A New Third Sector Intellectual Capital Model

Introduction1

The importance of intangibles and among these of intellectual capital (henceforth IC) in the non-profit sector (henceforth NPOs), generates the need to measure its role in the value creation process. In fact, in contrast with what happens in the for-profit sectors, where everything is measured quantitatively, in the non-profit sector the importance of communicating and demonstrating to stakeholders the quality of services provided (Stewart, 1997) with respect to other public or private subjects is determinant in generating social value. NPOs are the sum of private, voluntary, and non-profit organizations and associations. The term describes a set of organizations and activities alongside the institutional complexes of government, state, or public sector on the one hand, and the for-profit or business sector on the other. The “third sector,” has become a major economic and social force. (Cohen, 2007; Kong & Thomas, 2006).

A recent study (Kong & Prior, 2008) indicates that the role of IC in NPOs is more critical than in the private sector due to the fact that intangibility is even more present than in the case of private organizations in terms of their goals production processes, focused on human capital and output (Ramirez, 2010). Intellectual capital (IC) is one of the key determinants of companies’ business performance (Schiuma, et al., 2007). In service organizations and therefore in the NPOs the role of IC is crucial because the outcome of activities is heavily based on, e.g. the efforts of skilled personnel, fluent processes and other intangible factors, whereas the role of tangible resources such as machines is not as important (Kujansivu & Lonnqvist, 2009). Several studies indicate that unique or scarce resources affect firm performance (Barney, 1991; Castrogiovanni, 1991; Grant, 1991; Mahoney, 1995; Nahapiet & Ghoshal, 1998; Pfeffer & Salancik, 1978; Tsai & Ghoshal, 1998). For instance, Barney (Barney, 1991) suggests that NPOs have a competitive advantage when their assets, capabilities or processes possess specific attributes. That is, when assets, capabilities or processes are rare, valuable, difficult to imitate, and have few substitutes, they are a critical source of competitive advantage.

In this context are IC studies proposed as a novel managerial approach in NPOs (Kong, 2007a; Kong, 2009; Kong & Prior, 2008). In companies the significance of IC is acknowledged and several frameworks for managing and developing IC have been introduced (Kujansivu, 2008). However, the issue is relatively new to NPOs (Kong, 2008). Thus there are many open questions. There is also a lack of empirical research on the topic because only a few empirical studies have been carried out (Fletcher, et al., 2003; Kong, 2007b). This paper builds on the few studies conducted so far and examines how IC could be taken into account in NPOs.

A brief review of the national and international literature on IC follows, which suggests that IC can be utilised as a competent strategic management conceptual framework in NPOs. IC is an important resource that NPOs need to develop in order to gain sustained strategic advantages. The research is focused on building an original IC framework through a set of indicators useful for disclosing IC in the NPOs context. Then the model is tested on an existing Italian NPOs which offers a new disclosure of activity carried out by the organization involving knowledge, skills and its relationship with the surrounding community. The findings appear to suggest an innovative IC framework model for NPOs with a significant set of indicators.