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Knowledge Management Strategy 335

property and the expectation of revenue it could generate, Microsoft was willing to
pay dearly. Documents, recordings, or images — all different structured data types, may
represent intellectual capital. Those data types embody the knowledge and a substan-
tial portion of the value of a company. Quantifying an organization ’ s intellectual
property should therefore begin by making it as tangible as possible. By converting
ideas, processes, concepts, and business intelligence into archived documents, CAD
drawings, database entries, procedure manuals, or even patents, organizations are
much better able to count intellectual assets in their bottom line.
Edvisson and Malone (1997) propose that knowledge assets can be placed in one
of these categories:
• Human capital , or all the brainpower that “ leaves at 5 PM. ” Human capital represents
the knowledge inherent in employees and contractors, and it is diffi cult to calculate.
The best way of assessing it is to calculate the potential inherent in human knowl-
edge — the value that has not yet manifested itself.
• Structural capital , or all the brainpower that “ stays after 5 PM. ” Structural capital
includes policies and procedures, customized software applications, training courses,
patents, and the like. The fi nancial community can more easily calculate the value of
structural capital because it has physical properties.
• Customer capital (also called relationship capital ), or all the corporate relationships
with customers and prospects. The value of customer relationships can be calculated
in terms of the business the customers have provided and the trend in those relation-
ships. (The value of future relationships or lapsed contracts is diffi cult to calculate.)
Organizations can take an inventory of these assets and, in some cases, can sell
them to others. (For example, organizations can sell training courses and license
patents.) Identifying and extracting intellectual assets is the process of determining
the obvious and nonobvious assets that a company owns. Often as a company goes
through a systematic process of inventorying its known assets, it fi nds many surprises.
For example, a company might start an inventory by listing its patents and patentable
discoveries. It then becomes clear that some of the company ’ s most valuable intel-
lectual assets are in the form of processes or know-how that are not patentable.
Examples that should be included in an inventory of intellectual assets are product
formulas, manufacturing processes, new product plans, packaging specifi cations,
product compositions, research directions, test methods, alliance relationships, busi-
ness plans, strategic directions, vendor terms, competitive analyses, customer lists,
marketing plans, sales projections, budgets, fi nancial projections, pricing analysis, and
employee lists.