Intellectual Capital - What it is | Why it matters
Gerrit Botha
Director at Exco Capital | Building the largest Business Development community across Africa
Intellectual capital is much more than knowledge management or the learning organisation. It's also worth much more than financial capital. You can't touch it but you can sell it. You can't really store it but you can build it. One thing is for sure, you can use and re-use it for free, and if your business does not have lots of it, you are in deep, deep trouble.
"Intellectual capital" relates to strategy, assets and enterprise architecture. It is pervasive, and will be the dominant force in the 4IR.
In its simplest terms, conventional wisdom has it that Intellectual Capital refers to human, relational and organisational capital. However, in another view, if you subtract from the market value of the business (i.e. the value of its shares) the value of the tangible and financial assets, you are left with the market’s valuation of the total value of the intangible assets. That is the business’s Intellectual Capital, valued in monetary terms.
To demonstrate the impact of Intellectual Capital, Pegasusics.com report that 80% of the value of the S&P 500 is contributed by Intellectual Capital. Yet few buyers or sellers of middle-market companies attempt to measure and assess the Intellectual Capital that resides within the company.
Source: https://www.pegasusics.com/our-genesis.php
Intellectual Capital biggest value is arguably its strategic value, creating blue ocean businesses and ensuring sustainable competitive advantage and future competitiveness. It is the equalizer for small business to beat big business.
In a modern economy, no self-respecting business can survive and grow unless it invests in Intellectual Capital. Intellectual Capital is the capital that creates the bulk of the wealth of the organization. These views are supported by many researchers globally, and summarised in a qualitative analysis by Abdulaali (abacademies.org, 2018) indicate that intellectual capital impacts the business organization in various ways such as
- enhancing the competitive advantage,
- facilitating innovation,
- enhancing the competency of the employees, and
- increasing organizational performance.
To summarise, Intellectual Capital is the result of individual and collective mental processes that form sets of intangible objects for use in economic activity and which bring about income to its owners. It covers the competencies of people (human capital), the value relating to relationships, for example with customers (relational capital), and everything that is left when the employees go home (structural capital).
?Intellectual Capital is the collective expertise of a company. It is the competitive edge in the modern economy.
