CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Wealth and growth in today’s economy are primarily driven by intangible (intellectual) assets. The rise of new economy has highlighted the fact that the value created depends far less on their physical assets than on their intangible ones. These assets, often described as intellectual capital, are being recognized as the foundation of individual, organizational and national competitive-ness in the twenty-first century (Wigg, 1997; Bounfour & Edvinsson, 2005). As noticed by Pike et al. (2002:659), “as the business society is developed, the key step in value creation has ascended an intellectual staircase”.
Intellectual capital has been identified as a set of intangibles (resources, capabilities and competences) that drives the organizational performance and value creation (Roos & Roos, 1997; Bontis, 1998; Bontis et al., 2000). This suggests causal relationships between intellectual capital and organizational value creation (Marr & Roos, 2005). However, intangible assets seldom affect performance directly. Instead, they work indirectly through relationships of cause and effect (Kaplan & Norton, 2004).
From the management point of view it is essential to recognize that none of the elements of that set of intangibles is per se sufficient for a successful performance. These key elements need to be combined to generate value. In this context, intellectual capital is a phenomenon of interactions, transformations and complementarities, meaning that a resource’s productivity may improve through the investments in other resources.
Despite the tremendous theoretical improvement during the last years, intellectual capital phenomenon requires theory and research methodology that enhances the integration of theory construction and theory testing. Research in intellectual capital is actually, at critical cross-roads with increased emphasis on developing theoretical concepts and testing relationships guided by such concepts. It is vital to consolidate some findings, namely arrive at a set of operational measures that meet minimal criteria of measurement.
Scientists and researchers in different courses such as Sociology, Economy, and Management believe that some basic fundamental movements have occurred in societies and countries. These movements (knowledge and learning) are the bases and axes of changes (Davenport, 1998). Related strategic knowledge and concepts are considered as the main principle and component to survive the organization and to keep its competitive position (Alam et al., 2010). Mack Alveri believes that knowledge and knowledge employees are key principles of organization to gain sustainable development, and are the major future competitive sources of organization. The extant literature further affirms that the firm’s competitive advantage and performance are largely influenced by its intellectual capital (Tovstiga & Tulugurova, 2009). Moreover, Marr (2000) claims that knowledge management is a definite necessity for benefit and flexibility of private and public organizations. So, knowing and understanding its circumstances of relating to other organization sources and assets is one of the duties of managers and executers. On the other hand, intellectual capital, among other things, has a major effect on the circumstances of using other organizational sources. In the absence of intellectual capital, other organizational sources and capitals lose their effectiveness and gaining development and progress in the organization becomes difficult. Intellectual capital can create a new cognition of economic-intellectual system either at the level of macroeconomics or management of organizations and institutions and help managers in guiding the System (Alam & Hoque, 2010). Determining and identifying the components and indicators of intellectual capital assets and evaluation of these issues is one of the most important challenges of these days’ organizations. Measuring intellectual capital includes issues like rate, growth assets such as ideas, innovations, and creativities which are associated with different fields of knowledge and are not considered as assets by traditional accounting standards and tools. Meanwhile, in modern evaluating system, these assets affect market value of an institution. This matter can be seen in comparison between developed countries and developing ones, because development and progress cannot only be justified based on tangible assets. In many cases, high rates of investments have information-base and knowledge-base infrastructures.
Firms are facing new challenges posed by knowledge based economy as the conventional financial reporting does not allow intangible resource to be reported as asset (Holland, 2009;Gut hrie, 2001) except goodwill. This is likely to pose new demands on management in term of valuation and reporting of their assets especially their intellectual capital (intangible asset). The term intellectual capital has become universal and it is generally accepted as source of value creation (Guthrie, 2001) which is ignored by conventional financial reporting (Amir & Lev , 1996; Edvinsson & Malone, 1997; Busacca & Maccarrone, 2007). It is noted that the rules of business are being rewritten and that the industrial era enterprise models are no longer adequate to meet the dynamic condition of a changing world market as well as the information needed by investors to make future decision (Abey sekera, 2007; Garcia-Ayuso, 2003; Okwy & Christopher, 2010). Presently, economy is moving towards knowledge based resource which relies on intangible activities upon which firm valuation can be based (Holland, 2009).
| Project details | Contents |
|---|---|
| Number of Pages | 31 pages |
| Chapter one | Introduction |
| Chapter two | Literature review |
| Chapter three | methodology |
| Chapter four | Data analysis |
| Chapter five | Summary,discussion & recommendations |
| Reference | Reference |
| Questionnaire | Questionnaire |
| Appendix | Appendix |
| Chapter summary | 1 to 5 chapters |
| Available document | PDF and MS-word format |
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