The Influence of Intellectual Capital on the Types of Innovative Capabilities - Research Paper Example

The Influence of Intellectual Capital on the Types of Innovative Capabilities Introduction According to Subramaniam and Youndt (2005, p. 452), majority of research studies point out that there is a very close relationship between innovation and knowledge management. Innovation has gained popularity and become acceptable in a large number of business organizations. Organizations have different approaches that they use in managing knowledge to achieve innovation (Katou and Budhwar, 2006, p. 1250). This project aims at exploring how strategies on people management influence organizational learning and its capacity for knowledge management. The project will also analyze the relationship between knowledge management capacity and intellectual capital and their influences on innovative capabilities. Such a project will provide insights to organizations on how different knowledge management strategies create opportunities for organizations to achieve innovations through the use of intellectual capital (Boer and During, 2001, p. 102). Particular emphasis will be on how strategies on human resource management influence a firm’s level of innovation. Literature Review Innovation Innovation refers to changes in organizational processes or existing products aimed at creating a competitive advantage in the market. Basically, it involves the identification of opportunities and utilizing them with the intention of creating new products, services or work processes (Daft and Weick, 2004, p. 450). Research studies indicate that organizations with higher innovative capabilities have higher chances of succeeding in respond to changes in their business environment. There are different forms of innovation but the most common forms include organizational innovation, process innovation and product innovation (Subramaniam and Youndt, 2005, p. 460). Organizational innovation refers to the development of new structures and management practices. Product innovation relates to the development of new products whereas process innovation involves the development of new technologies used in the production process. The various forms of innovations have different definitions but they all have a common theme. Their common theme is that of the use of knowledge to create competitive advantages by meeting the needs of customers. The fact that innovation involves the identification and utilization of opportunities, it means that there is a continuous process of pursuing new and unique knowledge (Subramaniam and Youndt, 2005, p. 455). Literature materials on the topic of innovation emphasizes that knowledge is the most important element that can ensure the success of organizations pin developing new products, technologies and processes. The main source of innovation is attributed to be the unique knowledge possessed by human capital (Daft and Weick, 2004, p. 244). Human capital is also recognized as the main driver of change within the business environment. In the study of the process of innovation, numerous research studies indicate that there is a close link between the management of knowledge and people, and innovation. According to Boer and During (2001, p. 122), there exists a lot research studies that focuses on the contribution of organizational knowledge on various forms of innovation. However, most of the research studies only focus on the outcomes of generic innovations such as technology patents and sales revenues from new products. Such studies tend to ignore on studying how knowledge management is connected to innovation. A number of researchers address the topic of innovation in radical and incremental terms. This therefore implies that there needs to be further research studies on incremental and radical innovations (Subramaniam and Youndt, 2005, p. 453). This is to ensure there are adequate literature materials on the differences that exist between radical and incremental innovations. Innovation Capability Innovation capability refers to the capacity of a firm to utilize knowledge and skills to successfully introduce new technologies, products and processes (Subramaniam and Youndt, 2005, p. 451). The innovative capability of an organization is categorized into two aspects. The two aspects include incremental innovative capabilities and radical innovative capabilities. Incremental innovative capability relates to the ability of a firm to introduce new ideas that refine and improve existing products, processes and technologies (Kostova and Roth, 2003, p. 300). On the hand, radical innovative capability refers to the potential of a firm to transform existing products, processes and technologies. According to Subramaniam and Youndt, (2005, p. 451), the basic classifications of innovation capability is radical and incremental. Concepts on radical and incremental innovation capabilities are not new because early researchers were involved in discussing differences existing between the two concepts. However, their discussions have led to the development of varying ideas that fall within the incremental-radical continuum (Katou and Budhwar, 2006, p. 1250). Their discussions state that radical ideas have the ability of creating changes that are revolutionary in nature whereas incremental ideas result in relatively smaller organizational changes. They also noted that incremental ideas may not require new ideas in order to be implemented. An innovation index is used in measuring innovation capabilities based on a number of factors. However, the main factor that determines the measurement of innovation capabilities is the level of output. Firms have different levels of output because they belong to different industries (Kang, Morris and Snell, 2007, p. 250). Using the incremental-radical continuum, firms that have greater innovative capabilities are located closer to radical innovation while firms that have lower capabilities are located close to incremental innovation (Jones, George and Hill, 2000, p. 20). A significant number of research studies indicate that radical innovation capabilities have a greater impact on organizational performance compared to incremental innovation capability. This is simply because radical innovations have the effect of creating overwhelming changes within the organization and because they utilize a lot of new knowledge to implement. Research Questions According to Subramaniam and Youndt (2005, p. ), creating a link between innovation and organizational knowledge involves taking into consideration the fact that how a firm utilizes its available knowledge will influence the type of innovative output. This includes incremental or radical output. Research studies indicate that incremental innovations are as a result of the firm’s decision to transform its technologies and knowledge base. Depending on the decisions made a firm, the two types of innovative capabilities have different approaches of utilizing existing intellectual capital. This makes it important for firms to appreciate the role of intellectual capability in creating innovative capability (Jimenez-Jimenez and Sanz-Valle, 2005, p. 379). However, one question arises with regard to the influence of intellectual capability on innovative capability. 1. How does a firm’s intellectual capital influence its innovative capability? Intellectual capital/knowledge and Innovative Capability The level of organizational knowledge determines the level of innovation within a company. This is because knowledge provides the relevant skills and information required in making appropriate organizational changes (Hsu, 2008, p. 1322). In a competitive market, the survival of an organization is determined by the level of organizational information. Research studies indicate that organizations that have a knowledge base increase their chances of remaining competitive. According to Daft and Weick (2004, p. 291), organizations need to focus more on expanding their knowledge bases and creating value from the use of their intellectual capital. In this context, intellectual capital refers to all the types of knowledge in an organization used in creating opportunities and creating competitive advantages (Heraty, 2004, p. 460). Types of intellectual capital include human capital, social capital and structural capital. Human capital relates to competencies, skills and knowledge of employees within an organization. It is considered to be the most valuable intellectual capital because employees are largest agents of change in a competitive environment (Gloet and Terziovski, 2004, p. 405). Social capital refers to the knowledge of a firm resulting from its relations with stakeholders. The stakeholders include employees, customers, suppliers, the government, shareholders among other agents within the external business environment. Structural capital is defined as the basic forms of infrastructure that support or even influence human capital. It includes organizational culture, strategies, technology and company policies among other components (Gatignon, Tushman, Smith and Anderson, 2004, p. 1110). The above mentioned types of intellectual capital have distinct characteristics and the main difference among them is their ability to store knowledge within the organization. This is based on the fact that some types of intellectual capital are mobile and may not be available within the organization (Evans, 2006, p. 150). However, the different types of intellectual capital have different influences on the innovative capability of a firm. This is because they have different characteristics that affect their contribution in achieving innovation within an organization (Egbu, Botterill and Bates, 2001, p. 16). The contribution of an intellectual capital is determined by its various characteristics. For instance, human capital is considered to have the most significant contribution because of its ability to think and develop new ideas. An open minded employee is able to accept challenges and discover opportunities which are important in enhancing a firm’s innovative capability (Dessler and Tan, 2006, p. 18). On the basis of the research question, the following will be the propositions of the research project: a) Human capital has a positive influence on innovative capability. b) Social capital has a positive influence on innovative capability. c) Structural capital has a positive influence on innovative capability. 2. How does a firm build its intellectual capital? The Capacity of Knowledge Management and Intellectual Capital Intellectual capital is a term used to summarize all the knowledge available in an organization. In order to understand the concept of knowledge, there will be an analysis of the processes involved in knowledge building (Daft and Weick, 2004, p. 290). Knowledge management refers to an approach that involves creating value and leverage on the available expertise in order to create value. It also involves series of interdependent processes aimed at creating, sharing, storing and distributing knowledge. Literature Information on knowledge management indicates that many researchers appreciate the positive influence of knowledge management in enhancing the innovative performance an organization (Colbert, 2004, p. 350). The literature also appreciates the fact that intellectual capital has a positive effect on the innovative capabilities of a firm and performance indicators such as profitability and returns on equity. Despite the fact that there is minimal information on knowledge management and intellectual capability, there are a number of researchers who have covered the topic of knowledge management in their research studies. The researchers include Lin, Lee, Gold and Segars. Their research studies provide an analysis and discussion of the relationship between knowledge management and intellectual capital. There are three aspects of a firm’s knowledge management including acquisition, sharing and application. Research studies indicate that the acquisition of knowledge by an organization has the advantage of improving the knowledge base and competencies of employees who work for the organization (Chen and J-W, 2009, p. 110). Sharing of knowledge refers to the spread of knowledge among different stakeholders of the organization. In most cases, different stakeholders such as employees and shareholders interact with each other resulting in the sharing of information. Additionally, the application of knowledge refers to the use of available knowledge in enhancing the output of the organization. The application of knowledge plays a central in knowledge management because it transforms the available information from a tacit form to an explicit form (Bontis, 2008, p. 68). Generally, a significant number of researchers are in agreement that managing knowledge using an effective approach has the advantage of enhancing innovation (Bontis, Keow and Richardson, 2000, p. 89). This can only be achieved by developing new ideas based on new information and expertise. This is despite the fact that organizations have different approaches that are used in knowledge management. On the basis of the research question, the following will be the propositions of the research project: 1. There is a positive relationship between processes of acquiring knowledge and intellectual capital. 2. There is a positive relationship between the processes involved in sharing of knowledge and intellectual capital. 3. There is a positive relationship between the processes of applying knowledge and intellectual capital. Methodology Data will be collected through questionnaires and interviews on senior managers of organizations that are perceived to be very competitive in their respective industries. Knowledge management will be measured using the level of information among three aspects of the organization. One aspect is the information available to stakeholders, information available in the organization database and the number of proposed changes within the organization. All the information will be collected through interviews and questionnaires. Variables The variables for the research study will include: Level of innovative capital Level of innovative capability Knowledge management strategies Level of organizational learning Measures The study will be based on two multidimensional constructs that include intellectual capital and innovative capability. The two constructs will require the existence of items of measurements. However, there have not been any valid and tested scales that can measure the two constructs hence the study will include new scales that will measure human, structural and social capital as well as innovativeness. The study will rely on performance measures of innovativeness that include product, organizational processes and management innovation (Bontis, Keow and Richardson, 2000, p. 89). Our analysis will include relative innovation because innovation is a relative term that considers the fact that it is new to a firm relative to the firm’s industry. Primary Data Interviews Interviews will involve direct communications with senior managers of companies. This will include discussions on the level of innovation within the companies and their interconnection with knowledge management. Senior managers are appropriate for the interviews because they are involved in formulating human resource policies for the organization and are always involved in the analysis of the results of the organization. Questionnaire Questionnaires will be circulated to members of staff of identified organizations and also senior managers of such organizations. This is to gather information from senior managers on the influence of policies on knowledge management within their organizations. This will also collect information from employees on how intellectual capital has influenced the innovative capability of the organization. Secondary Data Research Studies Literature material on knowledge management and its influence on various innovative capabilities will provide secondary information during the research project. I will majorly rely on the research study conducted by Subramaniam and Youndt (2005). This is mainly because the works of the two researchers has provided significant literature on my literature review part of the project. I will also rely on secondary information such as press releases and materials from books authored by distinguished scholars. Data Collection The project will include a wide variety of organizations so as to enhance the accuracy of the study and make general conclusions. The project will concentrate on public organizations that have more than 150 employees because they have a huge capacity of intellectual capital. They also have high levels of innovation. In most cases, large organizations have very formal innovation systems. The research will require comprehensive analysis of organizational systems and large organizations will be the most appropriate. The names and location of organizations to be studied will be located from relevant business directories and there will be a feasibility study that will analyze their appropriateness to the study. The project will target to analyze 100 companies across the world and we expect that there will be a high level of response from the companies. Statistical Tests We will rely on the use of confirmatory factor analysis (CFA) as proposed by Subramaniam and Youndt (2005, p. 456). The test will be conducted on both intellectual capital and innovative capabilities. This is to ensure that the project is based on appropriate data that will result in relevant conclusions. The factor analysis will use indices to determine the level of accuracy of data that will be collected during the study. Conclusion The project will explore how strategies on people management influence organizational learning and its capacity for knowledge management. The project will also analyze the relationship between knowledge management capacity and intellectual capital and their influences on innovative capabilities. It will be based on three hypotheses that include: a) Human capital has a positive influence on innovative capability. b) Social capital has a positive influence on innovative capability. c) Structural capital has a positive influence on innovative capability. Data will be collected by the use of interviews and questionnaires and analyzed using three constructs of intellectual capital. The study will rely on performance measures of innovativeness that include product, organizational processes and management innovation. Statistical tests will rely on the use of confirmatory factor analysis (CFA) as proposed by Subramaniam and Youndt (2005, p. 456). References Baer, M., 2007, Innovation in organizations: the generation and implementation of radical ideas, University of Illinois at Urbana-Champaign, Illinois, USA. Boer, H. and During, W., 2001, Innovation, what innovation? 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Dessler, G. and Tan, C., 2006, Human Resource Management: An Asian Perspective, Singapore: Prentice-Hall. Egbu, C., Botterill, K. and Bates, M., 2001, The influence of knowledge management and intellectual capital on organizational innovations, Paper presented at the 17th Annual Conference of the Association of Researchers in Construction Management (ARCOM), University of Salford, UK. Evans, P., 2006, The strategic outcomes of human resource management, Human Resource Management, 25(1): 149-167. Gatignon, H., Tushman, M. L., Smith, W. and Anderson, P., 2004, A structural approach to assessing innovation: A construct development of innovation locus, type and characteristics. Management Science, 48: 1103-1123. Gloet, M. and Terziovski, M., 2004, Exploring the relationship between knowledge management practices and innovation performance. Journal of Manufacturing Technology Management, 15(5): 402-409. Heraty, N., 2004, Towards an architecture of organization-led learning. Human Resource Management Review, 14: 449-472. Hsu, I. C., 2008, Knowledge sharing practices as a facilitating factor for improving organizational performance through human capital: A preliminary test, Expert Systems with Applications, 35(3): 1316-1326. Jimenez-Jimenez, D. and Sanz-Valle, R., 2005, Innovation and human resource management fit: An empirical study, International Journal of Manpower, 26(4): 364-381. Jones, G., George, J. and Hill, W., 2000, Contemporary Management, USA: Irwin McGraw-Hill. Kang, S. C., Morris, S. S. and Snell, S. A., 2007, Relational archetypes, organizational learning, and value creation: Extending the human resource architecture, Academy of Management Review, 32(1): 236-256. Katou, A. A. and Budhwar, P. S., 2006, Human resource management systems and organizational performance: A test of a mediating model in the Greek manufacturing context, International Journal of Human Resource Management, 17(7): 1223-1253. Kostova, T. and Roth, K., 2003, Social capital in multinational corporations and a micro-macro model of its formation, Academy of Management Review, 28: 297-317. Subramaniam, M. and Youndt, M., 2005, The Influence of Intellectual Capital on the Types of Innovative Capabilities, Academy of Management Journal, 48 (3), 450–463. Read More