UNIVERSITY OF OSLO FACULTY OF SOCIAL SCIENCES TIK Centre for technology, innovation and culture P. BOX 1108 THE AUTONOMOUS UNIVERSITY Blindern OF MADRID N-0317 OSLO Norway http://www.no ESST The European Inter-University Association on Society, Science and Technology http://www.no The ESST MA Relational Capital: A study on its importance, quantification and its impact on business sectors and markets. Elisabeth Lervik University of Oslo/Autonomous University of Madrid Economics and Management of Innovation and Technology Policy 2006 Word count: 20.002 Elisabeth Lervik elisabeth.com University of Oslo/Autonomous University of Madrid Economics and Management of Innovation and Technology Policy Supervisor: Asunción Lopez Lopez 2005/2006 1 Synopsis This study explores the of concept relational capital. Relational capital is a part of the intellectual capital or the intangible value of a company.
The knowledge of the intangibles of a company has been receiving increasing importance in the last years, due to the gap between market value and the value of intangible assets. Some argue this to be the real assessment of the firm. The focus on the awareness of relational capital is a main point of the thesis. The level of awareness is compared in different sectors, where the division of the sectors is done according to the theory of Pavitt (1984).
The question of quantifying relational capital is addressed and a benchmark is proposed and exposed in order to be able to measure relational capital, and thus compare between sectors. Finally the focus is set upon the importance of relational capital concerning internationalization. Is it important to have relational capital when going international, and if so, does the level of relational capital change from the first entrance in a country to a maturity mode? All these aspects are further discussed in the thesis. Key words: intangibles, relational capital, intellectual capital, measurement, sectoral division, internationalization 2 3 Acknowledgements Writing this thesis has been a long and educative process; I have been at some dead ends, and on many stimulating paths.
To reach were I am today I have a lot of people to thank. First of all I want to thank my professors in Madrid for their assistance during the process of writing the thesis. The quick responds and comments from my supervisor Asunción Lopez Lopez were really valuable, as well as help to realize the interviews. Without the highly interesting classes of Paloma Sánchez this thesis would not exist - thank you for introducing me to the topic of intangibles and for being a very inspiring professor.
Thanks for making my semester in Madrid academically unforgettable. A thought are also sent to friends in Madrid that made my exchange memorable. I wish to show my gratitude to my interview informants for their insight and time, and for making it possible to conduct an analysis. Thank you Therese, and especially Toni for your critical comments.
It has been really helpful. I want to thank family and friends for patience and support during the process of writing the thesis. And last but not least my fellow ESST students on the 5th floor for encouraging chats over a cup of coffee. 4 5 Table of Contents 1.
THE AIM OF MY STUDY. INTELLECTUAL CAPITAL AND RELATIONAL CAPITAL.1 INTELLECTUAL CAPITAL AND REPORTING. IMPORTANT ASPECTS OF THE RELATIONAL CAPITAL. RELATIONAL CAPITAL AND SECTORS.
MEASURING THE RELATIONAL CAPITAL. ASSUMPTIONS TOWARDS SECTORS AND RELATIONAL CAPITAL .3 DESCRIPTION AND ANALYSIS OF THE SECTORS. THE SUPPLIER-DOMINATED SECTOR. THE SPECIALIZED SUPPLIERS SECTOR.
THE SCALE-INTENSIVE SECTOR. THE SCIENCE-BASED SECTOR. THE INFORMATION-INTENSIVE SECTOR. CONSIDERATIONS ON THE SECTORAL DIFFERENCES.
RELATIONAL CAPITAL AND INTERNATIONALIZATION OF ORGANIZATIONS 58 4. CHALLENGES TOWARDS INTERNATIONALIZATION. IMAGE AND REPUTATION. IMPORTANCE OF COLLABORATION.
THE FIRST ENTRANCE. THE MATURITY MODE. 85 TABLE OF FIGURES AND ILLUSTRATIONS Graph 3. Gaussian Environment 26 Graph 3.
Gaussian Environment 27 Graph 3. “Positive” Linear Environment 28 Graph 3. “Negative” Linear Environment 29 Graph 3. “Positive” Exponential Environment 30 Graph 3.
“Negative” Exponential Environment 31 Graph 3. “Equal” Environment 32 Graph 3. “Positive” Linear Environment 37 Graph 3. “Positive” Linear Environment 42 Graph 3.
Gaussian Environment 46 Graph 3. “Positive” Linear Environment 50 Graph 3. “Positive” Exponential Environment 54 Fig 2.1 Overview on the IC and its connectivity from the theory 7 proposed by the Meritum Project Figure 4. Flow-chart explaining the process of an “Actionplan” 78 towards relational capital.
Presentation of possible indicators and intangibles 20 Table 3. A general overview of the relational capital correlated to sectors. The Uppsala model 60 7 1. Introduction Firms that implement new strategies based on innovation, flexible organisations and social responsibility seem to perform better than organisations with more traditional strategies (OECD 1998).
The first record of knowledge dates back to 1597 when Francis Bacon stated “knowledge is power”, and in 1836 Senior argued that “the IC of Great Britain far exceeds all the material capital, not only in importance, but in productivity”. Even though it has long been acknowledged the importance of knowledge in the business, only lately has it been seriously theorized and looked upon thoroughly by the academics (see Penrose 1959, Nonaka 1994, Spender 1996 and Grant 1996 among others). The new source of wealth is not material, but are instead based on information and knowledge (Edvinsson and Malone, 1997) Empirical studies and signals from market leading actors indicate how firms have introduced dramatic changes in firm strategy to reinvent the firm on a more globalized and knowledge-intensive markets (see for example Meritum 2002, Lundvall 2001, Marr 2005 and Bukh et al 2005) in order to accomplish with what OECD postulated in 1998. Increased competition amplifies the need for a quick change in internal organization, since the threat of being overtaken is higher.
For a firm to be competitive today the need to have an ability to understand and quickly adopt new knowledge is present. The ability to read the signals the market provides, for then to decode the signals to adjust it to the needs of the customers and to enhance the competence of the organization, is a competitive advantage. As a result there is a disposition towards a closer focus on the core-competencies, as firms tend to outsource activities that do not 1 hold the potential to differentiate the firm from its competitors. There is a tendency concerning developing closer relationship with customers, suppliers, knowledge institutions and universities (Nyholm et al 1999).
Firms are building closer networks and promote cooperation externally with other firms or knowledge institutions. Firms differ and have different needs (Kogut and Zander 1992). This can indicate that there are not only differences across sectors, but also within sectors. These differences occur concerning learning, developing, innovation, adopting and using knowledge and technology.
Consequently, it is of importance for companies to know in which position they are towards this kind of knowledge, as well as to know how to use the intangible assets to increase the value. This study is trying to pinpoint the importance of the value of a certain kind of knowledge, namely the relational capital knowledge and an attempt to look at different perspectives concerning relational capital. The aim of my study As organizations operate in the knowledge society there is an increasingly demand towards having a strong relation with their environment in order to acquire and share essential knowledge for the development of their business. We are moving towards a knowledge-based economy where intangible assets and investments are seen as essential elements for value creation in companies and, consequently, to economic wealth (Cañibano, García-Ayuso and Sánchez 2000).
Intellectual capital (IC) is a way to explain the intangible value of the firm (ibid. In my view, the comprehension of the intangibles in a company where knowledge is a matter of competitive advantage is valuable. The key drivers of value creation now mainly lie in intangible nature, it is increasingly crucial to have knowledge of the IC for a 2 company. My master thesis will treat the topic of relational capital, a subdivision of the IC.
The concept is worthy a note not only for academics, but also for individuals, as an important part of the IC, to realize values of knowledge and other aspects of beneficial value related to intangibles. It is basically a work about knowledge, and the relations of importance for a company and in the end the humans. It brings in the crucial role of knowledge and know how for the individual and the collective as a whole. My study will focus on two questions relating to the relational capital: first, is there a difference in the awareness of relational capital associated with sectors and second is relational capital important when going international? 1.
Overview To answer my research questions, I will mainly be using the concepts given within IC by the Meritum (Measuring intangibles to understand and improve innovation management) project In the Meritum project, IC is grouped into three different divisions, hence human capital, structural capital and relational capital. Even though it would be highly interesting to look into the whole spectre of IC, this work will mainly regard the importance of knowledge on the relational capital for a company. In addition, I wish to go even further and attempt to correlate relational capital with the division of sectors described in the well-cited work and taxonomy of Pavitt (1984), with additional supporting theories, intending to find out whether there is a difference on not only the awareness of the relational capital concerning different sectors, but also to the importance of the relational capital in the different sectors. Last the significance of relational capital linked with internationalization will be intended.
Here the attention will be set on the consequence relational capital might play for 3 business going abroad. In this section the existing theory of among others Johanson and Vahlne (1977), and Coviello and Numro (1997). Method The methodology will be based in two main aspects: a) theoretical research and b) developing an empirical methodology to prove the theory. Finally I will collect some information from firms and do a rough application of this information in the methodology developed.
This information have been acquired through semi- structured interviews performed with individuals containing high knowledge of the company, where I have intended to find at least one firm corresponding to the sectoral division. This information is used when intending to compare the awareness around the concept. A full application of the methodology to a broader analysis is out of scope for this work, as it would require a huge empirical amount of data. The empirical information is not an intention to be statistically or representative correct, but more an approach to get a quantity of empirical data and try to correlate it with existing theory.
Intellectual capital and relational capital In a world of rapid changes, success depends a lot on the capability a company has to generate a dynamic communication with clients, suppliers and strategic partners in an effective matter (Teece 2000). Success also depends on the capability to innovate and the ability to have the necessary know-how and knowledge. Innovation is nowadays a fundamental determinant to value creation in firms and also a factor of economic growth. The capacity of a firm to innovate will be enhanced by an extended knowledge base offered through linkages in e.
a network with external agencies such as suppliers, customers, competitors, universities and public agencies (Freel 2003). In similar sphere according to Castells (2000) innovation is not an isolated instance, and is produced through an interactivity of systems with an exchange of ideas, problems and solutions. He points out that through interaction, creativity arises and generates innovation. The need to constantly innovate and have the appropriate know-how increases the relevance to determine the knowledge-value of the firm.
There is no common definition of the IC (Marr 2005), but as previously mentioned I will mainly be using the work of Meritum (2002) and their proposed definition of the term. First of all I would like to draw the attention to the concept of relational capital.