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March 27, 2018

Building Your Company’s Intellectual Capital to Increase Value

Looking at the value of a business, it’s the intangible assets that account for most of the value, not the tangible machines, buildings and other hard assets. Those intangible assets are the sum the company’s intellectual capital which can be broken down into four categories: human, customer, structural and social capital.

What is intellectual capital? In The Wealth of Knowledge, Thomas A. Stewart’s states “Simply put, knowledge assets are talent, skills, know-how, know-what and relationships – and the machines and networks that embody them – that can be used to create wealth.” He further noted, “Because knowledge has become the single most important factor of production, managing intellectual assets has become the simple most important task of business.” Below we dive deeper into the four categories of intellectual capital.

Human Capital

Human capital is a measure of the talent of your team. If you have really strong, developed talent, not only will someone place a high value on that, your business likely does not depend on you, and only you, to be successful.

Developing human capital should be your number one priority. It is also likely your number one headache. Jim Collins, author of Good to Great and Built to Last, emphasized the importance of the power of human capital. Collins coined the metaphor by comparing business to a bus and the leader as the bus driver. Get the right people before you start down the path, and your human capital will improve your direction by figuring out who sits where and where the company should be heading.

Customer Capital

Strong customer capital is a measure of the company’s relationship with customers. How strong are your relationships with customers? Are these relationships deep, long-term and contractual? Are the relationships delivered in a consistent, reliable, recurring fashion? Are you integral to your customers’ success because the products/services you offer are unique? Most of all, are these relationships transferable?

Everything starts with the customer and getting a clear picture of that customer. In fact, how the business interacts with customers is more important that what it sells. You can make your relationships so entangled that your customers cannot live without you!

Structural Capital

Structural capital is the business’ infrastructure. It comprises the systems and tools that augment the customer and human capital on which your company is built. It has two purposes. First, it takes what exists inside your brain and turns it into a transferable form. These are your best practices that can be purchased and repurposed.

The second purpose is to capture the knowledge assets in the company, converting that mental process into company property and make it transferable. What enables your team to do the things that make them so special, allows them to meet and exceed customer expectations, and enables them to build and sustain lasting and recurring relationships?

The knowledge needs to be documented and transferable, such that someone else can learn from you and apply it. Making this knowledge company property ensures that when you talent walks out the door at night, the knowledge they house doesn’t walk out the door with them.

Social Capital

Finally, and maybe most importantly in today’s tech world, is social capital. Social media represents your culture, your brand, the way your team works, the rhythm of the day-to-day operations and communications, and the way you interact with customers. Be careful, positive social media can go a long way, but negative social media can go a lot further.  How much more memorable is a bad media post than a good one?

When you have built and packaged your intellectual capital, your business has replaced you, which is a good thing. It’s not about you anymore; it’s about the business. Your business now becomes the project versus the products or services you sell.

Contact an Anders advisor to learn how to implement a successful business transition strategy for you and your business or learn more about our Business Transition Planning Services.

For additional reading, check out Chris Snider’s book, Walking to Destiny – 11 Actions an Owner Must Take to Rapidly Grow Value and Unlock Wealth.

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