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Intellectual Capital: Building Your Organisation’s Knowledge Economy

What is intellectual capital

A company has many resources at its disposal. Financial resources, labour, land and so on. But a vital resource is often overlooked — intellectual capital. This is the bread and butter of any organisation. After all, the quality of your intellectual capital determines the value of your company. 

In fact, according to a recent research paper, financial capital fundamentally relies on intellectual capital. 

By investing in your intellectual capital, you have the potential to create significant leaps in your organisation’s performance. That’s why effective training campaigns and online learning programmes are so important. 

But what is intellectual capital? Where does it live, how does it work and more importantly, how can you benefit from it?

In this article, we’ll give you a full breakdown. We’ll also showcase how you can use learning technology to tap into its true power. Let’s go!

What is Intellectual Capital?

Think about your company’s financial capital. This is all the money your company has access to and the valuation of everything it owns. Intellectual capital is just like this, however instead of money, it’s the total of a company’s knowledge.

Investopedia defines intellectual capital as: 

“…all informational resources a company has at its disposal that can be used to drive profits, gain new customers, create new products, or otherwise improve the business. It is the sum of employee expertise, organisational processes, and other intangibles that contribute to a company’s bottom line.”

If you were to take a big syringe and extract all the knowledge from all your employees you’d end up with a huge vat of intellectual capital (and a few traumatised employees!).

Examples of intellectual capital include a secret formula, knowing the best way to execute a process, or how to structure a team effectively for maximum efficiency. Imagine how much KFC would suffer if they ‘forgot’ the 11 herbs and spices that make up their original recipe. Imagine the impact if Google lost track of how their search algorithm works.

The Three Components of Intellectual Capital

Let’s break things down further. There are three elements to intellectual capital.

There are three components of intellectual capital

Human Capital: this means an employee’s knowledge, experience, training and so on. It also includes their ability to create and think up new and innovative ideas for the company. 

When your human capital resources are strong, you experience higher staff satisfaction and low turnover rates. Why does this matter? According to Oxford Economics and Unum, the cost of replacing just one employee is around $30,000 dollars. That’s pretty alarming!

Structural Capital: this refers to intangible assets like business processes, data, company culture, values, media and programmes. As a result, structural capital will be unique for each company. 

For a SaaS business (like us!) structural capital is rather important. That’s because it includes the coding and programmes that bring you the wonderful learning management system (LMS) we all know and love.

Relational Capital: this includes the relationship a company has with its stakeholders such as employees, suppliers and investors. This contributes to the overall reputation of a company and has a big impact on its success. 

For example, 69% of jobseekers said they would reject a job offer from a company that had a bad reputation. 

As you can imagine, it’s hard to translate intellectual capital into financial terms. You can’t put a value on it in the same way you can with tangible assets. However, on a balance sheet you would still integrate intellectual capital under intellectual property (to the extent that you can).

All of this intellectual capital doesn’t exist in a vacuum. Its collective mass creates something that mirrors a financial economy. This is what you would call the knowledge economy. 

The Knowledge Economy 

The knowledge economy is the sector of the economy that is based on information (rather than financial resources). It’s built from a global network of brainpower. And it’s worth quite a lot. According to research by Universities UK, the knowledge economy in the UK alone is worth £95 billion

In a knowledge economy, there are two kinds of ‘money’ (i.e. knowledge). There’s explicit knowledge, which means proven facts, figures and data. Additionally, there’s tacit knowledge, which refers to your experience and understanding of how things work.

Intellectual capital created the knowledge economy which is based on four pillars

The knowledge economy is based on four pillars:

1. Education & Training: The more educated and knowledgeable an employee is, the more they’ll be able to utilise their knowledge effectively. 

That’s where we come in! Through the use of online learning solutions like an LMS, you can build your employee’s knowledge and provide the skills that your workforce needs. 

2. Information Infrastructure: This is the structures and processes that you have in place to facilitate communication. It can range from the internet to the radio and is key to a knowledge economy’s growth. 

After all, effective communication in a company can increase productivity by as much as 25%.

3. Economic Incentive & Institutional Regime: Any healthy economic environment is reliant on the free flow of information. To enable this, investment must be made in technology and entrepreneurship. This incentivises innovation and helps to push businesses forward into the future.

Additionally, through the use of technology, the knowledge economy is able to transcend geographical boundaries. These boundaries are often damaging to the economy.. For example, deficient language skills cost Britain’s economy almost £50 billion ($63 billion) annually. Using technology to encourage better links with international workers helps to minimise the impact of this loss.

4. Innovation Systems: The knowledge economy needs support to help surface, assimilate and adapt information to meet its ends.. Supporting vessels include think tanks, research centres and knowledge groups. Multiple studies show that investing in technical knowledge has positive effects on a country’s GDP. 

For example, a World Bank study found that investing a 1% increase in the ratio of total R&D expenditure increases the growth rate of GDP by 0.78 percentage points.

The Benefit of Intellectual Capital

There isn’t a single business in the world which could function without the knowledge locked inside every employee. And, there is a direct relationship between intellectual capital and business success. 

Studies show that increasing intellectual capital increases competitive advantage, facilitates innovation, and improves organisational performance.

Companies like Toyota, Microsoft and Walmart understand that intellectual capital matters more to business success than anything else. That’s why over $130bn is invested in training each year. 

Intellectual Capital and Online Learning

Social learning via online learning technology helps build intellectual capital

Traditionally, learning and development (L&D) departments invest in training delivery. The focus is on delivering knowledge to team members, rather than creating a dialogue with them. Yet, ironically, it’s the employees who have all of a company’s knowledge stored away in their brains. 

Only 37% of employees think of formal training as essential. Yet, almost 90% think that social knowledge sharing is absolutely vital to thrive in the workplace. Clearly, if you want to guarantee learning success, it’s important for your employees to get social.

So, let’s ask the big question then. How do you invest in your company’s intellectual capital? An Oxford University academic suggests that intellectual capital relies on social relationships. These relationships let people come together and share information. 

This makes it easier to share knowledge and boost the company’s intellectual capital. The best part is that when people share old information, they also create new information. Learners are in a great position to create value when the workplace is a circus of social activity!

How Social Learning Can Grow Intellectual Capital

On average, a company will see 18% turnover every year. It’s becoming a big problem. It doesn’t just create manpower shortages. It means the organisation is constantly losing knowledge, since those employees take their intellectual capital with them. This phenomenon is also called ‘brain drain’.

However, this knowledge loss isn’t inevitable. With learning technology, there are things that you can do to make sure that knowledge is shared effectively and kept safely within the company. Let’s take a look at a few examples!

1. Focus on Informal Learning

Informal learning helps build intellectual capital

The 70:20:10 model suggests that 90% of all learning happens via social and informal learning. On the other hand, only 10% is delivered through formal training experiences. If you want to invest in intellectual capital, you need to invest in social learning.

Social learning is ‘the active process of learning from our observations and interactions with others.’ Social learning theory was devised by Albert Bandura and is an excellent way for employees to share their knowledge outside of a formal training environment.

The very best social learning platforms make knowledge sharing between employees even easier. Growth Engineering Learning App comes equipped with a multitude of social learning tools to enhance the learning experience. For example: 

  • Clubs
  • Live Chat
  • Social Feeds
  • Experts Area
  • Surveys

They all help to improve important team characteristics such as communication and collaboration. When these are good, companies can save an average of $62.4 million a year and increase workplace productivity by 30%!

2. Create Discussion Groups

Discussion groups help build intellectual capital

You can provide a space for users to share their knowledge with other team members. This lets you keep an online record of company information that’s easily accessible at the point of need. 

On Growth Engineering LMS, these social streams are known as ‘Clubs.’ They provide a dedicated area that learners can flock to when they need to discuss a learning topic with other users. They can also have a significant positive impact on the mental health of your employees. 

Businesses that communicate effectively are 50% less likely to have high levels of employee turnover! It’s vital that you create a space where employees are able to talk freely with each other.

3. Identify Subject Matter Experts

Subject matter experts help build intellectual capital

Learning technology can be used to help training managers identify subject matter experts (SMEs) within their organisation. 

An SME is someone who’s knowledgeable on a certain topic and able to share this valuable information with others. Therefore, when team members have questions, they know exactly who to ask.

This is a simple way to invest in social learning and to encourage different team members to distribute their expertise. This kind of knowledge sharing helps the company to become more proficient, more productive and more profitable. For example, Fortune 500 companies that effectively share their knowledge collectively save $31.5 billion every year.

4. Build a Sense of Ownership

A sense of ownership over your work helps build intellectual capital

An LMS that has social learning built in, not just bolted on, makes user-generated content easy to share. It makes learning creation intuitive for your learners with features like a social newsfeed and Clubs. 

It should be easy for your learners to share their own thoughts, tips, tricks and best practice advice. Bonus points are available if they are able to do so in a variety of multimedia formats.

When learners are able to partake in the creation of company knowledge it gives them a sense of ownership and helps them feel valued. It also contributes to the company’s growing intellectual capital.

This can create a sense of Epic Meaning. This is when employees are driven by an intense sense of purpose relating to their work. McKinsey found that a staggering 70% of employees say that their sense of purpose is defined by their work. 

Thus, it’s essential for you to encourage this purpose and to drive real meaning for your employees. One way to do this is to champion any content they contribute to a learning platform. 

5. Create More Effective Content

Creating effective content helps build intellectual capital

When learners create learning content it has the added benefit of making the learning as relevant as possible. This helps to relieve the burden on your learning team and instructional designers, as users themselves are organically producing content to be discussed and shared.

It also means the most valuable content shared on social streams or in Clubs can be repurposed into formal learning content. This ensures that everybody benefits and nobody misses out on any important knowledge. 

User-generated content also helps to provide different perspectives on a topic and increase engagement. Did you know that companies that have highly engaged employees can improve their operating income by 19.2% within twelve months?

Final Words

The key to real business success is to invest in approaches that unlock your company’s intellectual capital. This provides the building blocks to improving your financial success, brand awareness, company culture and so much more.

Learning technology can be instrumental in building, sharing and storing valuable intellectual capital. This is particularly true with the use of social learning, which allows learners to share their knowledge and receive new information. You’ll see the advantages in no time!

We’ve created a guide all about intellectual capital and how to use it to your company’s advantage. Download ‘Your Guide to Intellectual Capital’ to find out more!

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