Knowledge Management and Intellectual Capital Development

Executive Summary

Research identifies that the information and technology economy is intensifying competition in the business environment as businesses strive to maintain knowledge. The business world is increasingly driven toward globalization and liberalization, expansion, and protection of business assets—including corporate knowledge—with the intention of increasing competitive advantage.

This research identifies knowledge management as a key ingredient in managing intellectual capital and gaining a competitive edge. Knowledge management connects processes, people, and technology through approaches like training and development to realize organizational learning, build a business's intellectual capital, and foster organizational innovation. This leads, in turn, to the use of intellectual capital development strategies to sustain innovation and maintain competitive advantage.

Problem Statement

The strategy requires human resource development activities such as training and development of management and staff. Training and development programs are designed to increase employees' skills and knowledge through workshops and conferences. This also entails maintaining intellectual capital by capturing, processing, and storing the experience, knowledge, and skills of experts. Knowledge useful to a business—including processes, procedures, rules, technical knowledge, management style, and culture—is stored and used to train recruits. This recognizes that while a business cannot fully own employees or human capital, it can own knowledge, business processes, and technical processes. The strategy also employs management and leadership development to train management personnel.

The information and technology economy is intensifying competition in the maintenance of corporate knowledge that can improve organizational performance. The current business environment is driven toward focusing on knowledge management as a tool for connecting processes, people, and technology with the aim of leveraging corporate knowledge (Ahmed et al., 2011). The rise of globalization and liberalization of markets has driven businesses to expand and protect their assets, including corporate knowledge, with the intention of increasing competitive advantage. For this reason, the intellectual capital of a business is considered a key asset (Huang, 2011).

Literature Review

The challenge for today's managers is the knowledge management of intellectual capital alongside the maintenance of the competitive position of a business. This need creates the goal for this research: investigating the development of intellectual capital within the context of knowledge management. This research provides a theoretical foundation for proposed methods of intellectual capital development using knowledge management concepts. It will assist businesses to capture, store, maintain, and leverage their knowledge within the organization—a necessity given the high rates of employee attrition and turnover driven by globalization, global economic crises, and stiff market competition.

Different scholars and schools of management thought have proposed various ways of managing and understanding knowledge creation to grow intellectual capital in businesses. Marr, Gupta, Pike, and Roos (2003) identify intellectual capital as the driver of competitive advantage and innovation in a knowledge-based economy. This driver is developed through knowledge management, which is the fundamental tool in gaining, developing, and sustaining intellectual capital in organizations. This implies that successful management of intellectual capital is linked to knowledge management processes. Ahmed, Seleim, Omar, and Khalil (2011) identify three ways through which knowledge management impacts intellectual capital. First, knowledge management influences intellectual capital by affecting organizational, human, and relational capital. Second, knowledge management is influenced by intellectual capital when human capital affects the acquisition and transfer of knowledge (Ahmed et al., 2011). Third, knowledge management and intellectual capital involve a two-way influence between organizational capital and knowledge documentation, and between relational capital and knowledge transfer.

The connection between knowledge management and intellectual capital implies that businesses can use knowledge management to accumulate intellectual capital in order to cope with the increasing demands of the environment. Ahmed et al. (2011) suggest this involves the use of a wide range of intellectual activities such as knowledge creation and knowledge advantage. This implies the first step in this management approach is the creation of organizational learning, which ultimately leads to intellectual capital stocks. In essence, knowledge management provides an organization with systematic and organized activities designed to offer employees opportunities to learn the skills and knowledge necessary to meet future job demands.

Intellectual capital development begins with the identification of key intellectual capital resources within a business (Marr et al., 2003). This step identifies the most important knowledge resources that will assist an organization in achieving its strategic objectives. These include human resources such as competence, skills, and expertise, as well as stakeholder relationship resources such as licensing agreements, customer relationships, and distribution agreements (Marr et al., 2003). Other intellectual capital resources include organizational resources such as management philosophy, brands, organizational culture, processes, and systems. Intellectual capital resources assist businesses in increasing their value creation. After identification, the next step is mapping out or building logical steps in value creation—the pathways that assist a business in achieving strategic objectives and satisfying stakeholder interests. This creates a pathway for intellectual capital management and development through the identification, measurement, and mapping of knowledge assets.

The next step is organizational learning involving training and development programs to increase knowledge and skills related to business policy, processes, and practices. The goal is to assist employees in acquiring the knowledge and skills needed for business strategy while maintaining human intellectual capital. According to Ahmed et al. (2011), businesses should focus on differentiating themselves through the creation, development, distribution, and use of knowledge. Therefore, organizational learning should be directed toward building distinct competencies and competitive capabilities, especially the knowledge-based abilities of the organization. The development of intellectual capital through organizational learning is grounded in human capital theory. In this theory, businesses focus on learning that postulates people possess skills, abilities, and knowledge that offer economic value to the business (Ahmed et al., 2011). Human capital is the key contributor to the transformation and acquisition of knowledge in intellectual capital development. Organizational learning and development programs for staff can take the form of training and development workshops using coaching, learning-on-the-job, in-house experts, and team building activities.

Within organizational learning and development programs, the literature identifies intellectual capital development through knowledge management dimensions, including knowledge absorption, storage, sharing, and conversion (Huang, 2011). To build intellectual capital, a business must cultivate a culture of knowledge sharing in which elements such as externalization, socialization, internalization, and combination occur. Knowledge is transmitted to human capital through interpersonal, organizational, and inter-group interaction (Huang, 2011). The intellectual capital of a business will absorb knowledge in the learning process through knowledge acquisition, integration, application, and absorption. This is possible through human resource development activities such as capturing, processing, and storing key knowledge through surveys and interviews. According to Huang (2011), knowledge absorption, integration, and capacity development occur through interaction, communication, and learning. The goal of capturing, storing, converting, and processing core job knowledge is to preserve the experience and key skills of managers and employees. Data from the capturing process is useful for building a knowledge repository of business processes, procedures, rules, technical knowledge, management styles, and culture that can be transferred to employees. Human capital is also developed through management and leadership development programs designed to capture and apply management knowledge in implementing new commercial approaches to business. This is necessary as human resource development seeks to develop people's expertise, knowledge, productivity, and satisfaction—for the benefit of the individual manager, the team, and the organization as a whole.

Mouritsen, Larsen, Bukh, and Johansen (2001) identify the development of intellectual capital—especially human capital—through knowledge management processes as a means of improving business processes. Business processes are improved through the realization of innovation, which creates new and improved products, services, and business strategies. Through knowledge management aspects such as knowledge sharing, absorption, conversion, and storage, a business can structure capital, reproduce, and share technologies, data, inventions, culture, strategies, and procedures. Though a business cannot fully own human capital, it can manage this capital alongside its knowledge to achieve a higher market share, reduce defection rates and employee turnover, and increase profitability (Mouritsen et al., 2001).

Conclusion

From the review of literature, it is evident that a business can develop intellectual capacity through knowledge management principles such as social construction. In this framework, knowledge is created through interpretation and the social cognition aspects of human observation and learning (Marr et al., 2003). The literature indicates that a business can benefit from creating innovative human capital through knowledge sharing, absorption, conversion, and storage.

This implies that through human resource development tools like interviews and surveys, a business can capture, process, and store core job knowledge (Huang, 2011). This step is vital in the development of a business's intellectual capital, as it assists in building a knowledge repository comprising business processes, rules, procedures, technical knowledge, management styles, and culture. These make up the transferable assets necessary for building human capital and achieving business strategy. This process assists in the maintenance of knowledge and skills during workforce changes such as hiring, firing, retirement, and resignation.

Furthermore, this research finds that developing a business's intellectual capital through knowledge management enables the development of expertise and knowledge, and readily leads to increased productivity of individuals, employees, teams, and the entire organization (Huang, 2011). The literature indicates that while businesses cannot own human capital, they can own the knowledge, expertise, and skills that are captured, processed, and stored through tools like interviews, surveys, and database management tools. This research finds that businesses can benefit from resources such as facilitators, sponsors, training and development staff, career and professional coaches, and IT and computer support for intellectual capital development. Intangible resources that can support intellectual capital development include coaching, workshops, in-house experts, learning-on-the-job, team building, and available human resource development tools.

The research finds that knowledge management approaches such as training and development realize organizational learning, build a business's intellectual capital, and foster organizational innovation. This also leads to the use of intellectual capital development strategies to realize innovation in any business with the aim of maintaining a competitive advantage. Intellectual capital development is a key factor for businesses today, as it supports the growth of management and staff and drives innovative business processes, products, and services.

Ahmed, A. S., Seleim, & Omar, E. M., Khalil. (2011). Understanding the knowledge management–intellectual capital relationship: A two-way analysis. Journal of Intellectual Capital, 12(4), 586–614.

Huang, C. (2011). The influence of knowledge management implementation on organizational performance at Taiwan-listed integrated circuit companies: Using intellectual capital as the mediator. Journal of Global Business Management, 7(2), 1–17.

Marr, B., Gupta, O., Pike, S., & Roos, G. (2003). Intellectual capital and knowledge management effectiveness. Management Decision, 41(8), 771–781.

Mouritsen, J., Larsen, H. T., Bukh, P. N., & Johansen, M. R. (2001). Reading an intellectual capital statement: Describing and prescribing knowledge management strategies. Journal of Intellectual Capital, 2(4), 359–383.