What Is Intellectual Capital Management?

By Bill Elkington, President & Chair of the Board, LES (U.S.A. and Canada)

In the last issue of Viewpoints, I discussed the need to use a bigger concept than "intellectual property" to refer to the "i-stuff" that the 21st century enterprise creates and uses to generate sales and profits. I called this broader category of "i-stuff" intellectual capital. Further, I suggested that the management of intellectual capital was a business management matter, in addition to being a legal matter. And I suggested that human capital management might be a useful analogy to help us think about what intellectual capital management might entail.

One of the observations that should be made at the outset is that there is no specialty discipline that has been developed in our universities on the subject of intellectual capital management.

I was perusing the Wharton Business School website the other day, counting up the number of majors available to MBA students. There are 19 of them. Here are examples: Accounting, Actuarial Science, Business Analytics, Business Economics and Public Policy, Finance, Marketing, Multinational Management, Statistics, and Strategic Management. But there is no Intellectual Capital Management.

According to a variety of experts, about 80 percent of a company's equity value is in its intellectual capital. So managing it well is critical. But there is no Intellectual Capital Management department in most enterprises. There are Accounting departments and Marketing departments and Strategy departments and Finance departments.

Oh, there are Legal departments, where the patent lawyers are kept. There are Engineering departments, where innovation is inspired and managed. And there are Human Resources departments, where leadership education is generated, where hiring, firing, and compensation policy is developed, where performance measurement and enhancement is developed and taught, where staffing tools and systems are purchased and provided, where personnel and organizational conflict resolution resources are curated.

Human Resources is charged with helping the enterprise attract, retain, develop, motivate, and effectively deploy its human capital. It provides leadership and guidance in these functions, but typically there are 15% of the people in the enterprise who also have direct responsibility for managing employees and therefore play an important role in attracting, retaining, developing, motivating, and effectively deploying the enterprise's human capital as well. And Human Resources is responsible for working closely with this 15%—the leadership of the company—to ensure that the enterprise's employees are well managed.

When it comes to intellectual capital, a much higher percentage of the enterprise's employees—especially in intellectual-capital-intensive companies and industries—is directly responsible for managing the developed intellectual capital. Individual contributors—whether engineers, business developers, product line managers, contracts and subcontracts managers, supplier management specialists, contractors, or consultants—typically have access to strategically valuable intellectual capital and are often in a position to share that intellectual capital with others, both inside and outside the company. Often such intellectual capital may be shared beneficially, but sometimes people make mistakes and share intellectual capital inappropriately or unwittingly.

Many organizations in the enterprise have an intellectual capital management function. As we have already suggested, Human Resources, Information Technology, Physical Security, Engineering, Legal, Contracts and Subcontracts, Supplier Management, Manufacturing, Program Management, Product Line Management, Strategy, Strategic Partnership Management, Business Development, M&A, and so forth all have various roles in the management of an enterprise's intellectual capital. But these functions are often uncoordinated, or if coordinated in some areas are not coordinated in others.

Imagine the enterprise without Human Resources and with each department and discipline developing its own approach to employee management. This is something like what we find today in Intellectual Capital Management.

Why is this? You might ask. Perhaps it has to do with the absence of research. Maybe it has to do with business schools not taking intellectual capital management seriously as a business discipline. There's undoubtedly more to it than that, but this may be the beginning of an explanation.

Please let me know your thoughts.

Thanks for your help.

The views and opinions expressed in this article are those of the author and do not reflect the policy or position of Rockwell Collins, Inc.