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The Linkage Between Intellectual Capital Management and Organization Performance

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Abstract:

In today's information-age economy, an increasing proportion of the value of a firm is derived from factors such as employee knowledge and innovative capacities. This is evidenced by the amount of “unrecorded value” that is not captured in the firm's balance sheet. Firms routinely have market values that exceed the tangible assets recorded on the balance sheet. It has been suggested that this excess value approximates a firm's intellectual capital (Dzinkowski, 2000). The role of intellectual capital in creating value and improving performance has become crucial in achieving competitive advantage in the marketplace. In view of this, Malaysia has established the goal of developing a knowledge-based economy to advance the country's economic growth and competitiveness. It was pointed out that the key to firm success in this knowledge-economy is the effective management of intellectual capital. Based on this premise, this study is carried out with the main objective to examine the relationship between intellectual capital management and firm performance. The research data was collected through survey among the sample organizations taken from few sectors in the main board of Bursa Malaysia, particularly organizations in the services and manufacturing industries. The result of this study reveals that there is a positive relationship between intellectual capital management (with human capital, structural capital and customer capital as components); and firm performance. In an attempt to gauge the extent to which firms in Malaysia practice intellectual capital management and the level of awareness among Malaysian firms in adopting intellectual capital as part of the organizations efforts to enhance performance, it is found that on average, firms employ certain degree of intellectual capital management in their business models either directly or indirectly. Also, about 60 percent of the respondents viewed that their firms were aware about the importance of intellectual capital in creating firm's value and improving firm performance. In addition, this study also provides evidence that there are no differences in the degree to which organizations of different industries, types and sizes acknowledge and adopt intellectual capital in their business models. However, consistent with the theory of intellectual capital that equates the intellectual capital as the difference between market value and book value of a firm, the result confirms that firms with higher positive gap between market-book values were firms that adopt higher intellectual capital in the business models.

Keywords: intellectual capital management; organization performance

Document Type: Research Article

DOI: http://dx.doi.org/10.5848/CSP.1487.00010

Publication date: January 1, 2009

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