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Knowledge Capital: Definition, Process & Components

Updated: November 17, 2022

For any business, the ability to inspire and motivate others to work toward a similar objective is a significant tool. For example, if you have an employee who is a confident leader. Then you would likely consider them part of your knowledge capital.

But what exactly is knowledge capital?

Read on as we take a closer look.

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    KEY TAKEAWAYS

    • Knowledge capital is the value of an organization. This consists of its knowledge, relationships, learning techniques, procedures, and innovations.
    • Knowledge capital is also known as intellectual capital.
    • It is an intangible resource that adds significant value to a business. It can also offer a competitive advantage to a firm over its competitors.
    • Human capital, relational capital, and structural capital are the three parts that make up this sort of capital.
    • Knowledge capital needs a significant time and financial commitment. This is because it depreciates.

    What Is Knowledge Capital?

    Knowledge capital is the intangible value that an organization derives from certain factors. This includes knowledge, connections, learned skills, practices, and inventions. Essentially, knowledge capital refers to all of an organization’s knowledge.

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    How Does Knowledge Capital Work

    You can get great value that comes from employees’ experience, skills, knowledge, and learning inside a business. This value is referred to as knowledge capital. This capital is of incalculable worth and cannot be measured. 

    Knowledge capital frequently complements physical capital. This is by enhancing and preserving the value of the goods and services that the physical capital produces.

    As a result, it gives a business a competitive edge over its competitors.

    What Are the Components of Knowledge Capital?

    There are three main components of knowledge capital:

    1. Human Capital

    Human capital is the contributions provided to a company by its personnel. This is by them making use of their abilities, knowledge, and experience. Quality firms place a strong emphasis on retaining creative and inventive employees. As well as working to create an environment where such intelligence may develop.

    2. Structural Capital

    Structural capital is the processes, methods, and techniques that an organization has access to. This is in order to operate and take advantage of its capabilities. Intellectual property includes databases, code, patents, and proprietary procedures. As well as trademarks, software, and more may be included in structural capital.

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    3. Relational Capital 

    Relational capital is the relationships between employees and suppliers, customers, partners, and collaborators. As well as those between employees and their coworkers. Franchises, licenses, and trademarks are also considered a part of relationship capital. This is because they only have value in the context of the relationships they have.

    Why Does Knowledge Capital Matter?

    Knowledge capital is crucial. This is because it lessens the likelihood that a business will need to start from scratch every time a specific process is implemented. This is due to the fact that its staff members have access to documentation outlining the required actions. As well as the personnel who have carried out related tasks. 

    Knowledge capital still requires significant investment, despite the fact that it may not be a physical asset.

    Summary

    A company can only achieve so much without the intangible asset of knowledge capital. It can be thought of as the brains behind the business and is critical when it comes to the success and longevity of a firm. 

    It is important to grow, develop, and put constant investment into your knowledge economy; such as the skills employees have. This is because it can provide your company with a huge range of insights and benefits.

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    FAQS on Knowledge Capital

    What Is the Difference Between Human Capital and Intellectual Capital?

    Human capital is the knowledge and skills that people accumulate throughout their working and home life. Whereas intellectual capital is the total value of all an organization’s intangible assets.

    How Do You Manage Intellectual Capital?

    The management of a company’s knowledge is referred to as intellectual capital management (ICM). Depending on the type and nature of the business, there are many different ways to accomplish this.

    Why Is Knowledge Capital Important for Economic Growth?

    In empirical applications, the link between knowledge capital and growth is demonstrated to be very strong. The impact of talents is additive to the effectiveness of economic institutions. Growth simulations show that investing in high-quality education will pay off in the long term, but it will take time.

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