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Knowledge And The Intellectural Capital Of The Organization

Guest post by: Dr. Fathi El-Nadi

Article Overview: In the new economy of the millennium, knowledge has emerged as an asset to be valued, developed and managed. The quest for knowledge is not new: in the fourth century BC, Aristotle noted "All men by nature desire knowledge." Now, 25 centuries later, knowledge drives the global economy. No longer is knowledge considered only an individual's personal wisdom; knowledge is a component of the intellectual capital of organizations (Stewart 1997).

Knowledge And The Intellectural Capital Of The Organization

In the global economy of the millennium, data and information proliferate, and the applications and uses to which they are put transform them into knowledge. To make use of data and information, transform them into knowledge, then maximize the value of knowledge is the new challenge in achieving a sustainable competitive advantage. The 'information age' of the 1990s has evolved into the 'knowledge age' of the millennium.
Knowledge is increasingly acknowledged as a corporate asset; indeed, some are it has supplanted the traditional factors of production - land, labor and capital - to become the pre-eminent corporate and competitive resource (Havens and Knapp, 1999). Knowledge, however, is an intangible asset; its very elusiveness and intangibility create myriad challenges.: how to manage it; how to valuate it; how to measure it; how to process it. If it is a corporate resource, how does the corporation manage it? Who, within the corporation, assumes responsibility for acquiring, developing and marketing it? Knowledge management (KM) has emerged as a principal component of the new economy. Likewise, the learning organization has become the site of effective KM (Argryis and Schon, 1978; Senge, 1990).
Individual Knowledge and Learning
Learning is an innately human activity. Growth in knowledge is a function of maturing and developing. For adults, experience plays a significant role in knowledge acquisition: Kolb (1984, p.38) asserts, "Learning is the process whereby knowledge is created by the transformation of experience". Kolb's theory of experiential learning informs much of the literature on adult learning in general and human development and training in particular.
Humans bring to an organization their prior education, experience, knowledge and skills, and as they interact within the organization they draw on this experience to develop their skills and knowledge further, thus adding to their human capital and to the value of the organization.
Economists have identified a steady growth in human capital per worker in the industrialized world in two areas:
Capital deepening - individual workers have improved their performance of particular skills.
Capital widening - individual workers have exhibited an increased ability to acquire a variety of skills (Lindbeck and Snower, 2000).
Human capital, however, while contributing to the value of the organization, remains the possession of the individual. Individuals can and do learn, develop and acquire knowledge both independently and with the organization. In order to learn, they require neither organizational assets nor organizational capital, yet they can, and do, learn from their experience in the organization. The organization, conversely, cannot develop, learn, or grow independently of its human capital.

Organizational Knowledge and Learning

Knowledge is recognized as a corporate asset and, like all corporate assets, it must be managed: thus, the emergence of KM. Ideally, KM captures, transfers, and leverages what everyone in the organization know. This, of course, is a daunting challenge. Who is "everyone in the organization", and how does the organization manage their knowledge , their human capital, thus transforming it into organizational intellectual capital?

Intellectual capital extends beyond mere knowledge: Stewart (1997) identifies three categories of intellectual capital:

Human (evidenced in staff's knowledge, skills and talents).
Structured (comprised of systems for codifying, storing, transmitting and sharing knowledge).
Relational (resulting from connections between organizations and clients, vendors and partners).
The three must interact. Indeed, managing intellectual capital has been described as capturing individuals' tacit knowledge and making it explicit in the organizational structure (Lynn, 2000). Managing and developing intellectual capital is a dynamic process that creates a tension between assimilating new and exploiting old learning (Crossen el al., 1998) . Effective KM systems do three things:
Filter out information that does not support an individual's immediate or long-term need or goal.
Present information in the form appropriate for the context and the individual needing the information.
Focus information into the hands of those who can act upon it and give it value (Covley-Durst, 1999).
The last item is the crux: until it is acted upon, knowledge has no real value. Until a human puts knowledge to use, it is an un-valued asset. Until a human shares tacit and explicit knowledge within the firm., it is the individual's human capital, not the organizaions's. The knowledge possessed by the employees represents a key source of sustainable competitive advantage for organizations (Elsdon and Iyer, 1999). Knowledge is an asset, but it is a slippery asset to value, manage and measure.

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