Intangible capital includes all the knowledge assets of an organization.
The study of intangibles emerged as a field in the 1990’s to explain the significant shift in our economy and businesses as knowledge became the key competitive advantage in the global market. This shift reversed the historical pattern of tangibles accounting for 80% of total corporate value to the exact opposite today with the value of the average company today being 82% intangible. How to describe this critical asset class? The field is still emerging and as such, there can be confusion about the meaning and usage of different words and phrases.
The terms intangible capital, intellectual capital, intangibles and intangible assets are often used interchangeably. Although we prefer the phrase “intangible capital” because it has a more precise definition (see below), “intangibles” is also frequently used. Below, for your reference, are some definitions of these and related terms:
Strictly speaking, the definition of “intangible” comes from the field of accounting. Intangibles are organizational resources that do not appear on the balance sheet. On average, roughly 80% of the value of today’s corporation is intangible.
INTANGIBLE CAPITAL (IC)*
This is a phrase and a concept that comes out of the study of intangibles in an organization. The field of IC has identified four main categories of knowledge intangibles, each of which has a different character. It is important to understand individual intangibles as well as how they work together as a whole:
- Human Capital - This includes all the talent, competencies and experience of your employees and managers. This is the intangible capital that “goes home at night.”
- Relationship Capital – This includes all key external relationships that drive your business, with customers, suppliers, partners, outsourcing and financing partners, to name a few. This kind of capital also includes organizational brand and reputation. Due to the growing importance of networks in organizational structures, this is also sometimes called Network Capital.
- Structural Capital – This includes all knowledge that stays behind when your employees go home at the end of the day. There is significant structural capital in today’s organizations including recorded knowledge, processes, software and intellectual property.
- Strategic Capital – This is a category that is not always included in academic definitions of IC. However, in our experience, this category of knowledge is the necessary complement to the others. It includes all the knowledge you have of your market and the business model that you have created to connect with market needs.
INTELLECTUAL PROPERTY (IP)
This is a specific asset class that is protected legally through copyrights, trademarks and patents. It is a subset of Structural Capital.
*We use “intangible capital” rather than “intellectual capital” for two reasons: 1-people always confuse intellectual capital with intellectual property and 2-intellectual sounds too elitest–intangibles are real and practical so let’s not make them sound inaccessible…