2. Importance and contribution of
intangible assets: SME managers’
perceptions
Natasja Steenkamp and Varsha Kashyap
Massey University, Auckland, New Zealand
Abstract
Purpose – The purpose of this paper is to focus on small and medium enterprises (SMEs) in an
attempt to cover the gap in research on intellectual capital (IC) applied to SMEs. The paper informs the
debate on the importance of IC by providing empirical evidence of SME managers’ perceptions about
the importance and contribution of intangible assets to their businesses.
Design/methodology/approach – Questionnaires were sent to New Zealand SMEs investigating
managers’ perceptions about the importance of and the contributions that intangible asset components
make to their businesses, and to assess their familiarity with the term intellectual capital (IC) and their
preferences in using the term IC versus intangible assets. The results pertaining to the importance of
intangible assets were statistically analysed.
Findings – This paper informs that the broad assumption that intangible assets are important and
are value drivers of business’ success is valid for small and medium enterprises. The majority of
respondents perceive intangible asset components to be essential, very important and important to the
success of their business and that these components collectively make several contributions to their
businesses. Based on average rating, customer satisfaction ranked as the most important and
thereafter customer loyalty, corporate reputation, product reputation and employee know-how. A
minority of respondents indicated that only a few components are not very important and not
important at all, the least important component being distribution agreements, followed by employee
education and relationships with investors. The majority of respondents are familiar with the term IC,
and the same number prefer to use the term “intangible assets” as those preferring to use the term IC.
Practical implications – Providing evidence of SME managers’ perceptions of the importance and
contributions of intangible assets is essential to raise awareness among SME managers in
understanding, identifying and managing intangible assets that are important value drivers for their
businesses. Such awareness is essential in particular in countries where SMEs make up a significant
proportion of business and employment. The results of this study may be a benchmark for SME
managers unfamiliar and ignorant about the topic of this research.
Originality/value – This paper is the first providing empirical evidence as to SME managers’
perceptions about the importance of and the contributions of intangible assets to their businesses, as
well as about their familiarity with the IC concept and preference in using IC terminology.
Keywords Small to medium-sized enterprises, Intellectual capital, Intangible assets, Resources
Paper type Research paper
1. Introduction
A variety of disciplines (such as economics, organisation, strategy, management,
finance and accounting) and participants (including academics, standard setters,
professional bodies, government agencies, and consultants) are interested in intangible
assets (Lev and Zambon, 2003). Consequently, a plethora of terminologies are used in
discussing intangible assets. Terms generally used are “intangibles”, “intangible
assets”, “knowledge assets”, “intellectual capital”, “intangible capital” (Fincham and
Roslender, 2003b; Lev, 2001; Tomer, 2008), while terms such as “intellectual assets”
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
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Journal of Intellectual Capital
Vol. 11 No. 3, 2010
pp. 368-390
q Emerald Group Publishing Limited
1469-1930
DOI 10.1108/14691931011064590
3. (Bismuth and Tojo, 2008; Litschka et al., 2006; Robertson and Lanfranconi, 2001),
“intangible resources” (Bontis et al., 1999), and “knowledge resources” (Grover and
Davenport, 2001), are also used, but less frequently. Not only is there a plethora of
terminologies used in the intangible asset discourse but also, these terms are
sometimes used interchangeably (OECD, 2008) and ambiguously. Added complexities
in this research field are that there is no consensus as to the meanings and definitions
of these terms (Diefenbach, 2006; Sullivan, 2000; Sveiby, 1997) with an ongoing
definitional debate (Canibano et al., 2000; Guthrie et al., 2001; Holland, 2004; Lev, 2001;
van der Meer-Kooistra and Zijlstra, 2001). In the New Zealand (NZ) accounting
standard, an intangible asset is defined as: “An identifiable non-monetary asset
without physical substance” (New Zealand Institute of Chartered Accountants, n.d.).
However, in the intellectual capital (IC) literature, intangible assets are defined as:
“claims to future benefits that do not have physical or financial embodiments” and
“non-physical sources of value generated by innovation, unique organizational
designs, brands, and human resources” (Lev, 2001). These definitions indicate that
“intangibles” has a broader meaning in the IC literature than in prevailing accounting
standards. For clarity of meaning in the current study, the following definitions and
examples were provided. Intangible assets are: “all the assets/resources, elements and
capacities that are attributed to an organisation and contribute to the delivery of the
organisational strategy, which are not currently recognised and disclosed in the
balance sheet”. Intangible assets are collectively referred to as intellectual capital.
Examples of such intangible assets include among others skills, know-how, brands,
corporate reputation, organisational capabilities, relationships with customers and
suppliers, and employee innovativeness.
There is a bewildering array of articles and studies (conducted mostly on large
firms) investigating various issues on intangible assets and intellectual capital. There
is a general assumption and acceptance that intangible assets are critically important
in most organisations and that they make several contributions to the success of a
business. Consequently it is argued that it is critically important that intangible assets
be well understood, properly managed and that it should play a major role in the
strategic management process (Hall, 1992; Luthy, 1998; Marr, 2008). However, there is
scarce evidence as to whether this assumption and argument is valid for small and
medium firms. Moreover, there is yet no general standard that offers guidelines for
measuring and reporting on the performance of these value drivers (DiPiazza and
Eccles, 2002). Although this is a dilemma for large firms, more so for small and
medium size firms who may not even be aware that intangible assets are important
value drivers. Research on IC applied to SME managements’ perceptions as to which
intangible assets are most important and contribute to their businesses’ success in
particular is scarce. The current study attends to this gap and investigates if the broad
assumption and acceptance of the importance of intangible assets and their
contributions is relevant for SMEs.
The paper is structured as follows. Section 2 reviews the claims in the literature that
intangible assets are important and that they make contributions to business’ success.
The study’s research method is explained in section 3. Section 4 presents the results
and discusses the findings. The paper concludes with final comments and suggestions
for future research.
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4. 2. Literature review
2.1 Importance and contribution of intangible assets
It is argued that IC is one of three vital resources (the other two being physical and
financial capital/assets) of organisations (Bernhut, 2001; Luthy, 1998; Marr, 2008), and
although it is something you cannot touch, it is the pre-eminent resource making you
rich and for creating economic wealth (Edvinsson and Sullivan, 1996; Luthy, 1998).
According to Chen and Lin (2004) “the value-added created by human capital has
prevailed over that created by tangible assets, such as machines” (p. 116). Drucker
(1993) has argued that IC is the only meaningful resource, and not just another resource
alongside with the traditional production factors. Others argue that the relative
importance of tangible assets has decreased as the importance of intangible,
knowledge-based assets has increased and hence take precedence over traditional
physical resources in the pursuit of competitive advantage (Boedker et al., 2005b; Firer
and Williams, 2003; Gallego and Rodriguez, 2005; Holland, 2004; Marr et al., 2004;
Robertson and Lanfranconi, 2001; Ticha, 2008). In fact, claims have been made that
physical and financial assets are rapidly becoming commodities and are not primary
drivers of the expanding service sector (Lev, 2001; Rimerman, 1990), that it became
apparent during the 1990s that the asset composition of enterprises had significantly
changed (Lev and Daum, 2004). Stewart (1997) claims that wealth has become a
product of knowledge, and has in turn become the most important production factor.
Although these arguments are valid to a certain extent, the authors of this paper agree
with the literature arguing that the issue of IC is not new, as it has been around since
the first vendor established a good relationship with a customer: then it was called
goodwill (Brooking, 1996; Holland, 2004; Lev, 2001; Upton, 2001).
Researchers have highlighted the importance of IC as a key organisational resource
in creating and securing sustainable competitive advantages for an organisation
(Allee, 1999; Chen and Lin, 2004; Chen et al., 2005; Kong, 2008; Stewart, 1997; Wall et al.,
2004; Wright et al., 2001). The literature widely claims that IC resources are major and
key creators of wealth and value (Allen, 2002; Bontis et al., 1999; Elliot, 2000; Guthrie,
2001; Lev and Daum, 2004; Lev and Zambon, 2003; Prokopeak, 2008; Reed, 2001;
Robertson and Lanfranconi, 2001; Rylander and Peppard, 2003; Samek, 2000;
Vandemaele et al., 2005; Wallison, 2000). Other claims are that IC is a key element in an
organisation’s future earning potential and its capability to innovate, has a significant
and substantive impact on the business performance and success, drives its growth
and sustainability, gives firms a better competitive position in the market and that the
knowledge residing in it plays an important role in creating economic power (Hall,
1992; Maguire, 2008; Marr, 2008; Stewart, 1997; Subramanium and Youndt, 2005;
Ticha, 2008). According to the OECD (2008), other benefits which IC contributes to
firms include among others improving customer acquisition and retention, enhancing
employee motivation, recruitment, and retention, increasing firms’ competitiveness,
enhancing efficiency of resource allocation and better project management.
If these claims are valid then it is critical for managers to know which intangible
asset components are important to their businesses so that they can gather information
about them that will assists them in utilising and managing them effectively to create
value and secure sustainable competitive advantages for the firm. One way of gaining
knowledge about which intangible assets might be important to a firm is by learning
from other firms’ experiences. One way of discovering other firms’ experience is by
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5. exploring the literature in the hope of finding empirical evidence about other firms’
perceptions. However, there appears to be a lack of such evidence in the literature as
illustrated in the next discussion.
2.2 Empirical evidence pertaining to the importance and contribution of intangible
assets
Some authors claim that business is aware of the importance and contributions of IC.
For example, Prokopeak (2008) writes: “more and more businesses are realising the role
that the knowledge residing in their intellectual capital plays in creating economic
power and value”, and Edvinsson and Sullivan (1996) state: “today successful
knowledge firms recognise that intellectual capital is a major source of value and
leverage”. Guthrie and Petty (2000) conducted a content analysis on the top 20
Australian listed companies as at December 1998, and report: “the average number of
attributes reported for each company is high enough to suggest that there is an
awareness of the importance of IC” (p. 246). However, empirical evidence of studies that
had investigated management’s perceptions of the importance and contribution of IC
and thus backing these claims are scarce. Hall (1992) used a questionnaire to survey
847 UK Chief Executive Officers to determine the relative importance of the
contributions which each intangible resource makes to the success of business. The
response rate of this study was low (11 per cent or 95 respondents). Intangible
resources were ranked in order of importance. The most important to business success
were found to be company reputation, product reputation, employee know-how and
culture. Another study that provides empirical evidence is that conducted by CCHCR.
They undertook two surveys, one in 2000 and the other in 2004. In both periods 300
managers in Austria were asked what importance managers attach to their companies’
IC and what exactly they understand when hearing the term “human capital” (one of
three categories of IC – the other two are typically described as relational (or external)
and structural (or internal) capital). In the 2000 survey, 60 per cent ascribe big
importance to IC and 58 per cent of the respondents had no specific idea what “human
capital” means (Litschka et al., 2006). In the 2004 survey, most managers assigned
qualifications and knowledge, personnel resources and IC to “human capital”, and on a
scale of 1 to 5 (1 being not important and 5 very important), managers’ perception was
an average of 3.8. Hollis (2004) also reported about a global survey, conducted by
Accenture[1], which found that half of senior executives believe managing intangible
assets is one of the top three management issues companies face, and 94 per cent said
managing intangible assets and/or IC is an important management issue. Nearly half
(49 per cent) said intangible assets are the primary source of long-term shareholder
wealth creation for their companies. DiPiazza and Eccles (2002) report that executives
not only considered nonfinancial value drivers such as product and service quality,
customer satisfaction and loyalty, and operational efficiency to be more important
value drivers than current accounting results, but also gave high priority to these
drivers as determinants of future financial results and that they consider these value
drivers in making internal decisions.
However, we were unable to find evidence of research that focussed on the
significance of intangible assets applied to SMEs. Not only does this leave a gap in the
literature but more importantly, there is a lack of information, knowledge and
understanding of which intangible assets are important value drivers in particular for
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6. countries where SMEs make up a significant part of the country’s economy and
employment. The current study attempts to fill these gaps. The research method of the
current study is discussed in the following section.
3. Research method
We sent a postal questionnaire to NZ[2] small and medium enterprises (SME) so as to
ascertain managers’ perceptions about the importance and contributions of intangible
asset components to the success of their businesses. We also assessed participants’
familiarity with the term IC and their preference as to using the terms IC, intangible
assets or a term of their own. Questionnaires were used as they are relatively cheaper
to administer than any other method that can be used to gather opinions and responses
of the sample population and can be sent out in large quantities (Bryman and Bell,
2007).
3.1 Defining small and medium enterprises
There is no universally used definition of what constitutes small business and by what
criteria it should be measured (New Zealand Ministry of Economic Development, 2009;
Tweed and McGregor, 2005). The concept of small business is topically interpreted in
terms of small and medium enterprises (SME). Internationally, SMEs constitute a
diverse and dynamic group of enterprises and the firm size is measured in a variety of
ways. Although numbers of employees, sales figures, assets and industrial
classification are typically used to determine size, the diverse structures of
economies make a single statistical definition impractical. The main criterion that
OECD countries, including NZ, use for statistical purposes is the number of persons
employed (OECD, 2004). While the latest report of the New Zealand Ministry of
Economic Development (NZ MED, 2009) defines New Zealand SMEs as enterprises
with 19 or fewer employees, the definition of Tweed and McGregor (2005) was useful in
this study. SME is defined as entities with less than one hundred employees.
3.2 The NZ context
NZ is an island country, comparable in size (268,680 sq. km) to the UK and the
Philippines (Statistics New Zealand, 2010), has a diverse multicultural population of
just over four million people, is ethnically diverse, and has a strong culture of
independence (Tweed and McGregor, 2005). While 0.1 per cent of the world’s
population live in NZ, its economy produces about 0.3 per cent of the world’s material
output (Statistics New Zealand, 2010). Although NZ small businesses are very small by
international standards, their dominance in terms of employments, organisational
structure and social and economic cohesion is significant (NZ MED, 2010; Tweed and
McGregor, 2005). In the year ending March 2006, SMEs accounted for 39 per cent of the
economy’s total output (NZ MED, 2010). The private sector accounts for 82 per cent of
employment in NZ and 18 per cent employed by government. NZ businesses are
typically small, 97 per cent of businesses employ fewer than 20 people and during 2009,
only 2,143 businesses (only 4.5 per cent of a total 476,558 businesses) employed more
than 100 employees (NZ MED, 2010). At February 2007, 89 per cent of enterprises
employed 5 or fewer people, and 68 per cent of enterprises had no employees (NZ MED,
2010). For 2009, SMEs with less than 20 full time employees (FTE) accounted for 30.6
per cent (587,520) of total employment (1,919,280), SMEs with less than 50 FTE
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7. accounted for 43.9 per cent (841,950) of total employment (1,919,280) and firms with 5
or fewer employees accounted for 12 per cent of all employees (Statistics New Zealand,
2010). However, the privately owned SME sector accounts for a total of 90.5 per cent of
SME employment (New Zealand Ministry of Economic Development, 2009). Since
SMEs make up a significant proportion of business and of employment in NZ, these
businesses are vital in the NZ economy. It is therefore important to include SME in
research conducted in NZ. It is expected that the results of this study will provide
useful information to SME managers in NZ in particular and other countries in which
SME make up a significant part of their economies and employment. The expected
results of this study should raise awareness about important value drivers of SMEs,
and should prompt management to consider intangible assets in making decisions and
to start collecting information about these value drivers, so as to enable them to
manage them effectively.
3.3 Sample
Most SMEs in NZ are found in regions with large urban centres (New Zealand Ministry
of Economic Development, 2009) of which Auckland is the biggest. The number of
geographic units with fewer than 20 employees in the Auckland region accounts for 31.2
per cent (144,635 of a total 463,952). Hence the sample was selected from the Auckland
region, using a nationwide database, the universal business directory (UBD website at
www.ubd.co.nz). Following Litschka et al. (2006) we selected 300 firms across 28
different categories as classified in the database. Only 290[3] questionnaires were mailed.
All returned questionnaires were from seven categories only (see Appendix 1).
3.4 Questionnaire design
The questionnaire was trialled[4] and improved during February 2009. A refined
questionnaire was mailed to the sampled firms in the beginning of March 2009. The
questionnaire should only have taken between 10-15 minutes to complete, but some
were received back with notes such as “sorry, no time to complete”. The questionnaire
consisted of four sections. Section 1 gathered geographic information about the firms.
Section 2 assessed participants’ familiarity with and the use of IC terminology. In
section 3, participants’ perceptions about the importance of intangible asset
components were assessed, using a Likert scale of 1 to 5 (1 being “essential”, 2
“very important”, 3 “important”, 4 “not very important” and 5 “not important at all”).
Section 4 included 16 contributions (as discussed earlier in the literature review) that
intangible assets make to businesses’ success.
3.5 Responses
While this study’s response rate is a low 10 per cent (only 30 completed responses were
received), it is not inconsistent with other studies of this nature[5]. This study’s low
response rate may explain the apparent gap of research on IC focussing on and applied
to SMEs. Some possible explanations for the current study’s low response rate not
being higher include: the lack of time to complete (as indicated by some returned and
unanswered questionnaires); the time of the year asked to complete the questionnaire
(the financial year end of many firms is 30 April); the lack of interest and relevance of
the research issue and topic to some of the respondents, or in contributing to academic
research; the complexity of the topic and it unresolved nature; the lack of knowledge
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8. and understanding of the topic and consequently considered to be too “hard”; and the
delivery method (there is the risk of incorrect addresses[6] when sending mail
questionnaires).
However, low response rates do not invalidate the perceptions of the respondents
and therefore do not invalidate the empirical evidence. Low response rates merely limit
the generalisation of the findings to the population. We therefore acknowledge that our
results may not be representative of the whole population of SMEs of New Zealand.
Despite this limitation, the results are interesting, informative and insightful. The
study thus contributes to cover the gap in the research about the importance of
intangible assets applied to SMEs. The results are discussed next.
4. Results and discussions
The results are presented and discussed separately for the four sections of the
questionnaire.
4.1 Section 1: geographic information
We anticipated analysing the results statistically so as to better understand and
explain them and gathered geographic information about the respondents. We first
provided a list of different executive and managerial positions typically found in
businesses and participants were asked to tick the most appropriate box describing
their positions. The results are summarised in Table I.
An interesting result shown in Table I is that except for five respondents (i.e. three
financial managers and two office and administration managers) most respondents
identified with positions that have a general and overall governance role. One
deduction of this results is that the firms in the current study are very small and do not
have too many different managerial positions.
Secondly, we hypothesised that there might be a correlation between the number of
employees and the relative importance of components of the three IC categories.
Therefore, participants were asked to write down the number of full-time employees
(FTE). The results of 25[7] firms were useable. The minimum number of FTE is 2, the
maximum 50, the median 13 and only 7 of the 25 firms have more than 20[8] FTE.
These results confirm our deduction that the sampled firms are on the small end of the
SME continuum.
Governance and managerial positiona
Number of
respondents
General manager 15
Financial manager 3
Office and administration manager 2
Managing director 4
Chief executive officer 1
All of the above (including marketing/sales, production, human resource manager) 5
Total number of respondents 30
Note: a
Although the questionnaire also included the positions of marketing/sales manager,
production manager, and human resource manager, no participant identified with them
Table I.
Executive and
managerial positions of
respondents
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9. 4.1 Section 2: familiarity with and use of terminology
Based on the propositions that intangible, knowledge-based assets have increased in
recent years and are primary value drivers of the so-called new economy, we assumed
that the IC concept might be a rather new one to SMEs in NZ. We assumed that
management might be more familiar with the term “intangible assets” and therefore
used this term in the cover letter and sections 2, 3 and 4 of the questionnaire. In
section 2, we provided five statements to test these assumptions, to ascertain
managers’ familiarity with the term “intellectual capital” and to assess their preference
in using IC terms. We also provided the definition of “intangible assets” and examples
of such assets (as articulated in the introduction section of this paper), and informed
participants that intangible assets are collectively referred to as intellectual capital.
Table II contains the results pertaining to the five statements provided in section 2.
Table II shows the majority (83 per cent) of respondents are familiar with the term
intellectual capital, and that the number of respondents preferring to use the term
intangible assets is equal to those preferring to use the term intellectual capital (9
responses each). Seven of the 25 respondents who are familiar with the term IC
indicated that they do not use either the term IC or intangible assets. Not surprisingly,
in line with the literature (Brooking, 1996; Holland, 2004; Lev, 2001; Upton, 2001), two
of these seven respondents stated they used the term “goodwill”. Three did not specify
a preferred term, one wrote “unknown”, and one commented “know about it, but don’t
talk about it”. This is an interesting comment as it raises questions as to what is meant
by “talk”: does the firm deploy its IC in its business but do not verbalise what they do?
Or does it mean that they are aware of IC but do not utilise and manage these value
drivers in the day-to-day operations of their business? This comment suggests a
potential avenue for future research.
4.2 Section 3: importance of intangible assets
There have been a number of attempts to identify the various constituents of IC
(Fincham and Roslender, 2003b) and several categories have been identified. However,
two conceptual frameworks are predominantly used and both typically classify IC into
three categories. The framework often used in northern hemisphere and European
studies (see for example Bontis et al., 2000; Edvinsson and Malone, 1997; Fincham and
Roslender, 2003b; Ordonez de Pablos, 2005; Roos et al., 1997; Tovstiga and Tulugurova,
2009) classifies IC into human, relational and structural capital categories, whereas the
framework often used by researchers in the southern hemisphere and Australasia
classifies IC into human, external and internal capital categories (see for example
Abeysekera, 2008; April et al., 2003; Boedker et al., 2005a; Guthrie, 2001; Guthrie et al.,
Alternatives
Number of
respondents
I had not heard or read about IC prior to this survey 4
I had heard about IC, but did not understand what it was about prior to this survey 1
I am familiar with the term and use the term IC instead of “intangible assets” 9
I am familiar with the term IC but prefer to use “intangible assets” 9
I am familiar with the term, but do not use either IC or “intangible assets” 7
Total number of respondents 30
Table II.
Familiarity and use of
terminology
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10. 2004, 2006; Schneider and Samkin, 2008; Steenkamp, 2007; Whiting and Miller, 2008).
The descriptions and classifications of the three categories for these two prominently
used frameworks are the same in principle. Relational capital is the same as external
capital, and structural capital as internal capital. A variety of IC components (also
referred to as items or elements) have been identified for each of the three typical
categories, ranging from between 17 and 45 components. We selected 23 of the most
prominently featured components for inclusion in our questionnaire. In section 3 we
asked participants to indicate, using a scale of 1 to 5, the importance of each of the 23
components to the success of their business. The scale indicates the following:
1 ¼ essential, 2 ¼ very important, 3 ¼ important, 4 ¼ not very important, and
5 ¼ not important at all. The results are summarised in Table III.
Table III shows that all 23 intangible asset components listed are regarded as being
essential and very important by at least one respondent. In total 87 per cent of all
respondents perceived the 23 components as being essential (185 scores or 27 per cent),
very important (236 scores or 35 per cent) and important (169 scores or 25 per cent).
Interestingly, Table III shows that the two components with the highest scores overall
(customer satisfaction[9] and customer loyalty) are perceived as being essential. Another
interesting result shown in Table III is that many respondents indicated that
Components of intangible assets 1U 2U 3U 4U 5U Total
1. Employee innovativeness 4 15 9 1 1 30
2. Employee know-how 13 9 7 0 1 30
3. Employee work experience 7 10 9 4 0 30
4. Employee education/qualifications 2 5 15 7 1 30
5. Employee job satisfaction 7 15 7 1 0 30
6. Employee loyalty 10 11 8 1 0 30
7. Training of employees 7 12 9 0 1 29a
8. Customer satisfaction 22 7 0 0 1 30
9. Customer loyalty 19 10 0 0 1 30
10. Databases 3 10 13 2 2 30
11. Intellectual property 7 10 7 4 2 30
12. Distribution agreements 4 4 10 7 4 29a
13. Management systems 9 13 5 2 1 30
14. Technological processes 3 12 9 4 2 30
15. Brands 10 10 5 3 2 30
16. Corporate reputation 15 9 5 1 0 30
17. Product reputation 14 10 4 1 0 29a
18. Corporate culture 1 15 10 4 0 30
19. Supplier know-how 5 11 12 2 0 30
20. Distributor know-how 3 10 11 4 1 29a
21. Relationships with suppliers 9 12 8 1 0 30
22. Relationship with investors 6 7 5 4 4 26a
23. Relationship with other stakeholders 5 7 1 1 4 18b
24. Other components 0 2 0 0 1 3a
Totals 185 236 169 54 29 673
Notes: U1 ¼ Essential, 2 ¼ Very important, 3 ¼ Important, 4 ¼ Not very important, 5 ¼ Not
important at all; a
not all respondents answered these questions; b
12 respondents indicated this
component is not applicable (N/A) to them
Table III.
Responses about
importance of intangible
assets components
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11. components number 23 and 24 are not applicable to them. Consequently, these two
components are omitted from the data in doing the statistical analyses.
4.3 Statistical analyses
We used the results in Table III to do two lots of statistical analyses, using SPSS and
MINITAB. First, we were interested to find out the relative importance of components
within each of the three IC categories. Hence, the 22 components listed in Table III were
classified into three IC categories, based on the classification schemes of the two IC
frameworks predominantly used in IC research. A table showing the categories of the
components is attached as Appendix 2. The results of the relative importance of the
components within the three IC categories are presented in Figures 1-4. Figure 1 shows
the proportions (1 ¼ essential, 2 ¼ very important, 3 ¼ important, 4 ¼ not very
important and 5 ¼ not important at all) of components within each of the three IC
categories (external capital, human capital and internal capital).
Figure 1 shows that most components in the external capital (EC) category are
considered as being essential (36.6 per cent) whereas in the human capital (HC) and
internal capital (InC) categories, most are regarded as being very important (36.8 per
cent for HC and 40 per cent for InC). Figure 1 also shows more components in the EC
category are considered as being essential (36.6 per cent) than the components
perceived as essential in the other two IC categories (23.9 per cent for HC and only 15.3
per cent for IC). Interestingly, more components in the HC category are regarded as
essential, very important and important (91.3 per cent in total) than those in the EC
(87.6 per cent) and in the InC categories (84.6 per cent). Also, in the HC category only 1.9
per cent of components were perceived as not important at all as opposed to 4.5 per
cent in the EC category and 4.7 per cent in the InC category.
Furthermore, we were interested in the relative importance of each component
within the three IC categories for the five levels of importance for the three IC
Figure 1.
Relative importance of
components within the
three IC categories
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377
12. Figure 2.
Relative importance of
components within five
levels for the human
capital category
Figure 3.
Relative importance of
components within five
levels for the external
capital category
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13. categories. The results for HC, EC and InC components are shown in Figures 2-4
respectively.
Figure 2 indicates that all seven components in the human capital category are
regarded as being essential, very important and important. The component with the
biggest proportion for being “essential” is employee know-how, followed by employee
loyalty. Figure 2 clearly shows that employee education/qualifications is regarded as
not very important, and that only four of the seven components in the human capital
category are considered as “not important at all”, namely employee innovativeness,
know-how, education and training of employees.
Figure 3 indicates that all ten components in the external capital category are
considered as being “essential” and as “very important”. Only 6 of the 10 components
in the EC category are perceived to be “not important at all”. Figure 3 clearly shows
that the two components with the highest proportions of being “not important at all”
and “not very important” are distribution agreements and relationship with investors.
Figure 4 shows, different to the HC and EC categories in Figures 2 and 3, that all five
components in the internal capital category are perceived as being essential, very
important, important and not very important. The only component excluded from “not
important at all” is corporate culture, clearly shown as being perceived as very
important and important by many respondents. The component management systems
has the highest proportion for being perceived as essential, followed by intellectual
property.
In the second lot of statistical analyses we performed two-sample t-tests, paired
t-tests and Pearson correlations to determine if there are associations between the
number of employees and the perceived importance of intangible assets. First, we
grouped the results presented in Table III in two groups: firms with more than and
firms with less than 20 employees. We compared the results of these two groups for HC
components, then EC and then InC components. The p values are as follows: 0.627 for
HC, 0.427 for EC and 0.665 for InC. Thus, we cannot find evidence to reject the null
Figure 4.
Relative importance of
components within five
levels for the internal
capital category
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379
14. hypothesis that there is no difference between SME managers perceptions about the
importance of intangible assets (of firms with more than and firms with less than 20
employees). Second, we did paired t-tests for firms with more than 20 employees and
then for firms with less than 20 employees, determining the importance of HC
compared with EC (p value 0.459 for firms with more than 20 employees, and 0.809 for
firms with less than 20 employees), and HC compared to InC (p value 0.162 and 0.115
respectively for the two groups). Third, we tested the hypothesis that there is a
correlation between the number of employees and the average ratings of components
within the HC, EC and InC categories. P values for these correlations are 0.732, 0.819
and 0.864 respectively.
In conclusion, the current study’s results show no evidence that there is a correlation
between the number of employees and the received importance of components in the
three IC categories. Thus, the number of employees does not affect the ratings of
components’ perceived importance.
4.4 Relative importance of intangible asset components
We were also interested to find out how the components rank in order of importance.
We used the results in Table III to calculate the average rating for each component.
The average rating and ranking are shown in Table IV.
The current study’s findings are in line with prior research. In another study[10],
product and service quality and customer satisfaction and loyalty were perceived as
Rank Components of intangible assets Average rating
1 Customer satisfaction 1.37
2 Customer loyalty 1.47
3 Product reputation 1.72
4 Corporate reputation 1.73
5 Employee know-how 1.90
6 Employee loyalty 2.00
7 Relationships with suppliers 2.03
8 Employee job satisfaction 2.07
9 Management systems 2.10
10 Training of employees 2.17
11 Brands 2.23
¼ 12/13 Employee work experience 2.33
¼ 12/13 Employee innovativeness 2.33
14 Supplier know-how 2.37
15 Intellectual property 2.47
16 Relationship with other stakeholders 2.56
17 Corporate culture 2.64
18 Distributor know-how 2.66
¼ 19/20 Technological processes 2.67
¼ 19/20 Databases 2.67
21 Relationship with investors 2.73
¼ 22/23 Employee education/qualifications 3.00
¼ 22/23 Other components 3.00
24 Distribution agreements 3.1
Average for total 2.3
Table IV.
Rank and average rating
of each intangible asset
component’s importance
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15. the most important value drivers (DiPiazza and Eccles, 2002) and Hall (1992) reported
the most important components to business success are corporate reputation, product
reputation, employee know-how and culture. Interestingly, Hall did not include
customer satisfaction and customer loyalty in his questionnaire. The average rating of
all components shown in Table IV of 2.3 informs us that managers in our study
generally perceive intangible asset components as being between very important and
important. This result is in line with that of Litschka et al. (2006) who reported
managers’ perceptions to be an average of 3.8 (1 being not important and 5 being very
important) in their study.
4.5 Section 4: contribution of intangible assets
Section 4 of the questionnaire was designed so as to test the claims in the literature that
intangible assets make several contributions to businesses. Sixteen such contributions
were provided and participants asked (using their own words as far as possible) to
describe which intangible asset component(s) make such contribution(s). Table V lists
the 16 contributions given in the questionnaire and a summary of the responses mostly
provided.
Evident in Table V is that for all contributions listed here, various aspects of
“employees” are mentioned. This suggests that employees are crucial to business and
that employees contribute to all areas of the business. It also suggests that managers
have first-hand practical experience of claims in the literature namely that intangible
assets such as human resources are enablers of other corporate resources, have
considerable overflows, are entangled and inert (Lev and Daum, 2004; Lev and
Zambon, 2003; Mouritsen, 2003). These deductions explain and support the findings in
Figure 1, that the majority of components in the human capital category are perceived
as essential, very important and important. Another interesting observation shown in
Table V is that many respondents used the word “people” when identifying
components that make contributions. Since “people” could mean employees,
customers, suppliers and investors, examining the meaning of “people” would make
an interesting investigation for future research.
Noteworthy to mention is that some respondents specifically commented in
answering Section 4 that there is a link between the importance and contributions of
intangible asset components. For example, one wrote that all those components
indicated as being essential in section 3 of their response (i.e. employee innovativeness,
employee know-how, employee work experience, training of employees, customer
satisfaction, customer loyalty, corporate reputation) have a significant impact on their
operating activities. Another wrote that “the total package” contributes to their
business, except the components being identified as “not important at all” to this
particular firm (which are: databases, distribution agreements, brands and distributor
know-how). It is clear that the two components shown in Table III (with the highest
scores overall) that managers perceive as essential (i.e. customer satisfaction – 22
scores, and customer loyalty – 19 scores) prominently feature in Table V as
components making contributions to business.
The most striking comment managers provided in answering section 4 is about the
difficulty of separating intangible assets into different components. One respondent
replied: “the fact is all of the IC is a contributor to the aspects of business performance
that you have listed” while another said: “it is difficult to say ‘single’ components of IC
Intangible assets
381
16. Contribution to your business Intangible asset components making such contribution
Help our organisation to adapt to rapid
change
Employee, innovation, systems, people, can do attitude of
staff, employee skills and training
Drive innovation Innovation and intelligence of employees, people, staff
know-how
Add value to our organisation Satisfied employees, employee work experience, staff, all
except databases, distribution agreements, distributor
know-how, customers, customer satisfaction
Are the chief source of wealth of our
organisation
Customers know-how, brand, product reputation, loyal
consumers, all except databases, distribution agreements,
brands, distributor know-how, customers, employee
commitments
Give our organisation a competitive
advantage
People, employee innovativeness, know-how, work
experience, training, product reputation and quality,
innovation, brand loyalty, all except databases, distribution
agreements, brands, distributor know-how, personal
relationship with clients
Have a significant impact on our
operating activities
Employee innovativeness, know-how, work experience,
loyalty and training, customer satisfaction, loyalty and
relationships, determine how things have been done, all
except databases, distribution agreements, brands,
distributor know-how
Are critical to the future success of our
organisation
Customer satisfaction and relationships, brand, reputation,
employee innovativeness, know-how, work experience,
loyalty and training, customer satisfaction and loyalty,
company and product reputation, all except databases,
distribution agreements, brands, distributor know-how,
relationships, technical skills
Drive our organisational strategy People, employee innovativeness, know-how, work
experience, loyalty and training, customer satisfaction and
loyalty, product reputation, all except databases,
distribution agreements, brands, distributor know-how,
strong leadership by management
Drive our organisation’s growth People, employee innovativeness, know-how, work
experience, loyalty and training, customer satisfaction and
loyalty, product reputation, all except databases,
distribution agreements, brands, distributor know-how
Help us to make informed decisions Employees innovativeness, know-how, work experience,
loyalty and training, customer satisfaction and loyalty,
technologies, management systems, all except databases,
distribution agreements, brands, distributor know-how, KPI
Improve customer acquisition and
retention
People, reputation, employee innovativeness, know-how,
work experience, loyalty and training, customer satisfaction
and loyalty, all except databases, distribution agreements,
distributor know-how, product knowledge and technical
skills
Improve employee recruitment and
retention
Employee innovativeness, know-how, work experience, job
satisfaction, loyalty and training, customer satisfaction and
loyalty, corporate reputation, brands
(continued)
Table V.
Contributions of
intangible asset
components to business
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17. contribute directly to the above results in our business”. These comments support and
highlight the criticisms as discussed in the literature relating to the problematic issues
of framing and separating IC, and of constructing distinct boundaries around IC
(Fincham and Roslender, 2003a; Gallego and Rodriguez, 2005; Lev and Zambon, 2003;
Mouritsen, 2003). Intangible asset resources have considerable overflows, and cannot
be seen in any distinctive way because they function in connection with one another.
Most intangibles, such as human resources, are enablers of corporate resources, rather
than standalone assets (Lev and Zambon, 2003), and competencies found in the
relationships between human, organisational and customer “capitals” are all entangled
resources or assets, and are not separated (Mouritsen, 2003). Intangible assets are inert,
they do not create value by themselves but in conjunction with other organisational
factors, and as such, companies need an understanding of their role in the overall value
creation process (Lev and Daum, 2004). Thus, it is difficult to disentangle many
intellectual assets because they are part of the sphere of a firm’s production process
and when in use they are complementary to other assets.
5. Conclusion and areas for future research
This study covers the gap in the research on IC applied to SMEs. The paper provides
evidence that the assumed broad acceptance about the importance of intangible assets
and their contribution to business success is valid not only for large entities but for
SMEs as well. This is important evidence to raise awareness among SME managers
that understanding, identifying and managing intangible assets are important, as
these resources are important value drivers and give their businesses a competitive
advantage. Such awareness is essential in particular in countries in which SMEs make
up a significant proportion of the country’s business and employment. The results of
this study provide useful information about which intangible assets other SME
managers perceive are important and make contributions to their businesses. This
Contribution to your business Intangible asset components making such contribution
Enhance employee motivation and
loyalty
Employee innovativeness, know-how, work experience,
loyalty and training, customer satisfaction and loyalty,
management systems, all except databases, distribution
agreements, brands, distributor know-how, job satisfaction,
skills and training
Enhance strategic planning People, investors relationships, employee innovativeness,
know-how, knowledge, work experience, loyalty and
training, customer satisfaction and loyalty, management
assistance, all except databases, distribution agreements,
brands, distributor know-how
Enhance project management Employee innovativeness, know-how, work experience,
loyalty and training, customer satisfaction and loyalty, all
except databases, distribution agreements, brands,
distributor know-how
Enhance efficiency of resource
allocation
Employee innovativeness, know-how, work experience,
loyalty and training, customer satisfaction and loyalty,
management assistance and systems, all except databases,
distribution agreements, brands, distributor know-how Table V.
Intangible assets
383
18. information may be a starting point and benchmark for SME managers who are
unfamiliar and ignorant about these aspects. The study also supports the literature
that it is problematic to frame and separate IC components. Respondents clearly
indicated that their intangible assets have considerable overflows, are entangled and
inert, and that their people are key contributors to the success of their businesses, and
are enablers of other corporate resources.
This study adds to the limited prior descriptive evidence in the area of the
importance and contribution of intangible asset components (DiPiazza and Eccles,
2002; Hall, 1992; Hollis, 2004; Litschka et al., 2006). Our study gives empirical evidence
as to claims in the literature that IC is important and makes several contributions to the
success of businesses and in particular filling the gap of such evidence for SMEs. The
paper indicates that managers of SME in the Auckland region in NZ consider the
majority of intangible asset components as being essential, very important and
important to the success of their businesses and that these components collectively
contribute to several aspects of their businesses. The components that the majority of
respondents rated as being “essential” to the success of business are customer
satisfaction (highest score), followed by customer loyalty and corporate reputation and
then product reputation. Based on average ratings, these four components also rank as
the four most important relative to the other components in the questionnaire.
The statistical analyses when categorising the components into three IC categories
show that most components in the external capital category are perceived as being
essential, and those in the human and internal capital categories are being perceived as
very important. Also, more components in the human capital category are considered
being essential, very important and important in total than in the other two categories.
Our statistical analyses to determine if there are correlations between the number of
employees and the importance of intangible assets, and the number of employees and
the three IC categories all show no evidence of such associations. We can conclude that
the number of employees does not affect SME managers’ rating of the importance of
intangible asset components.
The completed questionnaires showed no evidence that respondents had difficulty
with identifying the level of importance for the 23 standalone components. However,
when asked to identify intangible asset component(s) that make specific contributions,
they commented that separating IC into different components is problematic. Their
answers clearly show that their intangible assets are entangled, have considerable
overflows and that people are essential contributors to all areas of their businesses.
This suggests that separating IC into different components is only meaningful to help
executives and managers in identifying and understanding their important value
drivers so that they can manage them effectively. However, disentangling IC into
different components or even categories is a futile exercise in investigating and
understanding the contributions IC makes, and in determining their value to a
business.
These conclusions must be moderated by the following considerations. First, while
the database for the sample selection is comprehensive, it is not exhaustive. In
particular, there is the possibility of a bias against SMEs that were not included in the
database. Nonetheless, there were still a significant number of SMEs listed in the
database. Second, the use of a small sample and a questionnaire approach raises
certain difficulties. Therefore, it is not suggested that the responses received are in any
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384
19. sense statistically representative of the views of SMEs in NZ, or that a fairly short
questionnaire is the optimal method of eliciting respondents’ views on a complex topic.
However, in spite of the limits to what can be concluded from the results of the current
study, the data can complement other research in this area. For example, the
management practices, governance arrangements and growth aspirations of SMEs in
NZ are generally considered to be qualitatively different to larger firms (NZ MED,
2010). Hence this study’s results can complement those of similar studies conducted for
large NZ entities.
Issues of key interest for future research are to explore SME management practices
regarding governing their intangible assets, what information they record and how
they apply this in their businesses to create value. Such data might be relevant and
useful to large enterprises, in NZ as well as internationally. Other suggestions for
future research are replicating the current study to determine similarities and
difference in the following scenarios:
.
SME in Auckland region with other urban centres in NZ;
.
SME in NZ with SME internationally;
.
NZ SME with NZ large entities;
.
NZ large entities with international large entities; and
.
SMEs with large entities.
Other possible avenues to further explore relate to comments of respondents. A few
respondents indicated that “people” make several contributions to their businesses.
Exploring the meaning of “people” might shed light on components classified in the
human capital category. Currently, employees are classified as human capital, whereas
suppliers, customers and investors are categorised as components of external or
relational capital. Perhaps all people should be grouped together in a single category
such as human capital?
Notes
1. A global management consulting, technology services and outsourcing company.
2. Both researchers reside in New Zealand.
3. Ten firms were excluded based on the authors’ knowledge about these firms not being SME,
for example Massey University appeared among the firms in the sample.
4. We trialled the questionnaire for clarity in three rounds. First, academic staff in the School of
Accountancy took part. The questionnaire was improved and postgraduate students took
part in a second round. Some further improvements were made and the questionnaire was
finally given to SME managers known to one of the authors. Although the results of this
pilot are not analysed and discussed in this paper, it is worthwhile mentioning that all
managers in the pilot study rated customer satisfaction as essential. Relative to other
components, customer satisfaction also ranked first in order of importance. In sum, the
perceptions of SME managers taking part in the trial study were very similar to those of
SME managers in the final study.
5. The response rate of Hall (1992), surveying 847 UK CEO’s to determine the relative
importance of the contributions which each intangible resource makes to the success of
business, was a low 11 per cent.
Intangible assets
385
20. 6. Despite taking necessary precautions in obtaining correct addresses (i.e. postal codes and
addresses were verified with the yellow and the white pages as well as with the NZ postal
code website), 16 (5.5 per cent of the sample) unanswered questionnaires were received being
marked “return to sender”, with reasons such as “business ceased” and “address changed”.
7. Four respondents did not provide the number of employees and there was one outlier firm,
stating they have 200 employees. Upon investigation it was discovered that this firm has 15
branches and the 200 employees is the number of FTE for the whole of NZ and not only for
the Auckland region.
8. We used the number of employees for SME as per the NZ MED definition to form two groups
for statistical analyses: one group for companies with more than 20 employees and the other
group for companies with less that 20 employees.
9. Intangible asset components are shown in italics.
10. A PricewaterhouseCoopers Management Barometer Survey investigating 157 US executives’
perceptions of eight value drivers in 2001.
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Intangible assets
389
24. Appendix 1
Appendix 2
About the authors
Natasja Steenkamp is a Senior Lecturer in the School of Accountancy, Auckland campus of
Massey University. Her research interests are in the areas of intellectual capital and
sustainability. Natasja Steenkamp is the corresponding author and can be contacted at:
n.steenkamp@massey.ac.nz
Varsha Kashyap is a postgraduate student in the School of Accountancy, Auckland campus
of Massey University. Her research interests are in the area of intellectual capital.
Category Number of respondents
Building and maintenance 7
Business services 8
Computer and electronics 4
Health and beauty 2
Home and garden 2
Industrial 3
Food and drink 3
Unidentified response 1
Total respondents 30
Table AI.
Categories of firms
represented in sample
Intangible asset components Human capital External capital Internal capital
1. Employee innovativeness U
2. Employee know-how U
3. Employee work experience U
4. Employee education/qualifications U
5. Employee job satisfaction U
6. Employee loyalty U
7. Training of employees U
8. Customer satisfaction U
9. Customer loyalty U
10. Databases U
11. Intellectual property U
12. Distribution agreements U
13. Management systems U
14. Technological processes U
15. Brands U
16. Corporate reputation U
17. Product reputation U
18. Corporate culture U
19. Supplier know-how U
20. Distributor know-how U
21. Relationships with suppliers U
22. Relationship with investors U
Table AII.
Intellectual capital
categories of components
JIC
11,3
390
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