OrganizationalIntellectual Capital

Prof.dr.dr.dr.h.c. Constantin Bratianu

Faculty of Business Administration

Academy of Economic Studies

Learning objectives

To understand the concept of organizational intellectual capital (IC) and its implications in management

To explain the correlation between organizational intellectual capital and business excellence

To present the most important models for IC and their implications in management

To explain the role of integrators in the dynamic model of the organizational intellectual capital

Karl Erik SveibyThe new organizational wealth (1997)

Any organization has:

- tangible assets

- intangible assets

Tangible assets contribute to the Book value, since they are visible, tangible and can be measured

Intangible assets contribute to the Market value. They are invisible, intangible and cannot be measured in the same way as physical objects.

Assets

Tangible assets

Intangible assets

Competence of

personnel

Internal structure

External structure

Sveiby’s model for Intangible assets

Thomas StewartIntellectual capital. The new wealth of organizations (1997)

Intellectual capital is intellectual material – knowledge, information, intellectual property, experience – that can be put to use to create wealth. It is collective brainpower (p.XI)

Intellectual capital is packaged useful knowledge (p.67)

Intellectual capital is the sum of everything everybody in a company knows that gives it a competitive edge. Unlike the assets with which business people and accountants are familiar – land, factories, equipment, cash – intellectual capital is intangible.

Intellectual Capital

Intellectual Capital can be defined as all nonmonetary and nonphysical resources that are fully or partly controlled by the organization and that contribute to the organization’s value.

(Göran Roos, Stephen Pike & Lisa Fernström, Managing intellectual capital in practice, 2005, 19p.)

Total Capital

Financial Capital Intellectual Capital

Monetary Resources

Physical Resources

Organizational Resources

Relational Resources

Human Resources

IC RESOURCES

IC resources behave differently from monetary and physical resources, and therefore must be managed in a different way.

Monetary and physical resources are additive in nature; that is, if one uses them, one has less left to use and if one invests in them, one has more left to use.

Both follow the law of diminishing marginal returns, and both are owned and controlled by the organization in whose balance sheet they appear.

IC RESOURCES

IC resources are not additive in nature, i.e. they have a nonlinear behavior.

When one shares some knowledge with others, he/she still has that knowledge, the level of knowledge did not diminish.

When one invests in IC resources, the result is not necessary more resources.

Structural and relational resources follow the law of network economics. This means that initial investments tend to exhibit very little return and substantial cumulative investments are needed before returns reach reasonable levels.

After this the marginal return of further investment in these resources will increase until an inflexion point is reached, after which there will be a decline of the marginal return

FAX MACHINES

The first investor in a fax machine had no use whatsoever out of his investment since there was nobody to fax to.

Subsequently, each new investor in fax machines generated value for all existing users of fax machines since the user base increased.

Each subsequent investor in fax machines is here generating more marginal value to the existing users of fax machines than the preceding investor.

This continue until a certain limit is reached, when each subsequent investor reduces the increase value in having fax machines.

Intellectual

Capital

Human

Capital

Structural

Capital

Relational

Capital

Operational structure for the organizational IC

Human Capital

It contains all knowledge, experience and skills of all

employees: cognitive knowledge, emotional knowledge

and spiritual knowledge

It contains all intelligences of all employees: logical-

mathematical, linguistic, musical, bodily, spatial,

naturalistic, interpersonal, and intrapersonal

An intelligence is a computational capacity – a capacity

to process a certain kind of information – that originates

in human biology and human psychology (Gardner)

Cultural and professional values

Structural Capital

It contains all intangibles structures of the company

All regulations and procedures concerning the

decision making process for operational problems

All regulations and procedures concerning the

quality assurance of the company

The organizational and functional structure of the

company

The specific legislation for the business field

All software systems and platforms

Relational capital

It reflects relations between the inner business

environment and the external business environment

It reflects the transfer of knowledge and technology

toward society

It reflects the interactions between internal

stakeholders and external stakeholders: with

suppliers, customers, business partners, regulation

bodies, government etc.

Human

Capital

Knowledge Intelligence Values

Operational structure of the human capital

Gardner’s Multiple Intelligence

Linguistic intelligence

Logical-mathematical intelligence

Musical intelligence

Spatial intelligence

Bodily-kinesthetic intelligence

Naturalist intelligence

Personal (intrapersonal and interpersonal) intelligence

Existential intelligence

Intellectual

Capital

Human

Capital

Structural

Capital

Relational

Capital

Knowledge Intelligence Values

Knowledge Intelligence Values

INTEGRATORS

Potential Intellectual Capital

Operational Intellectual Capital

Integrators

An integrator is a powerful field of forces capable of combining two or more elements into a new entity, based on interdependence and synergy. These elements may have a physical or virtual nature, and they must poses the capacity of interacting in a controlled way.

Potential IC (Available IC)

Operational IC (Usable IC)

Level of IC

Power of integration

Transformation of the potential IC into operational IC

Not usable IC

Result of the integrators action

L

M

T&P

OC

Legislation context Cultural context

Structural capital

Knowledge Intelligence Values

Integrators

IC

Knowledge Intelligence Values

Tacit

Explicit

Cognitive

Emotional

Business

Social

Individual level

Organizational level

University autonomy

Decentralization

Eliminating politics

Differentiation

Human Capital Relationship Capital

Structural Capital

University Performance

Potential Intellectual Capital

Integrators

Operational Intellectual

Capital

The pivotal role of the Structural Capital

Human Capital Relationship Capital

University Performance

Potential Intellectual Capital

Integrators

Operational Intellectual

Capital

The pivotal role of the Structural Capital

Cambridge University, UK