Intellectual Capital and its elements: Literature Review

The management of knowledge creates intellectual capital whose main elements are: human capital, structural capital and external capital - Edvinsson (1996)

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Intellectual capital (IC) has been an element that has existed for years, but as concept has been used since 1990 in order to identify intangibles in the light of value creation and performance (Evaggelia, 2007). The intellectual capital literature focuses on the measurement of firms' knowledge base.

Evaggelia (1997) defines intellectual capital as the intellectual material that has been formalized, captured, and leveraged to create wealth by producing a higher-valued asset. She briefly mentions other studies as Seetharaman et al. (2004), Flostrand, (2006), Roos, Dragonetti and Edvinsson (1998) or Edvinsson and Malone (1997) among others, where the concept of intellectual capital has been explained around the concepts of human, structural and relational capital.

Others authors, as Aurelia (2002) refers intellectual capital, as all intangible resources that are available to an organization, that give a relative advantage and which in combination are able to produce benefits. This concept is used essentially by managers to manage personnel and intangible assets in order to attract investment and enhance the company image.

From our point of view, there are two definitions of intellectual capital that clarify the meaning of this concept. The first definition following Stewart´s (1991) contribution by which intellectual capital is defined as the sum of everything everybody in your company knows that gives you a competitive edge in the market place. The second one is given by Edvinsson et al. (1996) referred to “knowledge that can be converted into value” (Sveiby, 1998, p.1). That suggests that the management of knowledge creates intellectual capital whose main elements are: human capital, structural capital and external capital.

Human capital is defined by Edvinsson and Malone (1999) as the individual abilities, knowledge, know-how, talent and expertise of both employees and managers of a firm, which is highlighted on Pierre and Audet (2010) research. This capital´s influence is measured by employee skills, employee satisfaction and employee sustainability (retention of employees) which guarantees the longevity of the knowledge that benefits the firm (Kaplan and Norton 1992, Moon and Kym 2006).

Following Van Buren and Mark (1999), structural capital consists of innovation capital and process capital, in other words, the capability of any organization to innovate and to create process and finally products. The main elements of structural capital are systems, strategy and culture.

Finally, external capital is related with the relationships with customers, suppliers, alliances, reputation or regulatory capital (knowledge of laws). External capital is also denominated relational or customer capital.

To conclude, intellectual capital can be increased if organizations enhance the management of knowledge and organizational learning, which means, knowledge management plays an important role in the process of Intellectual Capital development and exploitation.