In business, knowledge is a tool that can be utilized in order to achieve various goals. This knowledge can come from several sources inside a business entity and can be considered as assets of that entity. The collection of all such knowledge are what constitutes as intellectual capital (FCG). This capital can be further categorized into four types which are Human capital, Structural capital, Intellectual assets and Intellectual property (FCG). Human capital refers to the collective intellectual ability of all the personnel in a company (Emerald, 2000).
Essentially, this is a very wide description that covers quantifiable items such as college degrees, professional licenses, industrial experience and even I. Q. test results along with innumerable unquantifiable items that all pertain to how a company’s personnel thinks (Strassman, 1998). Structural capital on the other hand refers to previous manifestations of human capital that have already been embedded into the company and can hardly be identified with the human capital that generated it (Emerald, 2000).
Structural capital can include all the systems and procedures that the company employs such as policies made for employees to avoid tardiness, specialized business procedures that facilitate more efficient outcomes during busy seasons, and rewards structures that encourage human capital to generate better ideas for the company to use (Strassman, 1998). The codified information that contains such capital are referred as intellectual assets (FCG).
Intellectual assets are tangible manifestations of structural capital. When structural capital that is generated by human capital is coded in some physical form that can completely describe it, that form is the intellectual asset. When a company determines that a particular intellectual asset is so useful that its use should be limited solely to the company or limited by the company is some legal manner, then the company works to seek protection for that intellectual asset.
If they are successful, then that intellectual asset becomes intellectual property (FCG). Hence, intellectual property refers to naturally distinct intellectual assets that cannot be used or replicated without the consent of the property’s owner. These dynamics of intellectual capital can best be illustrated by the example of a manager who designs, drafts, and implements a particular management system for his staff members. The manager’s intellectual abilities itself form part of the company’s human capital.
When he formulated and administered a new management system for his staff, structural capital was generated from his human capital in the form of the as yet intangible management system. After a year of experiencing great success from the implementation of the management system, the company pays the manager to draft a handbook that details his system of management. This is where an intellectual asset is created in the form of the handbook containing valuable knowledge about the successful management system.
Finally, the company enters into a contract with the manager for the rights of the handbook thus making it intellectual property. Intellectual property in business can thus be seen as a very important resource that should be carefully managed (FCG). However, the intangible nature of this asset stems forth several challenges in its proper valuation. Intellectual property valuation is the quantification of financial value to be attributed to identified intellectual property.
The main challenges facing the valuation of intellectual property are proper identification of such property and appropriation of applicably fair licensing rates for them. The first challenge deals wit the proper identification of what can constitute as intellectual property. At the moment, intellectual property can be categorized as patents, copyrights, trademarks, trade secrets, and know-how (FCG). While the first three among these categories are fairly easy to identify and subsequently protect, the last two are much more challenging.
Trade secrets can be secret ingredients to certain recipes, undisclosed processes to making certain products, or even sales strategies that are heavily guarded by a particular company. The challenge is that since these items are secret, protecting them as intellectual property means risking them to black market exposure. Hence, legal issues of ownership on such items are usually reactive rather than proactive, arising only when a certain company files charges that another company has stolen a trade secret (WBG, 2008).
Know-how items are equally difficult intellectual property to identify and protect primarily because many companies are not aware what items can count as know-how items. In many cases, items that can be protected as intellectual property under the know-how category simply ends up pirated along with employees who know about them. The second challenge is finding appropriate measuring sticks to determine just how much companies can value their intellectual property (FCG).
Current methods employed such as surveys and judicial proceedings can be highly subjective, variable and even biased (Strassman, 1998). Thus, companies who are seeking to protect their intellectual assets risk finding them undervalued. While this does not affect cases wherein companies simply do not intend to hand out licenses on their intellectual property, this difficulty nevertheless impedes the recognition of intellectual property as valuable assets that can be traded in order to improve worldwide business practices in the long run.
Currently, the state of intellectual property valuation in the business sector is a growing managerial concern. Companies are realizing the potentials of the intellectual property that they may possess and are harnessing their human capital more and more in order to produce assets that they can protect. On a large scale, government business sectors of entire countries are mobilizing available intellectual capital in order to implement better regional trading strategies (PEMSEA, 2008).
Still, it can be sufficiently concluded that there is yet a lot of progress than can be made with regard to the valuing of intellectual property in the business world. The challenges that face developments in the recognition and proper financial assessment on the value of this resource still represent a considerable hindrance that should be overcome in order for businesses to realize the full potential of the intellectual capital they may not even know they have.