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Intellectual Capital Integration and Its Dynamic Development Mechanism Research

HU Yan-jie，WANG Xiu-li

School of Economics and Management, Beihang University, P.R.China, 100191

Abstract: In the knowledge economy, the intellectual capital which has replaced the traditional production elements becomes the most important strategic resources of enterprise. This change will inevitably influence the original evolution theory of core ability. Based on the theory of enterprise resource and integration theory, we proposed a new perspective that effectively integrated intellectual capital constitute enterprise core ability. After explained the hierarchical relationships between intellectual capital and core ability, this article puts forward an intellectual capital integration model and an intellectual capital dynamic development model, and finally gives the corresponding empirical research. The conclusions are that intelligence capital is the foundation of core ability, and during the formation of intelligence capital human capital plays a key role. As one of the factors of intellectual capital, capital structure is the strongest influence factor of core ability.

Keywords: dynamic development, core ability, intellectual capital, mechanism 1 Introduction

Since Prahalad and Garry Hamel (1990) put forward enterprise core ability theory, more and more enterprises have taken enterprise core ability management system as an important part of operation and management of business. [1] The view that the competitive advantage of enterprises comes from the internal of enterprise and core ability is the source of enterprise sustainable competitive advantage has been widely accepted by theoretical and business. However, the evolution mechanism of the core ability system has close relationship with its components. Evolution of enterprise core ability system can be considered as a dynamic change of its components and the relationship among them, it will also change as the dynamic change of enterprise resource elements. [2]In the 21st century, with the coming of knowledge economy, the intellectual capital has replaced the traditional production factors, such as monetary capital, labor and land, and become the most important strategic resources. It has been confirmed Supported by the Humanity and Social Science Foundation of Ministry of Education of China (09YJA630005) and the Aeronautical Science Foundation of China.(2011ZG51078)

by many scholars’ study(Baruch and Stefano,2003; Norma and G.Tyge Payne 、 Mark, 2004; Shao-ChiChang、Sheng-Syan Chen andJung-Ho Lai, 2006; Li Jiaming 、 Li Fubing, 2004; Wan Xi, 2006; Fu Chuanshuo, 2007). However, how does intellectual capital play a role in the enterprise? How to evolution? And how to make the core ability more strengthen? So far these problems are not very clear. Research of intellectual capital is still in its infancy and the mechanism of intellectual capital to enterprise performance has not been effective revealed. In the limited intellectual capital conversion research, scholars more likely to use value chain theory as a tool. From the perspective of value creation, study the driver relationship between intellectual capital value and the value of enterprise[3] (Abraham Carmeh and Ashler Tishler, 2004;Chun YaoTseng and Yeong-Jia James Goo, 2005).

The core ability theory is that three essential characteristics of the core ability are value, uniqueness (including scarcity, inimitability and substitutability) and scalability; these features also are the characteristics of intellectual capital. Therefore, this article proposes a new point of view that effective integration of intellectual capital formats enterprise core ability. Based On this, first we made progressive and hierarchical relationship between intellectual capital and core ability clear; secondly, put forward the intellectual capital integration and its dynamic development model and take the empirical test. The meaning of intellectual capital integration in this article is that in order to enable enterprises to gain a competitive advantage, especially sustainable competitive advantage, intellectual capital will be made structure, function and level complementary according to the structure, function, level of intellectual capital in the enterprise and the relationship between intellectual capital elements. The purpose is to manage enterprise intellectual capital more effectively, promote enterprise's core competitive ability. 2 Progressive hierarchical relationships between intellectual capital and core ability

Core ability theory as the one of the forefront problems of management theory is widely concerned. At

2012 International Conference on Management Science & Engineering (19th) September 20-22, 2012 Dallas, USA

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present domestic and foreign scholars analyze the elements of core ability from two perspectives. One is resource perspective, which considers core ability as a combination of resources[4]. That can be called the resources-based view. The other is from the perspective of ability, which thinks the core ability as a composite system of various abilities and can be called competence-based view. Generally, we agree with the resources-based view, which considers core ability as a combination of resources. But we believe that resources of the core ability are not ordinary resources, but they are the heterogeneous and incomplete mobility intellectual capital.

Refers to enterprise resource theory there are two basic assumptions in understanding the nature of enterprise. One is the heterogeneity of the enterprise resources, which is the competing company that owned or controlled a different set of resources. Even in the same industry, due to the initial resource sharing, luck, evolutionary history or different future projections enterprises will from different strategic resource (barney, 1989) [5]. The second assumption is the incomplete mobility character of resources (Barney, 1991) [6]. Resources are not full mobility, which means corporate resources cannot flow freely among firms, so they can become a potential source of long-term profits. In the rapid economic development day, these two assumptions of the enterprise resource theory are still very important. But with the economic developing imitability and negotiability of material resources are constantly enhancing. On the contrary heterogeneity is constantly weakening. Especially in the knowledge economy, from the market companies can get the general resources (material resources, human resources) which no longer has the heterogeneity characteristics, so it is hard to form the basis of core competitive. Intellectual capital is the intellectual achievements formed in the production process, which is difficult to imitate, and hard to be replaced. They are the heritage formed under uncertainty conditions, so they are scarce, unique, persistent, dedicated, inimitability, non-trading, intangible and non-alternative. So these resources have been replaced the material resources and become representative of heterogeneity, incomplete mobility resources. This intellectual capital (human capital, structural capital, relational capital, etc.) is the foundation and key of the enterprise core ability’s formation. So, this paper gives a progressive hierarchical relationship diagram (Fig.1) between intellectual capital and core ability. 2.1 General resources

General resources are a collection of material resources and human resources that they can get from the external market. [7] Material resources include equipment, facilities, funds, etc; human resources are the general workers of an enterprise. These non-heterogeneous resources constitute the basis for the enterprise human capital formation.

Fig.1 Progressive hierarchical relationship diagram between intellectual capital and core competence

2.2 Intellectual capital

Intellectual capital repository is a collection of intellectual capital which is owned by an enterprise. In this paper we adopted the three-factor model of intellectual capital. This model considers that intellectual capital can be further subdivided into the human capital, structural capital and relationship capital. [8]Human capital refers to the knowledge, education level, professional certification, job evaluation, innovation, and positive attitude of members in the organization (Dzinkowski) [9]. Or human capital is the knowledge, experience, ability of employees, rather than the organization has the human capital, and disappears with employees’ leave (Edvinsson and Malone, 1997) [10]. Structural capital is the organizational structure, rules and norms, organizational culture, etc (Stewart, 1997) [11]. Structural capital is intellectual property and infrastructure assets within the organization, including patents, copyrights, business secrets, trademarks, management philosophy, corporate culture, management processes, information systems, network systems (Dzinkowski) [9]. Relationship capital refers to the relationship of the customer interaction and transaction, such as brands, customer loyalty, company name, stock ordering, marketing channels, strategic partnerships, the license identified contract, privilege recognized (Dzinkowsk) [9]. The nature of relationship capital is the implication knowledge in the external relations of corporate. 2.3The core ability

Core ability is specific within the enterprise, at the core of competitiveness, a source of sustained competitive advantage and the power of enterprise survival and development. [12]The core ability is multifaceted skills of enterprise competitiveness, organic

Enterprise resources collections (General Resource)

Intellectual capital (Heterogeneous resources)

core ability

Constraint

evolution

Integration

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combination of complementary resources and operational mechanism to provide the competitive advantage of knowledge. Core ability is an organic union which includes various skills, complementary resources and operating mechanism. [13]It is a knowledge system that can provide competitive advantage. The core competency is a specific combination of enterprise capabilities, this combination process and the resulting performance of the organizational capacity of the firm-specific, and is the accumulation of specific experience in the interaction between the field of enterprise market and technical areas. Therefore, the core ability is not only of technical nature, but also of the organizational characteristic, which involves technical expertise and organizing ability that is effectively configures the technical expertise of organization. In an enterprise which has more than one business, the core ability is the composition and integration of intellectual capital.

According to the hierarchical relationships between the general resources, intellectual capital and core competencies, there are two understandings of the evolution of intellectual capital: 1) general resources, intellectual capital and core ability are hierarchical and each level established on the lower level, which means that each level is the composition and integration of various elements of the lower level; between the levels value presents an incremental relationship, for example, material resources which contains limited value. Functional departments or business units create new value through the developing and using resources. At the same time they can gain experience and skills. Intellectual capital that is formed in the process can create greater value. 2) The core ability is a specific ability which was shown by combining intellectual capital according to some specific relations.

Considering the above point of view, the paper argues that the definition of the enterprise core ability is based on the integration of ability. The enterprise core ability is an organic integration ability that is a range of complementary cumulative capabilities formed in the process of acquisition and allocation of resources, which enables enterprise continue to obtain excess profits by using one or several integration ability. The core ability is an integrated ability, but the integrated ability will represent in one or a limited number of capabilities because of differences in inherent ability of enterprises and the characteristics of external market environment. 3 Intellectual capital dynamic development model and the hypothesis

Within enterprise which resources that competitive advantage based on do not imitate. Heterogeneity assumption of enterprise resource implies a more subtle assumptions that is the actions of corporate management in a certain operating environment with management autonomy (Amit and Schoemaker, 1993) [14], showing the random tendency. Corporate intellectual capital is a long-term evolution product through a “mutate- select –

retain” evolutionary mechanisms. Therefore, the differences of intellectual capital

between different enterprises are not only due to external market forces, but also closely related to the unique strategy of the enterprise. [15]However, because of path-dependent character of intellectual capital, there is a paradox between the core competencies and intellectual capital. On the one hand intellectual capital can enhance R & D activities; on the other hand it can also hinder R & D activities. [16]So, in the rapid changing technology and uncertain conditions, companies must be put the development and evolution of intellectual capital into the development and analysis of corporate strategy. Integration of intellectual capital is defined as: integration, build and reset the intellectual capital of company in order to adapt to rapidly changing external environment. Dynamic means that intellectual capital is consistent with the environment changes and intellectual capital updates as the environment changes. Adaptability emphasizes the integration and configuration of internal and external resources to enable enterprises to meet the needs of environmental change. Dynamic development means intellectual capital vary with the changes of environment, until it become the sources of enterprise competitive advantage. Intellectual capital will translate into core ability of enterprise.

Intellectual capital system of corporate is very complicated. Some scholars have different opinions on transformation relationship of intellectual capital. Naphaiet and Ghoshal (1998) said that intellectual capital does not directly affect performance, but indirectly affect performance through innovation [17]. Seott A. Snell and Sung-ChoonKang (2007) thought intellectual capital related to business processes, reduced operating costs and improved corporate profits [18]. Burt (1992) believed that social networks promoted the effective transfer of resources, and improved the use efficiency of resource. Pack (1972) pointed out that the management skill was a key catalyst to increase business productivity. Knight (1999) believed that investment in human capital could create more competence and valuable employees, would also create better structure capital, which will result in upgrading productive process. Roger Baxter and Sheelagh Matear (2004) studied the relationship between the buyer and the seller from the perspective of intellectual capital. [19] There conclusion was that intellectual capital can perfect the after service and improve service quality. Daniela Carlucci and Giovanni Schiuma (2006) believed that the intellectual capital could promote the improvement of production process, and ultimately improved business efficiency. [20] Lsobe et al (2002) divided corporate resources into the dominant resources and supportive resources. Dominant resources included technology assets and configuration capabilities, which were directly source of competitive advantage; supportive resources included internal human capital and cooperation between enterprises and the management vision, which was the development basis of dominant resource, and indirectly affect competitive advantage

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through the dominant resources. Reference existing research we put forward the following intellectual capital dynamic development model (Fig.2). The model includes four structural variables, namely human resources, structural resources, relationship resources and core ability. In this study, in order to explore the influential mechanism of intellectual capital on corporate core competencies, not only to consider the impact of the various elements of intellectual capital on the core competencies, but also to take into account the collaborative and interactive effects within intellectual capital. Within intellectual capital, the dominant resource is human capital; supportive resources are structural resources and relational resources. Accordingly, proposed the following hypothesis:

H1: Human capital has a significant, positive effect on core ability;

H2: Human capital has a significant, positive effect on structure capital;

H3: Human capital has a significant, positive effect on relationship capital;

H4: Structure capital has a significant, positive effect on core ability;

H5: Relationship capital has a significant, positive effect on core ability.

Fig.2 The model: relationship

between intellectual capital and core ability 4 Empirical test and results

We weren’t free to define the core ability of this article. First, according to the informed research we determined the 7 core abilities in enterprise. They are the technological innovation ability, organization and management ability, learning ability, decision-making ability, human resource management ability,

manufacturing ability and marketing ability. And then we designed the survey questionnaire to check the influence of these seven abilities to enterprise competitive advantage. The items of the questionnaire are from previous research results. Items of structure capital are from the researches of Youndt (2004), Knight(1999), Stewart(2006) and Bi Jian(2009). The items of relationship capital adopts the researches of Lowegren(2003), Li Dongqin(2004), Zheng Meiqun(2006), Chen Jin(2004). Problems of human capital use the researches of Paradakis, Lioukas and chambers(1998), Baum Locke and Smith(2004), Li Dongqin(2004), Wang Qingxi(2004). The questions of 7 core abilities are from the studies of Hitt,Ireland(1985), Koufteros,Vonderembse,Doll(2002), Liu Ye(2007), Kamoche(1996), Geng Xiaoqing(2008).

The scale design of the survey questionnaire is Likert5-level. According to the results of the survey we determined the core abilities that were to be tested of this article. Through variable measurement, questionnaire design, pre-investigation and a formal survey we obtained the sample data. The questionnaires were distributed 400 copies, in which 300 copies were returned. The main survey objects were MBA and EMBA students of Beihang University. Data missing questionnaires were removed, then we obtained 172 valid questionnaires, the effective response rate was 57.3%. Investigation objects description: in the respondents’ first line managers accounted for 41%, middle managers accounted for 33% and the general staff accounted for 26%. From the distribution of the employee's position we can know that the respondents were in accordance with the requirements of this paper and suitable for subsequent statistical analysis. The scale of the investigated firms covered large, medium and small businesses. The number of staff was less than 300 accounted for 30.81%, 300-1500 accounted for 23.25%, 1500-3000 accounted for 9.3%, 3000 -10 000 accounted for 12.21 %, more than 10,000 accounted for 24.42%. It showed the sample had some representation. According to the test results, we found that the influence of manufacturing ability, human resource management ability and decision-making ability to enterprise competitive advantage was most significant. We used a combination of the three core abilities into the model of this paper. Marketing ability had some influence to enterprise competitive advantage, but was not significant. So we didn’t put it into the core ability. Technological innovation ability and learning had little effect on the competitive advantage.

Then we tested the reliability and validity of each index. Cronbachs α and average variance of each index are more than 0.7 and 0.5 separately. Standardized factor loadings are all more than 0.7. Therefore we used structural equation modeling (SEM) and AMOS 18.0 to test the hypotheses. Coefficients and the significant degree that show relationship between elements of intellectual capital and core ability are listed in table 1 and Fig.3.

Structure capital

Relationship capital

Intellectual capital

Human capital

Core ability

Supportive resources Dominant resources

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Tab.1 Test data of model

relationship Standard

Path Coefficient

p support

hypothesis or not

human resource ---- core ability

0.441 *** Yes

structure resource ---- core ability

0.601 *** Yes

relationship resource ---- core ability

-0.074 0.507 Not

human resource ---- relationship resource

0.856 *** Yes

human resource ---- structure resource

0.921 *** Yes

goodness-of-fit index:2χ =39.90 df=47

2χ /df=0.849 p=0.759 RMSEA=0.000 CFI=1 NFI= 0.980

Fig.3 The test result of the model

From Tab.1 we can see 2χ = 39.9, df = 47, / df =

0.849, p = 0.759, RMSEA =0 .000, CFI = 1, NFI = 0.980. All indicators meet the criterion. RMSEA stands absolute fit index, which value should be less than 0.05. CFI represents relative fit index, which value should more than 0.9. According to Fig.3, the path coefficient between human capital and core ability is 0.441, which means impact significantly; the path coefficient between structure capital and core ability is 0.601, which means impact significantly; the path coefficient between human capital and structure resource is 0.856, which means impact significantly too; but between relationship capital and core ability the path coefficient is -0.074, so we

assume H5 is not right. 5 Conclusions

Intellectual capital management has become an important part of business management. Yet intellectual capital development mechanism is an important theoretical basis for Intellectual capital management. First, we analyzed the progressive hierarchical relationship between intellectual capital and core ability; secondly, put forward intellectual capital integration and its dynamic development model; lastly, take the empirical test. The analysis shows that intellectual capital is constituent element of core ability, and is different from the general resources. Intellectual capital is the higher levels constituent elements. Based on this understanding, we build the intellectual capital dynamic development model, then put forward that in the elements of intellectual capital human capital plays a key role. It not only supports the core ability, but also plays a pivotal role for the dynamic development and configuration of the structural capital and relationship capital. According to this, we put forward the hypotheses and eventually complete the empirical test by structural equation modeling. The test results show that: First, the intellectual capital is the basis of core ability formation. Human capital plays a key role in the formation of core ability. Second, out of the elements of intellectual capital, structural capital has the strongest effect on core ability; human capital has significant effect on structural capital and relationship capital. However, relationship capital dose no have significant effect on core ability.

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0.441(**)

-0.074

0.856(***)

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0.931(***)

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