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20 Chapter 1

an airline is the SABRE reservation system, software that enables the airline to not
only manage the logistics of its passenger reservations but also to implement a seat-
yield management system. The latter refers to an optimization program that is used
to ensure maximum revenue is generated from each seat sold — even if each and every
seat carried a distinct price. Similarly, in the manufacturing sector, the value of non-
physical assets such as just-in-time (JIT) inventory systems is rapidly proving to
provide more value. These are examples of intellectual assets , which generally refer to
an organization ’ s recorded information, and human talent where such information is
typically either ineffi ciently warehoused or simply lost, especially in large, physically
dispersed organizations ( Stewart 1991 ).
This has led to a change in focus to the useful lifespan of a valuable piece of
knowledge — when is some knowledge of no use? What about knowledge that never
loses its value? The notion of knowledge obsolescence and archiving needs to be
approached with a fresh lens. It is no longer advisable to simply discard items that
are past their due date . Instead, content analysis and a cost-benefi t analysis are needed
in order to manage each piece of valuable knowledge in the best possible way.
Intellectual capital is often made visible by the difference between the book value
and the market value of an organization (often referred to as goodwill ). Intellectual
assets are represented by the sum total of what employees of the organization know
and know how to do. The value of these knowledge assets is at least equal to the cost
of recreating this knowledge. The accounting profession still has considerable diffi -
culty in accommodating these new forms of assets. Some progress has been made (e.g.,
Skandia was the fi rst organization to report intellectual capital as part of its yearly
fi nancial report), but there is much more work to be done in this area. As shown in
fi gure 1.5 , intellectual assets may be found at the strategic, tactical, and operational
levels of an organization.
Some examples of intellectual capital include:

Competence The skills necessary to achieve a certain (high) level of performance
Capability Strategic skills necessary to integrate and apply competencies
Technologies Tools and methods required to produce certain physical results
Core competencies are the things that an organization knows how to do well, that
provide a competitive advantage. These are situated at a tactical level. Some examples
would be a process, a specialized type of knowledge, or a particular kind of expertise
that is rare or unique to the organization. Capabilities are found at a more strategic
level. Capabilities are those things that an individual knows how to do well, which,
under appropriate conditions, may be aggregated to organizational competencies.