In the wake of a highly volatile economy, organizations must find ways to improve their bottom lines and profitability through new and innovative means. Many businesses realize that one of the most important assets that they possess is intellectual capital in the form of intellectual assets and human capital. As businesses struggle to revitalize their assets and assess their value, they are reminded that intellectual capital can provide a wealth of opportunities for growth in a number of ways. The identification of intellectual capital requires a strong sense of work ethic and research skills to identify new knowledge and skills. Once these forms of intellectual assets have been identified, they must be cultivated and managed with efficiency and expertise. Although intellectual capital provides a wealth of opportunities for growth and value in an organization, it is often very difficult to assess its financial value and its effect on an organization's bottom line.
The following discussion will identify a problem that is very common to the development of intellectual capital, the assessment of its value and its relation to the bottom line. A thorough assessment and evaluation of existing research will be presented to present the opportunities and obstacles involved in intellectual capital realization and cultivation. A discussion of intellectual property and patents will establish the importance of knowledge protection in order to discourage competition, and the encouragement of human capital development will promote the awareness of talent that is present in every organization. Furthermore, the importance of developing an effective knowledge management system will be established. The utilization of employee interviews from various organizations provides evidence that intellectual capital is an appreciated asset. Finally, an analysis of the research and its validity to the problem in question will be presented, and conclusions will be established regarding the problem and its effects on an organization.
1. The Problem
In the current age of information technology, intellectual capital, or IC, has become the most visible and valued asset within an organization. Whether the firm is in the manufacturing sector or in software development, each business guards their research base as carefully as their financial assets. Professional services such as legal advising and consultants charge for their services not because they manufacture a tangible product; rather, they bill for the intellectual knowledge that they convey to their customers. Physical assets are often valued on a lower scale as compared to intellectual capital because experts estimate that an asset cannot enable a firm to explore uncharted territory nor does it provide assistance in decision-making processes. The high valuation of intellectual capital also results from the difficulties encountered in acquiring such knowledge. Furthermore, intellectual capital is a challenging acquisition as it does not behave under ordinary rules or processes. Management of such volatile assets becomes arduous and raises the issue of how to appropriately assess their value so as to not deplete their market value (Stewart 1991).
This research study proposes to identify how the intellectual capital of organizations can be evaluated by identifying the factors that contribute to its high valuation. The research also aims to outline strategies that would allow a firm to integrate knowledge management into its management process in order to enhance its intellectual capital. The primary objective is to shed light on a new management concept in which intellectual capital is integrated as a management tool rather than a mere accounting figure on a typical balance sheet.
2. Scope and Method of Study
The research and findings discussed in this study will demonstrate that the intellectual capital of an organization is enhanced by the implementation of a knowledge management strategy within the firm. Furthermore, it has been established that in today's volatile economy, intellectual capital is more valuable than ever in the ability of a firm to sustain a competitive advantage. Intellectual capital in any form is worth more than its distinction on a balance sheet, and this study will provide a thorough analysis of existing research from experts in the field of business management.
The researcher will utilize a combination of primary and secondary resources to support the overall framework of the study. Primary sources will include journal articles and books that analyze intellectual capital management. Secondary resources to be considered for the study will include Internet sources, trade magazines, and news items. Expert analyses from management professionals have provided the author with a variety of perspectives and insights into the study of intellectual capital and its influence on management practices. Furthermore, a number of real organizations will be referenced and analyzed in relation to their attitudes and beliefs regarding intellectual capital. Finally, the resulting evidence will demonstrate that intellectual capital is an extremely critical component of an organization's ability to sustain a competitive advantage in a highly unpredictable economy.
3. Review of Literature
Older management systems did not possess a comprehensive framework that could account for intellectual capital. Any valuation of capital in an intellectual capacity was limited to intellectual property laws for patents, trademarks or goodwill. These items were also not regularly considered in routine business dealings as they were considered company assets and were only measured on end-of-year balance sheets. However, with the recent emergence of the concept of knowledge management, it has become quite difficult for managers to differentiate between intellectual and intangible property. For example, over a decade ago, Thomas Stewart (1991) considered intellectual capital as part of a strategic planning process because it affects the back office operation as in the case of engineers and scientists. However, in today's work environment, all workers from the top down are also considered a part of intellectual capital and must be accounted for. To resolve this problem, most corporations have turned to automation to reduce the risk of possessing intellectual property. However, this is not the best solution to the problem as corporations utilizing process automation must also focus on skilled workers and the issues related to knowledge management.
Dave Ulrich of Sloan Management Review (1998) has identified the importance of skilled workers that possess a total commitment to the business. Ulrich states that the bottom line for any manager is to pay attention to the intellectual capital as it includes a commitment by managers to worker competencies. Organizations that properly plan and provide policies that emphasize and appreciate capital are likely to experience higher rate of returns. Furthermore, knowledge and skill has developed into an integral part of modern business practices and the implementation of such a strategy has become increasingly important. Ulrich proposed the measurable and useful definition of intellectual capital as competence x commitment (1998).
Traditionally, organizations considered the issue of labor management as part of the field of economics and that human capital is the key resource for production facilities and economic activity. However, as time passed, it has been demonstrated that the key to successful achievement in any organization is located in its human resources pool. Efficacy of management depends on the level of achievement in an organization in terms of its human capacity and community achievements. This can only be accomplished if organizations demonstrate collective community professionalism. The bottom line is that organizations must contemplate the fact that they are highly dependent on community interactions as well as knowledge. However, it must also be noted that knowledge and intellectual capital must be defined according to the nature of its use in the organization before its utility can be gauged. For example, a procedural knowledge and know-how is mandatory and routine while innovative knowledge is considered extraordinary, especially if it is related to the invention of a new product or service (Nahapiet and Goshal 1998).
4. The Process of Centralization
This study will use the following hypothesis to establish its framework in problem analysis and resolution: As organizations become increasingly aware of the importance of intellectual property, they require new management criteria through which they can measure a skilled human resources component, intangible assets, and intellectual property under one centralized management process.
5. Structure of the Model and its Operationalization
More and more businesses are integrating the existence of intellectual capital in the mainstream business process so that they formulate a tool through which they can assess the value of their firms. Since intellectual capital is becoming costly to purchase and integrate into an existing business framework, management processes should possess the ability to account for the use of intellectual capital within a business. Furthermore, organizations are slowly beginning to realize that human resources are its main contributor to the intellectual capital asset pool and therefore, collection, development and conservation of this aspect of the business has become critical.
The principle variables that will be investigated throughout this study include the following key factors:
Human resources as a primary source of intellectual capital
The process of intellectual capital measurement and conservation
Management efficiency in regards to the resource pool
The researcher will adopt the qualitative method of investigation to conduct the research. A series of literature reviews will…