DEFINITION of 'Knowledge Capital'

An intangible asset that comprises the information and skills of a company's employees, their experience with business processes, group work and on-the-job learning. Knowledge capital is not like the physical factors of production - land, labor and capital - in that it is based on skills that employees share with each other in order to improve efficiencies, rather than on physical items. Having employees with skills and access to knowledge capital puts a company at a comparative advantage to its competitors.

BREAKING DOWN 'Knowledge Capital'

Businesses develop knowledge capital by encouraging employees to share information through white papers, seminars and person-to-person communication. Knowledge capital is important because it reduces the odds that a company will have to "reinvent the wheel" each time a particular process is undertaken because its employees have access to documents detailing the necessary steps, and personnel who have undertaken similar activities.

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