Strategic Implications of Intellectual Capital's Increased Contribution to Market Value.

• Author: Busbin, James W.

INTRODUCTION: THE EVOLUTION OF INTELLECTUAL CAPITAL

The early commercial history of the United States was punctuated by the Industrial Revolution and the innovation of production line assembly. During the following decades, the US was transformed into an industrial powerhouse of basic industries and grew to be the largest economy in the world. Of course, things have changed a great deal since then, especially since the 1980s which saw the emergence of the internet and commercial globalism. Since then, the US has lost many basic industries to global suppliers and has been transformed into more of an information-based economy rather than an industrial-based economy. Over this time, intangible assets, such as knowledge, have come to be recognized as a key to success, with observers declaring that we now live in an information age, a networked society, and a knowledge economy (Petty & Guthrie, 2000). Intellectual capital has become a crucial factor for a firm's long-term profit and performance in a knowledge-based economy as more and more firms identify their core competency as invisible assets rather than visible assets (Hsu & Fang, 2007).

During this transition, companies came to realize that their "know-how" relative to their products and markets was central to their competitive advantage, and "knowledge" came to be seen as an asset that was recognized and managed. Further, this led to the recognition of "knowledge-based competition" in strategic management, to the extent that experts claimed that knowledge was the most important source of competitive advantage and sustained superior performance (Drucker, 1995). From all this, knowledge management became the foundation from which the concept of intellectual capital (IC) emerged.

Another milestone in the evolution of intellectual capital came by way of defining "intellectual property." This assumed an accounting-like approach to knowledge in terms of considering trademarks, copyrights, patents, trade secrets, customized software, databases, formulas, and recipes (Hannah, 2006). Also, relational interactions between buyers and sellers were recognized to be intellectual property assets (Roy et al., 2004).

SHIFTS IN CONTRIBUTION AMONG MARKET VALUE INGREDIENTS

A firm's book value, as based on its balance sheet, is usually less than its market value. The most basic definition of intellectual capital (IC) is that intangible component that comprises the difference between book value and market value. There has been a...