Intellectual Capital - Firms Take Stock Of Their Intellectual Capital, Assessing Value In The Information Age

The term intellectual capital defines a range of intangible assets that a company possesses alongside its physical and financial assets but which can't be quantified in the same manner. Among these are the intellectual property and patents claimed by the firm; its employees' and managers' collective knowledge about their products and services and about the way the firm and its market function; and the internal information infrastructure, systems, and software that enable the dissemination, sharing, manipulation, and optimization of that knowledge. The Organization for Economic Cooperation and Development (OECD) defines intellectual capital simply as "the economic value of two categories of intangible assets of a company: (a) organizational (structural) capital; and (b) human capital." Structural capital, according to Financial Management, covers supply chains, distribution networks, and proprietary software systems. While these features of businesses are not native to the New Economy, the importance they have assumed in the Information Age, in terms of the workings of the firm and its perceived value, is altogether unprecedented and rapidly escalating.

In part, the concept of intellectual capital grew out of a growing dissatisfaction among many academics, accountants, and—perhaps especially—investors with standard accounting methods, which did a poor job of assessing the actual value of firms, particularly firms operating in or around the fields of information technology (IT) or other knowledge-intensive sectors. In order to accurately assess the value and prospects of such firms, these critics contended, it was necessary to somehow quantify and account for the collective knowledge and the organization of that knowledge within a firm.

The major factors contributing to the growth and importance of intellectual capital were economic globalization, which greatly intensified global competition and trade; the trend, especially in the United States but in much of the rest of the world as well, toward the deregulation of markets, particularly in such IT-heavy sectors as telecommunications that had previously largely worked outside of the competitive market system; and, of course, the tremendous technological innovation in knowledge-related fields, particularly the growth in IT and computers, which placed information at the center of firms' operations. All these changes forced a shift in corporate organization toward a less centralized and vertical model of corporate organization, greater outsourcing of operations, and more fluid channels of interaction within and between firms, all of which enhanced the importance of intellectual capital.