Contemporary issues review - Essay Example

Human capital cannot be owed by an organization because it is inherent in people, hence when people leave organizations, human capital leaves too. It encompasses how organization utilizes its people resources effectively as measured by innovation and creativity; structural capital, this is the supportive processes, infrastructure and organization’s databases which enhances the functionality of human capital. Structural capital may include hardware, buildings, software, patents, processes, information system, organization’s image, proprietary databases, and trademarks.

Structural capital can also be classified into process, organization, and innovation capital. Intellectual properties are protected by trademarks and copyrights. Intangible assets include all other theory and talents through which an organization is run; and relational capital, which consists of supplier and customer relationships, trade names and trademarks, franchises, and licenses (Tayles et al., 2007). The perception that customer capital is distinct from structural and human capital shows its central importance to the worth of an organization.

Even though intellectual capital may be similar to tangible assets in its potential to generate future cash flow, it is different radically from tangible capital in various respects: intellectual assets are not rival assets. Intellectual assets can be multiplexed unlike tangible assets that can only do one thing at a time; relational capital and human capital cannot be owned and are shared with suppliers, customers and employees. It therefore demands careful nurturing in order to grow; structural capital on the other hand can be owned and is often controlled by the management.

It cannot be easily traded however, since there is not market in existence for that purpose; structural capital can be substituted with expensive expenditure on capital in the form of real time inventory control systems and just in time process of procurement; firms leveraging their intellectual capital to perform their knowledge work generate higher profit margin compared to those firms who offer mass produces solutions; and structural, human and relational capital usually work together in order to give rise to core competencies in judicious combinations that assume strategic significance.

Therefore, it is not totally enough to invest in people, customers and systems separately, that produce end value in combinations. Intellectual capital is measured in order to help organizations in formulating their strategy, assisting in the diversification and expansion of the decisions of the firm, evaluating the execution of the strategy, communicating with external shareholders, and as a foundation for compensation management (Gowthorpe, 2009). Summarily, intellectual capital is the sum total of a firm’s structural capital, human capital and relational capital.

They distinguish firms’ performance from one another and form a source of distinct competitive advantage. Sustainability and accounting Accounting for sustainability entails linking initiatives of sustainability to company strategy, opportunities and evaluating risks, accounting and performance management skills, and providing measurement in order to ensure that sustainability is rooted into daily operations of the company. Sustainability a