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CONTENTS 1.History of Intellectual Capital

2.Introduction

3.Intellectual Capital Hierarchy

4.Importance of Intellectual Capital

5.Components of intellectual capital

6.Human Capital and it’s Importance

7.Structural Capital and its classifications

8.Relational Capital and Strategic Allies

9.Conclusion

HISTORY OF INTELLECTUAL CAPITAL

• The concept is not a new phenomenon—in fact the economist Nassau William Senior mentions “intellectual capital” as an important production factor in his book published more than 150 years ago in 1836.

• The concept of intellectual capital was developed by visionary companies such as Skandia or Dow Chemical, which started to measure and to report their intellectual capital in the 1990s.

• Intellectual capital is often referred to as a “practitioner driven concept”

SKANDIA’S MARKET VALUE SCHEME1997

Skandia's value scheme contains both financial and non-financial building blocks that combine to estimate the company's market value

INTRODUCTION

• intellectual capital is broad organizational knowledge unique to a firm, which allows the firm constantly to adapt to changing conditions. Intellectual capital can be accepted as a competitive advantage for the company and it is a key factor in value creation and increases free cash flows in any firm.

INTELLECTUAL CAPITAL HIERARCHY

Implict

knowledge

Organisation

IntellectualCapital

FinancialCapital

Tangible Capital

Human CapitalStructural Capital

Relational Capital

organizational

process-related

innovational

Reputation

ExperienceSkills

IMPORTANCE OF INTELLECTUAL CAPITAL

• When there is close interaction between these 3 categories of Intellectual Capital the firm is able to create value from its business activities growth can be anticipated.

COMPONENTS OF INTELLECTUAL CAPITAL

HUMAN CAPITAL• The Human Capital of a firm is the knowledge

and skills of its professionals aimed to produce professional services.

• Human Capital is reflected by education, training, or experience of people. Adopting an etiologic perspective.

• Human Capital reflected as the quality of individuals. Therefore the individualistic perspective is the primary view of it.

• It makes reference to the tacit or explicit knowledge which people possess, as well as their ability to generate it, which is useful for the mission of the organization and includes values and attitudes, aptitudes

IMPORTANCE OF HUMAN CAPITAL

• It’s the most influential component.

• It includes the experience, creativity and teamwork of the employees, but when the firm holds a strong position in these areas, an image of leading firm is projected towards the external agents (customers, suppliers, competitors, and the general public) present in the environmental setting.

• Thus, the quality of the workforce seems to be the main indicator of leadership in the industry.

‘’The best people make the best firm.”

STRUCTURAL CAPITAL• Structural capital belongs to the

organization as a whole and it can be reproduced and shared.

• All those things that remain in the organization when the employees have left the building but that you cannot find in the balance sheet

• Structural capital might best be described as the embodiment, empowerment, and supportive infrastructure of human capital

• Structural capital is composed of three types of capital: organizational, innovational, and process-related.

CLASSIFICATIONS OF STRUCTURAL CAPITAL

• Organizational capital is the company’s investment in systems, tools, and an operating philosophy that speeds the flow of knowledge through the organization.

• Innovational capital refers to renewal capability and the results of innovation in the form of protected commercial rights, intellectual property, and other intangible assets and talents used to create and rapidly bring to market new products and services.

CLASSIFICATIONS OF STRUCTURAL CAPITAL

• Process capital is those work processes, techniques (such as ISO 9000) and employee programs that augment and enhance the efficiency of manufacturing or the delivery of services.

• Structural capital represents almost a 30% of the total intellectual capital of a typical firm.

• The purpose of structural capital is to provide an appropriate context for communication, cooperation, adhesion and identity.

RELATIONAL CAPITAL• It includes the relations with customers and

suppliers, as well as the capability of the firm to deliver ideas and products in its industrial setting.

• Although this characteristic was originally planned as an indicator of structural capital, the development process of ideas and products appears intertwined with its industrial environment, involving external aspects because it has been written with a comparison to the rest of competitors of the firm.

RELATIONAL CAPITAL• Strategic alliance is considered as a part of

relational capital and it’s to create synergy and gain competitive advantage e.g. Safi Danone

• The value of an organisation does not arise directly from any of its intellectual capital categories, but only from the interaction between these categories.

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Conclusion