Academic journal article Journal of Managerial Issues

The Intellectual Capital Realization Process (ICRP): An Application of the Resource-Based View of the Firm

Academic journal article Journal of Managerial Issues

The Intellectual Capital Realization Process (ICRP): An Application of the Resource-Based View of the Firm

Article excerpt

Managing an organization's strategy constitutes an attempt to find the best fit between internal resources and the external environment to seize the best opportunities as they become available (Shanklin and Ryans, 1985). Resources required to fuel strategic initiatives are of many types, classified into slightly different categories by a variety of authors (e.g., Libert et al., 2000; Brooking, 1998; Edvinsson and Malone, 1997; Roos et al., 1997). Typically, resources appear on the organization's balance sheet as assets of a physical or financial nature. Admittedly, some intangible assets also appear on the balance sheet, such as patents or trademarks. However, for many organizations working within knowledge-intensive industries, perhaps the most critical asset they possess never appears on the balance sheet, namely intellectual capital (IC). This intangible asset represents organizational processes, human know-how, and relationships that support or create wealth for the company.

This article discusses a process that allows an organization to treat its off-the-balance sheet IC assets similar to its balance sheet assets, through mapping and creating an inventory of IC. Completion of this process of concretely identifying IC exposes IC strengths and limitations in relation to strategic planning. This permits managers to take corrective action through the development of IC required to support strategic initiatives, the modification of the strategy itself, or both. The process suggested in this article, called the Intellectual Capital Realization Process (ICRP), is consistent with the resource-based view (RBV) of the firm that suggests an organization's analysis of its internal resources drives its strategic direction.

The RBV, garnering attention in the 1990s (Wernerfelt, 1995), advocates that developing competitive advantage requires placing equal or more importance on the internal environment in relation to its external counterpart. This view suggests that an organization finds its strength in looking internally to define and develop core competencies and seek profitable opportunities consistent with these competencies. As such, the RBV constitutes an inside-outside model (Roos et al., 2001; Barney, 1991) where strategic planning begins through the identification of internal resources that fit a matching external environment (Wernerfelt, 1984, 1995; Penrose, 1980). This view stands in sharp contrast to the outside-inside model that predominated the 1980s (Grant, 1991) where external assessment of industry characteristics, in relationship to organizational resources, prescribed strategic planning processes.

A capable organization employs resources in a manner that permits successful competition (Chatzkel, 2002; Barney, 1991), implying possession of knowledge, processes, and relationships necessary to combine resources in a manner that creates wealth by providing customer value (Roos et al., 2001; Grant, 1991). While resources constitute assets possessed or controlled by the organization, capabilities determine whether these resources are productive or not in the generation of revenues appearing on the income statement. Competencies represent measures of the degree to which an organization combines resources in efficient and effective ways (Hamel and Prahalad, 1994; Prahalad and Hamel, 1990), with core competencies signifying the integration of competencies across a wide variety of functional areas and the reason for organizational existence (Prahalad and Hamel, 1990).

THE ROLE OF INTELLECTUAL CAPITAL

With its emphasis on the development of internal resources, the RBV is consistent with efforts to identify and manage human, organizational and relational core competencies in terms of IC. As today's wealth is predominantly derived from workers paid to think and not just do, such as doctors, senior managers, accountants, scientists, engineers and technical workers, "the asset base of companies competing for growth in the knowledge economy will continue to shift away from equipment, buildings, and other fixed assets to corporate knowledge assets" (Beck, 1998: 181). …

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