Structural capital is the capability and potential to provide value through the sum of the company’s processes. A process here can be defined as a collection of activities that takes one or more inputs and creates an output that is of value.
While the employees own or control human capital, the company controls the structural capital. While it may be difficult to see how a company can control intangible items such as strategy, routines, or an operating philosophy, it might be easier if one simply considers that it does not leave the building every night as human capital does. Structural capital also represents a capability and a potential value for the company, i.e., it does not provide a value to the company by itself.
Structural capital includes: processes, procedures, information systems, access to information, computer systems, data bases, communication systems, E-mail, web sites, teleconferencing abilities, culture, strategy, methods of managing a sales force, and plans, etc.
Relational capital is knowledge of, and relationships with, the company’s network of associates and customers, which leads to loyalty and potential profitability. Various authors label this third type of intellectual capital as customer capital, relational capital or market assets. It represents the way the company uses to communicate and interact with its customers, business partners and outside world in general
Relational capital includes: company name, brands, image, databases, customer loyalty, customer satisfaction, customer base, customer preferences, franchise agreements, longevity, backlog of orders, efficiency, distribution channels, target marketing, licensing agreements, industry associations, market position, company reputation, contracts, personnel service agreements, innovation processes, confidential disclosure agreements, etc.
Intellectual property is an intellectual asset protected by law. Intellectual property deserves a separate division of intellectual capital for several reasons. Intellectual assets are tangible. They can be measured, bought and sold. Intellectual assets are currently protected by law and it's possible to count the number of patents or trademarks a company owns. The cost to maintain a patent is included in standard accounting procedures. Patents themselves are a part of a standard audit though often listed as an expense and not an asset.
Intellectual property includes: licenses, patents, copyrights, trademarks, service marks, design rights, trade secrets, research papers, etc.
Now when we have a better understanding of what intellectual capital is we can take a look at its specific features [3, p. 45]:
- - Intellectual assets are non rival assets. Unlike physical assets which can only be used for doing one thing at a time, intellectual assets can be multiplexed. For example, a customer support system can provide support to thousands of customers at the same time. It is this ability to scale with need that makes intellectual assets far more superior to physical assets;
- - Human capital and relational capital cannot be owned, but have to be shared with employees and suppliers and customers. Growing this kind of capital therefore requires careful nurturing;
- - Structural capital is an intangible asset that can be owned and controlled by managers. However, it cannot be traded easily since no markets exist for this purpose. Moreover, customers do not care about the structural capital of their suppliers since everyone likes dealing directly with real human beings rather than with systems;
- - Structural capital, in the form of just-in-time procurement processes and real time inventory control systems can be substituted for expensive capital expenditure such as storage warehouses. Hence the knowledge economy has opened up opportunities for every company to explore whether inexpensive intangible assets can do the work of costly physical assets;
- - Companies that leverage their intellectual capital to do knowledge work are able to generate higher margin of profits than those who provide mass- produced solutions;
- - Human, structural and relational capital often works together in judicious combinations to give rise to core competencies that assume strategic significance. Hence it is not enough to invest in people, systems and customers separately, but in combinations that produce end value.
In conclusion, intellectual capital of a company is the sum of its human capital, structural capital, relational capital and intellectual property. These assets form a source of distinct competitive advantage and distinguish the performance of one company from the other. Management efforts therefore have to focus on the knowledge resources and their use. Intangibles and how they contribute to value creation have to be appreciated so that the appropriate decisions can be made to protect and enhance them.
- 1. Lin C.Y., Edvinsson L. National Intellectual Capital: A Comparison of 40 Countries. New York: Springer, 2011. - 392 p.
- 2. Arapostathis S., Dutfield G. Knowledge Management and Intellectual Property: Concepts, Actors and Practices from the Past to the Present. - Northamphon: Edward Elgar Pub, 2013.-328 p.
- 3. Ricceri F. Intellectual Capital and Knowledge Management: Strategic Management of Knowledge Resources. - New York: Routledge, 2011. - 224 p.