Analysing and improving the strategic alignment of firms’ resource dynamics
| DOI | https://doi.org/10.1108/JIC-03-2016-0036 |
| Date | 09 January 2017 |
| Published date | 09 January 2017 |
| Pages | 217-240 |
| Author | Amir Zakery,Abbas Afrazeh,John Dumay |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
Analysing and improving the
strategic alignment of firms’
resource dynamics
Amir Zakery and Abbas Afrazeh
Department of Industrial Engineering and Systems Management,
Amirkabir University of Technology, Tehran, Iran, and
John Dumay
Department of Accounting and Corporate Governance,
Macquarie University, Sydney, Australia
Abstract
Purpose –The purpose of this paper is to shed light on improving value creation from intellectual capital (IC)
through reducing causal ambiguity and finding effective IC interventions.
Design/methodology/approach –First, several guiding rules demonstrating the contribution of system
dynamics (SD) to the field of IC management are introduced. Second, evidence for modelling resource
dynamics is provided across a knowledge-based industry, insurance. Third, a management problem of an
insurance company is modelled and then simulated using SD tools to monitor and improve the alignment of
key resources with the firm’s market growth strategy.
Findings –The modelling and further simulation practice demonstrated theadvantages of applying SD for
analysing resource management problems to identify the critical IC components, intervention points and
decision rules that may stimulate value-creating loops. Specifically for the case of an insurance company’s
failurein market growth, it led to recognisingthe critical role of agency salesproductivity as a key componentof
company’s relational capital and the intellectual liabilities that can lead to valuedestruction.
Originality/value –Reducing causal ambiguity in IC value creation through modelling and simulating firm
resource dynamics is the main contribution of this paper. It enables finding the best intervention points for
developing IC-based initiatives to stimulate value-creation mechanisms, as well identifying possible points of
value destruction.
Keywords Intellectual capital, Resource management, System dynamics, Intellectual liabilities,
Value destruction, Insurance companies
Paper type Research paper
1. Introduction
The concept of creating value through managing intellectual capital (IC) encapsulates the
process of applying IC to achieve improved performance results and value creation
(XingHeng, 2010). Mutual interactions between IC and performance indicators form part of a
web of complex relationships that have been the subject of previous studies (Roos et al.,
2005). Further, causal relations explaining how IC creates value through business
interactions have been studied using cause-and-effect maps (Cuganesan and Dumay, 2009).
Causal loop modelling in system dynamics (SD) is a powerful method for analysing resource
interactions in value creation and has been applied in several other studies (e.g.
Jhunjhunwala, 2009). SD is useful for understanding complex interactions between
resources (Drew and Smith., 1996), identifying critical IC elements and leverage points for
intervention (Cricelli and Grimaldi, 2008) and also simulating IC investment scenarios to
improve performance (Bivona, 2008). Therefore, causal loop diagrams are useful for
examining how managers can intervene and consider using IC to create value.
Further investigation of the extant literature relating to value creation from IC resources
demonstrates that process models, resource interactions models and even causal mapping
models are not adequatefor analysing and improving IC dynamics in value creation,whereas
closed-loop (feedback) modelling seems to be a powerful approach to IC dynamics analysis
Journal of Intellectual Capital
Vol. 18 No. 1, 2017
pp. 217-240
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-03-2016-0036
Received 23 March 2016
Revised 30 June 2016
Accepted 11 July 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
217
Strategic
alignment of
firms’resource
dynamics
because it enablesthe finding of effective interventionsand initiatives. Few papers attemptto
model and analyse IC dynamics to find intervention points for improving value creation, in
particular, there is an absence of studies that apply modelling rules, provide examples of IC
feedback loops or feature case studies, which altogether would provide a greater
understanding of IC dynamics modelling. Thus, this paper aims to fill this gap by
answering the question of how causal ambiguity in IC dynamics can be reduced for more
effective recognition of IC initiatives. Because IC value creation happens through a complex
web of cause-and-effect relationships, decisions related to investing in, and profiting from,IC
resources needs further investigation and analysis.
SD can contribute to IC management by incorporating guiding rules in relation to IC
stocks accumulation, impact delay and complex intertwined causal relations. In this paper
we demonstrate IC performance in value creation by applying SD to a knowledge-based
industry, insurance. To show the way guiding rules and example causal loops can be
employed, we develop a case study approach that investigates the “market growth failure”
problem through leveraging IC. A causal loop model is developed to demonstrate the
problem’s cause-and-effect structure and probable governing loops of the insurance
company’s performance, especially in relation to critical IC components. Then a stock and
flow model is formulated and simulated to understand the actual roots of the problem. Both
models are helpful for reducing causal ambiguity and therefore targeting the appropriate
leverage points for value creation in the model. Finally, based on insights from the models,
IC scenarios are developed and simulated showing that they can be effective in reversing the
decline in the company’s market share.
In this research, we apply guiding rules and then modelling procedures to utilise SD
advantages and capacities in modelling IC participationin value creation. The logic is rooted
in the “Resource-Based View”and contributes to positioning “knowledge resources”to
maximise theirpotential in knowledge-based firms.IC dynamics in the insurance industryare
investigated to introduce several important causal loops that visualise the resource
interactionsin value creation and would be usefulfor recognising and executingany resource
management intervention. Finally, a firm’s market growth stagnation probl em is analysed
from an IC perspective, leading to the identification of strategies for better utilisation of IC.
Meanwhile, the usefulness of SD modelling in understanding how intangibles interact and in
finding leverage points for better resource utilisation is highlighted.
The remainder of the paper is structured as follows. The literature review is explained in
Section 2 and the research methodology for causal modelling of IC value creation is
introduced in Section 3. In Section 4 several example of causal loops have been proposed for
IC dynamics in insurance prior to the model development in Section 5. The paper ends with
the discussion and conclusion.
2. Literature review
In the knowledge-based economy, IC is part of a firm’s value-creating intangible assets and
understanding how value is created in practice is important to both researchers and
managers (Guthrie et al., 2012). However, many questions and problems arise because assets
form part of a network of ambiguous resource relationships, gradually converting to
valuable asset stocks that influence a firm’s performance through cause-and-effect loops
(Dierickx and Cool, 1989). Thus, understanding how IC impacts on firm performance helps
identify managerial strategies and subsequent interventions (Dumay, 2009).
Managerial interventions are always aimed at improving organisational performance and
“internal management improvement”is one of two main reasons for IC management efforts
(Marr, 2004). IC contributes to internal management through creating strategies based on utilising
and developing IC and by monitoring the effects of these strategies (Andriessen, 2004). Therefore,
managing IC is important for an organisation in attempting to achieve its strategic objectives.
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