Intellectual capital in a recession: evidence from UK SMEs
| Pages | 84-101 |
| Published date | 11 January 2013 |
| Date | 11 January 2013 |
| DOI | https://doi.org/10.1108/14691931311289039 |
| Author | Lennox Henry |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Intellectual capital in a recession:
evidence from UK SMEs
Lennox Henry
Faculty of Business Sports and Enterprise, Southampton Solent University,
Southampton, UK
Abstract
Purpose – The aim of this paper is to present the findings of a qualitative investigation of intellectual
capital (IC) in the engineering industry in the UK within the context of a recession.
Design/methodology/approach – Due to the fact that IC involves tacit knowledge which can often
be “non-verbal” or in some cases “non verbalable”, intuitive and unarticulated (Hedlund), qualitative
methodology was chosen as it allows the flexibility to explore the IC in the target population in greater
detail and to explore area/ideas of interest that may have developed during the data collecting process.
Ten interviews were conducted on companies chosen from the Reed Business database’s classification
of precision engineering. Data collection was via a semi-structured interview, the results were coded
into Nvivo and analysed.
Findings – It was discovered that there is an interrelatedness of the components of IC, knowledge of
IC management as a strategy in the engineering industry is low and the academic discourse on IC is
in to transferring into practical implementation.
Practical implications – There is greater need to address the practical implications and barriers to
the implementation of IC management strategy within industry.
Originality/value – The author having examined the data collected and the characteristics of the
responding company and the dominant element of IC within each have coined the phrases Sector of
Innovative Potential (SoIP), Sector of Collaborative Potential (SoCP) and Sector of Operating Efficiency
(SoOE).
Keywords Intellectual capital, Recession, Entrepreneur, Knowledge management,
Organisational effectiveness, United Kingdom, Small to medium-sized enterprises
Paper type Research paper
Introduction
The world’s economy is evolving and this has led to a shift away from traditional forms
of tangible economic drivers such as plant, machinery and real estate to an economy
driven by the use of intangible resources such as knowledge (Dumay, 2009a).
Intellectual capital (IC) is seen as an integral part of the workings of most modern
organisations. The exploitation of this complex phenomenon can be the difference
between the death and survival of an organisation (Stewart, 1997). It is therefore
critical that a clear understanding of this concept exists within the managerial strata of
any organisation, with clear comprehension of the component elements of IC are and
how it can be harnessed for the per usal of the organisational objectives. This paper
reports the findings of a qualitative study into IC within small- and medium-
enterprises (SMEs) in the UK engineering industry.
SMEs were used in this study because they are vitally important to the economic
stability of a country. The British Government claims that the majority of the working
population are employed in the SME sector and that in 2008 of the 4.8 million
businesses in the UK, 99.9 per cent were SMEs, Department for Business Innovation
and Skills (2008). This research focused on the perception of IC by entrepreneurs of
SMEs. There are various definitions for SMEs. Sections 382 and 465 of the Companies
Act 2006 in the UK define SME for the purpose of accounting requirements; a small
The current issue and full text archive of this journal is available at
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Journal of Intellectual Capital
Vol. 14 No. 1, 2013
pp. 84-101
rEmeraldGroup Publishing Limited
1469-1930
DOI 10.1108/14691931311289039
84
JIC
14,1
company is defined as one that has a turnover of not more than £6.5 million, a balance
sheet total of not more than £3.26 million and not more than 50 employees. A medium-
sized company has a turnover of not more than £25.9 million, a balance sheet total of
not more than £12.9 million and not more than 250 employees. For the purpose of this
study the British Government’s definition will be ad opted. SMEs entrepreneurs’ are
usually inextricably linked to the decision-making process within the organisation.
Therefore, there is a greater ne ed for them to have a good understanding of IC if the
organisation is to exploit the potential benefits of this concept. The leaders within
the organisations will have to learn new skills in order to progress the agen da on IC
(Dumay, 2009a).
The results of this study have shown that there is misconception regarding IC
among this set of entrepreneurs and there is a crucial need for education and training
to address this deficiency if the uptake of IC management as a business strategy is to
be increased. Marr and Chatzkel (2004) argue that IC has arrived at a crossroad; there is
a proliferation of literature and studies on the theory underpinning this phenomenon.
The challenge now is to take the process beyond the crossroad (Marr and Chatzkel,
2004; Dumay, 2009a), i.e. there is a need for a shift from theory to practical
implementation, because it is in the utilisation of IC management strategies within
organisations that the benefits will accrue.
Literature review
This section will critically review the existing literature on the components of IC, their
interrelatedness and explore them within a context of recessionary pressures. Stewart
(1997) argues that IC is the collective brainpower within an organisation that is difficult
to identify and even more difficult to deploy effectively. The organisation that develops
IC and exploits it effectively has the opportunity to gain a competitive advantage over
other firms that have failed in this regard (Stewart, 1997). It is generally accepted that
IC consists of three elements, human capital, structu ral capital and relational capital
(Bontis, 1998; Tovstiga and Tulugurova, 2009; Bezhani, 2010).
Human capital has long been identified as a critical strategic resource for new firms,
according to Schultz (1994). The term “human capital” has been identified as a key
element in improving a firm’s assets and employees in order to improve productive as
well as sustain competitive advantage. Can
˜ibano et al. (2002) defines human capital as:
[y] the knowledge that employees take with them when they leave the firm. It includes the
knowledge, skills, experiences and abilities of people. Some of this knowledge is unique to the
individual, some may be generic (Can
˜ibano et al., 2002, p. 3).
Petty and Guthrie (2000) argued that the aspect of IC that has received the greatest
amount of attention is human capital, with major focus on the reporting of human
capital. Significant efforts have been expended on investigating the relationship
between the recording and reporting of human capital and internal human resource
management and development. Rastogi (2003) stated that human capital is an
important input for organisations especially for employees’ continuous improvement
mainly in areas of knowledge, skills and abilities.
Tovstiga and Tulugurova (2009, pp. 71-2) highlighted that human capital can be
further sub-divided into three causative components:
(1) competence – these are the capabilities which embody the organisation’s
strategically relevant knowledge and pertinent skill sets that are linked to
achieving organisational objectives through its people;
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Intellectual
capital in a
recession
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