Identifying tangible costs, benefits and risks of an investment in intellectual capital. Contracting contingent knowledge workers
| Published date | 01 March 2005 |
| Pages | 53-71 |
| DOI | https://doi.org/10.1108/14691930510574663 |
| Date | 01 March 2005 |
| Author | Shelley L. MacDougall,Deborah Hurst |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Identifying tangible costs,
benefits and risks of an
investment in intellectual capital
Contracting contingent knowledge workers
Shelley L. MacDougall
F.C. Manning School of Business Administration, Acadia University,
Wolfville, Canada, and
Deborah Hurst
Centre for Innovative Management, Athabasca University,
St Albert, Canada
Abstract
Purpose – The use of contingent knowledge workers may be an efficient means of investing in an
organization’s intellectual capital. However, exposing contingent workers to private, key competitive
knowledge is considered risky. A study was undertaken to collect the costs, benefits and losses
experienced by organizations that had contracted contingent knowledge workers to develop
intellectual capital.
Design/methodology/approach – A purposive cross-section of senior managers of
knowledge-intensive organizations were interviewed regarding the tangible benefits, costs,
perceived risks, and experienced losses from contingent knowledge worker arrangements. The
constant comparison method of analysis was used.
Findings – The data revealed perceived increases in flexibility, expertise, creative stimuli, and
knowledge bank development. These benefits were believed to have bottom-line impact through
product and process improvements and innovations, and operational efficiencies. The managers did
not perceive much risk or experience material losses as a result of the contingent knowledge worker
arrangements.
Research limitations/implications – These findings are based on interviews with a small group
of organizations. Although not generalizable, they present an interesting contrast to previous
researchers’ conclusions regarding the use of contingent knowledge workers. Further empirical work
is needed to test the degree to which this study’s findings can be generalized.
Practical implications – Contrary to recent literature, this study suggests that contracting
contingent knowledge workers to develop in-house intellectual capital is worth the risk.
Originality/value – The study presents a divergent viewpoint on the contracting of contingent
knowledge workers. It also initiates research on rational evaluation of investments in intellectual
capital, which constitutes an important contribution to the area of knowledge management. It also
contributes to the ongoing research on intellectual capital valuation.
Keywords Intellectualcapital, Knowledge management, Contingentworkers
Paper type Research paper
Introduction
Intellectual capital has often been described as an intangible asset of the firm. It
consists of intellectual materials, knowledge, information, patents, and experience that
when combined, contribute to organizational wealth. In essence, the firm’s intellectual
capital is how intelligent and enterprising it is in generating cash flows from its
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Contingent
knowledge
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Journal of Intellectual Capital
Vol. 6 No. 1, 2005
pp. 53-71
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930510574663
tangible assets. It is with this intellectual capital that firms establish and maintain their
competitive advantage.
Intellectual capital exists in human, structural, and relational forms (Stewart, 1997).
“Human capital” is the knowledge that resides within the individual and in the
community of individuals hired into an organization on full-time permanent or
temporary basis. “Structural capital” consists of systems, procedures, and databases
and constitutes the organization’s most explicit form of intellectual capital. “Customer
capital”, or the more broadly defined “relational capital”, consists of the relationships
built up with customers and suppliers over time and can include reputation, brand,
customer loyalty, and supplier relations.
Although it is often referred to as an asset of the firm, intellectual capital is
quite different from the organization’s physical assets and can be considerably
more valuable. Unlike tangible assets, intellectual capital increases when it is
shared (Inkpen, 1998) and has the ability to grow exponentially, since a critical
mass of knowledge tends to attract more knowledge workers (Carayannis and
Alexander, 1999). Even failure increases knowledge (McGrath, 1999). Although
intellectual capital is not shown on the firm’s balance sheet, it is intuitively
understood to have worth by virtue of the profit it generates. Stewart (1997)
suggests this intangible asset constitutes three to four times an organization’s
tangible book value.
Intellectual capital also tends to be an eroding asset. As competitors’ knowledg e
advances, the organization’s knowledge becomes less valuable. Protecting intellectual
capital from erosion and advancing private knowledge is critical for sustaining an
organization’s competitive advantage. A firm that is not continually advancing its
knowledge risks losing its market share or its price premium. This is particularly the
case in knowledge-intensive and highly competitive industries where the status quo
does not persist.
Like its physical assets, intellectual capital has enduring value for the firm and it
should be managed to optimize the value derived from it. Expenditures made to
develop the organization’s intellectual capital affect the organization for many years
in the future, so decisions to increase this intangible asset should be evaluated as an
investment rather than an operating expense. Unfortunately, like the asset itself,
many of the benefits and costs of the investment are intangible, making it difficult to
evaluate. The valuation of intellectual capital itself has been the topic of recent
research but its intangibility has stymied progress (Andriessen and Tissen, 2000;
Booth, 1997).
In this paper, we contend that despite the intangibility, the costs and benefits of an
investment in intellectual capital do have a tangible, bottom-line impact that can be
estimated and evaluated using rational investment decision-making techniques. By
identifying them and their link to tangible incremental profitability, an important
advancement in the management of intellectual capital can be made.
We thus undertook to study intellectual capital investment made by organizations
in knowledge-intensive industries. Since intellectual capital entails a broad and
complex web of organizational knowledge, a narrowed focus was taken for the
research. Only one means of investing in intellectual capital was studied: the
importation of knowledge via contingent knowledge workers.
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