Exploration for the relationship between innovation, IT and performance
| Published date | 01 June 2005 |
| Pages | 237-252 |
| DOI | https://doi.org/10.1108/14691930510592825 |
| Date | 01 June 2005 |
| Author | Cheng Jen Huang,Chun Ju Liu |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Exploration for the relationship
between innovation, IT and
performance
Cheng Jen Huang
Overseas Chinese Institution of Technology, Taichung City, Taiwan, ROC, and
Chun Ju Liu
Tunghai University, Taichung, Taiwan, ROC
Abstract
Purpose – This study aims to ask two important research questions: “Do the investments of
innovation capital and information technology (IT) capital have a non-linear relationship with firm
performance?” and “Does the interaction between innovation capital and IT capital have synergy
effects on firm performance?”
Design/methodology/approach – The authors employ multiple regression models and add the
squared terms of research and development (R&D) intensity and IT intensity to examine the non-linear
relationship between innovation capital, IT capital and performance. The research sample includes the
top 1,000 companies in Taiwan.
Findings – The main findings of the study are that: innovation capital has a non-linear relationship
(inverted U-shape) with firm performance; and IT capital has no significant impact on firm
performance. However, after considering the interaction between innovation capital and IT capital,
there is a positive effect on firms’ performance.
Research limitations/implications – This study can be extended in the following ways:
researchers can adopt panel data and use more representative measures to examine the dynamic
relationship between intellectual capital and performance; and future research should seek to examine
the interaction effects of other perspectives of intellectual capital to understand further the
comprehensive influence on performance.
Practical implications – The research results suggest that more investment in intellectual capital
is not always better. Companies should coordinate different perspectives of intellectual capital to
improve firm performance.
Originality/value – This paper extends prior research’s viewpoint and suggests the non-linear
relationship between innovation capital and performance with empirical evidence. The results can
provide the reference for further research about the relationship between intellectual capital and
performance.
Keywords Intellectual capital,Innovation,Communicationtechnologies,Performance appraisal,Taiwan
Paper type Research paper
Introduction
Facing the intensification of globalization competition, there is a widespread
recognition that innovation is a critical force that drives economic growth. Therefore,
the international community, particularly science- and technology-advanced countries,
values science and technology development quite strongly. Taiwan is no exception.
According to the World Economic Forum (WEF) report in 2004, Taiwan is ranked
fourth for growth competitiveness in the world and is Asia’s best performing economy.
Taiwan’s position is largely due to its excellent performance on science and
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
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Innovation, IT
and performance
237
Journal of Intellectual Capital
Vol. 6 No. 2, 2005
pp. 237-252
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930510592825
technology, and innovation (both ranked second), indicating that Taiwan has a high
national competitive ability and acquires international affirmation in innovation and
technology aspects. This also clearly shows that the island’s government pays much
attention to innovation activity.
In recent years the development of information technology (IT) has changed quite
rapidly. More and more scholars believe that IT investments form the infrastructure of
knowledge management in organizations (Stewart, 1997; Bontis, 2002; Banker, 2003;
Youndt et al., 2004). Hence, the software and hardware investments in IT have shown
astonishing velocity growth. However, IT cannot create a sustainable competitive
advantage for a company because IT can easily be duplicated by rivals. Furthermore,
“open standards” also prompt customers and suppliers to change partnerships mor e
easily (Banker, 2003). Therefore, there are still inconsistent viewpoints abou t whether
IT investments can bring substantial benefits for a company or not.
Edvinsson and Malone (1997) defined intellectual capital as “the possession of the
knowledge, applied experience, organizational technology, customer relationships and
professional skills that provide company with a competitive edge in the market”.
However, can the intellectual capital really bring profits for company? This problem
not only causes a concern for businesses, but is also the focus of the academic
community. Prior empirical results are mixed. Bontis (1998) and his colleagues (Bontis
et al., 2000, 2002) and Youndt et al. (2004) indicated that intellectual capital investments
really contribute to corporate profit. However, some scholars found that intellectual
capital does not have a definite positive relationship with company performance
(Huselid et al., 1997; Bharadwaj et al., 1999).
Although scholars have different standpoints about the relationship between
intellectual capital and performance, most of them agree with the mutual correlation
among intellectual capital components. If a business wants to maintain a competitive
advantage, then it should depend on the enterprise collectively displaying intelligence
(Youndt et al., 2004). Therefore, whether the components of intellectual capital have
synergy effects on performance is also the point that we wish to investigate. This study
is based on two critical capitals, innovation capital and IT capital, inquiring into the
following important research problems:
.Do the investments into innovation capital and IT capital have a non-linear
relationship with business performance?
.Does the interaction between innovation capital and IT capital have synergy
effects on business performance?
This study uses the top 1,000 companies in Taiwan to study the relation between
innovation capital, IT capital, and performance. The results have the following
implications and contributions to academia and practices:
.For academics, this research extends prior research (Ittner and Larcker, 1998;
Canibano et al., 2000) and suggests the non-linear relationship between
innovation capital and performance with empirical evidence. The results can
provide a reference for further researc h about intellect ual capital and
performance.
.This study calculates the optimal level of research and development (R&D)
investments as 6.39 percent for the Taiwan top 1,000 companies. Relatively, the
average R&D investment for a sample company is 1.8 percent. This shows that
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