Literature Related to Intellectual Capital

When this author began working on this paper more than 10 years ago, some evidence was found that indicated knowledge was responsible for the success of firms, both in their ability to grow and to create market power. However, the evidence was confusing: some knowledge businesses were successful whereas some others were not. For example, companies of the new economy such as dot-com or portals had high levels of knowledge but did not create stock value.

Is a driver of success being a knowledge company? Or is the success based on being a knowledge organization? Or, does success come when a company produces knowledge products (e.g., software)?

A valid definition of knowledge as a driver of success requires a "systemic" view. The ability of a firm to develop knowledge is part of a whole system:

1. It requires knowledge inputs from the internal and external environments,

2. It requires the organizational ability to transform knowledge into something that the stakeholders value (customers, employees, shareholders, lenders, government, etc.), and

3. It can produce a final output that does not require a new cost each time it is produced (the law of increasing returns of IC).

The value of this approach results from forcing the RVF to be "systemic," incorporating the environment and final output as parts of the system. This thinking is consistent with the "organic" view of the organization, as described initially by Morgan56 and finally accepted by most of modern organization academics. Not only do organizations belong to a system, but they also need to have the ability to adapt to that system in order to survive.

This approach is consistent with most of the existing literature on the RVF. Some authors do not mention that firm success is the result of the connection between the firm and its environment, and instead place their focus solely on resources. Amit and Schoemaker57 concentrate on financial or physical assets, human capital, and incorporating the capabilities required to deploy resources (information based, tangible or intangible processes, patents, licenses). Barney focuses on the "VRINO" resources (value, rare, inimitable, nonsubstitutable, organization oriented). Eisenhardt and Martin state that dynamic capabilities can be a source of competitive advantage. Fiol, Eisenhardt, and Martin state that resources can be imitated easily so employees must innovate all the time to keep rents high. Makadok58 states that firms create their resource base either by resource picking or through capacity building. Nelson and Winter posit that success is based on the employee's behavior in terms of routines to make and implement decisions. Penrose states that success depends on the ability of managers to select and configure the right resources. Spender59 argues that success requires dynamic capabilities. Wernerfelt suggests that within one industry firms have different performance and results because of their tangible assets, intangible assets, and capabilities.

On the other side, several authors defend the systemic-organic view that is incorporated in this research. Black and Boal6 0 state that networks and relationships are resources required to interact with the system. Chakravarty61 suggests that success is measured by the ability to satisfy stakeholders and the ability to have a positive evolution and transformation. Fahy6 2 states that resources must be environment oriented, the organization must meet customer needs, and the firm's key resources must be based on the market. Farjoun63 bases his proposal on Mintzberg's organic view of strategy as emerging from the organization. Hamel and Prahalad's core competencies are strongly systemic-organic (see note 23). Kogut64 states that different types of networks are required for different industries: biotech, auto, software, microprocessors, labs, financial institutions. Peteraf states that competitive advantage is based on resources, heterogeneity produces monopolistic rents, ex-post limits to competition sustain rents, ex-ante limits to competition maintain low costs, and imperfect mobility sustains resources within the firm (see note 20). Schumpeter65 proposes that creative destruction is a natural process of the economic environment. Williamson6 6 (transaction costs economics) proposes that assets are not imitated by competitors for the cost it generates, but sharing assets (integration, alliances) can create potential free riding and, consequently, extra costs.

These authors do not refer specifically to knowledge but just mention "resources" in general. This research is focused on the central role of knowledge as a critical resource. Marr et al.67 consider that knowledge is required to create a strategy, implement it, motivate employees, and communicate with the stakeholder. Spender expands on the types of knowledge and how they impact on the firm's resources. Teece and Pisano state that dynamic capabilities are the basis for firm learning.

Rumelt identifies several reasons for success: producer learning, isolating mechanisms, property rights, imperfect information, buyer switching costs, buyer search costs, reputation, and causal ambiguity. Miller68 believes that based on the predictability or uncertainty of the environment in some cases it is better to employ transactional or knowledge based resources, stressing that physical assets do not adapt easily to changing environments. However, investments in knowledge are subject to uncertainty. Mahoneyi9 talks of the capacity to learn as a key resource. Nahapiet and Goshal70 incorporate social capital as a key resource. It is required to develop IC, which include culture, trust, norms, social networks, and communication channels. Dyer and Nobeoka71 state that knowledge sharing is the key, in that it requires organizations to develop network identity, routines, supplier associations, consulting teams, voluntary learning teams, interfirm employee transfers, and rules for knowledge protection. Cohen and Levinthal72 state that absorptive capacities are critical to learn and innovate. Dierickx and Cool state that it is the stock of knowledge that accumulates through steady investment that drives success. Grant73 focuses on knowledge as a key resource because it allows creation of a common language and culture.

Finally, how can knowledge be measured? Literature on this topic is still relatively young. Several authors have elaborated proposals on how to measure IC, which is a more ample definition of knowledge. According to Edvinsson and Malone, Roos,74 Bontis,75 Canibano,76 Sullivan,77 Mouritsen,78 and Andriessen79 the value of the company is the result of its book value (equal to the physical capital) plus the market value added (equal to the IC). The value of the IC depends upon the value of the customer, human, structural, and organizational capital. Joia80 summarizes their view in the following equation: intellectual capital = human capital + innovation capital + process capital + relationship capital.

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