H Haghshenas, et al. Science and Nature, January 2014 3(1): 21-25.

Intellectual and Assets for Value Creation

H Haghshenas 1, *, G Barzegar 2

1 M.A. Islamic Azad University, South-Tehran Branch. 2 Faculty Member at University of Mazandaran.

BSTRACT ey Words ntroduction In knowledge-based economy, Kintellectual capital, knowledge I A By the end of the last century, science the intellectual capital is used for assets, knowledge-based economy, value creation. was considered same as the information value creation in the , and available for public, and in today's world, the success of any roles were considered fi nding a way to organization depends on its ability orrespondence to: optimally combine the products and to manage these assets. In the ultra- markets, as well as removing barriers C for entrance of substitute products and competitive era, are technologies. However, in recent years, facing an environment characterized H Haghshenas M.A. Islamic Azad University, the nature of resources has changed and by increasing complexity, mobility and is now competitive. To identify the true South-Tehran Branch. globalization. Therefore, to sustain, and sustainable sources of organizations, organizations are facing new challenges it is therefore essential to take the inside and releasing these challenges requires of companies into serious consideration (Hajiha, 2010). Today is the era of paying more attention to development knowledge. Th e emergence of the new and nurturing the inner skills and economy based on knowledge and abilities. This is done through the basics information has led to increased interest of intellectual capital and knowledge of researchers in the fi eld of intellectual assets which are used by organizations capital. Th is fi eld that has attracted the to reach a better performance in the attention of many researchers uses the intellectual capital as a tool to evaluate business world. Knowledge and the value of companies (Piotang et al., intellectual capital are recognized as 2007). In today’s knowledge-based a sustainable strategy to achieve and societies, the role and the importance maintain the competitive advantage of of the used intellectual capital in the organizations. Nowadays, because of sustainable profi tability of corporates the increasing importance of knowledge is higher that the output of the used fi nancial investment (Rostami and and intellectual capital in corporates Seraji, 2005). Intellectual capital is a sustainability and the unmatched role multidisciplinary concept and is diff erent they play in maintaining the competitive in the fi elds related to business and position, several studies have commerce (Huang and Luther 2007). addressed the intellectual capital and its Th ere is little agreement on the level components from different aspects. This of our understanding about intellectual capital. Intellectual capital, however, study fi rst specifi es the history and the was unknown in the past, now it plays defi nition and components of intellectual an important role in the process of capital, and then features of all economic, managerial, technological, components are discussed. In addition, and social development in various forms. the importance aspects of intellectual Th e resulting revolution in , the measurement objectives, as technology, the growing importance of knowledge and knowledge-based well as methods used for classifi cation economy, the changing patterns of a of intellectual capital measuring are also network society as well as the emergence discussed and analyzed. of , as the most important determinants of competitive advantage,

H Haghshenas, G Barzegar. Intellectual Capital and Knowledge Assets for Value Creation. Science and Nature (2014) 3(1):21-25. (ISSN 2324-7290) © ZolCat Academic House. www.zolcat.com 21 H Haghshenas, et al. Science and Nature, January 2014 3(1): 21-25. are those that enhance the importance capital is a set of organizational the elements of intellectual capital. of intellectual capital in companies more knowledge, information, intellectual Reporting intellectual capital must also than before (Anvari and Rostami, 2005). property, experience, competence and face the specifi c challenge that it is not is the most learning that can be used to create always possible to protect the proprietary important part in the corporate wealth. In fact, the intellectual capital rights governing these resources in an knowledge and is required to be includes all employees, organizational organization. For example, there are identifi ed and measured. Assets are very knowledge and skills for creating the proprietary rights for the ; eff ective on determining a company's added value and lead to sustained however, these rights are not true position in the international arena and competitive advantage. about the organizational culture of the determining the value of the company. 2. Bentis defi nes intellectual capital as institution and the skills of staff while Intangible assets of each company a set of intangible assets (resources, these intellectual capital help to create include corporate branding, corporate capabilities, competition) which are the value. Th e implicit and general loyal customers, satisfi ed employees, achieved through organizational aspect of intellectual capital is in the creative employees, fl exible and dynamic performance and value creation. heart of the major problems faced by the organizational culture, effi cient and 3. Edvinsson and Malone defi ne reporting of intellectual capital. competent managers, a risk-tolerant intellectual capital as the information Factors limiting the ability of environment, a good impression of the and knowledge applied to the work intellectual capital to create value company to the customers. For example, to create value. 1. Limited barriers: lack of physical the value of Coca-Cola's brand is several 4. Bentis and Holland, in their article nature for intangible resources times more than the value of the total in 2002, defi ned intellectual capital makes it hard to create barriers asset of the company. Th is group of assets as follows: "intellectual capital shows for competitors in accessing these plays an important role in providing a the reserve of knowledge available assets. Although passing laws on long-term competitive advantage for in a certain time in an organization". the protection of rights in companies. Th e companies that are able Th is defi nition focuses on the recent decades has largely reduced to recognize their assets properly and relationship between intellectual this problem but it is not fully manage them well, they will have a better capital and organizational learning. guaranteed. performance than their competitors. In 5. Broking describes intellectual capital 2. Inherent risk: to provide intangible other words, the proper management as a combination of all the intangible resources, a large initial investment is of these assets play a critical role in the assets that empower the company in required in comparison with tangible success of companies which work in works and operations. resources. Increasingly rapid changes today's competitive world. Intellectual 6. According to Skandia, intellectual in factors considered by the market capital is a topic that deals with the capital encompasses knowledge, as well as technologies cause barriers management and administration of these applied experience, organizational for management while assessing assets. technology, customer relationships modern and since and professional skills that provide changes are tremendous, expanding istory and defi nitions of a competitive cut in the market for intangible resources is highly riskier Hintellectual capital Skandia. than tangible resources. 7. Recently, researchers have suggested Th e term “intellectual capital” a general defi nition for intellectual haracteristics of Intellectual was fi rst introduced by John Kenneth capital which also defi nes the CCapital Galbraith (1969). Galbraith believed requirements for recognition of this that intellectual capital is an ideological asset: "Intellectual capital is a type of Despite the apparent similarities process and consists of intellectual property that measures the ability of between intellectual capital and tangible process. Before identifying, managing the enterprise to create wealth. Th is assets in the potential to generate future and measuring the intellectual capital, we asset lacks an objective and physical cash fl ows, there are some characteristics need to understand the concept it has. nature and is an that diff erentiate the intellectual capital Th e concept of intellectual capital has which is achieved through utilizing from these assets, which are as follows: always been ambiguous, and diff erent assets related to human resources, 1. Intellectual properties are non- defi nitions have been used for the organizational performance and competitive fi nancial assets. Unlike interpretation of this concept. Many relationships outside the enterprise. physical assets that only can be tend to use terms like assets, resources or All these features create values used to do a certain job at a certain operation incentives rather than “capital”, within organizations and because the time, intellectual property can be and replace the term “intellectual” by earned value is a completely internal used simultaneously for several words like intangible, knowledgebased or happening, it is not merchantable" particular tasks. For example, non-fi nancial. Some professions (fi nance (Rass and Baroness, 2005). a customer support system can accounting, and legal professions) have Although it seems that these support thousands of customers also proposed diff erent defi nitions such defi nitions consider diff erent approaches at a time. Th is ability is one of the as “non-fi nancial fi xed assets” which for intellectual capital, shared elements most important measures for the has no objective and physical entities. are observed among them. Intellectual superiority of intellectual assets on According to what was discussed, there capital includes intangible resources. physical assets. are diff erent defi nitions for intellectual Th ese intangible resources form a series 2. and relational capital capital some of which are mentioned at of linkage relationships, and knowledge cannot be personal properties, but the following: assets should consider evaluation must be shared between employees, 1. Stewart believes that intellectual and measurement issues by linking customers, and suppliers. Th erefore,

22 H Haghshenas, et al. Science and Nature, January 2014 3(1): 21-25.

the development of this type of regarded in emerging and developing shareholder. property requires care and attention. economies. Th e relationship between However, a feature of knowledge- Intellectual capital vs. non-tangible intellectual capital and corporate based economy is considerable assets performance has been experimentally investment in human capital and Terms “intellectual capital” and studied in many countries including information technology. However, the “non-tangible assets” are often used America, Canada, China, Malaysia, current reporting system, investors have interchangeably. Th e extent and the scope Germany, etc. Terms “intangible”, no accurate understanding about the true of this concept are basically diff erent. “knowledge assets” and “intellectual value of the company and its future. While intellectual capital includes all capital” are widely used on accounting, Losses that will be imposed into sources of knowledgebased intangible economics and management literature; capital markets, if the information in assets, non-tangible assets are defi ned as however, the potential value and the this type of investment is not disclosed, intangible and fi nancial assets which are future benefi ts they have are not reliably suggest the importance of intellectual identifi able by a non-physical nature. An measurable. In general, the productivity capital. Examples of these losses are: (intangibles) asset is a resource which is of companies depends on the intellectual 1. Th e minor the shareholders may have controlled by the institution as a result of capital and the organization capabilities no access to information related to the past events (such as internal purchase in using them as an asset. Stewart points intangible assets in private meetings or production) and is expected that to out that a major revolution has occurred held with major shareholders. create future economic benefi ts (cash in information and knowledge based 2. If managers use information derived fl ows of other assets). In this concept, economy era, so that the working asset from internal decisions regarding an intangible asset has the following is replaced by information and physical intangible assets without informing features: assets are replaced by intellectual capital. other investors, the probability of 1. It should be based on the defi nitions In fact, the physical and material benefi ts happening a bargain according to of recognition and detection. are greatly replaced by the knowledge confi dential information is increased. 2. It should be under the protection of and communication as the main sources 3. Th e risk of improper valuation of the law. of value and wealth, and in the new companies is increased and this 3. It should be under private ownership era, the new economy is emerging in makes bankers and investors to and the private ownership should be the form of intangible economy. Th e consider a higher risk level for legally transferable. digital revolution in the economy caused organizations. 4. Th ere should be a visible evidence for the rise of new concepts including the 4. Th e cost of capital increases. In case the existence of an intangible asset. meta-material economy, the weightless of the disclosure of such information, 5. It should be created at an identifi able economy, and the software economy. due to the less uncertainty time or as the result of an identifi able Th ese concepts states that the driving regarding the future outlook for the event. factor of the economy is not anymore organization, the company will be 6. It should be end at an identifi ed time a material, but it is a weightless and valuated more accurately and capital or as a result of an identifi able event. immaterial thing like information and costs can be reduced. Obviously, only a small part of knowledge. Th e elements of intellectual capital the intellectual capital meets these In the strategic management and knowledge assets requirements. Royalties and trademarks literature, many researches have been In general, researchers and those are examples of assets that signifi cantly conducted on the company's resources involved in the fi eld of intellectual capital meet these conditional standards. and sustained competitive advantage. agree that the intellectual capital is made However, most capital assets are not Intellectual capital includes non-physical up three elements including human so. No one can recognize the particular resources, the values associated with capital, structural capital and relational point of time when the customer loyalty manpower capabilities, organizational capital, which are explained as follows: is created, the innovative spirit of in an resources, operational processes, and 1. Human Capital: Rass et al. (1997) ended organization, or the transfer of connection with the stakeholders. argue that employees create an employee education, information In today’s organizational conditions, intellectual capital through their and technology. In addition, it is often considering the knowledge and the intellectual competence, attitude and diffi cult to link an intellectual capital, skills of manpower, communications agility. Th e most important elements such as a hierarchical structure or a and organizational culture is the most of human capital are the workforce mission, to visible improvements in the important factor for competitive skills, and depth and extent of their production of goods and services, or advantage and fi rm performance. experience. Human resources can be improvements in usefulness. Th ese are Effi cient and eff ective management regarded as the spirit and the mind some main reasons for why there is no of companies always requires the proper of intellectual capital. Th is type of pricing formula for capital asset. tools and techniques to understand the capital, at the end of the working day, Th e importance of intellectual contemporary management issues. Today, quits the company when employees capital the economy and the standards of value leave the company the, but structural Th e global shift in the economy from creation have changed, and intangible capital and relational capital the manufacturing sector to the economy resources and intellectual capital are new remain unchanged even when the based on intangible resources and the leverage to deal with the environmental organization is left. Human capital service sector has increased the attentions and structure changes. Business includes: to knowledge and intellectual capital and performance increasingly requires a) Skills and competencies of the its eff ect on the fi rm performance, and a management active in intellectual workforce; the relationship between fi nancial returns capital and intangible resources contexts b) Knowledge of the workforce and corporate performance is highly to achieve sustainable returns for on subjects that are important for the

23 H Haghshenas, et al. Science and Nature, January 2014 3(1): 21-25. success of the organization; and components, it is usually decomposed benefi cial for having both internal c) Talents, ethics, and behavior of to organizational, process, and eff ective governance and successful the workforce. Broking believes that the innovation capital. relationships with people outside the human assets of an organization include Organizational capital includes organization. It is clear that if the skills, expertise, abilities to solve problem, systems that are used to empower and initial objective of profi t companies is and leadership styles. Th e high level of lever the capabilities of the organization. the eff ective and effi cient management staff turnover in an organization may Th e process capital involves techniques, of future cash fl ows, the management mean that the organization has lost this procedures, and programs used to of fi nal stimulus for cash fl ows, i.e. important component of intellectual improve the transportation of goods intangible assets, will be critical for capital. and services. Innovation capital includes these companies. Because how you want 2. Relational Capital: relational capital intellectual and intangible properties. to manage what you cannot measure? includes all relationships between Intellectual properties are preserved trade Because of this, measuring intellectual the organization and any individual rights such as and trademarks. capital and in general intangible assets is or other organization. Th ese Intangible properties are other talents critical. individuals and organizations can by which the organization operates. Endrisson (2002) also considers include customers, agents, employees, Structural capital covers a wide range of enhancement of internal management, suppliers, regulatory authorities, essential elements the most important of improvement of external reporting, legal communities, creditors, investors, etc. which often includes: and trading incentives as the reasons of Th e relationships are divided into 1. Key executive processes; measuring intellectual capital. Th ere are two categories according to their 2. Th e structuring approach; several methods to measure intellectual purpose : 3. Politics, information fl ows, and capital which are discussed at the Th e fi rst category includes those ; following: relationships which are formal through 4. Leadership and management styles; Classifi cation of methods for contracts and commitments with 5. Organizational culture; measuring intellectual capital customers and suppliers, or main 6. Plans for rewarding employees. In a general classifi cation, the partners; and the second one mostly Structural capital can be divided to measurement techniques for intellectual includes informal relationships. subsets including culture, operations and capital are divided into four general Bentis states that the new defi nitions work habits, and intellectual property. categories. have extended the previously existed Objectives of measuring the First category: direct intellectual concept of customer asset to relational intellectual capital capital techniques asset which include the knowledge in Investigating more than 700 papers Th ese techniques evaluate the the relations that the organization has in the fi eld of intellectual capital monetary value of intellectual assets via developed with customers, competitors, measurement, Marr et al. (2003) showed the various components of such assets. suppliers, commercial associations, and that there are fi ve general objectives for Among the mentioned techniques, the government. measuring intellectual capital which are technology agent, accounting and human Customer capital is considered as stated at the following: resource costing, value fi nder, direct a bridge organizing the operation of 1. To assist organizations to formulate intellectual capital and human resources intellectual capital and is a determinant strategies ; accounting are located in this category. for converting the intellectual capital to 2. To evaluate the implementation of Second category: market market value. Th is capital includes the strategies ; investment techniques strength and the loyalty of customers and 3. To help the expansion and Th ese techniques are based on the relations. Customer capital indicators diversifying the company's decision- calculation of the diff erence between include market share, customers making ; the market value for the company’s retaining, and the profi t earned from 4. Non-fi nancial measures of stock and the capital in the hands each customer. Customer capital, among intellectual capital cab be linked to of its shareholders and considering all types of intangible assets, is probably repayment and rewarding plans of the diff erence as intangible asset or worst managed. Many business owners managers; intellectual capital. Between all the 14 do not even know who their customers 5. To build a relationships with outside techniques, the invisible balance sheet are. shareholders who hold intellectual model, the market to book ratio and 3. Structural Capital: structural capital. Tobin's Q are in this category. capital is the knowledge available Th ird category: return on assets in the organization. Th is asset he three fi rst objectives are related techniques belongs to the whole company Tto internal decisions they aim to Th ese techniques compute the and it can be recreated and traded maximize the company's operational average pre-tax income of the company with others. Rass et al. believe performance in order to make revenue by for a specifi ed period and divide the that the structural capital includes the minimum cost and to continuously obtained value to the average value of the all non-human resources in the improve the relationships with customers physical assets in the same period. Th e organization including databases, and suppliers, and market share. Th e economic added value and intangible organizational charts, operating fourth item is related to executive values are calculated using this procedure instructions for processes, strategies, incentives and the fi fth one implies and belong to this class. implementation plans, and generally on making motivates for stakeholders Fourth category: the scorecard whatever has a meta-material outside the organization. Various studies techniques value for the organization. Due to have shown that the measurement of In these techniques, various the diversity of structural capital intellectual capital is necessary and components of intangible assets or

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