[21/02, 14:52] Mo: What Is Social Capital?

The term social capital refers to a positive product of human interaction. The positive outcome may be
tangible or intangible and may include useful information, innovative ideas, and future opportunities. It
can be used to describe the contribution to an organization's success that can be attributed to personal
relationships and networks, both within and outside an organization. It can also be used to describe the
personal relationships within a company that help build trust and respect among employees, leading to
enhanced company performance.

KEY TAKEAWAYS

Social capital is a set of shared values that allows individuals to work together in a group to effectively
achieve a common purpose.

The idea is generally used to describe how members are able to band together in society to live
harmoniously.

In business, social capital can contribute to a company's success by building a sense of shared values and
mutual respect.

Social capital can manipulate people and destroy order as is the case with drug cartels and corporations
that team up to drive out the competition.

Understanding Social Capital

Social capital allows a group of people to work together effectively to achieve a common purpose or
goal. It allows a society or organization, such as a corporation or a nonprofit, to function together as a
whole through trust and shared identity, norms, values, and mutual relationships. Put simply, social
capital benefits society as a whole through social relationships. As such, the study of how social capital
works or fails to work pervades the social sciences.

Although the term social capital may have been put into use more recently, the concept itself—that
social relationships can have productive outcomes for an individual or a group—has been explored for
quite some time. It was commonly used to describe civic and social responsibility or how members of a
community work together to live harmoniously and in unison. When used in this context, the definition
is purely social with no financial implications.
But the term can have different meanings depending on how it's applied. In fact, social capital is no
longer narrow and local in scope. The concept is commonly used to describe the relationships that help
contribute to the success of businesses. It is arguably considered as valuable as financial or human
capital. Networking, the use of the internet are prime examples of how social capital works in a business
sense. These allow professionals to form social—and often global—connections in many variations. In
purely practical terms, it is estimated that up to 85% of jobs are filled through informal networking
rather than through job listings. That is social capital in action.

Unlike other forms of capital, there is no general consensus on how to measure social capital because it
can be fairly subjective.

Types of Social Capital

Researchers see two primary forms of social capital. Bonding refers to social capital created within a
group with shared interests and goals. A neighborhood association is a good example of how bonding
works. Bridging, on the other hand, is the creation of social capital across groups. When bridging is
successful, individuals in the two groups discover shared interests and goals and work together to
achieve them. A neighborhood association that links up with a local police department is an example of
how bridging works.

The internet has revolutionized social capital, effectively creating an infinite number of social
connections suitable to any occasion. For example:

Airbnb, Uber, and eBay users are able to use social capital to make a selection based on the reviews of
past users. The same people contribute to social capital by leaving their own reviews later. The
companies that own those sites use reviews as an essential component of their quality control
programs.

Social networking sites such as Facebook strengthen bonds based on personal interests, such as
hobbies, past experiences, a shared hometown, or a previous employer.

Social media is also a primary source of social capital for small business owners who can showcase their
products and services online as effectively, if more cheaply, than larger corporations.

Disadvantages of Social Capital

Many people believe that the success of an organization—whether that's society as a whole or a specific
group—depends on the degree of social capital available. This is why social capital has always been
linked to positive change. But that's not always true. Although there are distinct advantages to social
capital, it can be used for manipulative or destructive purposes.

Nefarious groups, such as gangs and drug cartels, often use social capital to strengthen bonds within the
group and to recruit new members. Similarly, a group of corporate executives may collude to
manipulate and market prices to drive out the competition. The emergence of these kinds of groups can
decrease the overall social capital of a neighborhood or city. Residents and local businesses suffer, and
potential customers avoid the area.

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[21/02, 14:54] Mo: What Is Intellectual Capital?

Intellectual capital is the value of a company's employee knowledge, skills, business training, or any
proprietary information that may provide the company with a competitive advantage.

Intellectual capital is considered an asset, and can broadly be defined as the collection of all
informational resources a company has at its disposal that can be used to drive profits, gain new
customers, create new products, or otherwise improve the business. It is the sum of employee
expertise, organizational processes, and other intangibles that contribute to a company's bottom line.

Some of the subsets of intellectual capital include human capital, information capital, brand awareness,
and instructional capital.

KEY TAKEAWAYS
Intellectual capital refers to the intangible assets that contribute to a company's bottom line. These
assets include the expertise of employees, organizational processes, and the sum of knowledge
contained within the organization.

There is no standard method to measure intellectual capital, and standards for measurement vary
across organizations.

Intellectual capital includes human capital, information capital, brand awareness, and instructional
capital.

Businesses can increase intellectual capital by hiring better employees, conducting training programs for
employees, and developing new patents.

Understanding Intellectual Capital

Intellectual capital is a business asset, although measuring it is a very subjective task. As an asset, it is
not booked on the balance sheet as "intellectual capital"; instead, to the extent possible, it is integrated
into intellectual property (as part of intangibles and goodwill on the balance sheet), which in itself is
difficult to measure.

Companies spend much time and resources developing management expertise and training their
employees in business-specific areas to add to the "mental capacity," so to speak, of their enterprise.
This capital employed to enhance intellectual capital provides a return to the company, though difficult
to quantify, but something that can contribute toward many years' worth of business value.

Measuring Intellectual Capital

Various methods exist to measure intellectual capital but there is no consistency or uniform standard
accepted in the industry. For example, the balanced scorecard, which is an industry performance metric,
measures four perspectives of an employee as part of its efforts to quantify intellectual capital. The
perspectives are financial, customer, internal processes, and organization capacity.

On the other hand, the Danish company Skandia considers the transformation of human capital into
structural capital as the mission of intellectual capital. The company has designed a house-like structure
with financial focus as the roof, customer focus and process as the walls, human focus as the soul, and
renewable and development focus as the platform to measure intellectual capital.1

Because of the nebulous nature and defining features of intellectual capital, it is also referred to as
intangible assets and environment.
Types of Intellectual Capital

Intellectual capital is most commonly broken down into three categories: human capital, relationship
capital, and structural capital.

Human capital includes all of the knowledge and experience of employees within an organization. It
consists of their education, life experiences, and work experience. It can be increased by providing
training.

Relationship capital encompasses all of the relationships that an organization has, which include its
employees, its suppliers, its customers, its shareholders, and so on.

Structural capital refers to the core belief system of an organization, such as its mission statement,
company policies, work culture, and its organizational structure.

Examples of Intellectual Capital

Examples of intellectual capital include the knowledge that a factory line worker has developed over
many years, a specific way of marketing a product, a method to cut down time on a critical research
project, or a mysterious, secret formula (e.g., Coca-Cola soft drink). A company can also bolster its
intellectual capital by hiring qualified individuals and process experts who contribute to its bottom line.

For example, a mechanic graduates from technical school and starts work at an automobile
manufacturer. Their intellectual capital consists of the knowledge they learned at school. After one year
on the job, their intellectual capital has increased by the experience they have gained through their job
and the specific application of their knowledge. After two years, the mechanic is enrolled in a training
program that focuses on new technology and increased efficiency. The mechanic's, and therefore the
company's, intellectual capital has increased further.

As technology and process improvements become more of a differentiating factor within modern
companies, intellectual capital becomes a greater factor in achieving success in a competitive
marketplace.