Insight

Five Eyes on the Fence: Intellectual Capital

August 2017


In my book Five Eyes on the Fence, I debunk the myth that the health of a business can be judged by its bottom line alone - by its financial capital. Instead, I assert that financial capital is a by-product of four other capitals:

1. Human capital includes the personalities, intelligences, behavioural traits, values, attributes, and motivators of a person, a family, or a company.

2. Intellectual capital is a company's and its employees' knowledge and experience.

3. Social capital is a company's network of people and associates.

4. Structural capital includes a company's processes, systems, and ways of delivering its products or services.

A company that pays attention to only its financial capital has a high probability of failing. The company is keeping only one eye on the fence. The recipe for a company's success is much broader and includes the interrelationship between all five capitals.

In this series of articles, I examine how the five capitals form an intricate web, and how you can make decisions based on how the five capitals interact.

In this article, we will take a look at intellectual capital.

Intellectual Capital

What you and the other members of your company know - your intellectual capital - is the bedrock of your product or service. This includes the acquired skills, knowledge and expertise that you apply to your product or service. Your intellectual knowledge is why you make money. The degrees you have, the experience you have gained, the training you have completed, and the innovations you have created all feed into the product or service you offer.

A company is most powerful when it can package together several sets of intellectual capitals to create a product or service that is difficult to duplicate.

What you know - your intellectual capital - is the bedrock of your product or service.

Packaging Subsets of Intellectual Capital

Many of us have overlapping sets of knowledge. Every estate planning attorney, for instance, can draft living trusts and have individuals and companies mitigate or avoid taxes. Any competent CPA can prepare and examine a company's financial records.

Companies that de-commoditise and stand apart are those who combine seemingly unrelated bits of intellectual capital to create something unique.

Consider, for instance, Uber, which joined together two different pieces of intellectual capital. First, was a knowledge of the ride-for-hire industry, and second was knowledge of technology capabilities. Now a known and common service, Uber originated as a company representative of combining complementary pieces of intellectual capital.

Connecting the Dots


What you know is special. In Steve Jobs' famous commencement speech, he highlighted the importance of connecting the dots. When you are aware that what you know, insofar as your intellectual capital is concerned, is special and unique, you can connect the dots and create inimitable intellectual capital when the opportunity presents itself.

When it comes to pinpointing your intellectual capital, keep your mind focused on these questions:

1. What is the value that I currently deliver? Figure out why your customers come back to you. When you know the answer to this question, you can intentionally deliver more of it. Then, make your intellectual capital even more powerful by asking:

2. What knowledge do I have that I can add to my product or service to make it more unique? When I do this exercise with graduate students, I encourage them to write down everything that comes to mind. This might include things like, "I know how to drive a car," or "I know how to shop online and find the best deals."

You should ask these two questions not just of yourself, but also of your entire team. When you discover that Maria the receptionist is an expert animator, for instance, you could combine her artistic abilities with your marketing platform to create packaging that sets your product apart from everyone else's.

By asking these questions, you will learn that you have comedy writers, animal whisperers, home decorators, musicians, mathematicians, bartenders, writers and historians on your team.

These skills might seem unrelated - in fact, many of them might be unrelated. Nonetheless, when you intentionally identify them, you allow your brain to start forming connections and noticing patterns it might not have otherwise seen. In other words, you can more easily connect the dots and strengthen your intellectual capital.

Author: Tony A. Rose