1. INTELLECTUAL CAPITAL MANAGEMENT
A Seminar Lecture
Delivered by
Nadeem A. Qureshi
PhD Scholar
At
The Department of Management Sciences,
Hazara University, Mansehra, Pakistan.
May 11, 2015

2. What is economic capital?
Accumulated assets, usually financial
and physical, used by a firm for
economic gain.

3. Some Related Aspects:
 All capital holds some value
 Capital is a type of good that can be
consumed now. If consumption is deferred,
an increased supply of consumable goods is
likely to be available later.
 Capital consists of any produced thing
that may enhance a person’s power to
perform economically useful work.
 A stone or an arrow is a capital for a
caveman who can use it as a hunting
instrument.
 Roads are capital for residents of a city.

4. In a nut shell, capital is an input in
the production process

5. What is Intellectual Capital (IC)?
The value of a company or
organization’s employee knowledge,
business training and any proprietary
information that may provide the
company with a competitive
advantage.

6. Measurability of the concept:
 IC is the intangible value of a firm. Hence the
problem arises how to measure it?
 The problem is overcome since IC is measured
as the difference between the enterprise value of
a company and the value of its tangible assets.
 A metric for its value is the amount by which
the market value of a firm exceeds its tangible
(i.e. physical and financial) assets minus liabilities.
 Note that total market value of a firm consists
of its tangible assts (physical and financial) +
intellectual assets.

7. Some Practical Uses of the Term
In practice, the term IC is used in
different senses. These senses refer
to some of the most striking
classifications used in the modern
literature.

8. 1- Human Capital (HC):
 The value contributed by employees
through the application of their skills, know-
how and expertise.
 The combined wisdom of an enterprise in
solving its business problems and exploiting
its intellectual property.
 HC is inherent in people, not owned by an
organization.
Hence the need for efficient management
of HC so that organizational intellectual
resources are not drained

9. 2- Structural Capital (SC):
 The supportive non-physical
infrastructure of the organization that
enables the human capital to function.
 SC includes processes, patents, and
trademarks, as well as the organization’s
image, organization’s information system,
and proprietary software and databases.
 SC can be classified further into
organization, process and innovation
capital.

10. a- Organization’s Capital: It includes the organization
philosophy and systems for leveraging the
organization’s capability.
b- Process Capital: It includes the techniques,
procedures, and programs that implement and
enhance the delivery of goods and services.
c- Innovation Capital: It includes intellectual
property such as patents, trademarks and copyrights,
and intangible assets, protected under laws regulating
intellectual property rights.

11. 3- Relational Capital (RC):
 RC consists of such elements as
customer relationships, supplier
relationships, licenses, and franchises.
 RC is also referred to as a
company’s good will.
 An off-shoot of RC in modern HR
literature is called Customer
Relationship Management (CRM).

12. Emerging Paradigm Shift in ICM:
 While the importance of the
financial and physical capital of an
enterprise is not waning, it is instead
the maintenance of a “balanced
human capital portfolio” which is
emerging as the basis of a firm’s
strategy to gain sustainable
competitive advantage.

13. What causes the paradigm shift?
The paradigm shift is caused by numerous forces
inherent in the present information age. Some explicit
causes are:
 Technological advancement and the resultant
slackening of the traditional market entry barriers.
 Increasing competition.
 Shorter product life-cycle and increasing risk.
 Emerging tide of globalization and the rise of IT and
e-commerce.
Free flow of information, exchange of ideas and
cultural diffusion are some other factors which
increasingly account for thrust among organizations to
crave for persistent refinement of their intellectual
resources.

14. In the above backdrop, it may be suggested that
the strategic outlook in operations seems to be
shifting from a market-based view (MBV) to a
resource-based view (RBV) of competition.
the intellectual capital, therefore, appears to
have acquired an intrinsic value as the real
strategic asset of a firm, since it is “rare,
valuable, imperfectly imitable and non-
substitutable”

15. What is resource based view (RBV)?
In essence, the resource-based view is
based on the idea that the effective and
efficient application of all
useful resources that the company can
muster helps determine its competitive
advantage.

16. The required resources:
 An economic resource is any productive factor
required to accomplish an activity.
 A resource provides the means to undertake an
enterprise and to achieve the desired ends.
 The basic resources are: land, labor and capital
(tangible and intangible)
 Some other resources include:
1- Energy,
2- Entrepreneurship,
3- Information,
4- Expertise,
5- Management, and
6- Time.

17. Intellectual capital: a true capital cost
Intellectual capital is now beginning to
be classified as a true capital cost because
1- Investment in people tantamounts to
investment in machines and plants, and
2- Expenses incurred in education and
training are equivalent to depreciation cost
of physical assets.

18. Toward conclusion: The triumph of people-oriented firms
 Intel, Motorola, Southwest Airlines,
Hewlett Packard, Lincoln Electric, and
Starbucks … so many companies today
pursue “people-first” strategies.
 These strategies bring in competitive
advantage, since it is far more difficult
to copy a workforce made up of highly
knowledgeable and motivated
workforce.

19. What differentiate people-first
organizations?
The strategies of these organizations are based on
practicing some core HR concepts:
 Emphasis on cultural diversity.
 Fostering family friendly environment.
Helping employees balance work and family
responsibilities.
 flexible work schedules and on-site child care
facilities.
 Regular investment in employee training.
Employee empowerment and involvement in the
decision making process.

20. How sweet is the fruit?
 Dedicated and committed
workforce.
 Higher employee productivity and
satisfaction.