Personal Website of R.Kannan
|Home||Table of Contents||Feedback|
Knowledge as an Intangible Capital and
Primary Resource for Excellance of Business and Industry
The rapid progress in information technology and the advent of Internet and world wide web have revolutionalised all phases of human life and activity during the last decade. These innovations have provided instant access to the common citizen, to the students, professors, and businessmen alike to unlimited sources of knowledge and information stored in more than a billion website. And all this is made possible at the simple click of a computer mouse while operating your desk computer. The impact of these innovations on business and industry is no less momentous. E-business is the new innovation. Even in the sphere of conventional business information technology has taken control of the functions of book-keeping and almost all types of clerical work, providing greater efficiency, speed and at a much lessor cost.
It is now recognised that Internet & world wide web have heralded the advent of a new era, the "knowledge Age" giving good-bye to the "Industrial age" of the past. One distinct characteristic of the "Knowledge Age" is the recognition that it is ultimately human knowledge that contributes to the success of business and industry. Intangible assets have come to be recognised in business and industry, as "intellectual capital", whose possession and development have became a more vital area of interest, as compared to tangible and financial assets traditionally held by a business entity.
Thomas A. Stewart, in his book entitled Intellectual Capital, defines intellectual capital (IC) as "intellectual material-knowledge, information, intellectual property, experience-that can be put to use to create wealth." Intellectual capital enables enterprises to deliver enhanced value to the customer by incrementally adding "intelligence" to products and services, in place of physical material, energy, and routine human involvement. Intellectual capital consists of three components: human capital, structural capital, and customer capital. Sustaining a profitable rate of conversion of intellectual capital to financial capital requires a balanced strategic focus on all three components of intellectual capital, and the fostering of a business culture that promotes creativity and innovation at all levels of the enterprise.
" At some point, the ideas that flow from intellectual capital must be transformed into actions that generate traditionally recognized value-financial capital. Sustaining a profitable rate of conversion of intellectual capital to financial capital requires a balanced strategic focus on all three components of intellectual capital. The enterprise must commit to a corporate philosophy that recognizes knowledge work as the engine of the enterprise, and foster a business culture that promotes creativity and innovation at all levels of the enterprise."
The organization owns the material resources and tangible assets. But it is the officers and employees, who own knowledge resources, the most valuable intangible asset. Global leaders like GE Capital and Microsoft, command their position not on account of possession of material or tangible assets, but their worth and global standing is on account of the intangible assets called " knowledge Resources " they possess. Employees constitute in this respect the " Human Capital " of the organization.
"Customer capital", "human capital" and "structural capital" together forms the 'Intellectual capital of the Company". Human Capital is the combined knowledge, skills and experience of a company's employees. It is the single most important asset a company has access to. By definition it cannot be copied by other companies and can therefore be a source of sustainable competitive advantage. In every company, a massive proportion of the knowledge is held by the employees. It is effectively 'leased' to the company for the term that that person is an employee. In order for a company to put that knowledge to optimal use, it must recognize the rapidly changing environment in staff requirements, work motivation and management structures.
"Customer Capital" represents the value of an organization's relationships with its customers including the intangible loyalty of its customers to the company or a product, based on reputation, purchasing patterns, or the customers' ability to pay. "Structural Capital" is the processes, structures, information systems, and patents that remain with a company when employees leave.
"Knowledge Base" is defined as an organized structure of information which facilitates the storage of intelligence in order to be retrieved in support of a knowledge management process. Stressing the importance of "knowledge base" for the sustenance and nurturing of business and industry in the new economy (knowledge based economy), the website of the University of Texas at Austin proclaims as under-
There have come into existence new-age corporate bodies solidly depending on information technology and "knowledge capital". These companies (Like Microsoft & GE Capital) have exhibited remarkable buoyancy and resiliency and have become market leaders in a short span. They own insignificant tangible assets and outsource most of their operations to other "old age" or "industrial age" companies and retain only the function of value-addition through knowledge application. But they are able to earn huge profits and the intrinsic worth (market value) of these company is rated several times their book value. A case in study is cited quoting the purchase of the corporate concern "LOTUS" by IBM, as a going business. While the book worth of Lotus was only US $ 50 million, the purchase was made at US $ 3.5 Billion, indicating the value of "intangible assets" developed and possessed by Lotus.
Consequently a new branch of management study referred as "Knowledge Management" has come into prominence. Knowledge Management refers to sourcing or capturing useful information, storing, retrieving or sharing the same. It is a subject intended "to know what all is known by each one of the employee in an organization". This subject in recent years has made enormous strides. In particular I will refer you to prominent web-sites, that have devoted particular attention to Knowledge management (popularly referred now as simply KM.)
In their WebPages ( http://www.km-forum.org/what_is.htm ) KM Forum has provided very useful information by way of summaries of various descriptions of knowledge management by different authors.