Academic journal article Review of Business & Finance Studies

Intellectual Capital Management in Local Public Utilities

Academic journal article Review of Business & Finance Studies

Intellectual Capital Management in Local Public Utilities

Article excerpt

ABSTRACT

The competitive advantage of companies is increasingly focused on Intellectual Capital (IC) and on its management. Factors such as skills, innovation, stakeholders' relation, development and sharing of knowledge have become key success factors. These aspects are important for Local Public Utilities. These organizations produce goods and services operating in competitive markets in a utility function for the local community using technological and organizational infrastructure resources. In the past, in these organizations, IC was critical to reach objectives such as to satisfy citizen needs. Local Public Utilities focused their assets on the technical components of management including plant equipment, technical expertise, professionalism, and quality control and security systems. The introduction of the economic efficiency logic and competitiveness led to a rethinking of the IC role. The production of public services becomes competitive in the market according to logic of economic efficiency. The relationship with the community begins to be formalized in "service contracts"; new management structures are introduced and companies need to remunerate the capital invested. Consequently, companies must implement strategic and organizational changes and focus on intangible assets as knowledge, skills and operational mechanisms. In the new scenario IC becomes an important strategic tool both in the company and in the outside environment. Proper IC management can improve company value.

JEL: E24; 123; J24; O15

KEYWORDS: Intellectual capital, Intellectual capital management, Local Public Utilities.

INTRODUCTION

Knowledge is a strategic resource and, for a competitive business, organizations are increasingly knowledge based and more often concerned about intellectual capital (IC) rather than tangible assets (Guthrie and Petty, 2000; Carmeli and Tishler, 2004; Schiuma et al, 2007). Intellectual capital is a company's softer assets such as professional experience, skills, knowledge, organizational structure and routine and internal/external relationship. The intellectual capital framework classifies these characteristics into human capital, organizational or structural capital and relational or customer capital (Edvisson and Malone, 1997; Stewart, 1997; Guthrie and Petty, 2000; Youndt and Snell, 2004). Human capital refers to the knowledge, skill and experience of employees and managers; relational capital consisting of knowledge resources derived from networks of relationships between peer, customers, suppliers and business associates; and organizational capital represent institutionalized knowledge and codified experience stored in databases, routines, patents, manuals and the like (Bontis, 1998; Stewart 1997). These three new forms of capital capture a company in movement as it transforms its skills and knowledge into competitiveness. Therefore, companies must maintain and develop the existing capital structure and also acquire know-how, skills and professionalism, train and develop employees by emphasizing their business skills and capital to focus on trading and customers.

In service companies, intellectual capital and knowledge management are as important as they can be in production-oriented companies. There is a lack of systematic research on whether there are fundamental differences in the IC of service-oriented versus product-oriented companies. For this reason this paper aims to examine the IC stocks, creation and management mechanisms in service-oriented firms. The paper examines these items for Italian Local Public Utilities. The Local Public Utilities (LPU) are companies operating in the services sector, established as limited companies in which the shareholder is public. The aim of LPU is to create value for stakeholders. LPU stakeholders are not only the contributors of resources but also the community for which services are produced (Catturi, 2004). An LPU, therefore, creates value for stakeholders to adequately compensate all the factors used in the production process and meet, at the same time, the needs of local communities (Grossi, 2005). …

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