Exploration in Intellectual Capital Practice: A Knowledge Management Perspective

Introduction

The interest in intellectual capital starts from the classical study of the competitive advantage of firms and organizations. Among many other objectives, companies and firms are set up to maximize their revenue and to strive for the benefits of their stakeholders. The pressure for competition in the business world has forced many firms to look for determinants of successful and profitable strategies. These give rise to the popularity of studies of strategies and competitiveness in the business schools. Classical economists evaluated competitiveness using statistics on the factors of production: land, capital, natural resources and labor. Basically, there are three different theories on competitive advantage. They are industry-based view (Porter, 1980), resource-based view (Prahalad and Hamel, 1990; Hamel and Prahalad, 1994), and knowledge-based view (Nonaka and Takeuchi, 1995, Drucker, 1993). Since nineties, knowledge has increasingly become an important mean for value creation and the most critical factor of competiveness. Most of these frameworks on the assessment and reporting of intangibles and intellectual capital were developed by the pioneers such as Svieby (1997), Steward (1997) and Edvinsson and Malone (1997).

In Europe, the cultivation and assessment of intellectual capital as competitive advantage for firms and organizations have also attracted the interest of governments. For example, in 2004, the European Commission (EC) has set up a High-Level Expert Group to stimulate the reporting of Intellectual Capital in research intensive Small and Medium-Sized Enterprises (SMEs), Government subsidized R&D organizations and universities. In Germany, companies are recommended to include Intellectual Capital in their management report. In Denmark, IC is required to be included in the management reports of all companies, and whereas in Austria, IC Reporting has become mandatory in all universities.

Despite these apparent success, compared with the proliferation of many other performance measurements such as Balance Score Cards (BSC) or Corporate Social Responsibility (CSR), the adoption of IC reporting and assessment in firms and organization worldwide is still not common in industry and business practice. The reasons can be plentiful and the issues have been critically reviewed in recent articles by various researchers (Dumay, 2012; Guthrie et al., 2012). There are two major concerns as how to revitalize the vigor of professional IC practice, one is dealing the why questions and the other is to deal with the how questions. In addition, most IC reporting practices fall into two main camps: the scorecard methods and the quantitative /semi-quantitative methods based on certain accounting principles. Apart from the same concern to express the status quo of managing the intangibles, there is a lack of theoretical underpinning as to the methodologies that should be adopted which are related to knowledge factors or processes from where the intellectual capital concept arises at the first place. All these have led to a gradual decline of interests in companies and in the professional practice of IC management. In this paper, an IC Management Reference Model is put forward from the Knowledge Management (KM) perspective to argue for the distinct roles that IC should play. Examples of IC management practices that align the reference model to KM are also illustrated from literatures as well as from the authors’ research.