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Structural Capital A Theoretical Construct Business Essay

Structural capital includes such traditional things as properties, hardware, software, operations, patents, and trademarks. In addition, structural capital includes such things as the organization's image, business, information system, and proprietary databases. Due to its diverse components, structural capital can be categorised further into group, process and technology capital. Organizational capital includes the business school of thought and systems for leveraging the organization's capability. Process capital includes the techniques, methods, and programs that use and improve the delivery of goods and services. Creativity capital includes intellectual properties and intangible property (Edvinsson, 1997). Intellectual properties are covered commercial protection under the law such as copyrights and trademarks. Intangible property are all of the other skills and theory by which a business is run.

Competitive intelligence, formulas, information systems, patents, plans, operations, etc. , that final result from the products or systems the organization has created over time can be defines as structural capital. Among the three types of intellectual capital (the other two are customer capital and individuals capital), it can not reside in the heads of the employees and remains with the company even when they leave (http://www. businessdictionary. com Apr, 2012).

If you understand human and relationship capital, you can start a business. If the business creates value for your customers, you can generate a good living. But you will never expand large or especially rich with just both of these sorts of knowledge assets. This is because the real promises of the knowledge economy comes in the creation of structural capital, that is, knowledge that gets captured and institutionalized in an company. Four basic forms of structural capital: culture, organizational knowledge, intellectual property (IP), and operations (http://www. i-capitaladvisors. com/2010/06/28/).

What is the total value of your organization's property? The accountants keep trail on all physical investments and the financial belongings, however the field of measuring intangible assets continues to be emerging. Intangible resources are the resources within the organization that does not appear on the total amount sheet. This matters for as much as 80% of many businesses today!

Intangible assets are split into individuals capital, relational capital and structural capital.

Human Capital

The knowledge that all employees of the business holds. Once the employees leave, the value of the human being capital leaves.

Structural Capital

The knowledge that remains in the business when all employees leave at the end of your day. This includes functions, databases and software, but also work products from the enterprise architects.

Relational Capital

This consists of all value that the business gets using their customer and spouse relations. External sites are increasingly important for the business enterprise today which shows on the worthiness of the marriage capital.

The structural capital doesn't get assessed in the organizations. Hence it's important to discover a way of measuring structural capital (http://eablogs. gotze. eu/2012/01/29). Although way of measuring is a second question, as the primary question is exactly what consists of structural capital.

Its target is to make systems, routines, sites and an image to make it possible for the company to take care of a larger level of business in a organized manner and be less susceptible to loss of personnel and customers. For buyers and lenders, information about its structural capital is an essential aspect in assessing the business. Here is an example of exactly what does structural capital mean.

Example

Indevo is Sweden's largest management consultancy group. Among its subsidiaries, Indevo Trim has built up special competence in corporate and business cost-cutting. A few years after it started businesses, however, the employees left and formed a business of their own with the same idea. But after speedy recruitment from among many candidates, Indevo soon managed to buildup a fresh Trim with, by and large the same volume of business and the same clients as before. Why was Indevo not struck harder? The personnel had taken their capital and departed.

Obviously, there was something more than simply the individuals' know-how capital in the business; an established name, well established marketing company etc. , in short, structural capital that is one of the company (http://www. sveiby. com April, 2012).

IMPORTANCE AND RELEVANCE OF THE STUDY

Management is linked with measurement and evaluation since those things would be been able that have basis for way of measuring. In general way of measuring is inescapable in effective management.

The detailed review of all following works will help in understanding the idea of structural capital. Thus, the aim of this study is to

To explore the many definitions and explanations of Structural Capital (SC).

To review the theoretical concepts expounded by various analysts.

DISCUSSION AND CONCLUSION

Skandia, as a first big company attemptedto measure their knowledge asset. Skandia provided its first intellectual capital studies as a local report (inner) in 1985. In 1994, for the very first time it has fastened intellectual capital information to the original financial record and disclosed it to the users. The Skandia's model was proposed by (Edvinsson, 1997).

In this classification, Edvinsson has divided intellectual capital into two categories including human capital and structural capital (see Shape I). As possible seen, there are a few other classifications for structural capital. There are classifications, that are provided by other scholars over the problem of intellectual capital. Among the presented models which used the Skandia model tries to evaluate two main parts of intellectual capital including real human capital and structural capital.

Figure I -Edvinsson's IC model for Skandia

Amongst several presented models, Tobin's Q is the most interesting model. This model has derived from Stewart's market value to publication value model. On the market value to book value model as the easiest model, the difference between both of these values sometimes appears as intellectual value even though so simple it includes some disadvantages.

Monetary style of Tobin Q

This model attempts to remove a few of its flaws by following Tobin Q. The difference between the market value of the organization and the advantage replacing value of the business would be intellectual capital based on the division produced from the overall value by Edvinsson. In Skandia model, two principles of individual capital and structural capital can be extracted. The current value of the future repayments to pay the salary, income and any expenses which the company should go through that can be predicted and calculated is known as human capital. The remainder of total value of intellectual capital and individuals capital is structural capital. It ought to be discussed that such capitals can be evaluated in renewal period or somewhat they will be depreciated and generally they can be treated as capital costs.

This model not only considers the problems of Tobin Q ration but also tries to maintain the above mentioned value through monetary assessing of intellectual capital and its division into individual capital and structural capital (Ghasemi and Naslmosavi, 2011)

Table 1: Conceptualization of Structural Capital

Authors

Definitions of Structural Capital

(Alama, 2007)

Intangibles that determine the way in which of working of your company.

(Carson et al. 2004)

Processes and types of procedures that occur from worker intellectual contribution.

(Ordo±ez de Pablos, 2004)

Knowledge that remains in the business when employees go back to their homes and, therefore, is managed by the company. With this sense, SC is integrated by organizational regimens, strategies, process manuals and directories.

(Camisn Zornosa et al. 2000)

Knowledge that the organization has internalized and this remains within its framework processes or culture although employees leave.

(Kogut & Zander, 1996)

Elements that belong to the organization which facilitates its construction as an entity providing coherence and superior principles for coordination.

(Euroforum, 1998)

Knowledge that may be reproduced and shared and, therefore, becomes somewhat explicit.

(Bontis, 1996)

Those technologies, methodologies and operations that make the working of the business possible, this is, basically the elements that define the working function of the company.

Unlike the comparative existing consensus about the terms of Human Capital and Relational Capital, Structural Capital is at the mercy of the use of different conceptual methods. Some papers assess Structural Capital as an aggregate strategy and include all different types of knowledge created, integrated, disseminated and found in the organizations (Sveiby, 1997). However, this focus does not enable the recognition of homogenous blocks of knowledge which would contribute to improve organizational management. It is for this reason that it is important to separate two basic components of Structural Capital -Organizational Capital and Technological Capital- and assess them separately (Edvinsson, 1997).

Organizational Capital, is integrated by organized or internalized organizational knowledge, such as organizational exercises, decision-making functions or planning and control systems. With this sense, it offers an improvement in the copy of knowledge and, therefore, an efficiency improvement because strong functions are definitely more adequately included.

Table 2: Something of indicators for SC

STRUCTURAL CAPITAL

ORGANIZATIONAL CAPITAL

Knowledge related to organizational mission

Knowledge related to business philosophy

Organizational structure

Infrastructure Social climate

Organizational development

Organizational stability

Social compromise with the environment

Quality evaluation Business management models

Shared tactical management

Processes Strategic representation processes

Organizational learning capacity

TECHNOLOGICAL CAPITAL

Technological Organizational development and development

Effort Protected internal and external knowledge

Non-protected intellectual property

Organizational Capital is constituted by all the aspects related to the business of the firm and the decision-making process (Ordo±ez de Pablos, 2004). These assets are difficult to imitate, replace and transfer and, in turn, this makes them a valuable source of sustainable competitive advantages. These possessions are directly held by the organization and, therefore, they are really more easily handled in comparison to People Capital and Relational Capital -possessed by employees and customers, respectively.

Within Organizational Capital two basic frameworks can be discovered; one is dependant on infrastructure and the other on organizational techniques. Organizational infrastructure is defined as the group of values and beliefs that are shared by employees which donate to the understanding of the working of the organization and of the value created through organizational composition. Organizational procedures includes those resources and activities that produce present working possible, such as internal procedures or organizational learning and capacity to generate value in the foreseeable future.

In this context, (Ord±ez de Pablos, 2001) and (Snell et al. 1999) analyze the strategic probable of organizational Structural Capital with respect to the proportions of value and idiosyncrasy. For the first of these proportions and within the Strategic Management emphasis, Structural Capital plays a part in increase Value if costs are reduced or if goods and services characteristics are increased from a customer point of view.

With respect to the next sizing of Structural Capital -idiosyncrasy- (Collis & Montgomery, 1995) establish that this kind of capital depends on the degree to which it plays a part in obtaining competitive differentiation. Therefore, businesses will have incentives to control Structural Capital if its idiosyncrasy increases, given that this will reduce risks and invite taking benefit of productive probable.

In order to classify organizational SC, (Ordo±ez de Pablos, 2004) proposes a conceptual framework based on the juxtaposition of both sizes identified below (see Figure II). The essential goal is to effectively take care of each one of these components to increase organizational value.

1. Idiosyncratic organizational SC. It refers to organizational specific knowledge, though it does not straight determine finding a sustainable competitive advantages.

2. Residual organizational SC. Knowledge that is not specific to the company and, therefore, is not especially ideal for customer value creation.

3. Essential organizational SC. Organization capacity to change People Capital and Relational Capital into Structural Capital -knowledge that is inserted in the framework and procedures of the firm-. This enables the company to maintain its competitive position.

4. Universal organizational SC. Non-specific knowledge -distributed through the market- that can be useful to obtain a competitive advantage over time.

Figure: II Organizational Composition Matrix

The second element, Technological Capital is examined from both a Resource-based and an Innovation and Technology Management perspectives (Collis & Montgomery, 1995). This changing includes the set of capacities necessary for employees to execute the basic functional activities in today's moment or those that would be necessary to undergo an creativity process with the consequent need to renovate functional competencies in accordance to market requirements (Martin and Garca, 2003).

Technological Capital is integrated by intangible investments that are accountable for obtaining and growing products and services, as for example, the acquisition of necessary knowledge for product and service invention.

Different indicators for every single type of Capital are presented and described below:

a) ORGANIZATIONAL CAPITAL

Infrastructure framework

1. Degree of consciousness and internalization of organizational objective by employees.

2. Amount of knowledge regarding business beliefs, understood as a specific understanding of business management.

3. Life of organizational infrastructure. Employees should plainly know and understand job distribution, their obligations and contribution to your choice making process, along with which will be the formal relationships between the several elements.

4. Social weather. The life of a nice working atmosphere and effective staff contribution to management improves level of satisfaction, both independently and collectively.

5. Organizational development. Organizational framework should enable necessary alterations to be made, given environmental changes.

6. Organizational stability. Age the organization can be employed to measure stability and the level of knowledge deposition or experience effect.

7. Public and environmental determination. This can be respected through the financial quantity dedicated to environmental investment and cultural and solidarity tasks.

Process construction:

1. Systems to evaluate process, product and service quality. The following indicators can be studied into consideration:

Error percentages for different activities.

Amount of certifications the company has received.

Lifetime of groups of workers focused on internal progress and know-how.

Percentage of employees that contain home elevators total quality programs.

3. Lifetime of business management models. The amount of management models specifically designed for the organization and the level of investment in these can be used as signals.

4. Shared tactical management. Indicators will include the number of employees that participate or have participated before in building distributed strategic strategies.

5. Shared proper reflection. Organizations should routinely design, explain and revive strategy and, therefore, the regularity of these activities is a good indicator.

6. Learning capacity. Companies must create environments to favour learning, organizational rules, manners of capturing and transmitting knowledge and, moreover, situations to create and develop knowledge. The training capacity of an give corporation can be assessed through the next indicators:

Range of mechanisms to transmit and communicate knowledge.

Degree of effective use of those mechanisms.

b) TECHNOLOGICAL CAPITAL

It is included by technical skills that are produced by different groups simply because they collaborate with one another. These skills include technology in the sense that they are intangible resources immediately responsible for the introduction of activities and functions to be performed by the technical functional system of the organization, both related to products or productive production processes and future innovations.

1. Technological effort. Organizational work in the acquisition of new systems related to the successful also to information and communication systems. The annual level of investment in technology is definitely an indicator.

2. Organizational technology and development. All organizations must progress to be able to adapt to changing customer requirements. Therefore, the next indicators can be used:

a) Innovation investment, this is, the total annual investment in the development of services, process improvement, development of new market segments or in R&D jobs.

b) The lifetime of working clubs focused on improvement.

c) Quantity of new products, creation techniques and management methods during the last year. This signal provides information on the results of creativity of the organization.

3. Knowledge regarding interior and legally protected items (patents, know-how, intellectual property, creation or commercial secrets, exclusive design rights, licenses, concessions, inventions and formulas, etc.

4. Knowledge regarding exterior and legally shielded items (trademarks, logotypes, copyrights, slogans, etc. )

5. Knowledge related to non-protected intellectual property (know-how, know-why, know-what, etc. )

6. Existing data bases on information about the environment or customers. The creators consider the annual investment in information systems as an sufficient indication. (lvarez et al. 2011)

As it is clear, no model, possess an absolute dimension of structural capital.

Therefore, the need would be of looking models that are functional and operational. However, the combo of the prior presented models could also solve the situation.

The proposed models were created predicated on the accounting guidelines and concepts which are expected to be of interest for accounting professional societies. These models are also focused by management, because intellectual capital is measured by financial and financial procedures so that management during protecting the prevailing and reported beliefs will attempt to promote it. However, the non- economic ways may examine intellectual capital components effectively.

Because management talks about the reports from monetary and financial perspective, thus it can't be easily accepted. The monetary characteristic of these models provides comparability for the users to touch upon this part of capital. Many experts have analyzed the intellectual capital and designed many ways for its measurement. It really is clear that these models have some advantages and disadvantages. Therefore the basic objective of this study is to create a model of structural capital that targets the constituents of structural capital, which will help in measurement of structural capital.

Structural capital is very significant because of increasing attrition rate and also it saves time, money and energy. If the framework (techniques) has already been in place you do not have to reinvent the same process over and over.

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