Organizational capital is the value to an enterprise which is derived from organization philosophy and systems which leverage the organization's capability in delivering goods or services.
Overview
Organizational capital is one of the three components of
structural capital, itself a component of
intellectual capital Intellectual capital is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner ( organization), covering the competencies of its people ( human capital), the value rel ...
. But, as with other intangible assets, there is no consensus definition of what this organizational capital is, how to measure it, or how to best quantify its contribution to output (either current or future).
Organizational capital was first defined by Prescott and Visscher (1980) to be the accumulation and use of private information to enhance production efficiency within a firm. This capital can be a significant source of firm value.
The elements that constitute the organizational capital or capital of the firm, namely its culture, structure, organizational learning, can be a source of competitive advantage.
Leif Edvinsson, former head of Intellectual Capital at Skandia, was among the first to recognize that intangible assets, including organizational capital, were not represented in traditional accounting systems.
Research regarding Organizational capital suggests that there are implications for
mergers and acquisitions
Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...
. Carlin, et al. conclude that the most efficient mergers are between large firms with substantial organization capital and smaller firms with little organization capital. They conclude that firms with richer “languages” retain more employees and are therefore more likely to promote senior managers from within, exhibit greater variability in the compensation levels of their managers and that compensation rises more quickly over time in firms with richer languages.(For proxies of “language” they used density of social networks and the quality of relationships within those networks.)
Organizational capital can be decomposed into three firm specific capitals;
(i)Managerial capital which denotes managerial skills that mix all internal capabilities in an intelligible way through absorption and application of new ideas that promote growth and value of the firm
(ii)Process capital which include production decisions on quality management, employee programs, efficiency in operations and organizational flexibility
(iii) Innovation capital that measures the ability of a firm in creating and nurturing new products and services for competitive advantage
[Edvinsson L, Malone MS. 1997. Intellectual Capital: Realizing
Your Company’s True Value by Finding Its Hidden
Roots. HarperBusiness: New York.]
References
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External links
National intangible capital NIC 2016 database / Findings and results for organization (process) capital 2001 - 2016
Capital (economics)
Business terms