Balanced Scorecard in Intellectual Capital Management

Intellectual Capital provides a framework for managing the implementation of knowledge management.

Intellectual capital is usually defined as the company's intellectual assets, including organizational knowledge, information, intellectual property, and experience, which can be put to use to create wealth for the company. Intellectual Capital can be classified into three categories: Structural Capital, Human Capital, and External Capital.

Structural Capital includes all the tangible assets of a company, such as desks, PCs, server workstations, offices, etc., as well as some 'intangible' assets, for example, documentation, processes, Intellectual Property (patents and trademarks), IT source code, and data warehouses. Structural Capital also comprises the physical network through which the organizational data is transferred.

Human Capital is the combined value of the knowledge, experience and goodwill of all members within the organization. In order to gain maximum value from its Human Capital assets, the organizations adapt various knowledge management (KM) strategies. Knowledge management helps develop and implement organizational methods, procedures, and information systems in order to collect and share the knowledge and experience of the members of the organization, as well as to elaborate and disseminate the external knowledge, and to bring this knowledge to bear on problems and opportunities. In other words, knowledge management provides people with necessary information, converts information to knowledge and helps distribute the knowledge. It plays a significant role in improving the company's competitive advantage.

External Capital is the combined value of the goodwill or trust that a company has built with its customers and suppliers.

Intellectual Capital management can focus on a proper performance measuring system that takes into account the organization's intellectual assets. These measurements allow the organization to focus on the flow of information in the business process rather than the flow of materials. Organizational wealth is created around skills and talents that are proprietary and scarce. Knowledge work is custom work, where mass produced solutions do not yield high profits. To manage and develop Intellectual Capital, organizations must consider people with talent as important assets to invest in. Intellectual Capital management also requires the organization to promote teamwork, communities of practice, and other social forms of learning.

The Balanced Scorecard can be used as a mechanism to store and manage knowledge. The proper management of this knowledge allows a business to measure its performance by giving this knowledge a value. The comparison of each performance cycle with the previous cycles or other external sources give the measures their own intrinsic value. The management focus then refines the performance measures contained in the Balanced Scorecard. Reporting and storage of the measures creates more knowledge and so the cycle continues. Over time this knowledge and Intellectual Capital becomes just as important as any other piece of Capital.

The organization's Intellectual Capital management is a long-term strategy. The Balanced Scorecard helps the organization to align its management processes and focuses the entire organization to implement it. It allows dynamic improvements and feedback changes in the Intellectual Capital management while still catering for changes in organizational strategy, competitiveness and innovation. This approach helps enhance the flow of knowledge which leads to greater organization value.