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The IUP Journal of Knowledge Management :
Intellectual Capital Efficiency of Indian Firms: An Empirical Analysis
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The term ‘intellectual capital’ is normally taken as a misnomer, often understood to be of relevance to only high-technology industries and information and communication technology companies. But, it is important to understand that intellectual capital is essentially relevant to every business organization. Rapid technology advancements, fiercely competitive environments, deregulations, product innovations, etc., have made firms increasingly rely on leveraging intellectual capital, so as to develop strategies for sustained competitive advantage. Management initiatives to execute business strategy can be extracted from firm’s intellectual capital to deliver value. Management of intellectual capital and knowledge management practices can result in significant benefits to an organization that can aid in formulation of business strategy, process design as well as gaining competitive advantage. However, there is limited empirical evidence revealing mixed results of the impact of intellectual capital on financial performance of business in India. Thus, the present study has been undertaken as an attempt to provide important insight into measurement of intellectual capital of publicly listed companies in India and its impact on financial performance.

 
 
 

Knowledge being the new engine of corporate development has become one of the greatest clichés of recent years. But there is unanimous consensus on the fact that companies which have achieved unprecedented success in the past have been those which have relied significantly on technologies, skills and knowledge of their employees rather than physical assets such as plant and machinery. Companies operating in sectors such as Information Technology (IT), pharmaceuticals, banking, telecommunications, etc., are typically characterized by a high intellectual capital base and have market valuations many times over their book value (Sveiby, 1997). According to Lev and Radhakrishnan (2005), such high valuations cannot be attributed to monopoly power or competition constraining regulations; such organizations are characterized by unique systems and processes employed in the investment, production and sales activity of the enterprise along with incentives and compensation system governing its human resources. The traditional factors of production such as labor and capital are increasingly being replaced by intellectual assets in the modern economy. As competitors have equal access to them, the conventional factors at best yield only the cost of capital. The necessity and importance of measuring intangibles has increasingly been accepted by business, research and academic communities. Much emphasis has been laid on the substantial role played by intangibles as a means for better understanding of the value creation process in private, public and not-for-profit enterprises (Grasenick and Low, 2004). Broadly speaking, Edvinsson (1997) referred to intellectual capital, “as the possession of knowledge, applied experience, organizational technology, customer relationships and professional skills that provide the business with a competitive edge in the market”. But the cross disciplinary nature of the intellectual capital field means that different people with diverse backgrounds have a multitude of opinions on the subject (Marr and Chatzkel, 2004). Despite the confusion, most scholars and researchers converge on the view that intellectual capital has essentially three main constructs—human capital, structural capital and relational capital.

 
 
 

Knowledge Management Journal, Intellectual Capital Efficiency, Indian Firms, An Empirical Analysis