Intellectual Capital Defined

With this shift in perspective, companies are now frequently rated at many times their book value. This value comes from the often substantial intangible wealth that lies hidden within an organisation, assets that are neither recognised nor described in traditional financial terms. This is true of both private and public sector organisations.

An organisation’s hidden value lies within its relationships with its customers, the competence of its employees and its organisational processes and networks. These intangible assets are known as 'intellectual capital'.

Karl Erik Sveiby identified intellectual capital as having three parts:

• individual competence—employees' skills and abilities

• internal structure—the organisation's processes and procedures

• external structure—the organisation's image and relationship with its customers

These three parts reflects the ability of the organisation to generate value in the future.