1. MANAGEMENT OF
INTELLECTUAL CAPITAL WITHIN
ORGANIZATIONS: THE HRM’S
CHALLENGE
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2. • STUDY OBJECTIVE
By the end of the discussion students shall have
learned:
• the origins and nature of intellectual capital
• the role of knowledge as a key building block of
intellectual capital
• the components of intellectual capital
• the different ways of measuring intellectual
capital; and
• the HRM’s role in obtaining, building and
retaining intellectual capital
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3. • INTRODUCTION
• Knowledge is now acknowledged as a distinct
factor of production in an organization. Inspite of
being intangible or hidden the asset helps in the
achievement and sustainance of competitive
advantage.
• Tangible assets (land, buildings, equipment,
inventory and financial resources) alone cannot do
the trick. Their central role no longer exists.
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4. • Organization success in this era depends on what it
knows, how it is used, and how fast new knowledge
can be obtained and used.
• People owning knowledge therefore have to be
treated as important assets and not mere
commodities.
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5. 2. WHAT IS INTELLECTUAL
CAPITAL?
• “ Intellectual material that has been formalized,
captured and leveraged to produce a higher valued
asset”.
Klein & Prusak (1994)
• “ the intellectual material – knowledge,
information, intellectual property, experience that
can be put to use to create wealth”
T.A. Stewart (1998)
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6. “Knowledge that is of value to an
organization”.Laurie J. Bassi (1997)
• Intellectual capital is the sum of everything everybody
knows that gives an organization a competitive edge over
the others.
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7. WHY A CRITICAL ASSET?
• Most assets depreciate when obtained, intellectual capital
appreciates.
• As the service industry grows, the intellectual capital’s
importance increases.
• Employees, with intellectual capital can find work
opportunities elsewhere in the wide business area
• The globalization of the economy is putting pressure on
organizational adaptability and innovation.
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8. 2. THE ORGINS AND NATURE OF
INTELLECTUAL CAPITAL
• Intellectual capital represents knowledge transformed to
something of value to the organization.
Where does Intellectual capital (IC) come from? The
employees within the organization
- they own knowledge, skills, abilities and ideas.
- organizations rent the same from employees.
- when used or converted into products, services or
work processes the organization takes their
ownership.
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9. • The organization itself which has data (collected facts and
figures) which when organized become information
(logically sorted data). Leads to knowledge.
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10. BENEFITS OF POSSESSING
INTELLECTUAL CAPITAL
• Improved efficiency of people and operations
• Increased responsiveness to customers
• Improved decision making
• Enhanced employee satisfaction
• Savings in research and development costs
• Reduced duplication of efforts; and faster innovation of
products
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11. 3. KNOWLEDGE: THE KEY BUILDING
BLOCK OF INTELLECTUAL CAPITAL
• What is knowledge?
“the understanding of why and how something
works, for example how and why the customer
reaches a decision to purchase a good or service”.
Pat clarke (1998)
- knowledge is generally related to the level of
education of a person. It can be acquired from
schools or universities or elsewhere.
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12. - knowledge is not always of an academic
nature. Is not inborn but needs learning
from books, teachers or mentors and society.
• Categories of Business knowledge
- Advantaged knowledge – does or can
provide competitive advantage
- Base knowledge e.g best practices form an
integral part of knowledge
- Trivial knowledge – that with no major impact
on the organization
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13. CHARACTERISTIC OF KNOWLEDGE
- must be unique, valuable and impossible to
imitate by competitors which would kill the established
competitive advantage
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14. 4. THE COMPONENTS OF
INTELLECTUAL CAPITAL
IC contains at least three components:
(Hubert Saint-Onge et al; 1996)
• Human Capital (or Employee Capital)
- the capabilities (usable knowledge, skills
and competence) of the individual to solve
problems
-could be a result of genetic inheritance,
education, experience and attitudes about life
and business.
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15. • Customer Capital (relational or external capital)
- includes knowledge of market channels,
customer and supplier relationships
and industry associations
• Structural Capital (organizational or internal capital)
- the capabilities of the organization to meet market needs
(eg. Organizational operating systems and manufacturing
processes).
Different types of knowledge are held within the above
components, both tacit and explicit knowledge. Tacit
knowledge obtains as follows:
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16. • In human capital – it is the mindsets of individuals, their
assumptions, biases, values and beliefs.
• In customer capital- it is the individual and collective
mindsets of customers, which shape their perceptions of
value provided by any given product or service
• In structured capital – it is the collective mindsets of the
organization’s members, which shape the culture of that
organization, including norms and values.
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17. 5. THE MEASUREMENT INTELLECTUAL
CAPITAL
“ What you manage you must be able to measure,
and what you measure you must be able to
manage”.
Ulrich, D (1997)
There are several approaches for measuring
Intellectual capital: (Robert Kaplan & David
Norton, 1992).
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18. • Relative value
- The ultimate goal is progress, meaning and quality not a
quantitative target.
• Balanced scorecard
- supplements traditional financial
measures with added perspectives such as
customers, learning or growth
• Competency models
- observing and classifying the behaviours of successful
employees and the market value of their output
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19. • Benchmarking
- identifying organizations that are recognized leaders in
leveraging their intellectual assets; determining how well
they score on relevant criteria, and comparing with yours.
• Business worth
- evaluation focusing on the cost of missed or undertilized
business opportunities
• Knowledge bank
- treats capital spending as an expense instead of an asset
and portion of salaries as an asset because it creates cash
flow
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20. • Calculated intangible value
-compares a company’s return-on-assets with a published
average ROA for the industry
• Brand-equity valuation
-measures the economic impact of a brand
(or other intangible assets) on such factors as pricing
power, distribution reach, and ability to launch new
product’s as line extensions.
Source: Jean L. Greaf, The Montagu Institute, 1997.
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21. • Beyond the above, Kaplan & Norton suggest managers work at the business
from four important perspectives:
• a customer perspective – how do customers
see the organization?
• an internal perspective – what must the
organization excell at?
• An innovation and learning perspective-
can the organization continue to
improve and create value?
• A financial perspective- how does the organization look to
shareholders?
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22. 6. HR’S ROLE IN OBTAINING BUILDING
AND RETAINING INTELLECTUAL
CAPITAL
• The ultimate goal of any organization striving towards
sustained competitive advantage is to have a workforce
with a unique knowledge base.
• The HR’s challenge is to obtain, build and retain world-
class workforce with the potential to create a competitive
advantage.
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23. 6.1 OBTAINING INTELLECTUAL
CAPITAL
• Through recruitment
- of individuals with a broad competency
base, higher-quality talent and ambition
to multiskill.
• Developing and unleashing internal human
capital
- by creating a culture of learning
- by rewarding individuals for collecting,
sharing, and creating new ideas
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24. • Better use of information technology by,
- updating present systems
- distributing information to different
groups by internet or WWW
• Mergers and acquisitions
- benefiting from knowledge of the new
employees
• Creating a learning organization
- where everyone is busy acquiring and sharing
new knowledge
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25. 6.2 BUILDING INTELLECTUAL
CAPITAL
• Continuous improvement and building of the workforce is
necessary through:
- re-engineering the organization structures
and building a knowledge-leveraging
strategy
- developing a culture where everyone
becomes a knowledge leader
- making a commitment to management to
communicate clearly and share knowledge
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26. -developing a framework for capturing
knowledge to avoid losing it.
-making information systems accessible
and easy to use
-building technology which is human
-centred and focussed on solving problems
-creating, capturing and transferring knowledge
across internal boundaries; and
-providing time and resources for knowledge
sharing-tearing down internal barriers to
knowledge sharing
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27. - providing time and resources for knowledge
sharing-tearing down internal barriers to
knowledge sharing
- The process of building intellectual capital may also require
hiring of a chief knowledge officer (CKO), or chief
learning officer (CLO).
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28. 6.3 RETAINING INTELLECTUAL
CAPITAL
• How do we prevent knowledge workers from leaving the
organization?
• The answer lies in obtaining a commitment from
employees to stay. What does that require?
- Empowering-enabling employees
to control decisions on how to
do their work
- Strategy or vision-offering employees a
vision and direction that commits them to
working hard
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29. -Challenging work-providing employees with
stimulating work that develops
new skills
-Work culture -establishing an environment of
celebration, fun, excitement and
openness for work accomplished
-Shared gains -compensating employees properly
for work accomplished
-Communication-candidly and frequently sharing
information with employees
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30. -concern for people - ensuring that each
individual is treated with
dignity and differences are
openly shared
-Technology - giving employees the
technology to make their
work easier
-Training and development - ensuring that employees
have the skills to do their
work well
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31. Reference: Chris Brewster at al, Contemporary Issues in
Human Resource Management, Oxford
University Press Southern Africa Capetown,
2000.
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