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Knowledge (Intellectual) Capital is a firm’s source of

Written by: Afolabi Imoukhuede

Article Overview: “Today's most technologically advanced economies are truly knowledge-based” World Development Report, 1999. For countries in the vanguard of the world economy, the balance between knowledge and resources has shifted so far towards the former, that knowledge has become perhaps the most important factor determining the standard of living - more than land, tools and labor.

Knowledge (Intellectual) Capital is a firm’s source of

Knowledge (Intellectual) Capital is a firm’s source of
competitive advantage…..

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“Today's most technologically advanced economies are truly knowledge-based” World Development Report, 1999. For countries in the vanguard of the world economy, the balance between knowledge and resources has shifted so far towards the former, that knowledge has become perhaps the most important factor determining the standard of living - more than land, tools and labor.

Judging from the work of renowned economists like Joseph Schumpeter, Robert Solow, Paul Romer and others that have attempted to deal with the causes of long-term growth, Paul Romer (a Stanford Economist) concludes that: “Knowledge has become the third factor of production in leading economies.” He proposes a change from neo-classical economics that for the last 200years has recognized only two factors of production: labor and capital, by seeing technology (particularly the knowledge on which it is based) as an intrinsic part of the economic system.

New and continuous technological advancements (stemming out of applied knowledge) is a key driver of economic growth; as it raises the return on investment. This explains why developed countries can sustain growth while developing economies like Nigeria with unlimited labor and ample capital cannot even attain growth.

What is this Knowledge Economy?

A knowledge economy is one in which the generation and exploitation of knowledge play predominant part in the creation of wealth. In the industrial era, wealth was created by using machines to replace human labor. It presupposes therefore that our world economy today is fast departing from the industrial to becoming a knowledge-based one.

The world development report also shows the following statistics:

“More than 60% of US workers are Knowledge Workers.” Another report shows that in the “EEC countries, 62% of employment is in the service or knowledge sector.”

What does this all mean?

The implication of the knowledge economy is that there is no alternative way to prosperity than to make learning and knowledge-creation of prime importance. Knowledge is the basic form of capital, as such; economic growth is driven by the accumulation of knowledge. It is therefore safe to conclude that Life long learning is vital for both organizations and individuals in a knowledge economy.

What then is Knowledge Company?

Knowledge Companies are organizations where the majority of their employees are very skilled and highly knowledgeable. They are characterized by relaxed standardization allowing for individual initiative and creativity, high dependence on their people and a positive attitude towards complex problem-solving.

In a knowledge company, learning must be continuous. Organizational learning is the process by which firms acquire tacit knowledge and experience through formal education & training, on the job training and shared understandings. Today’s successful firms are giving utmost priority to the need to build a “continuous-learning capacity” within their organization.

To become a Knowledge Company, organizations must learn how to recognize changes in the knowledge (intellectual) capital worth of their business and ultimately in their balance sheets. A firm's intellectual capital - employees' knowledge, brainpower, know-how, and processes, as well as their ability to continuously improve those processes - is a source of competitive advantage. But there is now considerable evidence that the intangible component of the value of truly value-adding service-oriented firms far outweighs the tangible values of its physical assets, such as buildings or equipment. The physical assets of a firm such as Microsoft or Dell, for example, are a tiny proportion of its market capitalization. The difference is its knowledge (intellectual) capital.

Nigerian companies (banks, telecoms, oil & gas, manufacturing and service companies alike) need to better understand and use the concept of knowledge (intellectual) capital to becoming true Knowledge Companies. They need to look at their products, processes and people, and assess and augment the amount of knowledge they possess. They must unlock the value of their hidden and most important assets: the talents of their employees. Also, the loyalty of their customers, and the collective knowledge embodied in their systems, processes, and culture must be unlocked. They must learn how to turn their unmapped, untapped knowledge into a source of competitive advantage.

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Article Tags: ample capital, classical economics, competitive advantage, developed countries, developing economies, economic system, eec countries, factors of production, intellectual capital, joseph schumpeter, knowledg, knowledge economy, knowledge workers, paul romer, renowned economists, return on investment, robert solow, technological advancements, vanguard, world economy



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