Knowledge‐based capital in building regional innovation capacity

Knowledge-based capital in buildingregional innovation capacity

Giovanni Schiuma and Antonio Lerro

Abstract

Purpose – The purpose of this paper is to investigate the role and the relevance of knowledge-based

capital as a strategic resource and a source of regional innovation capacity. The paper identifies human,

relational, structural and social capital as the four main knowledge-based categories building the

knowledge-based capital of a region. The role of each knowledge-based category in determining

regional innovation capacity is analyzed. Specifically, the authors discuss the relationships among the

knowledge-based categories and a regional innovation capacity.

Design/methodology/approach – The paper is based on an in-depth literature review of the

knowledge management and regional innovation research stream. The fundamental underlying

research questions that have driven the research are: ‘‘What are the knowledge-based capital

categories affecting a region’s innovation capacity?’’ and ‘‘How do knowledge-based categories

influence regional innovation capacity?’’. The paper is conceptual in its nature and aims to delineate a

theory-based framework to drive further empirical research.

Findings – The paper first clarifies the concept of knowledge-based capital and of regional innovation

capacity. These are two key concepts for understanding the role and relevance of the knowledge assets

bundles in the creation, development and management of innovation capabilities at regional level. Then

the paper explores how knowledge-based components affect the innovation capacity of a region. This is

an issue of great relevance for both theory and practice. From the theory point of view it allows the

identification of the main factors characterising the links between knowledge assets and innovation

capacity, while from a practical point of view it can provide implications for policy makers for the

definition of policies oriented towards the development of regional knowledge asset domains to develop

regional innovation capacity.

Originality/value – The paper provides an answer to the need to develop a holistic view of the links

between a region’s knowledge-based capital and its innovation capacity. Indeed, most of the studies in

the literature have analysed the links between isolated knowledge asset categories and innovation

capabilities. The paper, on the basis of a clear definition of knowledge-based capital and innovation

capacity, analyses why regional knowledge foundations make differences in the innovation capacity of

regions.

Keywords Knowledge management, Innovation, Regional development

Paper type Conceptual paper

1. Introduction

Innovation dynamics play a fundamental role in regional development. This is an issue that

has been analysed in the literature from different research perspectives (Furman et al., 2002;

Howells, 2005; Kuznets, 1971; Romer, 1990; Ronde and Hussler, 2005; Solow, 1957). In

particular, in the last decade, the ties between research on knowledge and research on

innovation have been so close that scholars have seen a blurring of the boundaries between

the two research streams. It is now quite common for studies examining regional innovation

to use knowledge or other related concepts as antecedents, and for studies investigating

knowledge and knowledge-based capital frequently to use innovation as an outcome

(Asheim and Coenen, 2005; Subramaniam and Youndt, 2005).

DOI 10.1108/13673270810902984 VOL. 12 NO. 5 2008, pp. 121-136, Q Emerald Group Publishing Limited, ISSN 1367-3270 j JOURNAL OF KNOWLEDGE MANAGEMENT j PAGE 121

Giovanni Schiuma is a

Professor at the Centre for

Value Management,

LIEG-DAPIT, University of

Basilicata, Potenza, Italy,

and a Visiting Professor at

the Centre for Business

Performance, Cranfield

School of Management,

Cranfield, UK.

Antonio Lerro is a Research

Fellow at the Centre for

Value Management,

LIEG-DAPIT, University of

Basilicata, Potenza, Italy.

The two research streams have contributed to each other to develop a better understanding

of the role and relevance of knowledge in sustaining and developing innovation dynamics, at

both micro and macro levels. However, there is still a need for a better analysis of the links

between the ownership of knowledge assets and the development of innovation, particularly

at the regional level. For this reason, an investigation of how the knowledge-based capital of

a region contributes and determines the construction of a region’s innovation capacity

appears to be of great relevance.

The concept of innovation capacity has recently emerged in the academic and policy

debate as a meta-concept to denote the real and potential capabilities of a system to convert

knowledge into innovation that is able to drive long-term economic growth and wealth

creation (Freeman, 1995; Furman et al., 2002; Lundvall and Johnson, 1994; Nelson, 1993). It

has been introduced and adopted by different scholars interested in investigating and

understanding the factors and determinants at the root of innovation dynamics and the

capabilities grounding regional and local development (Furman et al., 2002; Howells, 2005;

Tura and Harmaakorpi, 2005). Furman et al. (2002, p. 899) specifically referred to innovation

capacity as ‘‘the ability of a geographical area to produce and commercialize a flow of

innovative technology over the long term’’ and underlined that it depends on the strength of

the common innovation infrastructure, on the environment for innovation, and on the strength

of the linkages between the two.

We interpret innovation capacity as the overall innovation capabilities that a region can

express, both in practice and potentially. It includes both the innovation dynamics taking

place at regional level, and those that could potentially be developed by policy and

management actions by leveraging local and external knowledge resources.

The role of knowledge in the development and application of innovation has been

particularly highlighted by the cognitive approach to innovation, which has stressed that

knowledge dynamics are at the core of innovation capabilities. Coherently with this

perspective, innovation at the regional or local level can be considered as the result of the

capabilities to activate, develop, sustain, and manage knowledge dynamics and processes

(Albino et al., 2007; Albino and Schiuma, 2003; Schiuma, 2000).

Although the relevance of knowledge as a resource and source of innovation at regional and

local level (Carrillo, 2006) is recognized, there is still a lack of understanding of the

knowledge-based dimensions building regional innovation capacity. Indeed, most studies

have focused attention on isolated knowledge components, rather than on a holistic view of

the knowledge-based capital building a region’s innovation capacity (Bounfour and

Edvinsson, 2005).

This paper aims to explore the knowledge-based dimensions of the innovation capacity of a

region. In particular, four main knowledge-based assets categories are identified:

1. human capital;

2. relational capital;

3. structural capital; and

4. social capital.

‘‘ The role of knowledge in the development and application ofinnovation has been particularly highlighted by the cognitiveapproach to innovation, which has stressed that theknowledge dynamics are at the core of innovationcapabilities. ’’

PAGE 122 j JOURNAL OF KNOWLEDGE MANAGEMENTj VOL. 12 NO. 5 2008

As bundles of resources they build the knowledge-based capital of a region and represent

fundamental factors affecting the creation and the development of a regional innovation

capacity. The role of each knowledge-based dimension in the construction of a regional

innovation capacity is analysed. This allows us to define an interpretative conceptual

framework delineating the knowledge-based foundations of the innovation capacity of

regions and local systems.

2. Knowledge and regions

In the new socio-economic scenarios, great attention has been paid by different research

streams to the role played by knowledge as a critical resource to enhance companies’ and

territories’ innovation dynamics, and in turn competitiveness. Studies in the management,

organizational and economic research streams have highlighted the relevance and traits of

the so-called ‘‘knowledge-based economy’’ (Bell, 1973; D’Aveni, 1995; Department of Trade

and Industry, 1998; Handy, 1989; Hitt et al., 1998; Mandel, 2000; Toffler, 1971, 1981). This

concept has emerged to delineate that knowledge represents a key strategic source of

growth and wealth creation in today’s complex business scenario. Hence, the definition and

explanation of regional competitive advantage need to reach well beyond concern with

‘‘hard’’ productivity to consider several other ‘‘softer’’ dimensions of the regional

socio-economy, and in particular non-economic factors, such as cognitive, social, cultural

and institutional factors (Pinch et al., 2003; Morgan, 2004). As result, most studies draw on

the common rationale that the best sources for an innovation-based globalising economy lie

in localised learning processes and ‘‘sticky’’ knowledge characterising regional and local

contexts. In particular, scholars have highlighted the following as fundamental dimensions of

a region’s competitiveness:

B the relevance of the labour force’s quality and skills;

B the extent, depth and orientation of social networks and institutional forms;

B the range and quality of cultural facilities and assets;

B the presence of an innovative and creative class; and

B the scale and quality of public infrastructure (Asheim, 1999; Maskell et al., 1998;

Polenske, 2004; Storper, 1995).

Although it is largely recognised that knowledge resources play an important role in creating

regional innovation capabilities, it is still far from clear what this role is exactly, and what the

links are between knowledge-based capital and innovation capacity. Moreover, even the

basic definition of knowledge-based capital at the regional level is still not completely

shared.

The following sections aim to outline some fundamental conceptual propositions for

delineating an interpretative framework explaining how regional knowledge-based capital

builds and influences a region’s innovation capacity. Together with an analysis of the

concept of knowledge-based capital, a knowledge-based perspective of the regional

innovation capacity is proposed, delineating the components of a regional

knowledge-based capital affecting and determining innovation capacity at regional level.

2.1 Knowledge-based capital

The review of the economic and management literature shows that the notion of

knowledge-based capital is generally adopted as an umbrella concept to denote those

regional resources which are intangible in nature and that contribute to create value at

regional level (Bontis, 2004; Bounfour and Edvinsson, 2005; Edvinsson, 2002; Malhotra,

2001; Schiuma et al., 2005; Tallman et al., 2004).

Bradley (1997) defines knowledge-based capital as a region’s ability to transform

knowledge and intangible resources into wealth. Bontis (2004) includes in the concept those

hidden values related to individuals, firms, communities or institutions that are sources of

real or potential wealth. Malhotra (2001) suggests that a regional knowledge-based capital

VOL. 12 NO. 5 2008 j JOURNAL OF KNOWLEDGE MANAGEMENTj PAGE 123

encompasses those hidden assets on which a region’s growth is based, and stresses that it

represents the added value generated by the stakeholders operating in the region.

We interpret regional knowledge-based capital as the group of knowledge assets that are

attributed to a region and most significantly drive innovation dynamics and regional value

creation mechanisms (Marr and Schiuma, 2001; Schiuma et al., 2008). Knowledge assets

correspond to any regional resource made of or incorporating knowledge which provides an

ability to carry out a process or an activity aimed at creating and/or delivering value.

Knowledge assets are the building blocks of the competencies and innovation capabilities

of a region. Indeed, any region is characterised by specific knowledge domains which are

grounded on bundles of knowledge assets. These knowledge assets bundles build a

region’s knowledge-based capital and affect the innovation capacity and value creation

dynamics of a region.

Four main knowledge assets categories building a regional knowledge-based capital can

be identified:

1. human capital;

2. relational capital;

3. structural capital; and

4. social capital (Lerro, 2007; Lerro and Carlucci, 2007; Schiuma et al., 2005, 2008).

Human capital essentially comprises the know-how characterising the different actors

operating within a region. It includes those factors that are built upon or are reflective of

know-how, both tacit and explicit, which individuals and more generally regional

stakeholders possess and exercise. In some cases, the know-how may reside in the

individuals; in other cases, the know-how may be collectively owned by region’s

stakeholders.

Relational capital denotes the group of the knowledge resources linked to the relationships

characterizing a regional system. This includes the overall relationships, both internal and

external to a region, established and maintained by regional stakeholders which affect

regional value creation dynamics and particularly innovation capabilities.

Structural capital includes all those assets that are tangible in nature but play a fundamental

role in the development, acquisition, management and diffusion of knowledge at regional

level. In this category are included those infrastructural assets which, even if tangible in

nature, incorporate codified knowledge which is essential to define the knowledge domains

at the basis of regional economic and production activities. It also involves the intellectual

property assets owned by regional stakeholders.

Finally, social capital comprises the knowledge assets related to the soft infrastructure of a

region. They are mainly the result of the dynamic interdependencies linking regional actors

(Brooking, 1996; Boulton et al., 2000; Fernandez et al., 2000). The social dimensions

represent fundamental factors affecting the value creation capabilities of a region. They are

related to the stakeholders’ social dynamics taking place within a local system and include

many components, such as, among others, values, culture, routines, behaviours,

networking, identity, atmosphere, and so on.

‘‘ Although it is largely recognised that knowledgte resourcesplay an improtant role in creating regional innovationcapabilities, it is still far from clear what this role is exactly,and what are the links between knowledge-based capital andinnovation capabilities. ’’


Analysing some of the main features of regional capital, Kogut et al. (1994) suggest that

firms and their suppliers within a region share tradable resources, but they also share

knowledge that is part of the social community – a public good for all members which is

untreatable. The literature on communities of practice (Brown and Duguid, 2001) enriches

this perspective, highlighting that inter-dependent individuals working in a local context

develop a social milieu and shared identity. Knowledgemoves freely within a community and

creates a shared understanding about how the system works. Other authors stress that

within a region practical know-how is developed, both tacit and explicit in nature, which is

context-specific (Brown and Duguid, 2001).

The above four knowledge-based capital dimensions are different and require specific kinds

of investment (Youndt et al., 2004). Human capital requires the development and training of

human resources as well as the attraction and retention of talent. Regarding the last aspect,

brain drain and attraction in today’s knowledge economy represent a fundamental trait to

nurture the development of regional capabilities. This is one of the main obstacles for the

development of the regions of, for example, South Italy, which experience a continual brain

drain. Structural capital requires investment in tangible infrastructures which can spur,

support, facilitate, and manage the development, acquisition and transfer of key knowledge

domains for local growth and wealth creation. Relational and social capital requires the

development of a local atmosphere that affects and drives constructive attitudes and

behaviours which drive the definition and development of networking activities based on

trust and mutuality.

The four categories of knowledge-based capital play a different role in the definition and

construction of a region’s innovation capacity, contributing both individually and holistically.

3. Regional innovation capacity

It is widely recognised nowadays that innovation is a central driving force of competitiveness

and value creation. Cooke and Memedovic (2003, p. 8) highlight that ‘‘there is a growing

awareness among regional authorities that the economic growth and competitiveness of

their regions depend largely on the capacity of indigenous firms to innovate. Offering the

appropriate support to indigenous firms to becomemore competitive through innovation is a

rising star on the regional policy agenda’’. Archibugi and Michie (1995, p. 1) state that ‘‘the

production and use of knowledge is at the core of value-added activities, and innovation is at

the core of firms’ and nations’ strategies for growth’’.

Tura and Harmaakorpi (2005), reviewing a number of theoretical frameworks and notions

about regional innovation, have highlighted the importance of building and enhancing

regional innovativeness by developing an environment characterised by networked

systems, such as regional innovation systems (Cooke et al., 1997; Doloreux, 2002),

innovative milieu (Camagni, 1991; Crevoisier andMaillat, 1991), industrial districts (Marshall,

1916; Piore and Sabel, 1984; Becattini, 1990), new industrial spaces (Storper and Scott,

1992; Storper, 1995), and learning regions (Florida, 1995; Asheim, 1996). From a policy

perspective, the European Commission (2005) has underlined the relevance of the regional

context to develop innovation capabilities. In particular, it has been argued that innovation

requires long-term cooperation between investors, entrepreneurs, researchers, firms, public

authorities and consumers. Such relations flourish more easily at regional level, enjoying

benefits from short distances that facilitate both formal and informal contacts.

Regional-based cooperation networks are ideal knowledge sources and entry points to

exchange information and to set up new ideas (Council on Competitiveness, 2005;

Department of Trade and Industry, 1998).

Furman et al. (2002) underline that innovation capacity is related to, but distinct from,

scientific and technical advances per se, and it is also distinct from current national industrial

competitive advantages or productivity. It mainly reflects variation in both economic

geography and innovation policy.

A wide literature has analysed the different elements positively or negatively influencing

regional innovation capacity. The analysis developed by Tura and Harmaakorpi (2005)


allows the identifcation of two fundamental aspects affecting the development of a regional

innovation capacity:

1. the innovation processes; and

2. the innovative capabilities.

Strictly related to the innovation processes, the following dimensions influencing regional

innovation capacity can be outlined:

B The gradual, social and cumulative character of innovation processes, which are based

on continuous learning processes carried out by regional stakeholders engaged directly

or indirectly in regional innovation networks (Edqvist, 2004).

B The integration of different and numerous technological and organizational knowledge

inputs, derived from other sectors and regions, which allows know-how to be renewed

and new problems to be solved (Albino et al., 2007; Katz and Kahn, 1996).

B The interactive character of the learning processes, which involves networking among

firms as well as dynamism in local social networks. This requires the development of

linkages, networks and cooperation between different stakeholders, outside the channels

of existing institutional structures (Lundvall, 1992).

B The characteristics of the boundaries of the innovation dynamics at regional level (Cooke

et al., 2004; Edqvist, 1997; Malerba, 2002; Malerba and Orsenigo, 1995).

Ronde and Hussler (2005) have highlighted that a regional innovation capacity also requires

a deep understanding of the nature of the competences and abilities that have to be

mastered in order to be innovative. This also involves the identification of the competencies

and the definition of strategies for their exploitation. In accordance with Teece and Pisano

(1998), an ‘‘innovative capability’’ is defined as an actor’s ability to sense the changes in the

environment and to be able to exploit existing resources and competencies in order to

create competitive advantage through innovation activities.

We use the concept of ‘‘regional innovation capacity’’ to refer to the overall innovation

capabilities that a region can express, practically and potentially. It includes both the

innovation dynamics taking place at regional level, and those which could be developed by

policy and management actions aimed to leverage local knowledge resources.

On the basis of the literature about regional innovation systems (Cooke, 2004; Cooke and

Schienstock, 2000; Lundvall and Johnson, 1994; Moulaert and Sekia, 2003), it seems

possible to identify three main dimensions affecting a regional innovation capacity:

1. regional stakeholders, i.e. the actors operating at local level;

2. networking, i.e. the synergistic relationships linking the stakeholders, among themselves,

within a region, and with external innovation players; and

3. local context, i.e. the regional space and the related resources in which the stakeholders

and their relationships take place.

They are interrelated and integrated dimensions which define the innovation capacity of a

region.

Regional stakeholders play a fundamental role as ‘‘bridges’’ that allow external and

complementary knowledge sources to be reached in order to cover ‘‘structural holes’’ (Burt,

1992). Regional stakeholders are generally specialised in one knowledge area, and rarely

‘‘ Knowledge moves freely within a community and creates ashared understanding about how the system works. ’’


have all the required heterogeneous resources to innovate successfully. Therefore, they

need to create networks in order to acquire knowledge sources from the local environment

and the external environment, activating knowledge spillovers (Audretsch and Feldman,

1996; Camagni, 1991; Cooke, 2001; Katz and Kahn, 1996; Maillat, 1995; Owen-Smith and

Powell, 2004). In this regard, McEvily and Zaheer (1999) have highlighted the importance of

establishing non-redundant relationships and to involve regional institutions in the networks

in order to have access to complementary knowledge resources and capabilities for

improving skills, competencies and routines.

The relationships taking place at the regional level spur and sustain localised interactive

learning processes, which tend to characterise idiosyncratically the local context.

Consequently, innovation assumes the traits of a locally embedded process taking place

within a regional innovation environment. This environment mainly consists of innovation

networks (Cooke and Wills, 1999) aiming to increase the innovation capability of a regional

system. These networks may take different forms defined by, for example, the origin, size,

structure and objective of the networks. However, most regional innovation networks fulfil

certain typical characteristics. They are often formed by heterogeneous groups of actors,

including firms, universities, technology centres and institutions. The values, goals and ways

of acting of the actors in a regional network may differ significantly. This emphasises the role

of creating a suitable social and cultural environment for achieving common goals and

coordination of the actions (Morgan and Neuwelaer, 1998).

4. Knowledge-based capital and regional innovation capacity

The fundamental idea of our conceptual framework is that inherent differences in the key

features of human, relational, structural and social capital have a reinforcing or transforming

role on regional innovation capacity. However, it is important to highlight that knowledge

assets within a region operate as bundles of resources. Therefore, human, relational,

structural and social capital are intertwined and from their combination is derived the

construction of a region’s innovation capacity. This means that although we investigate the

links between each knowledge-based capital dimension and the innovation capacity, their

systematic combination and effects have to be considered in defining the innovation

capacity of a region.

In the following, on the basis of the innovation and regional development research streams,

we analyse how knowledge-based capital dimensions support conditions for innovation

dynamics within regional systems. The underlying assumption of our conceptual framework

is that knowledge-based capital dimensions – human, relational, structural and social

capital – either independently or interactively reinforce or transform knowledge domains to

selectively influence regional innovation capacity.

We suggest and discuss the positive and significant effect of human, structural, relational

and social capital on the regional innovation capacity, recognising that none of the

successful regions will attribute their success in innovation capacity to just one dimension of

knowledge-based capital, because superior development paths are due to the combination

of several knowledge assets that complement and strengthen one another.

Regarding human capital, it pertains to the individual’s know-how and abilities which allow

that individual to perform innovations, changes in action and economic growth (Coleman,

1988). Human capital may be developed through formal training and education aimed at

developing and renewing one’s capabilities, which allow people to do well in society (Dakhli

and De Clercq, 2004).

The management and economic literature have largely pointed out the relevance of human

capital for innovation dynamics and economic success, both at business organisation level

and at territorial development level. Kilkenny et al. (1999) suggest that business success is

positively related to people’s level of training, overall business experience and total income.

Prais (1995) examines how a country’s education and training system may foster the overall

innovation rate and productivity. Among other issues, this scholar points out the need for a

correct balance of educational resources devoted to general academic issues and matters


directly connected to professional life, as well as the need to stimulate vocational training in

order to provide future employees with job-specific technical skills.

The relevance of human capital emanates from the fundamental assumption that people

possess skills and abilities that can be improved, and as such can change the way in which

people act (Becker, 1964).

Human capital corresponds to people’s skills, knowledge and expertise. It has been

traditionally interpreted as an important source for sustaining innovation dynamics and in

turn competitive advantage for communities, organisations and societies (Coleman, 1988;

Gimeno et al., 1997). More specifically, the relationship between human capital and

innovation at territorial level is grounded in what Bourdieu (1985) termed ‘‘conversion’’; that

is, different forms of human capital can be converted into resources and other forms of

economic payoff. In general, the argument is that better educated people, with more

extensive work experience and a keenness to invest more time, energy and resources into

honing their skills, are more able to secure higher benefits for themselves, and at the same

time are better able to contribute to the overall well-being of the society. In this regard,

Maskell and Malmberg (1999) indicated that the overall stock of knowledge and skills of a

region enhances its overall competitiveness.

Innovation as a knowledge-intensive activity is expected to be related to human capital in

multiple ways. Black and Lynch (1996) proposed that investment in human capital through

on-the-job training and education are the driving force behind increases in creativity,

innovation, productivity and competitiveness at the organizational level. Along the same

lines, Cannon (2000) argued that human capital raises overall productivity at the societal

level as the human input to economic activity in terms of physical and intellectual effort

increases. The overall growth in economic activity then generates higher needs for new

processes and innovation to further support this growth.

Relational capital and networking capabilities represent another fundamental factors to

innovate (Balconi et al., 2004; Cooke et al., 2000; Cowan and Jonard, 2003; Geenhuisen and

Nijkamp, 2000; Keeble et al., 1989; Ritter and Gemunden, 2003; Ronde and Hussler, 2005).

Because of themultiple facets of knowledge – tacit, explicit, individual, collective – the core of

the innovation capacity resides in efficiently combining different, sometimes complementary

or conflicting ‘‘small’’ pieces of knowledge offered by different actors. Cusmano (2000) shows

that the ‘‘relational research capacity’’ increases the absorptive capacity of firms, and in turn

their innovative performance. This involves that developing networks of relations represents a

way to increase the amount of accessible knowledge as well as to improve absorptive

capacities. A different, but complementary, research stream has examined the impact of

regional industry structure on innovation and has explained how ‘‘territorial/local production

systems’’ represent local configurations which guarantee the development of relational

capital, which in turn enhances regional innovation dynamics. Specifically, scholars have

suggested that regions with a large number of smaller, but intensively interacting firms, and

large firms possibly being embedded in these networks of small firms may be more likely to

enjoy innovation paths, economic prosperity and entrepreneurial vitality compared to areas

dominated by large firms (Albino and Schiuma, 2003; Granovetter, 1973, 1985). Cappellin

(2003) analysed in depth the different kinds of integration and networks within local production

systems supporting innovation dynamics. In particular, he maintained that the output of an

economic system does not depend only on the stock of traditional production factors, but also

on the interdependence and cooperation relationships among firms, institutions and other

‘‘ It has been argued that innovation requires long-termcooperation between investors, entrepreneurs, researchers,firms, public authorities and consumers. ’’


stakeholders belonging to an economic system as well as by the material and immaterial flows

theymanage and activate (Becattini, 1987, 1989; Brusco, 1982, 1986; Maillat and Kebir, 1999;

Piore and Sabel, 1984; Storper, 1997). Moreover, some researchers have tried to link the

diversity and the cooperation of the local networks with the theories about the organizational

learning, underlining the importance of the cognitive processes involving the different actors of

a network (Nonaka and Konno, 1998; Mansell and When, 1998; Lawson and Lorenz, 1999).

This approach is strongly based on the concept of a ‘‘learning region’’, which considers the

ability of a local system to evolve strictly related to its capacity to sustain a continuous learning

process (Maillat and Kebir, 1999).

Regarding the importance of structural capital as a knowledge-based dimension grounding

a regional innovation capacity, it has been pointed out recently that it represents a

pre-condition for the development and transfer of tangible and intangible assets supporting

innovation capacity at the regional level (Lambridinis et al., 2005; Schiuma et al., 2008). The

rich scientific discussion on this subject was sparked, at the analytical level, primarily by the

works of Ashauer (1990) and Munnell (1990) and, at the policy level, by the importance

assigned by the Commission of the European Community.

Different aspects of structural capital have been addressed. In particular, there is today new,

growing attention towards the fundamental role of local firms as knowledge repositories to

activate and sustain virtuous innovation paths for regional development. This aspect is

analysed together with the role played by spatial proximity and agglomeration as factors

generating intrinsic advantages (Malmberg and Maskell, 2002; Porter, 1998; Storper, 1995).

The number of firms located in a regional context is considered an important factor to

develop a balanced mix of competition and collaboration which spur innovation and

diversification as well as the development of entrepreneurial capacities.

Structural capital plays an important role in the creation of positive externalities. It drives the

adoption of innovations and generally is at the root of the development of relationships with

other regional knowledge repositories, such as universities and research centres. An

important component of structural capital is represented by technological infrastructures.

They strongly support regional innovation capacity. However, the various assets and the

various processes of technological regional development represent a problematic topic due

to their different patterns of adoption and use (Aydalot and Keeble, 1998; Mansell andWhen,

1998).

Finally, the knowledge-based category of social capital refers to the social and cultural ties

and traits characterising a regional system. The term ‘‘social capital’’ was originally used by

social theorists to describe and highlight the central importance of relational resources,

embedded in cross-cutting personal ties (Loury, 1977). The concept was popularised by

Putnam (1993), who described social capital as the combination of local institutions and trust

relationships among economic actors that evolve from local cultures. According to this

interpretation, social capital can be considered as networks of civic engagement

contributing to improving the economic performance of a regional system (Helliwel and

Putnam, 1995). Several definitions of social capital have been proposed by a number of

researchers facing different units of analysis. In our research, we are mainly interested in

analysing the mechanisms through which social capital affects regional innovation capacity

(Knack and Keefer, 1997; Iyer et al., 2005).

Schienstock and Hamalainen (2001, p. 144) analysed four main impacts of social capital on

innovation capacity. First, it affects the productivity of the different regional networks by

reducing uncertainty in the specialisation and division of labour. Second, it reduces the

transaction costs in the network. Third, it influences the coordination costs of the network.

Fourth, it changes the innovation processes by shaping the amount and diversity of

knowledge achievable by an actor. Tura and Harmaakorpi (2005, p. 1119) maintain that

‘‘social capital is a resource that gives an organization or network the capacity to use the

material, economic and intellectual resources of the whole collective, as well as social

resources reaching outside the collective’’. Moreover, they also underline the relevance of

the regional innovation environment as geographical space in which are embedded the


everyday interactions fostering regional innovativeness, and how ‘‘a regional innovation

environment is not developed in a vacuum, but it always has its roots in the institutional

set-up and practices within a region’’. These considerations show that the development of

social capital, in the context of innovation activities, is deeply connected to the development

of social capital in regional activities in general. Landry et al. (2002) show empirically the

positive effect of social capital on firms’ innovation activities. Maskell (1999, p. 3)

synthesised the common point of view about this positive link, saying that ‘‘Firms in

communities with a large stock of social capital will [. . .] always have a competitive

advantage to the extent that social capital helps reduce malfeasance, induce reliable

information to be volunteered, cause agreements to be honored, enable employees to share

tacit information and place negotiators on the same wave-length’’.

5. Conclusions

In this paper we have integrated concepts from knowledge management with those of

regional innovation and development research streams in order to explore conceptually the

role of knowledge-based capital as a critical source of a region’s innovation capacity. For this

reason, first we have clarified the concept of regional knowledge-based capital, identifying

its main dimensions. In particular, human capital, relational capital, structural capital and

social capital have been identified as fundamental knowledge asset categories building the

knowledge-based capital of a region. Each dimension has been analysed focusing mainly

on its role in building and enhancing a regional innovation capacity. The overall analysis

provides a first conceptual platform to further develop investigations about how

knowledge-based capital drives the creation, development and dynamics of a regional

innovation capacity. We believe that the conceptualisations developed in this paper can

represent a base for further developing research aimed at identifying the knowledge-based

factors affecting innovation capacity.

Until today the knowledge management literature at regional level has largely taken the form

of anecdotal reports and case study analysis, and it has often been insufficiently linked to the

more consolidated definitions, approaches and tools coming from the background of the

regional economics literature. This paper represents a first step towards the answer to this

issue. However, we call for more empirical research to explore and test the relationships

among knowledge assets, innovation capacity and regional development as well to

investigate how such assets selectively and dynamically influence innovation dynamics and

regional development patterns. Furthermore, we also call for studies to support regional

decision-makers to identify, understand and assess regions’ knowledge-based capital

ownership in order to define and implement effective innovation policies oriented to the

exploitation and employment of local knowledge resources to develop innovation capacity.

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About the authors

Giovanni Schiuma is Scientific Director of the Centre for Value Management at the Universitadella Basilicata in Italy, and Visiting Research Fellow at the Centre for Business Performance,Cranfield School of Management. He is also Research Director of the Institute of KnowledgeAsset Management (IKAM) in Italy. Giovanni’s research, teaching, and consulting focus onlinking knowledge assets and organisation behaviour to performance management andorganisation value creation. His primary research interests focus around the following areas:knowledge assets and intellectual capital management, performance managementsystems, innovation and change management, organisational behaviour, organisationallearning, industrial districts and local development. Giovanni is a regular speaker atconferences and has teaching and consultancy experience across Europe in knowledgeand innovation management as well as in performance measurement and management.


Antonio Lerro is a Research Fellow at the Center for Value Management/LIEG in the Facultyof Engineering of the University of Basilicata in Italy. His research interests focus around theareas of intellectual capital management, industrial district and regional development andcompetitiveness, innovation and change management. Antonio received his Degree inEconomics from the University ‘‘Tor Vergata’’ in Rome and his PhD in Business Managementfrom the University of San Marino. During his PhD Antonio spent one year as a VisitingResearch Fellow at the Centre for Business Performance, Cranfield School of Management,UK. He is currently teaching strategic intellectual capital management and innovation andproject management in the MBA programme as well as in postgraduate courses at theUniversita of Basilicata. Antonio is also involved in executive education, running seminarsand research projects for public and private organisations in Italy, among them Mediaset,Soges Group, Ducati, the Regional Government of Basilicata, and the Local Agency of theIndustrial District of Sofa Furniture of Matera. He has authored or co-authored more than 20publications, including books, articles, research reports on research topics particularlyembracing the assessment and management of intellectual capital dimensionsunderpinning local and regional development and competitiveness.


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Knowledge‐based capital in building regional innovation capacity