR Value model

Monetary Model

Social Capital

Social Capital refers to the institutions, relationships & norms that shape the quality & quantity of a society’s social interactions..

Social Capital is not just the sum of the institutions which underpin a society- it is the glue that holds them together.

-World Bank(2000)

FeaturesIt is the stocks & flows of knowledge

developed by relationshipsA structure within which human

capital is most effectively deployedIt is an aspect of ‘the social structure’It facilitates the actions of individualsIt requires a collaborative

organisational environment It enables Human Capital to realise its

potential

Organisational Capital

-the embedded or institutionalised knowledge which may be retained with the help of Information Technology on readily accessible & easily extended databases

FeaturesIt consists of the knowledge owned by the

organisation.It is the supportive infrastructure,

processes & databases of the organisation that enable human capital to function.

It can include Explicit knowledge that has been recorded & also tacit knowledge which to some extent has been codified

Risk of loss of Intellectual CapitalIt is seen as an ‘Information Management

Activity’ rather than an HR activity.

•It includes components as:-hardware, software, processes, patents, trademarks, organization’s image, information system, and proprietary databases.

•Further sub-divided as- -Structural Capital -Process capital -Innovation Capital

Conclusion

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