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Intellectual Capital

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Over the last decade, increasing interest in Intellectual Capital (IC) has been the core factor it is being developed rapidly (Juma and Paine, 2004; Bontis, 2001). IC was first being acknowledged in 1995 by Skandia when it published the world’s first IC yearly report (Edvinsson and Malone, 1997).

Definition of Intellectual Capital (IC)
There have been tremendously abundant definitions of IC (refer to Appendix 1). In general it may seen synonymous with knowledge capital and asset, intangible and visible assets (refer to Appendix 2). This also includes human capital, information assets as well as the enclose value of organisations (Bontis, 2001; Tseng and Goo, 2005).

Itami (1987) refers IC as organisation’s intangible assets that consist of experience, customer relationship and information, organisation’s repute and culture and intellectual property. This consistent with what mentioned by Stewart (1997) where IC comprises intellectual material that is able to generate wealth. The closest definition of IC would be from Roos et al. (2005) where IC is said to be the non-physical besides non-monetary capitals controlled by organisations that leads to value formation. According to Stewart (1997), there are three components for IC, which are human capital, structural capital as well as relational capital (refer to Appendix 3).

Components of IC
Human capital happens to be the capital, embedded in a person’s mind and stays together in a person. When a worker quits, the human capital that includes skills, innovativeness, experiences, changeability, leadership, knowledge and creativity leave as well (Brooking, 1997; Roos et al., 2005).

Structural capital signifies the supply of knowledge that is organised and available on black and white. This consists research and development (R&D), copyrights, processes, databases and brands. Others would be management systems of information, strategies, organisation culture plus other capitals that possess greater value than physical value (Wall et al., 2004; Roos et al., 2005). All these will remain as organisation’s property and being controlled by them.

According to Wall et al. (2004) and Tayles et al. (2007), relational capital indicates intangibles, which progress over certain period of time between organisations and peripheral groups (suppliers and customers relationships, creditors, repute, customer satisfaction and loyalty along with marketing, industrial and governmental networking.

Impact of IC on Organisations’ Performance
With the emerging of the new ecomony, which is the knowledge-centered economy; IC is regarded as a driving wealth for organisations. Astonishing profits can be gained as the collaborations that occur amid intangibles generate distinctiveness besides wealth to the organisations. Marr and Moustaghfir (2005) claim that any form of intangible supply, knowledge or/and intellectual materials are absolutely necessary in attempting to attain organisational goals. IC not only increases market value but assets as well which illustrated in Appendix 4 under hidden value.

An Overview of the Indian Pharmaceutical Industry
The pharmaceuticals industry is one of the strong players in the industry of knowledge-centered. The development of a drug invention requires US$300 million on average of 8 to 10 years due to the investments made in knowledge generation and learning requires protection such as trademarks and patents and designs along with copyrights.

Till the early of 1970s, most of the Indian pharmaceutical industries were depending on imports and at the same period of time the government has decided to end their dependence on multinational organisations and move towards self sufficiency. The government has introduced the Patent Act (1970) that positioned the base of the new age pharmaceutical industry. The Act does not permit patents on atomic synergy, medicine and agricultural products, which enables Indian organisations to manufacture other processes for drugs. Now, Indian organisations have access to the latest molecules worldwide, reformulating them to sell domestically as being exempted from paying royalties and licenses.

From then on, numerous drug companies were rising. R&D base was developed and move to a higher level, which is the value chain of R&D. India has placed itself as a main manufacturer in pharmaceutical in the middle of 1980s with more 100,000 range of drugs. At the time being, In terms of capacity, Indian pharmaceutical industry, one of the globe’s biggest and most established ranked 4th and 13th in terms of value and dominates 8% of international manufacture plus 2% from the international market share. This industry has emerged to play a role in the Indian exports (refer to Appendix 5) with profits up to US$7.24 billion from 2007-2008 compared to a smaller amount in the 1990s. The accomplishments of Indian pharmaceutical industry display the importance of IC (Stewart, 1997). Having the Indian government to support and acknowledging it as an industry of intellectual, IC is being treated as a vital and key player to the accomplishment of this industry.

Other example of a positive impact of IC on organization performance would be from the well known knowledge-centered organisation is illustrated by Nike, which its products are internationally recognised. It is said that Nike is a shoe creator organisation, which does not creates shoes. It only focuses on knowledge-centered undertakings such as research and development (R&D), marketing, design and distribution, which still enable Nike to generate $334,000 in transactions for each worker (Stewart, 1997).

Another purest instance of IC assessment is through the consultation organisations. One of the leaders in the industry, McKinsey, conducts its business by getting customers come to them to obtain the finest analytical knowledge it got to offer (Nicou et al., 1994). McKinsey sells its IC generally having five in a team, where senior partner will take a role as a leader. Amazingly, customers are more than willing to fee at the average rate for per consultant of $500,000 for this knowledge transfer (Sveiby, 1997).

Tayles et al. (2007) stated that organisations are able to sustain during economic crisis if investment (handling and reporting) are made in IC. This has been proven during the economic crisis during 2008-2010. Therefore, identifying and managing, measuring and reporting plus optimal IC utilisation in generating capital, innovations advancement, refining efficiency of operation, enticing opportunities of investments and profitability increment should be the emphasis for organisations. This has been illustratred by the giant organisations such as Microsoft, Disney, Skandia, eBay and also Coca Cola (Brooking, 1997; Sullivan, 1999; Bontis et al., 2000; Tayles et al., 2007).

Methods Making the Best Use of IC
In order for global companies to tap or make use of the best minds to advance their companies, the organisations need to engage in communication with outside sources such as consultants, suppliers, end-users including competitors to enable knowledge to come in into the organisations. For an example, organisations can create tactical coalitions with suppliers to allow the flows of knowledge or opt to maintain arms-length associations (Gulati and Sytch, 2007).
Communicating with the outside sources typically involves single person. Being a representative, the person then brings in the knowledge gained into the organisations. The person later on brings in the newly learned knowledge to the team within the organisation when communicating his/her work team or department where the learning or educating takes place.

Organisations involve in knowledge search to pick and utilise knowledge from various resource in practice (Huber, 1991). Organisations must decide in balancing knowledge search as in exploitation or exploration for a totally and different ones (March, 1991). Exploitation and exploration have proven to consequence great drastic innovations and organisations advancement.

Organisations need to put processes in place to analytically gain the advantage from the flows of knowledge from outside sources. Organisational level, department and team practices assist to competently process knowledge making it obtainable for more utilisation.

Fighting for talent globally, diversity along with presence policies are design explicitly as recruiting or hiring tool and retention tool. This is to assist broadening the teams of talent organisations are able to hire.

As for the case of Loreal USA, the organisation officials associate with over 3000 undergraduates on university every year through professor partnerships and business games and university presentations as well as student organisations. The officials sustain a strategic system of partnerships to bond with those experienced talent. The variety of multi market backgrounds, thoughts, and industries of applicants that is being recruited directly affect its potential in innovating and assist to attain their organisational aims.

A diverse and comprehensive staff is essential to nurture creativity, initiate innovation besides guiding business approaches. New services, products and ideas are from many voices. This also encourages creative thinking. Today, organisations has recognised that a diverse group of people within the organisation are able to tell them apart from its competitors through drawing best talent plus seizing new customers.

The talent required to commence the new global creativities might already existed in the organisations where it just needs to be cultivated and located. Sony has located its global talent managers in different regions to enforce a system of rotation since 2008. The purpose is to expose high potential candidates to various corporate segments and locations, enabling them to gain the opportunities and also skills to have the prospect to be a future leader globally. Global talent manager’s role is to identify and define main locations where Sony is able to gain talent then position matching will be conducted.

Likewise, IBM possesses a high-tech technology for the skill inventory system where project leaders are able to use the skill database to recognise experts acquiring the right and specific skill to complete the assignment of a project. It uses a communication tool known as Sametime, which permits coworkers all over the world to interact through computers.
In order to attain continuing success, organisations are advised to cultivate procedures, which can seize IC. According to Quinn et al. (1996), organisation’s intellectuals along with system capabilities are more crucial to an organization success rather than its tangible assets.
The IC’s significance has indeed been recognized in the business arena where a mounting percentage for the value of an organization is resulted from aspects such as innovative abilities and worker’s knowledge. This is shown by the percentage shown under the hidden value or unrecorded value section. This would not be seen in the balance sheet where the balance sheet regularly shows market value that surpass tangible asset. An organisation’s IC is being estimated through this additional value (Dzinkowski, 2000).

IC’s role in value creation has becoming more and more vital in attaining competitive advantage in the business world. According to Drucker (1995), “knowledge has dominant and is the main factor for economic resource and also maybe the only source of comparative advantage.” Gartner Group (1999) reported an emergent trend of having formal IC management support process in the organisations and the number is still increasing. It is still in vague whether all organisations or only certain types of organisation are focusing on IC, managing it appropriately. Perhaps there are in certain degree where organisations are acknowledging the importance of IC even though did not put IC into its best use.


Appendix 1


Other researchers such as Marr (2004), consider IC as a driver of a company's corporate competitive advantage, and link IC to the company's ability to manage and utilise knowledge.

Rastogi (2003) refers to IC as “a dynamic nexus of a company's human capital, social capital and knowledge management”.

Petty and Guthrie (2000) identify the definition offered by organisation for economic and co-operation in 1999 that “IC is the economic value of two categories of intangible assets of a company”, namely, structural and human capital.


Appendix 2


Appendix 3 Figure 2: The conceptual dimensions of intellectual capital


Figure 3: Further conceptual dimension of intellectual capital


Appendix 4

Figure 4: Impact of intellectual capital on market value and assets

Appendix 5 Figure 5: The following table presents an overview of India’s pharmaceutical exports.


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Chan, K. H. (2009) ‘Impact of intellectual capital on organisational performance: An empirical study of companies in the Hang Seng Index (Part 1)’, The Learning Organisation, 16 (1), pp.4-21, Emerald [Online]. Available at: (Accessed 20th Nov 2012).

Harjo, E, Pasaribu, N, Riyanto, A, & Buntoro, K 2012, 'The Impact of Management Practices on Passion, Intellectual Capital, Engagement, and Performance of Employees', Proceedings Of The European Conference On Intellectual Capital, pp. 86-95, EBSCOhost (Online). Available at: (Accessed 5 November 2012).

Khani, A, Ahmadi, F, & Homayouni, G 2011, 'The Impact of Intellectual Capital on performance of Iranian food firms', Interdisciplinary Journal Of Contemporary Research In Business, 2, 10, pp. 315-326, EBSCOhost (Online). Available at: (Accessed 5 November 2012).

Latif, M, Malik, M, & Aslam, S 2012, 'INTELLECTUAL CAPITAL EFFICIENCY AND CORPORATE PERFORMANCE IN DEVELOPING COUNTRIES: A COMPARISON BETWEEN ISLAMIC AND CONVENTIONAL BANKS OF PAKISTAN', Interdisciplinary Journal Of Contemporary Research In Business, 4, 1, pp. 405-420, EBSCOhost (Online). Available at (Accessed 5 November 2012).

Ling, Y 2011, 'The Influence of Intellectual Capital on Organizational Performance in two Contexts', Proceedings Of The International Conference On Intellectual Capital,
Knowledge Management & Organizational Learning, pp. 344-351, EBSCOhost (Online). Available at: (Accessed 5 November

Martins, I, Martins, A, Petiz, O, & McCabe, J 2010, 'The Importance of Intellectual Capital in Organisational Sustainability', Proceedings Of The European Conference On Intellectual Capital, pp. 414-421, EBSCOhost (Online). Available at: (Accessed 5 November 2012).

Mitchell, H, & Viehland, D 2011, 'Generating Wealth Through Innovations: Is it Necessary to Manage Intellectual Capital?', Proceedings Of The International Conference On Intellectual Capital, Knowledge Management & Organizational Learning, pp. 366-373, EBSCOhost (Online). Available at: (Accessed 5 November 2012).

Rehman, W, Rehman, H, Usman, M, & Asghar, N 2012, 'A Link of Intellectual Capital Performance with Corporate Performance: Comparative Study from Banking Sector in Pakistan', International Journal Of Business & Social Science, 3, 12, pp. 313-321, EBSCOhost (Online). Available at: (Accessed 5 November

Santos-Rodrigues, H, Dorrego, P, & Jardon, C 2011, 'Intellectual Capital and a Firm's Innovativeness', Proceedings Of The European Conference On Intellectual Capital, pp. 378-387, EBSCOhost (Online). Available at: (Accessed 5 November

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