Intellectual Capital

Intellectual capital seems to be making a comeback. It features as the cover story of the current issue of People Management, and the expression, dormant for a while, seems to be in use again. For me, this is a welcome development.

It first emerged in the 1990s, and was a vogue expression, along with knowledge management, in the most swollen state of the dot com bubble. When that bubble burst, the expressions went out of fashion, but that always struck me as unfair, as the underlying principles were sound.

Tom Stewart’s Intellectual Capital, the seminal text on the subject, is one of the best books I have ever read, and more than ten years from its publication still seems very profound.

What I like about the concept is it explains hidden assets, intangible capital, and value that doesn’t appear on balance sheets. This is important for advocates of learning and development: we see spend on learning as valuable investment in human capital; accountants tend to see it as just running-cost expenditure. If investment in learning is to be taken seriously, we need to be able to show that it adds value, and is not merely a drain on expenditure.

Tom Stewart argues that the most important measures of value in a business are its knowledge assets, and that strategic development and deployment of these assets is the key to lasting competitive advantage, now and in the future. Stewart caricatures the work of corporate accountants as counting the bottles rather than describing the wine, and insists that it’s the latter sort of value that is the hidden gold of organisations.

Knowledge assets are developed through the efforts of people, who work, learn, research, develop, and create and refine knowledge. Organisations need to recognise that investment in learning and development leads to increased intellectual capital, which in turn leads to business growth and improved profitability.