Think of intellectual capital as the grand total of everything that everybody in a company knows that gives the company a competitive edge. Intellectual capital is not just about knowledge; it’s about knowledge that adds to the value of your business.

So, how do you know whether knowledge is adding value to your business? At what point does knowledge actually become an asset, or intellectual capital?

It’s all about the packaging — the application. Once you take knowledge and package in a useful way, it becomes an asset. As Stewart says, “when some useful order is created out of free-floating brainpower, intelligence becomes an asset”.

Consider something as basic as an email—the words you would use to write an email are simply free-floating thoughts until you enter them into the body of the email. The email then becomes the useful package of knowledge that will serve some purpose, and likewise for the code generated by a computer programmer or the logos created by a graphic designer. These useful packages of knowledge are now assets, because they add value to the business; they add profit to your bottom line.

Stewart gives the examples of a team of chemists who discover a billion-dollar drug or a group of workmen who come up with a thousand different ways to improve the efficiency of a factory as examples of intellectual capital at work.

That leads to a great question: Which part of the previous two examples is considered the capital? Is it A) the chemists and the workmen or B) the drug and the efficiency improvements they produced or C) is it something totally different?

What does intellectual capital actually consist of?

The answer is our next insight.

1. Human capital relates to the people who are involved in the business. While it stands to reason that smart people, with above average intelligence would seem to be a source of capital, this may not always be the case. The key to creating human capital is in ensuring that the people involved are organized in a smart way, allowing ideas to flow freely between them and in a practical way.
2. Structural capital refers to the organizational capabilities of an organization to meet market requirements. Structural capital packages human capital and allows it to be used over and over again. An example of structural capital inside your company would be an operations manual. An example of structural capital outside your company would be an e-book. Once an e-book is written and published in an electronic form, it can be accessed an infinite number of times. To the entrepreneur who sells that e-book, it is certainly a source of capital.
3. Customer capital refers to the asset we have in our customers. What is the likelihood that your current customers will continue to do business with you? This is the idea behind frequent shopper rewards. If you have a program set-up that rewards customers for shopping with you, then the likelihood that they will continue to return is high. Thus, your customers are an asset—they add value to your bottom line.

So with that understanding of the parts that make intellectual capital, what do we do with it? How do we manage it? Grow it?

We’ll take a look at that in our next insight.

1. Accept that you do not own human or customer capital; these are shared. Aknowledge but minimize the necessarily adversarial position between management and employees, a well as customers and your team.
2. To avoid an over-dependence on one person, promote teamwork and social forms of learning.
3. Unemotionally recognize that some employees are not assets because they do not add value to what your customers are paying for.
4. Manage your company in a way that makes it as easy as possible for your customers to interact with your employees.
5. Remember that structural capital has three purposes:
   • To stockpile knowledge in support of the customer
   • To improve the flow of information within your company.
   • To assist in the scaling-up of an asset.
6. Set up weekly and quarterly heartbeat meetings to constantly re-evaluate and determine where investment in intellectual capital would be most useful and to constantly improve how human, structural and customer capital work together.

And while these six principles should be guiding how you manage the intellectual capital in your business, success is difficult when you have too many priorities. So what’s your most important asset? Let’s take figure that out in our next insight.

And yet there’s a paradox here — because IDEAS are cheap and plentiful.

So it’s not a matter of having ideas. Everyone has ideas. It’s about the SYSTEM — the structural capital in your business that systematically generates, slices and dices and ultimately refines your ideas.

If you focus on just a few GREAT ideas — the hedgehog principle — you will accomplish amazing things.

Let’s talk about some of the idea-optimizing tactics you can use to increase your profits.

If there are people performing routine, low-skilled jobs, chances are good that you can find a cheaper way to accomplish these tasks, especially by automating the tasks. And automating, of course, removes the expense of wages, thus increasing your profits.

By outsourcing certain aspects of your business, you will be able to capitalize more on the ideas of your company. For example, if you operate a copy-writing business, outsourcing the proofreading for your business will likely increase your profits. In this case outsourcing A) saves you time so you can focus on the copywriting, which is your specialty and where you earn your greatest profit and B) likely maintains a more satisfying outcome for your client, who will not need to hire a second person to proofread. Thus your client is much more likely to return—once again, increasing your profit.

The key here is to eliminate as much waste as possible in terms of intellectual capital. You may have a brilliant person on your team, but if that person is bogged down in tasks that can be automated or outsourced, then he is creating zero profit for you, and in the long run, he may even become a liability.

The best way to accomplish this is to set up those weekly and quarterly heartbeat meetings I keep coming back to.

But just doing the meetings isn’t enough — you need the right high-level goal to focus your efforts. This book recommends your primary goal in the management of intellectual capital is one thing – TO CLEAR A PATH FOR INNOVATION. It is innovation that ultimately gives you an edge, and ultimately is responsible for your profits.

Now, almost any business can eek out a profit with merely average innovation … and the key word there is EEK. If you want extreme success your business must innovate enough to become truly indispensable. And that’s our final insight.

We live in a culture filled with choices. There are innumerable options for just about any item a customer could wish to purchase, and a vast array of suppliers of any service they might need, we must get the edge up. If we are to truly become indispensable in today’s hyper competitive world, there must be some aspect of intellectual capital that we offer in our business that can be found nowhere else.

We must learn what it is that our customers will buy, what they will pay for and what they will not pay for. For example, a major grocer in the southeast United States, is known for having higher prices than most of its competitors. Yet, this grocer always comes in first on customer satisfaction surveys. What they have learned is that their customers are willing to sacrifice paying higher prices on groceries in order to receive better service within the stores. The intellectual capital found in their service has given them the competitive edge.

What will be your edge? What is your innovation. And how have you systemized your company’s ability to accelerate and improve your innovation?

Those are some great questions