Intellectual Capital



Theconcept of intellectual capital gained significance in the recentpast in spite of the fact that all organizations have been usingintellectual capital for many years. Intellectual capital is defineddifferently by different scholar. According to Kannan &amp Aulbur(2004) intellectual capital refers to “intellectual resources thathave been “formalized, captured and leveraged” to create assetsof higher value”. Gioacasi (2015) gave a simpler definition andstated that intellectual capital refers to a useful or valuablepackage of knowledge that can exist in different forms, such as theorganizational processes, employee skills, and organization’sinformation about its clients, partners, and suppliers. In essence,both scholars agree that intellectual capital is valuable knowledgeheld by the organization, which can be exploited for the benefit ofthe organization. This paper will focus on the role of intellectualcapital in the organization, evolution of the value of intellectualcapital, and the alignment of intellectual capital with theorganization’s vision, mission, and strategy.

Classificationof intellectual capital

Intellectualcapital is classified into three groups. The first category is thehuman capital, which refers to the valuable contribution thatemployees of any organization make through the application of theirexpertise, skills, and know-how (Kannan &amp Aulbur, 2004). This iscombined with the employee`s employee capability for exploitingorganization’s intellectual capital and addressing businessproblems. The second category is structural capital, which refers tonon-physical infrastructure, databases, and processes owned by theorganization and enhance the functionality of the human capital.Other examples of structural capital include patents, organization’simage, information system, trademark, and proprietary software. Thelast category of intellectual capital is the relational capital,which includes supplier relations, trade names, customer relations,franchises, and licenses (Kannan &amp Aulbur, 2004).

Roleof intellectual property in the organization

Overall,intellectual capital increases the competitiveness of theorganization, but this depends on the capacity of the individualorganization to exploit this type of valuable capital. However,different components of intellectual capital play varied roles in theorganization. Human capital is considered as the key driving force ofthe other two capitals, which means that organizations use humancapital to exploit the other types of capital (Hormiga, 2010). Humancapital is considered to be the most significant type of intellectualcapital because it acts as the source of ideas and innovation thatthe organization needs to increase its competence and productivity.The success of the organization is directly correlated with differentaspects of human capital, such as the motivation of the entrepreneur,innovativeness of the employees, social skills of the entrepreneur,and the level of interaction among different members of theentrepreneurial team (Hormiga, 2010). Therefore, the human capitaldetermines the organization’s capacity to utilize other types ofcapital.

Thestructural component of intellectual capital is internalized in theorganization’s processes or structures. Structural capital is fullyowned by the organization, unlike the human capital that is owned byindividual employees (Hormiga, 2010). The main role of structuralcapital in the organization is to facilitate the transformation ofrelational capital and human capital into some knowledge that isinserted into firm’s process and structures. All types of capitalor part of them stop being the properties of individual employees andbecome the properties of the organization. There are three majortypes of structural capital that have a direct impact on theorganization`s performance. First, the adoption of routinesresponsible for streamlining the day-to-day activities of theorganization increase chances for the organization’s success(Hormiga, 2010). Secondly, innovation plays a major role indetermining the organization’s capacity to develop new ordifferentiated services or products. Third, the efficacy of theprocesses used by the organization in delivering health care servicesor generating products increase the organization’s productivity andoverall performance.

Themajor role of relational capital is to link the organization withother parties in the environment in which it operates. The concept ofrelational capital is based on the notion that organizations do notoperate in isolation, but its success depends on how it related toother stakeholders in its environment (Hormiga, 2010). This type ofcapital helps organizations in generating value by harnessingexternal and internal relationships. Some types of informationrelationships (such as the relationship between the entrepreneur andthe family members) play a critical role in establishing a neworganization. However, an organization has already been establishedneeds to harness formal relationship with different stakeholders,such as business partners, suppliers, the government, and thecommunity that it serves. A good relationship with the stakeholdershelp the organization acquires a suitable reputation that in turnincreases the chances for the organization to succeed (Hormiga,2010). Moreover, good connectivity plays the role of helping theorganization acquire the business deals that it requires to increaseits performance and secure its going concern.

Evolutionof the concept of intellectual capital

Theevolution of the concept of intellectual capital can be attributed toa shift from the idea of the industrial economy that is based onvisible assets to knowledge-based economy that is associated withoverreliance on invisible assets. This shift began in the 1950s, butthe empirical studies to determine the significance of invisibleassets in the organization began in 1980s when the first publication“Mobilizing Invisible Assets” was published by Hiroyuki Itami inJapan (Sullivan, 2000). This publication was followed by theadvancement in the idea of resource efficiency in the early 1990s,which called for the recognition of both the visible and invisibleresources. Consequently, the concept of resource based strategydeveloped further, which paved way for a continued evolution of theidea of intellectual capital.

Theresource-based concept called for the exploration of all assets ownedby the organizations, including the visible and invisible assets.Invisible asset include the intellectual capital. It was discoveredthat some organizations operate with the help of intellectual assets(capital) only, which brought the issue of intellectual capital tothe attention of scholars (Sullivan, 2000). The concept ofintellectual capital has been separated into different categories,including the human, relational, and structural capital.

Alignmentof the company’s vision, mission and strategy with intellectualcapital

Thecapacity to implement business strategies is among the most valuableskills that require some keen knowledge about some aspects that mayaffect that change. Strategic implementation involves thetransformation of strategic plans and the organization’s mission toaction with the objective of achieving the company’s vision(Thorleifsdottir, 2006). The knowledge-based economy calls for anincreased capacity of the organization to embark on competition,which is a key element of intellectual competence. However,organizations are only able to develop intellectual competencies whenthey manage to align all resources with their strategies, mission,and vision.

Organizationsalign intellectual capital with their vision, mission, and strategiesby integrating the relevant components of intellectual capital intoinitiatives that facilitate the management of support for knowledgeprocesses (Yvette, 2007). The concept of alignment implies that theorganization is able to utilize its intellectual capital to pursueits mission, vision, and strategies. The capacity of theorganizations to exploit superior components of intellectual capitalis the key determinant of key factors that distinguish competentorganizations from incompetent ones.


Theconcept of intellectual capital has been evolving for severaldecades. It gained significance when researchers and scholarsrealized the significance of invisible assets in the organization.This discovery ushered in the error of knowledge-based economy whereorganizations gain competence by exploiting different components ofintellectual capital. The basic role of intellectual capital in theorganization is to increase performance and competitive advantage oforganizations that are able to exploit this type of capital inaddition to its visible assets. However, the organization needs toalign its intellectual capital with its vision, mission, and strategyin order to realize the full benefits of intellectual capital. Forexample, the capacity of the organization to align its intellectualcapital can help it increase its competitiveness and the overallperformance.


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