Intellectual Capital and Strategic Management, what does it mean?
Intellectual Capital, one of the biggest assets against the ever-growing threat of mechanical automation in the workplace.
Intellectual Capital refers to the knowledge a company and/or employee has, and treats it as an asset. This counters more traditional interpretations of company ‘assets’, i.e. property, equipment, fleet, financial capital. IC is essential for organisations in order for them to stay relevant in ever-changing, experience-needing competitive business environments. As Stahle & Hong summarise, IC is…
“…the source of success is the intelligence, flexibility and innovativeness of people, organisations and nations.”
Knowledge is a part of IC and knowledge management is part of managing an organisations IC.
According to Horibe, Seleim & Khalil, IC can be broken down into three main types:
Human Capital (HC)
– Knowledge and experience people bring to the organisation
It’s been quoted by so many different people now that it’s impossible to find its origin, but it holds true – “company is only as good as its people”. If you are a company without good people, you need to do what you can to invest in finding those people. Knowledge and experience that comes with good people, is invaluable.
Organisational or Structural Capital (OC)
– The infrastructure that facilitate converting human capital into wealth for the organisation
– Organisational structure, systems, processes, computers, physical buildings and so forth to connect people to each other, and to capture and store human capital and make it available for others
As touched upon above.
Customer Capital or Relational Capital
– The value added to the organisation through its relationship with customers
Just as critical, if not more so than the first two points. A company may not only be as good as its people, but a company does not exist without customers!
Just as fundamental as having Intellectual Capital, is having a business strategy. Business strategies are born out of knowing your marketplace, knowing your legal limitations and knowing your competitors. Organisations develop their strategy based on the resources they have available. This is where IC plays a key role: knowledge as intellectual capital is a valuable resource to companies. More so if it is tacit knowledge, as it is harder for competitors to replicate.
But how do they relate to KM?
Intellectual Capital and Strategic Management work in conjunction with KM. By using the intellectual knowledge resources available, organisations are able to make smarter business decisions. The better access (through KM) to higher quality IC, means that allocation of business resources (like money, time, reputation) will be achieved with more favourable outcomes. Other more precise strategic activities are born out of KM and IC too, for example major investments can be made as a result of the new innovations through IC and KM… not to mention marketing campaigns, acquisitions, targeting growth markets and product specials, to name a few.
What is the role of knowledge and KM in strategic and operational management?
In order for organisations to achieve their long-term goals, it is important that they implement organisational strategies (OS) that include knowledge strategies (KS). Knowledge is essential in strategic planning, and in order for organisations to achieve their OS, support from KS is essential. Knowledge management is a tool implemented in conjunction with the knowledge strategy, with the aim of providing up to date, quality, intelligence, from which organisations are able to make decisions.
Horibe, F. (1999). Managing knowledge workers: New skills and attitudes to unlock the intellectual capital in your organization. Toronto: John Wiley & Sons.
Pirjo Stahle & Jianzhong Hong. (2002). Dynamic intellectual capital in global rapidly changing industries
Seleim, A. A. S., & Khalil, O. E. M. (2011). Understanding the knowledge management -intellectual capital relationship: A two-way analysis. Journal of Intellectual Capital, 12(4).