Importance of Intellectual Capital
Knowledge has become the most valuable resource within the emergence of the new economy (Secundo e al. 2016, p.43). The acceptance of knowledge as a resource is a suggestion that knowledge is transferable, acquirable and can be combined and used to gain a competitive advantage (Zeghal and Maaloul 2010, p.18). Today, management research is concerned with investigating the ways in which organisations can create value based on their potential of knowledge. From a strategic perspective, intellectual capital refers to knowledge that creates value, and its application is critical to an organisation’s competitive advantage. Thus, corporations need to identify, measure and manage intellectual capital to boost their competitiveness and innovation.
Intellectual capital involves competencies, resources and capabilities essential to the organisational value. A critical element of intellectual capital and the most significant source of competitive advantage is human capital. An employee can generate intellectual property through his or her competence, intellectual agility and attitude (Martín-de-Castro et al. 2011, p.649). Notably, attitude includes the behavioural element of employee’s work while competence represents education and skills. Intellectual agility enables individuals to change practices and think of innovative ways to solve problems. When employees leave the workplace, they leave behind structural capital encompassing internal processes, corporate structure, culture, databases, and all that facilitate the productivity of human capital. Organisations play the role of providing the necessary structures for their employees to collaborate in ways that leverages the existing market opportunities and their talent to create value to the economy. The aim is to get a higher value from human capital using structural capital. In forming networks of relationships, organisations benefit from relational capital that helps to increase innovation and diffuse knowledge (Papula and Volna 2011, p.21). These relationships may include partnerships in the supply chain, strategic alliances and collaboration with cross-boundary teams.
In intellectually and technically based economies, the rules of economics have transformed the concept of value creation. The economic value of knowledge differs significantly with the value created from physical commodities. According to Beattie and Smith (2013, p.243), the value-added by creating, selling, communicating and processing information grows substantially faster compares to the value that comes from traditional services and goods. The law of diminishing returns may not apply to intellectual capital because new pieces of knowledge can be applied as many times as possible without value deterioration that may come due to repeated use. Lerro et al. (2014, p.32) say that the theory of endogenous growth applied to intellectual property, considering one can accumulate knowledge without experiencing diminishing returns. Mhedhbi (2013, p.216) associates high rates of knowledge acquisition to a higher investment rate. Because these investments have non-diminishing returns, the economy experiences accelerated or sustained economic growth.
Important to note is that knowledge may not contribute any significant value to the economy if it is not put into productive use with other resources. In the corporate world, firms create value by combining various types of resources, including intangibles and tangibles with competencies. The value created in this scenario increases depending on how those competencies and resources interact. Understanding what makes knowledge valuable is key to unveiling the wealth that value creates in a knowledge-based economy. Joshi, Cahill, and Sidhu (2010, p.47) explains that valuable knowledge must be unique, difficult to replicate and help to gain a competitive advantage. Knowledge becomes a strategic resource if its application sustains or creates a competitive edge by enabling organisations to formulate and implement their objectives better. Shakina and Barajas (2014, p.19) link value directly to the speed, agility and intelligence that comes from latent intangibles. These present the opportunity to utilise talent and innovation for a competitive edge in the market. But these sets of intellectual capital or intangibles create considerable value when their components are combined and put into action and can also degrade if they remain unused. The value created is a reflection of how an organisation’s success in converting project ideas into corporate value. Meaning that the value generated has a direct correlation with resource application and management. An economy cannot create value by just possessing intellectual resource (El Tawy and Tollington 2012, p.241). Creating or leveraging value calls for efficient and effective deployment of resources.
Value created from intellectual capital is determined by the effectiveness of knowledge conversions and transfers. In the business world, the generated value is the outcome of a corporate’s ability to manage its business processes. Moreover, organisational competencies determine the efficiency and effectiveness of managing business processes. With knowledge assets interacting with each other to create capabilities and competencies, corporates are assured to increase their competitive advantage because these interactions make is challenging for competitors to replicate such assets (Ståhle, Ståhle, and Aho 2011, p.531). There are more complex ways of creating value that may come in the forms of value networks, value shops, or value constellations. Value networks contribute to value creation by ensuring the availability of products and services to customers. Notably, this network derives value by connecting buyers to sellers of their products or services of preference and giving suppliers the opportunity to provide their product offerings. Cheng et al. (2010, p.68) explains that value must be added to every point along the value network, and thus, when participants receive value inputs they should find ways to utilise those inputs to offer greater value in the form of services and products. Some participants in a network can gain value from themselves and still leverage those inputs for greater value outputs. Commercial banks, insurers, stock exchanges, brokers, and airlines are perfect examples of corporations creating value through networks. A linked set of value networks, according to Campbell and Rahman (2010, p.56), is referred to as a value constellation. Value shops leverage on their competency in solving unique problems for customers in order to create value. Accountants, academicians, lawyers, consulting engineers, business consultants, physicians, and investment bankers are examples of companies creating value as “shops”.
The Impact of Information Technology on Management Control System
Advancement in technology has revolutionised how businesses operate. With technology, work is now performed differently and the workplace has evolved. Workplace technology appears to be beneficial to the society at first glance (Oliveira and Martins 2011, p.110). Information technology, for example, enabled multinational corporations to coordinate employees and activities worldwide, while mechanical technology initiated mass production and promoted the industrial revolution. Choi, Lee, and Yoo (2010, p.855) points out that workplace technology is essential to change business processes in ways that increase efficiency while ensuring an increase or maintenance of management control. Indeed, workplace technology have had various impact on job design and the workers. Supporters of the radicalism structural paradigm have questioned the use of technology in organisations to redesign work processes such that employees require less skills, compensation and freedom. Alternatively, subscribers of the functionalist paradigm believe that corporates leverage on technology to increase profits and improve efficiency (Mithas, Ramasubbu, and Sambamurthy 2011, p.237). Further, functionalists hold the opinion that workplace technology can create opportunities for workers to improve their skills to match the requirements of more complex activities, thus downplaying the view of radical structuralist critiques.
Contemporary managerial responsibilities include the management of information technology systems, and efficient management of the human and physical resources of an organisation through the application of technological systems to offer solutions to business problems. Baheti and Gill (2011, p.162) believe that corporations need to use IT systems efficiently for them to achieve targeted objectives such as profits, growth, success and productivity. Mundy (2010, p.508) associates information systems to increased sales, reduced costs due to low inventories, increased quality of products and services, improved alliances with suppliers, reduced costs through optimising the use of elf space, increase in productivity and concentration on core assets and business units.
Increased use of information technology have contributed to changes in managerial roles. Organisations need to recognise and implement strategies that integrate information technology into the day-to-day business processes and functions (O’brien and Marakas 2011, p.90). Moreover, managers must pay attention to the synergy between information technology and other resource factors that gives rise to valuable processes. Today’s management control systems must incorporate IT frameworks including competitive force and value chain models. Organisations need to restructure their strategic information systems (SIS) in ways that promote the relationship among information technology, competitive strategy, and strategic management (Schwalbe, 2015, p.12). Managers of today’s business world need to take advantage of information technology as a strategic driver od resources, systems and people and incorporate the same in their roles as planners, controllers, organisers, and leaders.
The planning process involves defining organisational goal and applying tactics, strategies as well as operations required to achieve those goals. Today’s managers have a variety of systems and tools at their disposal designated to promote efficient and effective planning (Mithas et al. 2012, p.205). The information systems that managers possess today means that they can achieve better planning outcomes than their predecessors. Processes and systems available to facilitate proper decision making at the planning level include decision support systems, computer programming, and mathematical planning systems. Managers can feed data into systems and run task and configuration processes to identify decision outlay using Material Requirement Planning (MRP) system (Beaudry and Pinsonneault 2010, 689). The MRP system is a computer-based approach for managing materials necessary for carrying out production schedules. Besides, mangers use computer-based systems to develop production flow-carts, capacity planning processes, and graphical load profiles and load reports. Tools such as teleconferencing, video-conferencing and other information technology advancements are key to the planning process as they allow managers to organise and participate in virtual planning across unparallel and parallel organisational boundaries.
As organisers, managers group and assign tasks and allocate resources to organisational-specific functional departments in a move to accomplish goals more effectively. These managers establish interactive working relationships and structural frameworks that enhance cooperation in meeting strategic objectives. Developments in information technology have influenced how managers accomplish their role as organisers as they now access communicating tools required for business networking (Grabski, Leech, and Schmidt 2011, p.37). With the use of virtual commands given over wide area and local area networks, technological managers can organise work teams as well as financing, marketing, and production activities in a more accurate manner. In addition, the development of computer synergistic and visual systems facilitate better organising decision-making processes as managers can place employees into functional teams based on data available in computer systems.
The management has a role to evaluate the progress of an organisation especially workers in achieving the set targets. Accomplishing this task requires the control of organisational resources as well as production inputs. Various IT systems help managers to have an effective control over the business processes. Control systems may include formal target-setting, evaluation, feedback and monitoring tools. The two core factors influencing the changing roles of managers are knowledge and information. New forms of information technology continue to revolutionise control systems by promoting timely flow of accurate information between employees at various hierarchical levels and between departments of an organisation. Piotrowicz and Cuthbertson (2014, p.7) believe that the use of computerised systems is the reason why corporations are recording greater efficiency in costs and utilising resources more efficiently. This is also the case because managers can now spend less time controlling systems and direct such a resource to other equally critical business processes. With the use of IT tools managers can measure employee productivity, obtain feedback, communicate ideas, and resolve conflicts more quickly than before.
As leaders, mangers play an instrumental role that dictates the organisational performance on the current highly competitive global economy. Managers can use information technology systems to articulate clear visions and communicate ideas to employees. Various communication mediums are already in place to help organisations pass information across the entire corporation, globally and domestically. Cresswell and Sheikh (2013, p.73) point out that direct supervision is a now an outdated practice as organisations rely on IT tools to direct and lead work teams. Self-managed teams, for example, ensure employees feed data concerning their activities into computer systems. Mangers can then access this information directly and send feedback through the same platforms.
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