Effect of Alignment on the Intellectual Capital Management Model

The focus of the research question was to determine whether the components of a model derived from the literature on which to develop the management of intellectual capital,

aligned

with the findings of the research undertaken in a New Zealand organisation. The results are show in Figure 5.2, a revised version of the Intellectual Capital Management Model, which takes account of the results of this study. The changes are highlighted in this section. It was found that the activities in the business units had a close affinity with most components in the Model as the majority of the components identified in the model were in evidence. These are unchanged in Figure 5.2.

In comparing the Model (theory) with the findings from the research (practice), there was scant evidence of the explicit management of intellectual capital taking place at CHH. The literature emphasises the importance of having an intellectual capital management strategy (McConnachie, 1997; Sullivan, 1999; Klaila and Hall, 2000; Nilsson and Ford, 2004). At CHH the strategy was implicit, at best.

Managing involves the measuring of operational activities to determine whether standards of performance are being met. From the lack of apparent management of intellectual capital, there was no direct measurement of results and so no metrics. The lack of explicit management of intellectual capital, and of associated metrics activity, prevents full alignment of the activity in the Carter Holt Harvey Ltd organisation with the derived Model. Accordingly, both management of intellectual capital and metrics are struck out in Figure 5.2.

An unexpected finding was the very positive behavioural changes that were a feature of the business units. Employees are responsible and accountable, knowledge sharing was practised, the opportunity to promote ideas was welcomed, and employees were keen to make the business units successful. These changes came about primarily as a result of the restructuring. Structure is a component of the Model, but behaviour and attitude play a separate and important part in organisational activity, and are factors that should be taken into consideration when implementing a plan for the management of intellectual capital. Behavioural change is included as a factor in the Model, highlighted in italics in Figure 5.2.

Socialisation is identified by Nonaka (1994) when referring to knowledge conversion as an aspect of the increase in knowledge and knowledge sharing. Weick and Roberts (1993) illustrated the importance of social interaction when a discussion between two aircraft crew resolved a potentially dangerous landing situation. It was clearly evident from the research that socialisation within the business units was contributing positively to their operational activities. The chief executives and employees said increasing knowledge and sharing knowledge occurred during on-the-job training, at meetings, formal and informal, when networking, and as a result of sports/social activities associated with work. Contrary to being seen as time wasting, socialising has a valuable contribution to make to an organisation‟s operation. Socialisation as a component within internal capital is added to the Model, as shown in italics in Figure 5.2.

Figure 5.2 A Revised Intellectual Capital Management Model

Vision

Corporate Strategy

Management of Intellectual Capital

Human Capital

Knowledge Skills and Competencies

Knowledge Sharing Knowledge Creation Innovation

Internal Capital

Structure Capabilities Metrics Systems and Processes Codifying Knowledge Intellectual Property Behavioural Changes Socialisation

External Capital

Customers Suppliers Joint Ventures Other Stakeholders

Generate Wealth

5.5

Chapter Summary

Intellectual capital is acknowledged as a valuable asset, and the knowledge foundation of intellectual capital is generated by input from the human capital, capital internal to the organisation, and from knowledge external to it. Although initially respondents identified the value of the organisation as residing in the monetary area, it was later acknowledged that it was through the intellectual capital of the business units that value was generated, and that the sustainability and success of the business units would be achieved.

There was no evidence of an explicit strategy for managing intellectual capital as part of the corporate strategy. As a result little management of intellectual capital occurred in the business units. It was agreed that if the management of intellectual capital was addressed there was a strong likelihood of the business units being more innovative. With minimum management of intellectual capital taking place the measurement of intellectual capital was also not occurring.

It is through the knowledge of employees that intellectual capital is developed. Employees at CHH were valued for their knowledge input, as was the knowledge of those external to it, and with whom the business units had developed mutually beneficial working relationships. Sharing knowledge did not appear to be an issue for employees, and the view taken by management was that sharing knowledge was an expected outcome of employment. Knowledge creation emerged from sharing knowledge, and in turn encouraged the development of ideas leading to innovations that generated wealth for the business units. The offering of incentives for sharing knowledge was rejected by the majority of the chief executives, along with a large proportion of the employees surveyed. However, many of the employees interviewed favoured the giving of incentives. From a non- monetary perspective, all respondents indicated that recognition and acknowledgement for sharing knowledge was appropriate. A substantial investment had been made in technology, apparently tending to view it as a means of storage rather than for accessing and sharing knowledge.

The capabilities of the organisation, and the skills and competencies of employees were highly regarded by management. Attention was given to the importance of ongoing training to further develop and grow employee skills. However, to maintain a competitive positioning it was seen as necessary to be continuously increasing knowledge. Reading emerged top of the employee list as their way of increasing knowledge, but the chief executives were not inclined to give such high recognition to reading. Courses, conferences and seminars were higher on the chief executives‟ list.

All respondents pointed to the importance of interacting with others as a valid and important way to increase knowledge. This suggests that the process of socialisation was an acceptable and effective method of increasing knowledge.

Although considerable knowledge had accumulated over the lifetime of the organisation it was signalled by the chief executives that insufficient attention had been given to codifying knowledge, and this was an area that needed to be addressed.

The protection of intellectual property was regarded as critical at CHH, but beyond protection there was no evidence of it being managed with a view to enhancing any potential financial return. Respondents identified a need to be more entrepreneurial, and also for commercialisation of innovations in order to gain maximum exposure for new products and services.

Developing good working relationships with customers and suppliers was recognised as critical for the future of the businesses. Several of the business units worked collaboratively with other organisations. It was acknowledged that developing good relationships with the government, and the community was important.

The chief executives and the employees expressed positive views about the restructuring of CHH. In the smaller business units employees were recognised for their contribution and this was impacting positively on their attitude to work. Employees were more accountable, and taking ownership and responsibility for their actions. Some concerns were raised about an element of competition occurring among a few of the units when they should be focusing on competing with external organisations. It was also felt that some regrouping of business units was necessary, because the small size of some of the units had been broken down to a point where they were not operating viably.

The findings align well with the components in the Model derived from the literature. However, although the majority of components were present there is no evidence that the management of intellectual capital was taking place either at the corporate level or in the business units.

The following table provides a summary of responses to questions put to the participants, with links to the literature.

Table 5.4 Summary of Questions to Research Participants, Link to Literature, and Responses

Questions to Senior Management

Link to Literature Responses

1 Which of the following equations do you think identifies intellectual capital? (Examples given in handout)

Chapter 1, Brooking (1996), Stewart (1997), Sveiby (1997).

Human capital + internal capital + external capital = intellectual capital. 2 Where would you say the value

of the company resides?

Chapter 1, Penrose (1963), Sullivan (1999), Carroll and Tansey (2000), Clarke and Rollo (2001), Lev (1997).

Value lies in the skills and competencies of employees.

3 What processes have been followed to identify where the value is?

Chapter 1, Penrose (1963), Sullivan (1999), Carroll and Tansey (2000), Clarke and Rollo (2001), Guthrie (2001).

None are in place relating specifically to intellectual capital.

4 How does the company manage intellectual capital, i.e., is there a strategy in place to manage intellectual capital?

Chapter 2, Collis and

Montgomery (1995), Sullivan (1999), Klaila and Hall (2000), Bollinger and Smith (2001), Riahi-Belkaoui (2003).

There was only implicit management of intellectual capital, and no indication of a strategy for managing

intellectual capital in the corporate strategy. 5 Do you think that through the

management of intellectual capital an organisation can become more innovative?

Chapter 2, Quinn (1985), Brand (1998), Rastogi (2003).

A unanimous yes. The advantages of managing intellectual capital were recognised.

6 What internal and external networks are used to acquire knowledge that will benefit and add value to the company?

Chapter 2, Brown and Duguid (1991), OECD (1996), Lester (2001).

The business units work closely with various external parties, and network with other business units. 7 How do employees increase

their knowledge?

Chapter 2, Senge, 1990, Brown and Duguid (1991), Drucker (1994), Bender and Fish (2000).

Courses, conferences, and seminars.

8 What are your views on offering incentives to share knowledge?

Chapter 2, Davenport and Prusak (1998), Wenger and Snyder (2000), Kankanhalli et al. (2002).

Sharing knowledge is an expectation of employment.

9 To what extent is knowledge codified in the organisation, and what systems are in place to allow for the flow of knowledge?

Chapter 2, Wiig (1999), Snowden (2003).

Greater attention to codification is required. Technology systems are in place – but few comments made regarding technology. 10 What methods are in place for

measuring intellectual capital?

Chapter 2, Kaplan and Norton (1992), Sveiby (1997), Marr (2003, Bontis (2004), Martin (2004).

No evidence of

measurements of intellectual capital were being

undertaken.

to create knowledge for the development and growth of intellectual capital?

Dinur (1998), Bender and Fish (2000), Clarke and Rollo (2001).

gained to generate ideas.

12 The goal of CHH is to

become more innovative. Do you think the dividing up of the organisation into smaller companies has created a more innovative environment?

Chapter 2, Quinn (1985), Kanter (1996), Ireland et al. (2001).

A unanimous yes. Responses about the restructuring of CHH were very positive.

13 Have new products/processes increased as a result of ideas promoted by staff?

Chapter 2, Carnerio (2000), Kluge et al. (2001).

Yes. A number of new products had been launched, and others were coming on line.

14 How is the intellectual property of the company managed?

Chapter 2, Teece (1998), Rivette and Kline (2000), Davis and Harrison (2001).

Lawyers take care of protecting intellectual property, but there is little management beyond that.

Questions to Employees

1 What are your views on the dividing up of CHH into numerous companies?

Chapter 2, Kanter (1996), Ireland et al. (2001), Tidd et al. (2001).

The responses were on the whole very positive. 2 What challenges do you face

working in an innovative environment?

Chapter 2, Kanter (1996). Most found the environment stimulating.

3 How do you increase your own knowledge?

Chapter 2, Senge (1990), Drucker (1994), Spender (1999), Brown and Duguid (2000).

Reading was top of the list.

4 What difficulties do you think arise through expecting people to share their knowledge?

Chapter 2, Nonaka (1991), Clarke and Rollo (2001).

There may be some resistance by those who felt threatened through sharing, but

responses indicated sharing was part of the job.

5 Where does the most effective exchange of knowledge take place?

Chapter 2, Brown and Duguid (1991), Allee (1997).

When interacting with people in an informal setting. 6 Should incentives be offered to

encourage the sharing of knowledge?

Chapter 2, Wenger and Snyder (2000), Gamble and Blackwell (2001).

Many interviewed were in favour, while those who responded to the survey were generally against incentives. 7 How do you go about

obtaining knowledge when you require it?

Chapter 2, Brown and Duguid (1991), OECD (1996), Lester (2001).

Asking people.

8 What is your job title? 9 What is your highest educational qualification?

In document A model for managing intellectual capital to generate wealth : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Business, Massey University, Albany, New Zealand (Page 173-179)