Knowledge capital

From CEOpedia | Management online

Knowledge capital, aka information, intellectual or human capital, is a broad concept which describes all non-material assets of a company or an organization and can refer to either an individual or an organizational capital. It includes but is not limited to assets such as, technology, patterns, innovations, relationships, skills and knowledge of employees. Knowledge capital is also a very significant factor determining growth and development. Companies, which possess a lot of knowledge capital are at a comparative advantage to other organizations, as they seem to be prosper better compared to their competitors (Lehtimaki & Lehtimaki 2016, pp.41-42). Knowledge capital, however, does not have only one definition, as it is depended on context and used accordingly to researchers needs (Lehtimaki & Lehtimaki 2016, p. 42). Therefore, the amplitude of the concept caused many differences between explanations and descriptions over the years. However, the majority of the researchers who took it up for examination created internal divisions of the concept in order to organize specific groups of knowledge capital, all of which display similarities between assets within the particular group.

Theory

Yao Ligen & Li Miaomiao (2012) investigated various conceptualizations of knowledge capital theories and came up with a China specific model, in which they distinguished and described four major parts of knowledge capital, specifically human capital reflecting individual education and qualifications, organizational capital referring to organizational assets of non-human nature, technology capital consists of technical affordances and market capital comprises relationship capital (p.1656). Similarly, Lehtimaki & Lehtimaki (2016, p.43) explain that P.E. Sveiby and T. Lloyd (1987), described knowledge capital as a micro-level concept with three categories that can be explained as follows:

  • Human Capital - It consist of education of employees, their knowledge and qualifications.
  • Structural Capital' - It is everything which is not related to human. It contains all of organization processes, culture, management, intellectual rights, patterns, organizational structure and know-how.
  • Relationship Capital - It regards to relationships with customers. In this group we can include permanent relations with customers, brand recognition, general opinion, marketing strategies, individual events etc.

In their own research however Lehtimaki & Lehtimaki (2016) choose to focus on limited aspects of knowledge capital, namely individual and organizational capital. Individual, because it is the most important assent in the company and organizational, because its role is essential when it comes to organization, coordination of workers and tasks and communication within the company (Lehtimaki & Lehtimaki 2016, pp.43-46).

Importance of Knowledge capital

Nowadays, in the time of globalization and dynamic development, knowledge capital became a very strong factor of companies’ development and organizational attainment. Organizations with high level of knowledge capital are the top innovators, market leaders and influencers (Yao Ligen & Li Miaomiao 2012, p.155). In the market model described by Christopher M. Gunn and Alok Johri in 2011, we can observe how the increase of knowledge capital influences consumption, investment, output, wages, physical capital and capacity utilization. The results clearly show that increase of knowledge capital in a company increases production, employment, output and wages. Furthermore, the increase in demand for goods and services directly speeds up the economic growth, or in other words increases the GDP compared to the previous year (C.M. Gunn & A. Johri 2011, pp. 97-99).

KIO

Knowledge-intensive organizations (KIO) are institutions, in which the level of knowledge capital used is very high. Good examples of such institutions are universities, hospitals, and layer companies. In these firms knowledge is much more valuable than all material assets.

"For example, in universities, knowledge (material) is processed in research (knowledge as production technology) and the product is knowledge, which is distributed in education or as research reports (for example Lehtimaki, 1993). This means that KIOs need a relatively higher amount of knowledge capital, instead of physical or financial capital, in comparison to other types of organisations (Lehtimaki & Lehtimaki 2016, p.42)."

Examples of Knowledge capital

  • Innovation - This can refer to different types of innovations such as product, process, organizational, and marketing innovations. The knowledge capital of an organization is determined by how well it is able to identify and capitalize on opportunities for innovation. For instance, Netflix shifted its business model from DVD rental to streaming and online video services, which gave it a competitive advantage over traditional cable companies (Lehrer, 2020).
  • Intellectual Property - Intellectual property can be defined as an intangible asset which can consist of patents, copyrights, trademarks, and trade secrets. These are legally protected assets and can be a very valuable asset for a company as they can be used to protect their products and services from competition. For example, Apple has many patents on its products and designs, which gives it a competitive edge in the market (Feldman, 2020).
  • Expertise - The knowledge capital of an organization is also determined by the expertise of its employees. Organizations which have employees with specialized skills and knowledge are able to capitalize on opportunities more effectively. For example, Google has many employees with expertise and specialized knowledge in artificial intelligence and machine learning, which has helped the company to develop products and services which are at the cutting edge of technology (Lamont, 2020).

Advantages of Knowledge capital

Knowledge capital offers numerous advantages to organizations, including:

  • Improved efficiency and productivity: Knowledge capital helps organizations to become more efficient by providing them with the necessary resources to produce better products or services. It also enables employees to work more efficiently, thereby increasing the overall productivity of the organization.
  • Enhanced innovation and creativity: Knowledge capital encourages employees to think creatively and come up with innovative solutions for problems. It also helps companies to develop new products and services in order to remain competitive in the market.
  • Better decision making: Knowledge capital can provide an organization with the necessary information to make better decisions. It also helps to reduce risks associated with decision making and enables the organization to respond quickly to changes in the environment.
  • Increased customer satisfaction: Knowledge capital can help to understand the needs and preferences of customers, thereby leading to improved customer satisfaction. It also helps to develop better products and services that can meet the needs of customers.
  • Improved organizational competitiveness: Knowledge capital can help organizations to remain competitive in the market by providing them with the necessary resources to produce high-quality products or services. It also helps to develop better strategies for competing with other organizations.

Limitations of Knowledge capital

Knowledge capital, while being a valuable asset, has several limitations. These include:

  • Difficulty in measurement: Knowledge capital is often hard to measure as it is non-material and intangible. It is difficult to quantify the value of knowledge capital as it depends on subjective elements.
  • Inconsistency: Knowledge capital can be inconsistent as it is generated by human beings and is subject to change. It can be difficult to maintain a consistent level of knowledge capital within an organization.
  • Lack of standardization: Knowledge capital is often not standardized, making it hard for organizations to compare their knowledge capital to other firms.
  • High cost of acquisition: Acquiring knowledge capital often requires a high capital investment, which can be a burden for smaller or medium-sized organizations.
  • Fragility: Knowledge capital is fragile as it can be easily lost or damaged due to changes in the environment or the departure of key personnel.
  • Unpredictability: Knowledge capital is unpredictable as it can be difficult to predict the effects of new knowledge on an organization and its performance.

Other approaches related to Knowledge capital

  • The knowledge-based view of the firm: This approach looks at a company's knowledge assets as a source of competitive advantage and argues that knowledge assets can be managed and developed to create value (Lehtimaki & Lehtimaki 2016, pp.41-42).
  • The knowledge management approach: This approach focuses on the management of the knowledge assets of a company, and it aims to create an environment that encourages employees to share and use their knowledge in ways that benefit the company (Lehtimaki & Lehtimaki 2016, pp.41-42).
  • The learning organization approach: This approach focuses on the development of a culture of learning and organization-wide knowledge sharing, and it encourages employees to use their knowledge to create competitive advantage (Lehtimaki & Lehtimaki 2016, pp.41-42).
  • The human capital approach: This approach looks at employees as a source of competitive advantage, and it emphasizes the importance of investing in the development of their skills and knowledge (Lehtimaki & Lehtimaki 2016, pp.41-42).

In summary, Knowledge capital is a broad concept that includes technology, patterns, innovations, relationships, skills, and knowledge of employees. It is a significant factor determining growth and development, and is seen as a source of competitive advantage. There are four approaches to Knowledge capital, namely the knowledge-based view of the firm, the knowledge management approach, the learning organization approach, and the human capital approach.


Knowledge capital — recommended articles
Importance of knowledge — Distinctive competencies — Design capacity — Organizational innovation — Innovation — Innovation and change — Knowledge — Innovative systems — Service economy

References

Author: Wojciech Szabla

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