Intangible Resources, Organizational Capital - Coursework Example

Intangible Resources Name: Professor: Institution: City and State: Date: Introduction Intangible resources or assets are assets of an organization that are not of a physical nature. These assets do not have a definite existence and do not give their owner definite financial rights. They are identifiable non-monetary assets that cannot be touched, seen or physically measured, and they are created through time and effort of the company and its employees. Intangible resources include the company’s data and information, knowledge and capabilities, intangible assets, intellectual, human and organizational capital. Intangible resources can either be legal or competitive intangibles. Legal intangibles include patents, copyrights, trade secrets and trademarks while competitive intangibles include knowledge, structural activities, advantage activities, collaboration activities and the technical expertise. According to IAS 38, an intangible resource should be identifiable, controlled by the company and should increase future profits of the company. Evaluation An intangible resource can be defined as everything of immaterial existence used or potentially usable for whatever purpose that is renewable after use and decreases, remains or increases in quality and/or quality while being used. Intangible resources can be broadly classified in to four categories, which are; human capital, organizational capital, relational capital and technological capital. i) Human Capital Human capital is the measure of the economic value of an employee’s skill set. It is the whole combination of knowledge, competencies, social and personality attributes. These include creativity embodied in the ability to perform labor to produce economic value to the organization. The notion of human capital identifies that not all work is equal, and the quality of employees or staff of the organization can be improved by investing in them. It is the cumulative monetary view of the human being operating within economies, which is an attempt to capture the biological, social, cultural and psychological complexity as they interact in economic transactions. The abilities, education and experience of an employee have an economic value for employers and for the economy of the nation as a whole. this type of capital can be invested through training, education and enhanced benefits that will lead to an improvement in the quality and level of production (Becker 1994, p. 74). The key value of a corporation does not lie in its controls, systems, or equipment and machinery. As much as data systems technology may advance, nothing replaces the value provided by human capital.  Their talent and the attitude of their people recognize the biggest companies in the world. The company can manage and enhance the performance and capabilities of its human resource by actively engaging in human capital management in the organization (Schultz 1961, p.102). Human capital management is an approach to employee staffing that perceives people as human capital (assets) whose current value can be calculated and whose prospect value can be enhanced through investment by the organization. A company that engages in human capital management provides its staff members with clearly defined and consistently communicated performance expectations. Employees are rated, rewarded, and held accountable for achieving specific business goals, creating innovation and supporting continuous improvement (Becker 1994, p.78). Expenditures on education, training, medical care and so on are considered as investments in human capital. Companies that engage in human capital management will be able to streamline processes and guidelines on how and when to invest on the human capital. Human capital management gives the company the management authority to make decisions and carry out the necessary actions to ensure that the human capital is optimized to be as productive as possible to the organization. The management has to ensure that the company identifies and recruits the best people to work for the company (Ben-Porath 1967, p.106). They should also allocate tasks to employees according to their suitability, where an employee is given the right task, which he is qualified to perform and perform it better than any other task. This will maximize the productivity of the employees of the company, hence increasing their economic value to the organization. The management should also undertake to train these employees to increase their value and productivity. The management, through the human capital management, should also undertake decisions on the benefits of the human capital and the culture of not only the employee, but of the organization at large. Benefits should be done uniformly to enhance sustainability and earn employee trust in the whole process. An organization should have an official authority structure that depicts the authority dealings between people and their work (Ben-Porath 1967, P.108). The management with a human capital policy is better placed to make the decisions that will develop the human capital of the organization to raise its economic value. The productivity will also be enhanced, and wastage and breakages reduced drastically. An assessment is done to be able to make informed decisions. Decisions on rewards, promotions, bonuses or recognitions are better placed to be made by the management of organizations. When the culture, health and personality of each and every employee is enhanced, the organization gets a better corporate image, and as a result, becomes a big corporate brand which will market the company and make it more economically valuable (Hitt et al 2001, p.14). The role of management in the management of human capital cannot be over-emphasized as human capital management integrates all the tools and processes associated with people and performance and aligns the purpose of workers and the goals of the corporation to meet detailed, quantifiable and reasonable company objectives. Human capital management decision-makers integrate objective, actionable and information about employee skills and capabilities to deliver results. Ability to do more with existing resources, enhanced workforce performance and the great-increased adaptability is the benefits that are accrued from human capital management (Hitt et al 2001, p. 25). ii) Organizational Capital Organizational capital is defined as the increase and use of confidential information to enhance making efficiency within an organization. A production factor is embodied in the firm’s key talent and has efficiency that is firm specific. It is also the ability of a firm to rally and uphold the procedure of change required to perform strategy. It can be thought of as any actions according to which collaborating persons execute tasks that can include work techniques, management procedures and processes and accounting practices of the firm. Practices and procedures used in doing work like total quality management (TQM), Just In Time (JIT) and accounts payable processes contribute to organizational capital (Black and Lynch 2005, p.214). Organizational capital can add in vital ways to the industrious capability of a firm. It is estimated that the payments arising from business capital are more than those created by physical assets by one-third the size and represent more than 40% of all intangible assets in the United States of America National Income and Product Accounts (Atkeson and Kehoe 2005, P.1026). The value of organizational capital depends on its being shared across by managers. This must be conveyed to the next group of workers for preservation purposes. Organizational capital creates complementarities among managers because it facilitates communication and enhanced production. The management can use organization capital to create and manifest unique processes and systems engaged in the production, sales and investment activities of the company, along with the compensation systems and incentives governing its workforce. Organization capital being the major factor of production that is unique to the firm, and thus capable of yielding abnormal, above cost of capital, returns thereby generating enterprise growth calls for legitimate management authority input (Subramaniam and Youndt 2005, P.459). Management is tasked with ensuring that the company achieves its expected results, goals and objectives. They have to provide guidelines, procedures, regulations and rules that govern all processes and procedures of the organization. All these are geared towards the growth and sustainability of the organization both in the short and long-terms. These are all components of organizational capital. Management authority helps to align and synchronize these processes and procedures with the objectives and vision of the Company. The senior management of the firm is the one tasked to do this through legitimate management authority (Martín-de-Castro et al 2006, P.322). The management of the organization has the responsibility of ensuring that the firm is competitive in the market and among other industry players. This can be done more efficiently and effectively when the management has the legitimate management authority to steer organizational capital. This can be done by ensuring that the organizational capital elements, namely the culture of the organization, its structure, organizational learning and processes are enhanced and done in an approach as to boost and optimize the competitive advantage of the firm. Organization capital is a set of valuable assets that are difficult to imitate, replace or to transfer with prolonged life expectancy, a feasible rent appropriation, and this make this type of intangible resource critical to the competitiveness of the firm (Subramaniam and Youndt 2005, P.454). Managing the organization capital of the firm has become one of the main tasks in the executive agenda. This has been necessitated by the fact that it is especially difficult due to the problems involved in their identification, measurement and evaluation. It is in these situations that the management of the firm should have and use legitimate management authority to streamline optimally all these issues involved. Implementing effective practices require great effort, especially from the management of the organization. Using legitimate management authority, they can be able to use organizational and control variables to make organization capital have a substantial impact on performance (Youndt, Subramaniam and Snell 2004, P.344). The management is also tasked with ensuring that the organizational practices that facilitate the creation of sustainable above-average returns must be durable and hard to imitate. The management also needs legitimate management authority to undertake substantial investments to the implementation of these processes, routines and organizational practices to optimize their input to the overall organization performance, growth and sustainability (Black and Lynch 2005, P.231). iii) Relational capital Relational capital refers to all resources that are linked with an external relationship of the firm. It covers both institutions and business including suppliers, customers, public institutions and research and development partners. In simple terms, it represents the knowledge possible to obtain in relation to the outside world. Relational capital can be looked as the value-added function of network ties. It is the cumulative trust, knowledge and experience that form the core of the relationship between businesses, amongst them and with their customers. Relational capital is the one that keeps customers from abandoning a commercial relationship (Capello and Faggian 2005, P.79). The management has the responsibility of exploring, choosing and maintaining all external relations of the firm and making sure that they add the expected value to the organization. Those that are found to have no value to the organization or those that have a negative effect to the organization should be discontinued or discarded. A fine characterization of relational capital is that it refers to the quality and sustainability of the external stakeholders and the potentiality of generating new agents in the future. Legitimate management authority will provide the organization with a perfect tool to come up with good policies to ensure efficient and effective relational capital with high benefits to the firm (Capello 2002, p.192). Relational capital consists of the link or alliance a firm has to their competitors and other institutions in the market. As relational capital is the connected value with the external world, the management through the legitimate management authority, can maximize its benefit of contributing to the economic development and growth of the firm. The firm’s image, satisfaction, loyalty, commercial power and environmental activities can be enhanced using legitimate management authority of the firm and all these constitute relational capital of the firm (Capello 2002, P.198). In the globalized society of today, where the world is a global village, no firm may function efficiently and effectively on an isolated island entirely by itself. It needs to interact not only with its customers and potential customers, but also with the competitors and other industry players. Legitimate management authority will lessen this burden to the organization and makes it navigate the whole process easily. With a policy formulated by the management concerning relational capital of the firm, the firm will have the ability and capability to be adequately competitive in the market environment, which has become global and as a result, raising the stakes of all firms in the world. Present day managers have tried to develop an interaction with their customers on a daily basis to outdo competition. This brings about real time communication between customers and the organization (Collins and Hitt 2006, P.152). Relational capital drives innovation in any one organization. Legitimate management authority of the organization helps the firm to gather and generate the ideas of these innovations through relational capital of the firm. Interaction with other players in the industry, the customers, competitors, government institutions, suppliers, schools and institutions of higher learning, research organizations and the public provides the firm with countless ideas on improving their products or innovating new ones. Customer feedback and close interaction by the firm to know their tastes and preferences will help the company to come with new products that will drive the growth of the firm. Firms can share ideas amongst themselves and with research institutions to come up with better products, and it is through legitimate management authority that this can be done optimally (Capello and Faggian 2005, P.84). Legitimate management authority brings about reduction of costs through relational capital. This has the effect of driving the growth and expansion of the firm because of the minimization of costs and maximization or revenue or profit. Cost cutting is achieved when the management comes up with an initiative of interacting with competitors and other organizations like research institutions, through their research and development department, to gain knowledge and ideas from them. The firm will be able to save money on research and development on the knowledge and ideas it has gained through the interaction. The result of this process is the competitive price of the firm’s product in the market. Time and other resources will also be saved through these types of interactions (De Castro, Saez and Lopez 2004, p.578). Relational capital allows interaction between the firm and government agencies, regulatory agencies and environmental agencies. The management uses its legitimate authority to reap benefits from these agencies like tax holidays, quick project approvals by the environmental agencies, incentives and other benefits of aligning policies with the laws and regulations in place (Collins and Hitt 2006, p.164). iv) Technological Capital Technological capital measures the stock of a firm’s unique expertise from investing in brands, research and development and organizational capital. Investments in technological capital require long-term investments and the management uses its legitimate management authority to make decisions that would sustain the firm in the end. Technological capital can be replicated, at no cost, at all locations at which a firm operates and it can be replicated abroad at no cost (O’keeffe 2003, p.102). Technological capital involves the generation of new ideas, research on new concepts and their development. The data that are stored by the company for their processes and procedures is also part of technological capital of the firm. The management uses its legitimate management authority to develop and streamline this form of capital to improve the firm (García-Muiña and Pelechano-Barahona 2008, p.89). Production of new knowledge and ideas allowing the launch of new, better products can benefit from the legitimate management authority of the firm. The technological capital of the firm requires many years or long periods to gather and cultivate and this makes important for it to be protected and developed by the management of the firm. Technological capital of the firm contributes immensely to the growth, competitiveness and sustainability of the firm (Bucci 2000, p. 6). The quality of technology capital that a firm has usually determines its success in its industry and in the achievements of its goals and objectives, and ultimately, its vision. Firms that have well streamlined technological capital, more often than not, are highly successful and generally competitive in the market. The management through legitimate management authority can go a long way in ensuring that this is done to aid the growth of the firm (Luiz 2007, P.97). v) Power Power as an intangible resource of an organization enables it to consolidate and optimize all the resources of the firm to achieve the desired goals and objectives of the organization. Legitimate management authority allows management to use the power in making decisions touching on employees, processes, strategies, market evaluation, competitors and other stakeholders. The management will also be able to enhance the power that the organization wields through its products, innovations or corporate image to achieve overall growth of the firm. vi) Empowerment Empowerment is the enhancement of skills and capabilities of individuals. This can be done by use of legitimate management authority by giving employees opportunities to help determine work roles, influence important decisions and the ability to accomplish meaningful work. This will help improve unit performance, and as a result, the overall performance of the firm. The effect of this is the growth of the firm and increase in revenue. The management should include empowerment in its core strategy as an intangible resource that if well exploited can result in tremendous growth for the company. vii) Motivation Motivation is an important factor in an organization, which helps propel it to greater heights. employees of an organization need to be motivated to achieve the best from them. with legitimate management authority, the management can be able to introduce methods of motivating the staff of the organization. rewards, recognition, a good working environment, flexible work, promotions and appreciation induce workers to give their maximum to the organization. viii) Ideology This is a set of ideas that are made up of one’s expectations, goals and actions. The management is able to improve the ideologies of its employees by the use of legitimate management authority by providing them with the necessary skills and training. The employees can also be encouraged to align themselves with the organizational culture. Conclusion As have been seen, intangible resources contribute a lot to the successfulness, growth and sustainability of firms. The intangible assets provide a firm with own identity. They are most valuable for their ability to help a firm in its growth and potential. It is for the specific reason that the value of intangible resources cannot be under-estimated that the management through legitimate management authority be actively involved. The management should be actively involved in their acquisition, constant development and their sustainability, and prudent usage to reap maximum benefits to the organization. Legitimate authority of the firm streamlines these intangible resources, with immense benefits to the organization, with the tangible resources to bring about growth and sustainability to the firm. Reference list Atkeson, A & Kehoe, P J 2005, Modeling and measuring organization capital. Journal of Political Economy, 113(5), 1026-1053. Becker, G S 1994, Human capital: A theoretical and empirical analysis, with special reference to education. University of Chicago Press. Ben-Porath, Y 1967, The production of human capital and the life cycle of earnings.  The Journal of Political Economy, 75(4), 352-365. Black, S E & Lynch, L M 2005, Measuring organizational capital in the new economy. In cal analysis, with special reference to education. University of Chicago Press. Bucci, A 2000, On scale effects, market power and growth when human and technological capital are complements. Measuring capital in the new economy.University of Chicago Press, Chicago. pp. 205-236. Capello, R 2002, Spatial and sectoral characteristics of relational capital in innovation activity. European Planning Studies, 10(2), 177-200. Capello, R & Faggian, A 2005, Collective learning and relational capital in local innovation processes. Regional studies, 39(1), 75-87. Collins, J D & Hitt, M A 2006, Leveraging tacit knowledge in alliances: The importance of using relational capabilities to build and leverage relational capital. Journal of Engineering and Technology Management, 23(3), 147-167. De Castro, G M Sáez, P L & López, J E N 2004, The role of corporate reputation in developing relational capital. Journal of Intellectual Capital, 5(4), 575-585. García-Muiña, F E & Pelechano-Barahona, E 2008, The complexity of technological capital and legal protection mechanisms. Journal of Intellectual Capital, 9(1), 86-104. Hitt, M. A Biermant, L Shimizu, K & Kochhar, R 2001, Direct and moderating effects of human capital on strategy and performance in professional service firms: a resource- based perspective. Academy of Management journal, 44(1), 13-28. Luiz A. J 2007, Strategies for Information Technology and Intellectual Capital: Challenges and Opportunities, illustrated edition, Idea Group Inc (IGI). Martín-de-Castro, G Navas-López, J E López-Sáez, P & Alama-Salazar, E 2006, Organizational capital as competitive advantage of the firm. Journal of Intellectual Capital, 7(3), 324-337. O’keeffe M M 2003, Conceptual and Empirical Investigation, University College Dublin. Schultz, T. W. (1961). Investment in human capital. The American Economic Review, 1-17. Subramaniam, M& Youndt, M A 2005, The Influence of Intellectual Capital on the Types of Innovative Capabilities. Academy of Management Journal, 48(3), 450-463. Youndt, M A Subramaniam, M & Snell, S A 2004, Intellectual Capital Profiles: An Examination of Investments and Returns. Journal of Management Studies, 41(2), 335-361. Read More