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.

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