Intellectual Capital Through Knowledge Management

Does an organization know what they really know or do they not know what they know, but should know? In most cases, an organization will assess the current state of its business by looking at the raw, objective information: sales, revenue, income, market capitalization, and a number of other financial indicators. From these metric figures, a company can easily tell how it is performing relative to the competitive market, its past performances, or other comparative analyses. By deducing from these financial indicators, companies can make informed decisions on how to increase profitability. However, one metric that cannot be computed with an HP-12c is a company’s intellectual capital. In order to compute this often-overlooked asset, an understanding of knowledge management is necessary.

In the mid-90s, knowledge management emerged as its own academic discipline, which spurned the idea of how companies can utilize it in their own respective organizations. According to Knowledge Management by Carl Frappaolo, knowledge management (KM) is the leveraging of collective wisdom to increase responsiveness and innovation. Knowledge can be subdivided into two distinct categories: explicit and tacit. Explicit knowledge consists of codified knowledge or knowledge that can be clearly communicated and transferred between others. A worker who is unfamiliar with the use of certain software can obtain manuals that document the procedures necessary to become proficient in the use of the software. On the other hand, tacit knowledge exists intrinsically, derives from experience, and cannot be codified. That same user who is learning the software can consult with another worker who has extensive experience using the software. The experienced user can teach the new user certain nuances of the software that can only come from personal experience that a user manual cannot recreate.

The inability to codify tacit knowledge brings about the theory of intellectual capital. Intellectual capital is comprised of the talent base that exists in the employees of an organization. It poses the question of, “How much is the true value of an individual given their tacit knowledge base in addition to their current skill set?” Different schools of thought in knowledge management try to quantify tacit knowledge, but the common ideology is that it is difficult to account for. As a result, an organization is unaware of what the company is really worth given the existence of intellectual capital as an asset included in the valuation process.

Examples of knowledge management in use include Country Home Lending’s implementation of knowledge management system (KMS) software to streamline its Tier 1 customer service support. Through the KMS, customer support representatives can access and share information regarding solutions for different customer issues. By doing so, collective experiences can be documented and transmitted to other support representatives for quicker problem solving.

The inclusion of knowledge management does not relegate itself to large corporations. Microcap companies are also harnessing the concept for use within its own organization or creating products and services tailored towards knowledge management. One such example is Sonic Foundry (NASDAQ: SOFO), which offers technological solutions for transferring knowledge. By using specialized communication and content management systems offered by Sonic Foundry, organizations can develop web casts and other multimedia to transmit presentations over the internet. In addition, these presentations can be archived and catalogued for reuse, which repeats the cycle of disseminating knowledge. As a result, Sonic Foundry solutions are especially helpful in an e-learning environment and their KMS software provides a valuable tool in distance learning education.

While still a relatively new discipline, more companies are beginning to realize the benefits of implementing a knowledge management system in their organizations, which have led to the creation of positions such as Chief Knowledge Officer (CKO). In other companies, the concepts of knowledge management are integrated in Information Technology or Human Resources departments. However used, KM can be an important component in company success and when a methodical process is developed to quantify intellectual capital, companies will be able to know what their organization is truly worth.