Here's my essay which gives some insight into Question 2.
Enjoy!
Paulo
Brazil
Brazil
Identify intellectual capital and related intangible assets and intellectual property?
Why are they important for corporate competitiveness?
I. Introduction
Information and Communication Technologies have been re-shaping the way organisations do business since Tim Berners-Lee introduced the Worldwide web[1].
It is now widely accepted that computers and telecommunication technologies are influencing every aspect of our lives in inescapable ways (John Nirenberg, 2006).
The current economic slowdown has brought consumer confidence to a historic low, caused by plunging house prices and stock market declines, which made consumers feel less wealthy[2]. Nevertheless, as the access to broadband internet becomes widespread and an ever-greater percent of individuals around the world uses the web, there is a shift in consumer behaviour towards the online arena.[3]
Organisations doing business partly or totally over the internet are the beneficiaries of this trend. A recent survey by Shop.org and Forrester Research conducted on 70 US web retailers shows that 72% of the respondents have increased their sales in Q3 2009 by an average of 16% (against Q3 2008).
Technology-based innovations such as the internet and wireless communications have changed the way firms interact with each other and with consumers. This has allowed not only the creation of a platform where firms must perform at a higher, fast-paced level but also it has created new business opportunities (Lumpkin & Dess, 2004).
In spite of the fact that for companies such as eBay, Amazon and Google digital technologies and the internet in particular came as a ‘gold mine’, other firms continue to fail in adding value to their businesses by using technology in the digital age.
This article explores the role of digital technologies and intangible assets in re-shaping economies and organisations and adding value to their business, thus providing competitive advantages.
II. Knowledge-driven economies
Economies are increasingly based on knowledge and intangible assets. In the OECD economies, knowledge is recognised as the driver of productivity and economic growth (Candice Stevens, OECD Observer, Vol. a, 1996).
Knowledge has always been pivotal to economic development but only in the last few years has its importance been widely recognised following changes in the asset bases of firms.
The recognition of the impact of knowledge as an intangible asset, in particular at corporate level, has raised questions about how managers can apply it to add value across their businesses and translate it into a competitive advantage.
Intangible assets are thus an inseparable concept of knowledge-driven economies and are in the basis of the emergence of e-business. However, the impact of intangible assets cannot be limited to a ‘non-physical’ aspect of any given economy - manufacturing firms are also dematerialising into value-driven intangible assets (Andersen et al 2000).
Candice Stevens, Head of the Science and Technology at OECD (1996) points out that OECD economies are increasingly dependent on the production, distribution and use of knowledge and estimated that 50% of the GDP in OECD’s major economies was, in 1996, knowledge-based.
III. Importance of Intellectual Capital and Intangible Assets Today
Traditional capital had financial or physical characteristics. Nowadays, the emphasis is on an intangible asset, intellectual capital which can be defined as “the term given to the combined intangible assets which enable the company to function” (Annie Brooking, 1998).
It is generally accepted in business literature that the real value stemming from intellectual capital lies on firms being able to capture and deploy it (Thomas Stewart 1998, Andersen and Striukova 2004, A. Brooking 1998): “An understanding of [important intangibles] will help managers and policy makers trying to turn intangible resources into assets and capital” (Andersen and Striukova 2004) and “you cannot define and manage intellectual assets unless you know what you want to do with them” (Thomas Stewart, 1998).
The emergence of knowledge-driven economies in general, and e-business in particular has changed asset bases dramatically and consequently the enterprise market value.
Figure 1
Figure 1 illustrates how the US
Whilst the study shows the importance of intellectual capital on a specific industry, the same is true for the vast majority of the third millennium organisations.
The Brazilian Biofuel story
Driven by the desire of reducing dependency on oil and the impact on climate change, Brazil
The government has introduced laws in an attempt to incentive R&D and established IP as the central mechanism to promote innovation.
IP has generated more research and investment than ever before in the country. An IP law approved in 1997 made possible the increase of approximately 70% of local firms’ patent registrations.
Patents are stimulating new knowledge and improving technology. Brazil Brazil
IP rights have helped Brazil US
Whilst the example above aims at exploring the issue of identifying the role of intellectual capital and intellectual property in value creation, the following case-study procures to address the corporate realm and illustrate how firms capitalise on intangible assets to achieve competitive advantage.
Anthony Nicholas Group (ANG)
ANG is a leading jewellery business in Ireland
In 2000, the company saw the benefits from an online presence. At the same time, there was a need to fully upgrade the back-office systems and software.
The retail market is extremely competitive and most of the established companies were already using the internet as a sales and marketing vehicle. Fields of Dublin had a static website since 1996.
The overall aims of the project were to establish a B2B e-commerce capability, develop existing retail operations and replace the old back office system for a new integrated one that would allow the firm to be self-sufficient and implement a new e-business strategy.
1. E-Business Strategy
1.1. Fields of Dublin
The main purpose was to maintain competitive advantage by developing a customer focused web presence that would complement the ongoing store advertising investment.
Management saw the website as an additional distribution channel and marketing tool to develop business and promote Fields branch network, in particular to draw clients into the shops.
ANG clearly stated that they were not seeking to increase turnover in particular, rather add value to current service level.
1.2. Solvar
Solvar is the manufacturing and wholesale operation. The project focus on this case was on establishing an e-business capability through an integrated website and a sales and distribution system.
The aim was to improve customer service through modern ways of doing business and to a lesser extent, grow the sales base.
Before, orders were taken in writing, by fax or at trade shows and input into the system manually. The new system would ensure that orders are processed electronically and that an order tracking procedure is in place. Ultimately, Solvar would be able to link directly to client POS and stock systems, automatically refilling orders from stock.
Finally, it should stimulate sales without the need for a sales person to be physically present or to send the latest catalogue.
1.3 Back-office system and processes
The old system was unreliable and did not allow the firm to be self-sufficient. Therefore, as part of ANG’s strategic plan it was paramount a full restructuring of current system and processes in place.
2. Outcome
2.1. Customer viewpoint
The new website represented a dramatic increase of information for retail customers of Fields of Dublin, offering a wide range of services, including product information, photographs, product care advice, shop information and email ordering.
On the trade side of the business, the new Solvar website offered its trade partners an alternative way to operate with ANG. Instead of being dependent on a sales person, clients can now view portfolios, place orders, track orders and communicate online which proved to be particularly beneficial with US clients due to the time difference.
2.2. ANG viewpoint
The restructuring project allowed ANG to:
- Reduce operating costs and increase efficiency through less time consuming activities;
- Develop ‘Fields of Dublin and ‘Solvar’ brands, enhancing the profile of the group and increasing customer loyalty;
- Capture a share of the e-retail market;
- Maintain competitive advantage by increasing the ability to be present in different markets and develop jewellery sales both for ANG and for its trade clients.
Table 1 - Analysis of ANG’s successful restructuration using an integrated typology of different management theories:
Fields of | Solvar | Internally | |
Exploitation of market power approach (Porter, 1985, 2001) | ANG understood that it operates in an industry where there is a high threat of substitution and intense competition. Moreover, with the internet boom, entry barriers to the market were significantly reduced and clients saw their bargaining power increased. Faced with the loss of its competitive edge, the new e-business strategy allowed the firm to explore and target different markets. That was the case of the all-important | ||
Schumpeter’s Innovation Theory of Creative Destruction (Schumpeter, 1942) | Having benefited from a ‘pre-dot.com boom’ leading position in the jewellery market , ANG failed to add value across its business and benefit from a first mover advantage at both internal and external level upon the surge of e-commerce and generalisation of integration of micro-electronics into business operations | ||
Resource-based view (Penrose, 1959, Wemerfelt 1984, Barney 1991) | ANG strongly benefited from a relatively quick reaction from its managing director and IT manager. Both of them have been with the company for a long time, the latter has seen the ANG evolve from a single PC to a network of over 40 machines. The MD’s experience on similar projects and knowledge about the market was a clear key driver of success and so was the great amount of tacit knowledge brought in by the IT manager. In the particular case of employees, they learnt to accept the new systems and started demanding increasingly more from it. | ||
Dynamic Capability Approach on Competitive Forces (Teece 1988, Teece et al 1994, 1997) | It can be argued that ANG did not adapt to change in the market as quickly as some of its competitors but it did succeed in understanding the need to innovate later on and re-deploy its internal and external competences to add value across its business. Additionally, ANG perceived that a new e-business strategy could only be optimised if there was a full integration between its sales channels – B2B and B2C – and its back-office systems and processes. | ||
Strategic Network Theory (Dyer and Singh 1998) | ANG strategy for Fields of Dublin did not intend to increase turnover but rather add value to the service level. This clearly denotes an emphasis on lock-in. | 50% of the sales of Solvar were to the | |
Transaction cost economics (Coase 1937, Williamson 1975) | The new capabilities reduced impediments of time and distance barriers, being the latter particularly true for Solvar, therefore reducing the overall cost of transaction. | The main objective of the internal restructuration was improve efficiency, reduce time and effort and ultimately be self-sufficient. This proved to be particularly true for the accounting system, which became more accurate, reliable and less paper based. Therefore, ANG understood that by innovating in this particular field could reduce its transaction costs. | |
IV. Conclusions
ANG case study shows the importance of e-business in value creation across the firm. On the one hand, this is visible by the efforts placed on both B2B and B2C channels. In addition to the value drivers described on table 1 ANG capitalised on its strong and consolidated brand to increase customer retention. A prime reason for this was that customers are wary about online jewellery purchases and tend to favour the leaders in this market sector as a way of reducing risk. Another key driver for customer retention was Solvar’s new integration capabilities which enabled the company to meet individual needs of its customers and promote long-term relationships.
On the other hand, ANG saw its enterprise value increased by optimising its internal systems and procedures. Porter and Miller (1985) argued that market winners would be those who predicted first than their competitors the value of managing information as the core asset of the business. ANG’s new customer relationship management system ensured that the product offer was tailored to meet specific customer expectations.
Glazer (1999) proposed that winners are the ‘smart’ organisations that exploit advances in technology ahead of their ‘dumber’ competitors. Despite the fact that Glazer made this analysis in terms of strategic implications of operating in the information-rich world of e-commerce, a combination of his view with Penrose’s (1959) resource based view of the firm reveals that ANG was a ‘smart’ organisation not only because it invested in technology but managed to re-deploy intangible assets such as its managers, brand and long-term relationships with customers.
Using Andersen and Striukova’s (2004) taxonomy it is possible to argue that ANG’s intangible resources are embedded to a great extent in market structure assets. That is visible by the way the firm built new forms of communication and networking with its customers, focused on market positioning and customer loyalty and lastly used its brand name as an asset.
On the other hand, Brazil
According to the Schumpeterian theory of creative destruction ANG’s case would be deemed as a failure and Brazil
This reveals the need for an integration of the various theories in the analysis of value creation. Such integration becomes paramount when the intangible economy is estimated to be approximately 75% of GDP and employment in developed economies and accountancy practices generally ignore intangible assets as a source of value creation and competitiveness (Andersen and Striukova, 2004)
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