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What Is Knowledge Capital?

Jim B.
Jim B.

Knowledge capital is any information that is accumulated by employees over a period of time which can be useful in a firm's business operations. This knowledge that has been gained is just as much of an asset as physical assets like labor or monetary capital. As a result, successful companies often are the ones that do a good job sharing this knowledge and passing it on to other employees so that they may benefit from it. In fact, those companies that possess excess knowledge capital may enjoy a comparative advantage over industry rivals.

When a company attempts to evaluate itself, it often does so in terms of its physical assets. For example, company management might try to determine net worth by measuring assets against liabilities, or they might judge their net income by comparing revenues and expenses. These factors can be easily measured by studying a company's financial statements. There are, however, assets which can't be measured decisively in numbers but can be every bit as valuable as physical assets. Taken together, these assets are known as knowledge capital, and they are often the hallmark of an effective company.

Man climbing a rope
Man climbing a rope

A company accumulates knowledge capital through the information amassed by its employees. This information can be the result of experience gained on the job. It can also come from the innate ingenuity found in a work force. No matter where it originates, this information can be put to use.

While most companies can boast of some amount of knowledge capital built up in its work force, fewer show the ability to turn that knowledge into tangible results. If the information gathered by workers isn't effectively shared with management and then redistributed throughout the entire company, it can be rendered useless. Companies should have systems set up that allow knowledge to be harvested and transformed into best practices for future employees to study.

It is difficult to measure the true worth of knowledge capital. For the most part, its value lies in the competitive advantage that a company can gain on its business rivals. While these rivals may have more physical assets and other advantages in their favor, the company possessing the business knowledge edge can eventually produce better results. For this reason, companies must make sure that they hire a work force that has the ability to both apply the knowledge accumulated by past workers and to add to that wealth of knowledge with their own ideas and innovations.

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