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Intellectual Capital

What is capital? Intellectual capital is also intangible, elusive, mobile and hard to pin down.
Knowledge assets, rather than the fixed capital, may reasonably be said to provide the potential for
sustained earnings, but how can such assets be evaluated?
Invisible Assets. The business implications for this were that a businesss invisible assets such as
skills, learning and knowledge were becoming key strategic issues.
Leif Edvinsson, corporate director of intellectual capital at Skandia AFS, the Swedish insurance
company, was one such who labelled intangible assets as intellectual capital when he produced
Skandia's first annual report supplement on the subject in 1995. The world is becoming not labour
intensive, not materials intensive, not energy intensive, but knowledge intensive.
Then in 1994 he authored a cover article in Fortune entitled Intellectual Capital before, in 1997, his
seminal work, Intellectual Capital: The New Wealth of Organization.
In this book Stewart claims that the changes taking place in organisations today are as significant as
those in the Industrial Revolution and that intellectual capital is an indispensable asset for any
organisation. Furthermore, knowledge workers are much more than simply cogs and wheels. In
hindsight, the rise to prominence of intellectual capital was inevitable. Second, it is increasingly
possible to manage knowledge.
As one of the best-known spokespersons for intellectual capital management, Edvinsson built upon
the concept pioneered by Sveiby of reporting on external capital and Skandia has now issued some
six intellectual supplements to its annual financial reports, outlining the firms intellectual capital and
the ways in which this hidden value is used for the benefit of customers and shareholders.
Disney is another interesting example of companies experimenting with and changing themselves
through their appreciation of intellectual capital. Eisner took intellectual capital and packaged it into
new products. Having identified intellectual capital as important, the inevitable question then is how
it can be measured.
Karl-Erik Sveiby was the first to recognise the need to measure human capital. He pioneered
accounting practices for these intangible assets, and in 1989 published the results of the Konrad
working group in the book The Invisible Balance Sheet, proposing a theory for measuring knowledge
capital by dividing it into three categories: customer capital, individual capital, and structural capital.
Leif Edvinsson has come to view intellectual capital as both what is in the heads of employees (human
capital) and what is left in the organisation when people go home at night (structural capital). Human
capital, in the Skandia model, is also subdivided into customer focus, process focus, and renewal and
development focus. Edvinsson has developed a model for reporting on intellectual capital based
around customers, processes, renewal and development, human factors and finance. For example, it
is also worth noting that a pragmatic and concrete tool for measuring and describing an organisation's
non-financial assets IC Rating(tm) has been developed by Intellectual Capital Sweden. IC Rating
measures an organisation's future potential, also called the intellectual capital.
It hasnt taken long for the concept of intellectual capital to take hold. Thomas A. Stewart, Intellectual
Capital: The New Wealth of Organizations, Currency/Doubleday, 1999.
Thomas A. Stewart, The Wealth of Knowledge: Intellectual Capital and the Twenty-First Century
Organization, Nicholas Brealey, 2001.
P.H. Sullivan, Value-driven Intellectual Capital; How to Convert Intangible Corporate Assets into
Market Value, John Wiley & Sons, 2000.
Karl Erik Sveiby, The New Organizational Wealth: Managing & Measuring KnowledgeBased Assets,
Berrett-Koehler, 1997.