What is 'Knowledge Capital'

Knowledge capital is an intangible value of an organization made up of its knowledge, relationships, learned techniques, procedures and innovations. Put succinctly, knowledge capital is the full body of knowledge possessed by an organization. Having employees with skills and access to knowledge capital puts a company at a comparative advantage to its competitors. Knowledge capital is considered an intangible asset and is sometimes referred to as "intellectual capital

Breaking Down 'Knowledge Capital'

Knowledge capital is unlike 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 physical items. Organizations with high knowledge capital may be more profitable or more productive than organizations with lower 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.

Knowledge Capital Components

Knowledge capital has three main components:

  • Human capital: The contributions made to an organization by its employees utilizing their talents, skills and expertise. Human capital is possessed only by individual, but may be harnessed and exploited by an organization, not owned outright. Human capital can disappear when an employee leaves so quality organizations are ones that focus on retaining creative and innovative workers, as well as work toward creating a setting where such intelligence can be taught and learned. 
  • Relational capital: The relationships between coworkers, as well as between workers and suppliers, customers, partners and collaborators. Relationship capital also includes franchises, licenses and trademarks, as they have value only in the context of the relationship they have with customers.
  • Structural capital: The non-physical capital possessed by an organization, such as processes, method and techniques, that allow it to operate and enable it to leverage its capabilities. Structural capital may include intellectual property, such as databases, code, patents, proprietary processes, trademarks, software, and more. 

Knowledge Capital Use

For businesses to be successful they must effectively and efficiently harness and exploit the potential of their knowledge capital. This requires that management be aware of and work toward an efficient knowledge management, which is the act of creating, disseminating, managing and utilizing the talents and knowledge that exists in an organization.

  1. Intellectual Capital

    Intellectual capital is the value of a company or organization's ...
  2. New Growth Theory

    New growth theory is a concept that presumes the desire and wants ...
  3. Capital

    Capital is a term for financial assets or their financial value, ...
  4. Days Working Capital

    Days working capital is an accounting and finance term used to ...
  5. Corporate Capital

    Corporate capital refers to the assets a business has available ...
  6. Relationship Manager

    A relationship manager is a professional who works to improve ...
Related Articles
  1. Investing

    How Human Capital Can Affect You Financial

    Understand how human capital assists in capturing the entirety of an investor’s unique risks, returns and constraints is your best asset as you get older.
  2. Managing Wealth

    Issued share capital versus subscribed share capital

    Learn the difference between issued share capital versus subscribed share capital. Get information about various types of capital.
  3. Small Business

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
  4. Investing

    Ares Capital (ARCC) to Buy Rival for $3.4 bln (ARCC, ACAS)

    Private equity firm Ares Capital inks deal to acquire smaller rival American Capital for $3.4 bln in stock and cash.
  5. Investing

    Capital Markets: Where They Matter Most

    See which countries and regions dominate the world's capital markets and why American entrepreneurial spirit and risk-taking give the United States an edge.
  6. Investing

    How to Research Stocks Without Analysis Paralysis

    Find out how to do an effective job of stock watching and research. Determine how to invest wisely without suffering from paralysis by over-analysis.
  7. Investing

    Financial Concepts

    Diversification? Optimal portfolio theory? Read this tutorial and these and other financial concepts will be made clear.
  8. Small Business

    Counterintuitive Management Strategies That Work

    Traditional ideas are falling by the wayside, and being replaced by flexible arrangements and a results-oriented approach.
  9. Insurance

    How To Eat Healthy Food And Save Money

    With the organic food market continuing to thrive, we look at ways in which the modern consumer can cut his or her costs while still eating healthy food.
  10. Managing Wealth

    How To Become A Sophisticated Investor

    Being a sophisticated investor entails a mixture of knowledge, understanding, and experience. Learn what it takes to labeled one.
  1. What is human capital and how is it used?

    Learn about the concept of human capital, how it is developed and why it is important for businesses to protect their human ... Read Answer >>
  2. How do managers measure human capital?

    Learn what human capital is, how managers measure it and how managers measure human capital's return on investment to gauge ... Read Answer >>
  3. Human capital vs. physical capital: What is the difference?

    Learn the difference between physical capital and human capital. How to find the value of each type of capital in a company's ... Read Answer >>
  4. What are some examples of different types of capital?

    Learn about the different types of capital, including financial, human and social capital, and how each is a valuable asset ... Read Answer >>
  5. What is the difference between financial capital and economic capital?

    Read about the differences between types of financial capital, which companies use to raise money, and economic capital models ... Read Answer >>
Trading Center