Intellectual Capital

What is 'Intellectual Capital'

Intellectual property is the value of a company or organization's employee knowledge, skills, business training or any proprietary information that may provide the company with a competitive advantage. Intellectual capital is considered an asset, and can broadly be defined as the collection of 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.

Some of the subsets of intellectual capital include human capital, information capital, brand awareness and instructional capital.

BREAKING DOWN 'Intellectual Capital'

Intellectual capital is a business asset, although measuring it is a very subjective task. This asset to a firm is not booked on the balance sheet as "intellectual capital"; instead, to the extent possible, it is integrated into intellectual property (as part of intangibles and goodwill on the balance sheet), which in itself is difficult to measure. Companies spend much time and resources developing management expertise and training their employees in business-specific areas to add to the 'mental capacity,' so to speak, of their enterprise. This capital employed to enhance intellectual capital provides a return to the company, though difficult to quantify, but something that can contribute toward many years' worth of business value.

Examples of Intellectual Capital

Simple examples of intellectual capital include knowledge that a factory line worker has developed over many years, a specific way of marketing a product, a method to cut down time on a critical research project or a mysterious, secret formulation (e.g., Coca-Cola soft drink).

As technology and process improvements become more of a differentiating factor within modern companies, intellectual capital becomes a greater factor in achieving success in a competitive marketplace.