If a company is being run down or asset stripped it may make outstanding profits. But there's a real possibility that it may not be around in a few years. How a company performs in the future depends not only on how it invests its financial capital but also how it invests its intellectual capital. Intellectual capital is defined, at its simplest, as the return that the company makes over and above what it could earn from simply investing its book value. The reason that companies are acquired at valuations 10 or more times over the straight valuation of their tangible assets is that the purchasers believe that the sum of the talent, knowledge, trademarks, patents, company image, brands and so forth far outweigh mere money or bricks and mortar.
Intellectual capital is the knowledge of everyone who works for it - and who has ever worked for it.
To measure intellectual capital we need to be capture, consolidate, sift, share, manage and distribute the knowledge that lies in peoples' heads, in computers, in filing cabinets. That process is currently known as Knowledge Management. The mouse that roared Across the business spectrum knowledge is becoming the key to prosperity. In the automotive industry, motor companies will perhaps be valued not on their capacity to produce 100,000 cars a year, but on their ability to design and develop successful new models, and to develop innovative and cost effective production techniques. In IT, the 90's have seen the huge growth of companies like Microsoft, whose value is entirely based on the intellectual property it produces to such good effect, and on the knowledge of those employees sweating away in Seattle.