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Modeling of Intellectual Capital Helps Managers to Assess Their Organizations
In the knowledge economy and information age, simulation solution to complex models of intellectual capital is a realistic approach to evaluate the extra assets incorporated in the intellectual capital.
By M. N. Nahas
Aug. 29, 2016

In the knowledge economy and information age, simulation solution to complex models of intellectual capital is a realistic approach to evaluate the extra assets incorporated in the intellectual capital.

In a recent paper by author Prof. M. N. Nahas, a simulation solution to the complex model of intellectual capital of organizations is presented to assist managers to appraise the value that is added to the physical and financial assets of their organizations. Intellectual capital is the immaterial value of an organization.

The author modeled the intellectual capital into three main components, each of which is divided into two sub-components, as shown in the figure.

The three main components of the intellectual capital are: the human or individual capital, the structural or organizational capital, and the environmental or external capital.

The human capital is related, in its first branch, to the knowledge, qualifications, skills and expertise of the individuals working in the organization. The other branch includes the personality attributes of the individuals, such as their willingness and ability to learn about new subject or product, their performance, their cooperation with other staff, their personal initiatives, their independency and capability to take the right decision, their rational thinking, their emotional stability, and their self-motivation to achieve success.

The organizational capital comprises of the organizational knowledge and the organizational personality. The former one includes the collective knowledge that the organization has accumulated such as by-laws and regulations, databases, information systems, ready programs, trademarks, patents, trade secrets, intellectual property, copyrights, education and training rights, and licenses. The organizational personality includes vision and mission, moral values, objectives, standard in performing duties, and norms in dealing with staff and others. This last element is the emotive relations between the organization and others, and measures organizational commitment. It is a very important constituent, since it affects the satisfaction and commitment of the employees and the customers. Satisfaction of employees results in pleasure, while commitment makes them to stay in the organization. Satisfaction and commitment influence the work attitudes and create value for the organization.

“Only satisfaction and commitment ensure that employees will actually use their knowledge to create value for the organization”, Nahas said.

The environmental capital includes the environmental knowledge, such as the relations with the stakeholders (e.g. customers, dealers, suppliers, shareholders, nearby educational establishments, regional and national government agencies, allies, and partners), databases related to the market, market requirements, competitors, other trademarks, service companies. Additionally, environmental sensitivity is also part of the environmental capital, which includes policies of dealing with others, market research, incorporating new technologies, and commitment towards local, regional and national communities.

In the paper, Nahas shows how modeling uses logical representation of the intellectual capital to simulate the data for managerial decision-making. This helps organizations to estimate their add values. It also assists the managers to increase the added values through increasing the most effective components of the model. To ensure that the results of simulation are correct in the real world, the managers must understand the conceptualizations and the model implementation.

Nahas goes on to suggest, “Managing the intellectual capital in the right way enables the organization to increase innovation and productivity. This is because the management will be in a better position to normalize the right payment to the employees who are the most important asset, as they are the source of creativity, innovation, and improvement. These items represent the opportunity to add value for the intellectual capital.”

Modelling is playing an increasingly important role in helping organizations shape their future and be more effective in performing duties.

M. N. Nahas, Professor at the Faculty of Engineering, King Abdulaziz University, Jeddah. Saudi Arabia.

A paper about the study appeared recently in American Journal of Engineering and Technology Management.

Paper link:

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