Importance Of Knowledge And Intellectual Business Essays

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In recent years, management accounting has become more important for the modern companies. The management accounting mainly uses for measure and report the financial information, which to assist the managers for establishing and planning the comprehensive organizational control to fulfill the goal of the organization. Knowledge Management contains a range of practices used in organizations. The organizations are recognize, create, represent and distribute the knowledge for reuse, awareness, learning and applying to overall organizations. Nevertheless, under the knowledge-based economy, many companies did not measure this knowledge to the management accounting report. Also, Intellectual capital also did not be valuated. Marr and Schiuma (2001) quote that "Intellectual capital is the group of knowledge assets that are attributed to an organization and most significantly contribute to an improved competitive position of this organization by adding value to defined key stakeholders." Nowadays, the intellectual capital and knowledge management are both importance by the organizations. The differentiation between knowledge management and intellectual capital - knowledge management is a process surround within a company and intellectual capital covers whole operations of all organizations.

Overview Knowledge Management & related to Strategic Management

KPMG conclude definition in 2001: "Knowledge management is a collective phrase for a group of processes and practices used by organizations to increase their value by improving and practices used by organizations to increase their value by improving the effectiveness of the generation and application of intellectual capital." The component of knowledge management has seven knowledge process wheels. The process wheels include knowledge generation, mapping, sharing, transferring, codification, storing and application. Firstly, knowledge generation contains knowledge creation and knowledge acquisition. Knowledge creation means the new knowledge develop by the employee within the company. For example, employ the staff possess originality to create new knowledge and ideas. Knowledge acquisition means buy or rent the knowledge assets from third parties whose is not be employed by the company. For example, the company paying consultants whose provide the suggestions to resolve a problem. Secondly, Knowledge mapping is identifying the knowledge assets of an organization and defining the methods of accessing them. Knowledge sharing means the knowledge is allowed to distribute another organization. An organizations through the seminars, meetings, internet or internal documents to share the knowledge. For example, the company holds the workshops for the staff or employees within company for clearing to understand the new knowledge. Knowledge transferring means transfer the knowledge between internal and among organizational knowledge. Knowledge codification is formal the knowledge make it into right for a particular codes such as words, pictures. It is involves capturing knowledge, externalization, representation. Capturing knowledge is matches the appropriate knowledge to the related activity to achieve the business goal. Externalization is changing the nature of knowledge form an implicit to more definite one. Representation is clear to describe the knowledge to suitable set of information codes. Knowledge storing is saving the knowledge in company ready for any time. Finally, Knowledge application use the knowledge for apply the appropriate activity for improve business performance. This seven knowledge process wheels to combine it which is become knowledge management. Intellectual capital is separate to three different categories for human capital, relational (or customer) capital and structural capital. "Human capital encompasses all the employees with all the individual and collective knowledge they have accumulated, their capabilities, attitudes, capacities, behaviour, experience, and emotions." (Handbook of IC Management in Companies, 2007) Human capital includes competences, relationships and values. The company employs the competence staff, not only professional skills and knowledge. Meanwhile, employees possess social competence, commercial competence and emotional competence. Employees relate to various departments within company, customers and suppliers. In this interaction, they possess the social skill to communicate with them. Employee's loyal, able and responsible to build up the value for business successful.

Human Capital




"Structural capital is the supporting infrastructure of human capital, being actually the result of human capital activity of the past." (Handbook of IC Management in Companies, 2007) Employees own their previous experiences and create the innovation for procedure of company smooth for manipulate. The processes are more flexibility to save a time and rapidly to obtain opportunity of business. Existing cultures are difficult to change, but effective and efficiency innovate could be easily accepted by management or stakeholders. The management's important decision about promote the employee become leader. Good leadership allocates the work to appropriate staff to finish and solve the problems from the staff.



Human Capital

Structural Capital



"Customer capital encompasses the relationships with customers (buyers, clients and guests) and data bases with relevant information on customers." (Handbook of IC Management in Companies, 2007) Good relationship and communication with company's external stakeholders. The companies maintain the long-term relationship with customers. It needs to provide integral services. For example, when customers rent the services, the company pays the effort to provide the suggestions or ideas. After-care service also provide to customers. Enhancing the satisfaction and loyalty hence increase the strategic of business. For the suppliers, good relationship and communication are as well significant. The suppliers provide discount and good quality services. These conditions strengthen the similar competitive advantage of the market. The suggestion and ideas interchange between the partnerships. The partnerships create the innovation to improve the cooperative business operation and eliminate the adverse effects.

Relational Capital





Related to Balanced Scorecard

As above mentions which are related to balanced scorecard. Balanced scorecard is balance the weigh strategic of internal process, learning & growth, financial and customers to achieve the business goal and mission. For example, how to set up the target or strategy to finish the job? How to improve or review the job? Also, cause-and-effect relationships are linkage with balance scorecard. The organization appropriate the indicators to measure the relate factors on each segment of balanced scorecard may impact on a financial target. "Intellectual capital gives sharing of knowledge legitimacy, establishes the worth of competence in a company and places value on combined individual capabilities and experiences of co-workers." (Bucklw, 1991) Applying the knowledge to Intellectual capital, which is contributing the competence ability for achieve the business strategic goal of organization. Some definitions contain intangible assets and intellectual property into intellectual capital. Organizations possess intangible assets such as goodwill. There is no market value to measure from the company, which is only depending on expertise of consultant to evaluate the value. The relationship between intellectual capital and intellectual property, is finalize of intellectual capital which be converted and processed to translate to intellectual property such as patent, license, trademark, brands. For protect this intellectual property, the company apply the unique legal right of use for individual intellectual property owner and user. This intellectual capital and management knowledge are adding strategic and value to company for enhancing competitive advantage and position of the market.

Intellectual Capital for Insurance - Insurance Consultant

Insurance Model

Advertising and Promotion

Employee training

Insurance and Service innovation

Tangible Asset (Knowledge, skills, etc.)

Staff Loyalty

Client's acquisition

Number of Clients

Level of Service


Client Retention

-Capital Charges

+Net Sales

-Operating Expenses


Economic Value Added

Net Present Value Totaliser

Intellectual capital accepts and develops gradually by various businesses such as insurance. Insurance adopts strategic management and intellectual capital because they offer their services and products to clients. With regard to insurance industry of Hong Kong, insurance companies have several different roles such as insurance agent, financial planner, investment advisor and mandatory provident fund trustee. All of the services or products initiated from professional person. They possess sufficient knowledge, experience, innovation and motivation of insurance to plan every services and products. The insurance of Hong Kong exist a several large enterprises such as Manulife and China Life Insurance Company Ltd. Relational capital is part of the intellectual capital and relevant to insurance. The insurance market is a competitive intense. The company sets up the strategy to improve their management and enhance their competitive advantage. The insurance sale volumes mainly derived by insurance consultants whose are significant. Insurance consultant trainee joined to insurance company which provides the formal training to increase their insurance knowledge and communication skills for provide to customers in future. When insurance consultant trainee finished the essential training, they will be arranged to individual team to start their work. Every team leader holds the meetings in every morning of working days with insurance consultants. The meeting contexts include sale reports from insurance consultants, raise the specific problem to resolve, discuss the strategy planning, review and improve their jobs. The senior member shares their experiences and instruct to junior member. This communications enhance the members of team to learn more about knowledge, skills and technical of insurance. As a result strengthen and establish their teamwork and team spirit. Insurance company involves different categories such as insurance, wealth and asset management products and services. Insurance consultant also serve financial planner concurrently. They are direct contact, communicate and interaction with clients and they are clear to know the reality demand and collect the opinions from clients. According to client's opinions, insurance consultant plans the new strategic proposal of innovation and present to management. If they believe the proposal is workable, the management reflects to investor. The investors consider the return of investment and their expectations. If they think the proposal will bring good return, they may contribute the new proposal to develop the business model. For example, Manulife encourage their consultants to propose the suggestions and perspective, and provide innovation capacity for consultants to be good at use. Also, the company provides about relevant education courses or education fund to support their consultants to continue learning capacity. According to client's request, insurance consultant designs the suitable planning to them. After the client sign the contract, the accident will be happened on client at any time, the client need to on the go contact with insurance consultant. Insurance company should provide adequate training to them and insurance consultant is able and flexible to handle all events. From China Life Insurance Company Ltd financial report mention that "The company focused on improving the operating capability of its bancassurance outlets by changing sales practices and improving sales techniques, and has accomplished significant progress in making structural adjustments and increasing regular premiums from this sales channel." The relationship between insurance consultant and the client, they need to consider holding the long-term relationship or life-time value with the clients of the value chain. About client's satisfactions which are depend on insurance consultant who is how to provide and able present their appropriate services or products to client. Also, insurance consultant's and professional and attitude are as well important. The client and insurance consultant have adequate communication which would support to build up client's reliance. The company does more improvement and review thus raises the client's satisfaction and loyalty. The clients may provide their network to consultant to know. For example, the clients introduce their friends or member of family or other person to insurance consultant. Thus the sales volume of company would be increased and save the cost of advertising. Also, senior insurance consultant joins to insurance company. They possess are adequate experiences and skills to provide appropriate suggestion. Insurance company may save the time and resources to put in to another staff. The costs of some services or products are too expensive and over budget. The company instructs their insurance consultant through small insurance agent to rent the supply services. If outsourcing volume of these cases is large, the small insurance may offer the discounts or provide extra benefits. The insurance company may plan the strategy plans for attract exist or new clients. For instance, the large insurance company combine insurance agent to offer some promotions, then both company may raise the sales and reduce the cost. The company insurance may authorize the insurance consultant to offers the discount for existing client to buy another products or services. Good performances of insurance consultant with regard to build up image and reputation of insurance company have positive impact. The general clients believe that good reputation of insurance company very important. It is represent the insurance companies have able to provide good service and quality. Above mentions, insurance consultant is integral and strengthen competitive advantage of insurance company.

Limitation of Intellectual Capital

-For Insurance

Insurance consultants are important in the insurance company, but their unique knowledge, skills and experiences are belonging themselves. The consultants can resign at any moment. When they leave the company and the company will lost these individual resources. Insurance company need to put in extra resources and time for re-training new insurance consultant. Also, the clients are satisfying individual insurance consultant. Insurance consultant leaves the insurance company which would be lost some clients. Even if the client continues to remain the services which are follow-up by another consultant, the consultant may not pay more efforts to serve the client as no commission income from this client except the client buys another service and increase amount to exist services. This situation will lose the client's satisfaction and loyalty.

-For Integral

Intellectual capital provide the competitive advantage and economic value added to organizations, but the organizations apply to the strategic management accounting may appear some limitations and hinders. The organizations provide different training programmes to employees. Nevertheless, the cost of training programmes is high. Employees need to take the time to study the training programmes. Therefore these training programmes must be effective with regard to organizations. Also, some small company can not afford these costs. Innovations and creativity of development consume much money, times and manpower to practice and modify, the management need to evaluate the result whether valid or not. Organization cultures are difficult to change. Tradition business may not adopt the new skills and technical. The relationship of company include internal and external. The large organization is separate individual department. The large scale of company is effect the communication and linking between the relationships of department. The difficulty to efficiency communicates with customers, supplier and investors. The company has good internal control to avoid the mistake or error to happen. The error or mistake would cause worse and lost external relationship. Intellectual capital is hard to measure the value because it include intangible asset or resources which is not reflect in financial statement. The market value of Intangible asset without clear and identify value. The organization and market can not measure accurate amount. Also, the investor only find the expense or cost but no any relevant income or revenue. They may think the organization do not appropriate the resources to business, which would cause they do not contribute to the company. The company should explain or mention it in the financial report. The investors clear to know these items.


Intellectual capital and knowledge are more significant to modern organizations. Some companies pay more attention for it. The intangible assets are part of asset of company. The company should not leave their market value aside. These assets would provide and produce high market value to organization. Also, these would be performed to enhance the shareholder value, the reasons are intellectual capital and knowledge to support the management to make their business decisions. The organization enables to handle and use with skill the resources and focus on it. According to requirement to measure, allocate, develop and apply to strategic management. The company adopts the appropriate management to capability use the resources to build up their effective business models. The employee, customers, suppliers and investors may have some feedbacks and suggestions. The management adopts some opinions, then reviews the problems or errors and improves it to strengthen business model. When the company invests the time, cost and manpower to process the procedure more smooth in the business. This effort would achieve the strategic and business goal in the company. The organization enhances the competitive advantage and position of market. Some limitations and hinder would appear, but the organization overcome the problem and implement it. The environment of business would achieve the effective competitive market.