Intellectual Capital - Firms Take Stock Of Their Intellectual Capital

FIRMS TAKE STOCK OF THEIR INTELLECTUAL CAPITAL

Intellectual capital was a lively topic in the business literature of the early 1990s, but the idea fizzled, according to Information Today, largely on the inability of researchers to devise a satisfactory method of measuring it. Without an adequate means of quantification, the idea essentially had no way of being practically integrated into accounting methods. As a result, the issue faded into the background for several years before reemerging in the late 1990s when the Internet and information technology proved among the primary engines of the fantastic boom in the U.S. economy. While quantification techniques continued to be debated and compared, intellectual capital, an increasingly recognized asset, became a field ripe for management concerns, as companies, determined to maintain their competitiveness in an information-centered economy, required an accurate assessment of the intellectual value harbored in their ranks.

To organize and capitalize on intellectual capital, an entire field of knowledge management was born, including theoretical techniques and extensive and sophisticated knowledge management software programs that companies increasingly integrated into their infrastructure to facilitate the transfer, support, and optimal use of knowledge within the firm.

As intellectual capital grew increasingly central to a firm's operations and value, managers were compelled to take ever-greater steps to protect their intellectual capital from compromise. The task of keeping knowledge, including knowledge inside employees' heads, within the purview of the firm at all times was a growing concern in the 1990s and early 2000s. One mark of this trend was the increasing number of confidentiality agreements devised by companies for their employees to sign, thereby guaranteeing that while they work at the firm and even after they leave, they will not divulge information and company secrets to other parties.

Quantification of intellectual capital involves consistent performance measurements and knowledge assessments that must then be publicized in a manner that investors and accountants can recognize. One leading authority on intellectual capital, New York University's Leonard N. Stern School of Business Professor Baruch Lev, defined intellectual capital in terms of an asset: a claim to a benefit a company expects to reap in the future but which, unlike a piece of machinery or commercial property, doesn't have a physical or financial embodiment. Intellectual property, such as patents or copyrights, is thus one branch of intellectual capital, the one that was in fact legally recognized and secured. The fact that the field of patenting has expanded to include not only physical inventions but also business processes and practices also greatly boosted the centrality of intellectual capital.