Introduction to Intellectual Capital
What is the signiiicance of intellectual capital in the changing world economy? Chapter 1 considers the emerging role of intellectual capital for organizations: the changing equation of wealth; e why intellectual capital is important.
THE CHANGING EQUATION OF WEALTH
Wealth traditionally has been seen as an organization's physical and financial resources. However, over the past several decades that value equation has been turned on its head. Radical changes brought about by revolutions in technology, globalization, and communications have forced us to rethink how wealth in our enterprises is really generated, how best to structure them to be wealth-creating entities, and how to operate successfully in this new era.
The basis for this rethinking is that wealth has shifted from being derived from tangible items to being derived from intangibles. We can see this change by comparing the shift from using a typewriter to using a computer. For a typewriter, the greatest value was its physical value. A good typewriter was a sturdy, heavy piece of equipment that took its value from a long life and efficient design. However, for today's computer, the least important part of its value is in its hardware. By far the greatest part of its value comes from the knowledge, information in the form of databases, etc., and software we put inside it, coupled with our ability to put that knowledge and data to use for our own needs and for those that are linked with us on our networks. In our knowledge-based era, value is directly linked to the intelligence, the speed, and the agility that comes from the processing and linking capabilities provided by the computer. The computer's value is a transformative value. What is critical to see is that this value is dependent upon people, organization, and a host of other intangibles that are rarely listed on the balance sheet.
Extend that notion to an organization. With the globalization of capital markets, financial resources are more instantly available and in greater amounts than ever before. In addition, dominance in tangible or physical resources no longer means dominance in markets. Companies with large inventories and extensive physical plant maybe at a distinct disadvantage because of the burden of high maintenance and restocking
INTRODUCTION TO INTELLECTUAL CAPITAL
A firm using a lean production approach can spend its money to get better returns on it in many other ways.
In fact, as financial and physical capital have become commodities, the intangibles of organizations have emerged as the new factor of production that is an organization's ever-greater differentiator and source of value.
In this era where speed, connectivity, and global reach are the basis for competitive advantage, we have a powerful need to understand what makes up our intellectual capital and how to manage it. The intangibles have become the new currency for the knowledge era. They are compatible with the other currencies but have emerged as the differentiating drivers for organizations. Because of their mounting importance and their unique nature, the key to success lies in understanding that we cannot manage intangibles as we have traditionally managed tangible resources.
WHY INTELLECTUAL CAPITAL IS IMPORTANT
Intellectual capital figures in two ways: one way is how we account for intangible wealth in our organizations and society, the other is how we manage these intangible resources.
An understanding of intellectual capital provides a framework for seeing how an organization's intangible, non-financial resources can be cultivated and exploited, in conjunction -with the traditional physical and financial resources, to better achieve its desired goals and enable it to navigate successfully in rapidly changing times. Knowledge has become an ever-greater ingredient in a firm's goods and services. It is increasingly embedded in the way we do things and in our equipment. The computers in automobiles are more powerful than the ones on the desks at offices. Intangibles are also major inputs in physical commodities. The physical part of producing information-rich hybrid corn is much less than it used to be (the intellectual capital invested in the corn is the genetic engineering and technology that enables the corn to be pest resistant, tastier, more nutritious, longer lasting in storage, needing less fertilizer, able to thrive in a broader range of conditions, etc.), and oil is routinely discovered and extracted at previously inaccessible ocean depths. In an era where terms like the "New Economy" have come to the forefront, there is a need to grasp
INTELLECTUAL CAPITAL
what the new resources and relationships are and how they can be mobilized for successful results.
While knowledge and intellectual capital have always existed, the rise of technologies such as the Internet, the shifting to networked organizations, and the emergence of a global society all require new ways of thinking about the unprecedented opportunities and challenges we encounter. The world has gotten too complex for the still dominant mode of "command and control" and top-down bureaucratic model to be effective, or even workable. New conditions call for being able to respond rapidly, to be guided by values, and to become knowledge-based extended enterprises. The need for this shift became ever more pronounced over the last decade and no doubt will accelerate even more quickly over the next ten years.
How prepared are organizations and the people that work with them? A number of enterprises have been successful at particular aspects of becoming knowledge-based organizations, but very, very few have succeeded in marshaling the human, technological, and relationship resources to recreate themselves for the new era. Even newly founded "greenfleld" organizations rarely have made the effort to establish the infrastructure to become knowledge enterprises. Much of this is due to the fact that the fields of knowledge management and intellectual capital are so new to the thinking of most people. However, as the costs of the old ways become more obvious and the ability to innovate and rapidly respond separates knowledge-based enterprises from their competitors, the winning advantage will go to those organizations that are clearly better able to nurture, capture, share, and leverage their intellectual capital.