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Intellectual capital risks and job rotation
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Institute for Entrepreneurship, University of Liechtenstein, Vaduz, Principality of Liechtenstein
Julia Brunold and Susanne Durst
Abstract Purpose – This study aims to shed light on the phenomenon of intellectual capital (IC) risks. More precisely, the perception of such risks in the context of the job rotation process often applied in multinational corporations (MNCs) is to be investigated. Design/methodology/approach – Eleven semi-structured interviews are conducted in an exemplary knowledge-intensive MNC operating in the construction industry. Six interviews among top managers and five interviews among participants in the job rotation process are carried out to gain insights from different perspectives. Findings – The study underlines the influence of time pressure on the perception of the variety of IC-related risks in general and of those related to the job rotation process. As a result, the risks are not tackled even though the managers are aware of some of them. Research limitations/implications – The data were collected in one organization, making inferences about the findings not possible. Future studies should consider multiple organizations. Practical implications – A list of potential IC risks triggered during the job rotation process is presented and suggestions to tackle them are discussed. Furthermore, the findings can contribute to the further development of an overall overview of IC risks. Originality/value – The study provides fresh insights into the relationship between IC risks and job rotation as perceived by different organization members. Keywords Intellectual capital risks, Intellectual capital management, Knowledge attrition, Job rotation, Intellectual capital, Multinational companies Paper type Research paper
Journal of Intellectual Capital Vol. 13 No. 2, 2012 pp. 178-195 q Emerald Group Publishing Limited 1469-1930 DOI 10.1108/14691931211225021
1. Introduction Given that knowledge is a significant resource and vital production factor, companies need to integrate the management of intellectual capital (IC) into the core of their strategic efforts. However, many companies lack understanding about the requirements for managing IC and the complexity involved (Sullivan, 1999). Not surprisingly, the majority of corporate initiatives focusing on the management of IC/knowledge have only moderate success (Hislop, 2005). IC management entails difficulties because it does not only involve decisions from managers and allocation of resources as it is the case in many other management issues. IC is created or exploited by human beings and is therefore influenced by individuals and their mindsets, organizational values and beliefs as well as the full commitment of all organization members. Companies that fail to properly manage their IC to secure its value-creation potential undergo significant risks (Ja¨a¨skela¨inen, 2007, quoted in Kupi et al., 2008), for example loss of expertise or reinvention of knowhow. Therefore, the need to carefully manage the risky side of IC is high too. Managers and entrepreneurs cannot afford to neglect IC risks even though they might be more familiar with financial capital and the risks related to this asset category. According to
Kupi et al. (2008), the attention to IC risk management in companies is poor. One reason for this can be a lack of awareness related to the implications of IC risks. As a result, such risks are seldom identified, monitored and reported. It can be proceeded from the assumption that particularly multinational corporations (MNCs) need to engage in IC risk management. A multinational corporation “consists of a group of geographically dispersed and goal-disparate organizations that include its headquarters and the different national subsidiaries” (Ghoshal and Bartlett, 1990, p. 603). Such MNCs face more challenges to stay competitive and keep up with dynamic changes in international markets given their size and organizational structure compared to smaller internationally operating companies. Increasing administration effort leads to numerous hierarchical levels with many specialists. Particularly, the costs and effort for communication, control and coordination are high (Gooderham and Nordhaug, 2003). To remain competitive, MNCs need to create and leverage distinctive organizational capabilities. To tackle this issue MNCs can refer to different approaches. One of the common measure applied by MNCs is job rotation. Even though the job rotation process can be viewed as advantageous for IC management, it also entails risks. The change from the predecessor to the successor is a critical stage. If the predecessor documented no knowledge, the “newcomer” needs to fight his or her way to necessary knowledge to fulfil tasks satisfactorily. Such an undefined handling of knowledge can be risky: knowledge gets lost during the job rotation process. This brief discussion illustrates the importance of having suitable measures in place to tackle IC risks as well as the close link between IC risks and job rotation. Although IC has been studied extensively, this is not the case with risks related to IC. Against this background, the study’s aim is to shed light on the managerial perception of IC risks. Specifically, it is targeted on establishing an understanding about IC risks caused by the job rotation process. Consequently, the study addresses three research questions: RQ1. Is IC risk already in the minds of managers? RQ2. Are managers aware of IC related risks during job rotation? RQ3. What are the IC related risks experienced by rotating employees? Following a review of previous literature and methodology employed in the study, the findings are presented. The final section discusses and presents the main themes emerging from the findings. 2. Theoretical background 2.1 Intellectual capital “Globalisation” and “information technology” have triggered dramatic changes in the structure of companies. These changes in combination with increased customer demands challenge the companies to shift their perspective from tangible to intangible resources (Wiig, 1997). Given the new business environment and the apparent situation that knowledge has become the most important production factor, a systematic approach to IC is now viewed crucial to remaining competitive (Stewart, 1999). Even though more and more organizations and scholars identify the prospects of taking into account IC a great problem still exists: the common language among practitioners and scholars is still missing. Consequently, different definitions are in place (e.g. Edvinsson
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and Malone, 1997; Sveiby, 1997; Stewart, 1999; Bounfour, 2003). In this study, IC is (based on Andriessen (2004) and Lev (2001)) defined as the core non-monetary resources (lacking physical substance) that are able to contribute to future benefits in organizations. According to many authors, IC can be classified into a number of distinct types of non-physical assets. These classification schemes aim to give a better understanding of what IC consists of. Recently, it appears that the classification of these resources into human capital, structural capital and relational capital is increasingly used as a standard perspective (Edvinsson and Kivikas, 2007). This study aligns with it. 2.2 Risk and its management “Risks are usually defined by the adverse impact on profitability of several distinct sources of uncertainty” (Bessis, 1998, p. 5). Alternatively, as Heffernan (2005, p. 103) puts it, risk is “the volatility or standard deviation (the square root of the variance) of net cash flows of the firm”. Originally, the term refers to positive and negative outcomes, although in everyday language it appears that risk is mainly associated with danger (Lupton, 1999). Risk management is primarily aimed at identifying, assessing, monitoring and controlling firm risks (Bessis, 1998). Thereby firms should focus on all types of risk and their management, yet it seems that firms prefer to focus on financial risks and thus quantitative approaches because of greater experience (Louisot, 2004). This signifies that the insights into firms’ risk profiles are currently unbalanced. Hence, this stresses the need for increased research as a help to better trace the factors that have an influence on firms’ value creation and – deterioration. 2.3 Intellectual capital risks In 1999, Harvey and Lusch highlighted the importance of including the liability side of intangibles to “balance the intellectual capital books” (p. 85). The authors assert that all IC turning into something positive or valuable for a firm is an illusion. Harvey and Lusch assign potential intangible liabilities to process issues, human issues, informational issues and configuration issues. Harvey and Lusch’s work was picked up by Caddy (2000) who tried to prove the existence of intangible liabilities. By analyzing events at that time such as the Microsoft Corporation and the anti-trust case, Caddy found that intangible liabilities are indeed given. However, firms have the ability to avoid emergence of intellectual liabilities by introducing certain actions. Abeysekera (2006), addressing this topic in his review of extant IC research, noted that the missing consideration of intangible liabilities is leading to the consequence that firm disclosure is incomplete. Kupi et al. (2008) conducted expert interviews in seven Finish manufacturing and service companies to gather data about the risk management of intangible assets in these firms. The authors based their study on three different types of intangibles-related risk: human capital risk, structural capital risk and relational capital risk. Their study showed that risks related to human capital are viewed as most important, e.g. unwanted turnover, losing key personnel, failure in recruitments, etc. Additionally, the authors found that although the firms involved had established different measures to deal with these risks, such as job circulation as part of competence transfer, these measures are usually not regarded as risk management practices.
According to Stam (2009), IC is the difference between intellectual assets and intellectual liabilities. Such liabilities are often overlooked by organizations and can even lead to bankruptcy if they remain unrecognized. Consequently, intellectual liabilities can be viewed as the main source of competitive disadvantage and value deterioration. Subsequently, each category of IC risk is briefly discussed to outline its possible impact on companies. 2.3.1 Human capital risks. According to Kupi et al. (2008), particularly the risks related to human capital should be taken into consideration. For example, staff turnover or long-term absence of key employees can lead to significant implications regarding a firm’s productivity (Durst and Wilhelm, 2011a). Especially in large companies like MNCs some people might consider their job as a springboard into future careers and only intend working there for a few years. Such employees constantly search for new career opportunities – especially if they come across unfavourable working conditions in their current job. A study about job tenure in the UK revealed that by 2001, half of all employees worked for four years or less for the same organization (Macaulay, 2003). On the other hand, in big organizations employees might be less willing to share knowledge due to the “safety mentality” and competition between organizational units or individuals. In firms with numerous staff there might be less trust towards others and therefore also less collaboration. Hence, firms are pressured to permanently develop certain expertise once more, which in turn means that they lose critical time compared to their competitors. In a knowledge driven environment, firms cannot afford to lose key employees and their expertise particularly against the background that the battle for talents in certain industries will become tougher (Dess and Shaw, 2001). Moreover, it becomes problematic if outgoing knowledge is used against them (Stovel and Bontis, 2002). Firms need to take measures to reduce voluntary turnover and enhance employee retention (Hislop, 2005). However, as the retention of organization members is not possible forever, the firm’s management should plan for staff replacement in due time (Durst and Wilhelm, 2011b). 2.3.2 Structural capital risks. According to Stam (2009), “structural liabilities” are destructive forces emerging from structural capital. Such risks are caused if organizational structures or processes are inappropriate or too complicated (Harvey and Lusch, 1999). Top management homogeneity, weak planning processes, poor knowledge infrastructure, organizational inertia, complex structure, or a knowledge unfriendly culture belong to this category. Common work practices and organizational routines have often become a pleasant ritual in the firm but do no longer suit the organization’s needs and have turned to obsolete inefficiencies. Structural capital is very much interrelated with human capital (Carson et al., 2004). Structural capital risks might be caused if the components of IC are poorly understood and managed (Zhou and Fink, 2003). Furthermore, some structural capital risks might be related to poor workplace organization or an insufficient information infrastructure (Harvey and Lusch, 1999). This also includes the poor documentation of relevant knowledge, resulting in a higher lead time in projects for example (Singh and Soltani, 2010). 2.3.3 Relational capital risks. Human capital risks and relational capital risks are highly intertwined too. Turnover of employees can cause turnover of customers (Kupi
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et al. 2008). If contact persons change often, suppliers feel unsure about their business partners and loyalty can decrease. Destructive forces concerning external relationships can originate in poor quality of offerings (Harvey and Lusch, 1999) or high relational complexity (Stam, 2009). External partners apart from the customer must not be neglected – such as other organizations, universities, consultants, suppliers, subcontractors, etc. Company image is strongly interwoven with other IC risks and can soon be negatively influenced. Managing reputation means managing the risks related to stakeholder relationships (Murray, 2003). Other essential relational capital risks might originate from strategic alliances (Kupi et al., 2008). Opportunistic behaviour between alliance partners is particularly problematic (Kale et al., 2000). Conflicts may lead to the situation that mutual learning is inhibited and, hence, the IC endowment of the disadvantaged organization is negatively affected. 2.4 MNCs and job rotation MNCs, which are normally of considerable size, often suffer from increasing bureaucracy and standardized processes that decrease freedom and flexibility. Increasing administration effort leads to numerous hierarchical levels with many specialists. Particularly, the costs and efforts for communication and control are high (Gooderham and Nordhaug, 2003). Coordination, moreover, is more complex compared to companies with a domestic focus. In MNCs managers and employees can easily lose track of what other departments are working on. This might lead to the problem that work is done twice, meaning an inefficient loss of time and money. Additionally, higher competition among employees on numerous hierarchical levels might lead to the abuse of knowledge as an instrument of hierarchical power and ambition (Hislop, 2005). As a result, this “asset” is not revealed to others but rather kept for securing one’s position. Given these general conditions the systematic management and exploitation of the IC stock is inevitable especially for MNCs. This means that knowledge creation as well as knowledge exploitation should represent continuous activities (Ireland and Webb, 2007). One of the common tools applied by MNCs to cope with many of these challenges is job rotation. “Job rotation can be defined as lateral transfer of employees among a number of different positions and tasks within jobs, where each requires different skills and responsibilities” (Beatty et al., 1987, quoted in Huang, 1999). According to Eriksson and Ortega (2006), there are three motives for the adoption of job rotation in an enterprise: employee learning, employer learning and employee motivation. The first motive addresses an employee becoming more knowledgeable and versatile through the exposure of a greater variety of experiences. Therefore, job rotation might be used as a preparation for top management positions, allowing employees to get a deeper understanding of the business and to develop their abilities. The employer learning theory argues that employers learn about their rotating employees, while observing their performance. Learning about an employee’s strengths helps employers to improve promotion decisions, especially in big enterprises. Finally, the employee motivation theory adopts the viewpoint that job rotation enriches an employee’s career and reduces boredom, leading to increased motivation of rotating employees. In their survey of Danish firms Eriksson and Ortega found empirical evidence for the employee learning and the employer learning arguments.
As shown by Campion et al. (1994), job rotation helps to enrich the career as it increases job involvement, satisfaction and commitment. Similarly Huang (1999) revealed that job rotation enhances an employee’s job satisfaction because employees take over new responsibilities from time to time. In particular, different skills for several tasks increase the meaningfulness of work and lead to enhanced motivation. Going in line with these arguments, Mohr and Zoghi (2008) postulate a positive relationship between an employee’s job satisfaction and a high involvement work design. Such work designs require a high degree of problem-solving, inter-group cooperation and learning. Among others, these high involvement work designs dispose of job rotation. Additionally, job rotation serves as a tool to build organizational collective knowledge. As employees rotate between departments, they transfer collected experiences to each other and create knowledge networks throughout the entire organization. This implies that knowledge does no longer depend on some experts but is disseminated within the entire entity. Hong and Vai (2008) name job rotation as one of the central knowledge-sharing mechanisms in cross-functional virtual teams. Moreover, job rotation can be helpful for MNCs with heterogeneous staff to decrease distances and barriers between employees from multicultural backgrounds. Whereas the job rotation process can be viewed as advantageous for IC management, it also entails risks. The change from the predecessor to the successor is a critical stage. If no knowledge was documented by the predecessor the “newcomer” needs to fight his or her way to necessary knowledge to fulfil tasks satisfactorily. This can be a very time-consuming process which might also decrease motivation among the “newcomer” and corresponding co-workers. In the worst case, this leads to a “broken learning cycle”, meaning that the wheel is reinvented in the organization and mistakes happen repeatedly (Drew and Smith, 1995, p. 13). If organizations are not aware of this problem they risk losing precious time and inhibit learning from previous experiences. More importantly such an unsystematic handling of knowledge can be risky: knowledge gets lost during the job rotation process. Either it has to be regenerated arduously or, in the worst case, the successor fails to regenerate it (Hall, 1992). 3. Research methodology Taking the study’s aim, an exploratory (qualitative) research approach was regarded as more appropriate. The selection of a qualitative approach allows the researchers to get close to participants and their thinking in order to scrutinise the entire research problem (Maykut and Morehouse, 1994). Thus, the focus was on understanding people’s words and behaviour. To do so the researchers became an integral part of the investigation (Creswell, 2003). The company selected for this study provides products and services to construction professionals. The focus on a single firm was justified because it was viewed as a typical MNC given that it operates in different markets and has locations in more than 120 countries worldwide (Yin, 2003). In this firm job rotation is used as a personnel development tool to develop “business partners” in the company – highly qualified professionals who acquire knowledge in different management fields. This job rotation process comprises a change of workplace for “business partners” on a regular basis. This process is intended to encourage the development of cross-functional expertise as well as the formation of internal knowledge networks. Access to the company was established due to a work relationship of one of the authors.
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Table I. Characteristics of interviewed top managers
Table II. Characteristics of interviewed employees
Managers working in departments affected by the job rotation process as well as employees having made experiences with job rotation represented the level of analysis. This allowed the researchers to obtain insights from different perspectives helping them to reduce any biases given, rather than relying just on one group of individuals (Hancke´, 2009). The sampling strategy applied for the informants was what Patton (2002) referred to as criterion sampling. This strategy of purposive sampling comprises the selection of cases that meet some predefined criteria. The criteria for the managers were the possession of long-year experience within the MNC and the belonging to the upper levels in firm’s hierarchy. On the other hand, employees were selected who have at least once participated in the job rotation process. After having selected a “pool” of possible candidates with the help from the side of the MNC, these individuals were contacted and asked for their willingness to participate in the study. In total, six top managers were involved, belonging to various departments of the MNC. Table I summarizes some characteristics of the interviewed managers. With regard to the second target group, five participants in the job rotation process were asked about their experiences. Three of them were team members and two were managers who had also participated within this process during their careers. Table II summarizes some characteristics of interviewed employees. Data were collected through semi-structured interviews with mentioned eleven participants. This technique is regarded as appropriate when very little is known about the subject in hand (Maykut and Morehouse, 1994), thus it is suitable when the topic comprises an exploratory element (Saunders et al., 2007). An interview guide helped in the interview process. It listed the areas to be covered and included typical questions to be asked. The interview guide was prepared as suggested by Bryman (2008): Interview questions were derived from interview topics and the concrete research questions. The formulated questions were then reviewed. The interview guide for managers constituted of questions related to the general perception of IC and IC risk, followed by questions related to the perception of each category of IC risk. Finally, the interview
Interviewee Job tenure
Responsibility
Job rotation experience
A B C D E F
Head Head Chief Head Head Head
No No No Yes No Yes
More than 15 years More than 15 years More than 15 years Five years Five years Four years
of Financial Accounting (North America) of Finance (Central Europe) Financial Officer of Controlling (Spain) of Finance (Latin America) of Controlling (Business Unit XY)
Interviewee
Job tenure
Department
Job rotation experience
1 2 3 4 5
Seven years Eight years Eight years Five years Five years
Global Reporting, Group Controlling Region Africa/Middle East Finance and IT, France Controlling, Planning and Reporting, Spain Strategic Controlling, Group
Yes Yes Yes Yes Yes
questions for managers ended with questions regarding risk awareness during job rotation and experiences with such. Similarly, the interview guide for employees included questions related to the job-rotation experience. During this procedure attention was paid to ensure that an appropriate language was chosen. Thus, the use of theoretical concepts unknown by the participants should be avoided (Saunders et al., 2007). For example, in the case of the term “intellectual capital” the terms “soft facts” and “knowledge” were applied and examples were used to gather data about the three IC risk dimensions. The interviews took place between August and September 2010. Due to geographic dispersion, four interviews were conducted by phone (three managers and one employee). Most of the interviews took about 45 minutes to one hour of time. In the majority of cases, the interviews were recorded in consent with the interviewees to facilitate data collection as well as analysis. Besides, field notes were taken by the researchers during most interviews to capture relevant points. To analyze the data the data display and analysis approach proposed by Miles and Huberman (1994) was applied. The authors divide the analysis process into three sub-processes. First, the data are reduced, meaning it is summarized. For this process, the field notes from each interview together with the tape recordings were reworked. Afterwards, interview summaries were produced which included the most important aspects discovered. Second, data display is conducted by organizing the data into charts, diagrams or other visual forms. This was done when analysing the findings for two of the research questions, namely the managerial awareness of IC risk during job rotation and the managerial perception of IC risks. The most important data from each manager was displayed in an Excel-matrix under different categories (e.g. IC risks during job rotation, human capital risks, relational capital risks, and structural capital risks). After all of the managers’ data were displayed under these categories, an overview over the most relevant collected data were present. This helped to compare the data, find similarities or differences and draw conclusions. The third research question, which deals with IC risks during job rotation, was answered by summarizing the depictions from the five respondents. The relevant data were summed up under different categories (e.g. time to retrieve knowledge, duration of hand-over etc.) and afterwards a report about this part of interest was produced. 4. Presentation of findings 4.1 IC risks as experienced during job rotation Four out of five participants who were asked about their experiences with job rotation had to regenerate a lot of knowledge on their own during the change from one job to the other: When I arrived in Spain there was a controller who left very fast [. . .] She was responsible for example for month closing – a very important topic. And she didn’t really do a handover and left within two days. And I had to do the month closing and I had never done that before [. . .] There was some written documentation [. . .] but there were some issues that were not working and you don’t know how to solve it . . . because if you do not have the experience you are not able to resolve an issue. You don’t have the necessary know-how or experience to understand what the issue is. So that was a really bad hand-over and the department was very unorganized at that time (Interviewee 4).
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The informant further described how the team had to arduously regenerate this specific knowledge while engaging themselves in trial and error: There was no one in the department who had the experience. So I mean we had to do trial and error [. . .] In that case we just solved it by ourselves. We did mistakes, we corrected them, we learned by doing mistakes and at the end, after three months, we had the process again completely under control (Interviewee 4). Similarly, this happened to other respondents as they took over a position within the company which only the predecessor had experience about. Interviewee 1 always had a hand-over when jobs were changed during the career. The informant stated that such a hand-over is often very tightly scheduled as the transition period from one job to the other is normally very short: I have had problems many a time with internal job changes. You need to be glad if there is anything documented you can work with . . . any basic knowledge or guideline [. . .] It took me a long time to find out where things can be found and who knows what [. . .] And once it took me even one year until I was well versed in my new job (Interviewee 1).
Although changing jobs is seen as a positive opportunity among interviewees, in many cases it seems to be common to be thrown in at the deep end if you begin in the new job. Interviewee 2 had changed jobs for three times and most of the times neither received a hand-over nor any documented knowledge to build on. The respondent therefore had to retrieve the necessary knowledge and rebuild the entire network of contacts on his own. The interviewees confirmed that successors often have to fight their way to necessary knowledge. Interviewee 5 explained that he had a hand-over of only half an hour even though the predecessor stayed within the company. It took half a year to work into the job and understand the whole range of tasks and responsibilities the job entailed and even one whole year to be fully efficient in the position. The time to regenerate knowledge among the interviewees amounted from three months to one year. Not surprisingly, productivity and energy get lost as employees need to reinvent the wheel and work their way through to necessary knowledge. As demonstrated, problems are not only caused by abrupt turnover and the impossibility of a hand-over. Another problem is that the importance of an appropriate hand-over might be undervalued. Some respondents depicted insufficiencies in the way the hand-over was implemented. Even if the predecessor stayed within the organization there was often hardly any documented knowledge and the hand-over was a very tight process which was not individualized enough. Besides, predecessors often neglected their role as mentors as they were no longer available due to other commitments. It can be assumed that the willingness to share knowledge among predecessors might sometimes be reduced. Such an undefined handling of knowledge, moreover, led to decreased motivation among the persons concerned: This was the worst experience I have ever had within the firm (Interviewee 4).It [retrieving knowledge] was a very demotivating undertaking and I was even about to get a burnout (Interviewee 1).
This finding contrasts that by Campion et al. (1994) emphasizing the positive effect of job rotation on job satisfaction, involvement and commitment. Instead job rotation had the reverse effect among many respondents:
It took me half a year to understand what my job is about [. . .] I was stressed and really frustrated during this time (Interviewee 5).
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Sometimes I have the feeling that managers want to “probe” us [. . .] you know, to find out whether you have staying power and can cope with such challenges (Interviewee 1).
This is an alarming finding as motivated employees are a key driver for a company’s success (Kovach, 1996). The described incidents can damage corporate reputation (e.g. by poor word of mouth) and lower workplace attractiveness for future employees leading to the situation that it becomes more difficult to recruit suitable staff. This goes in line with Neef (2005) who affirmed that many reputation-damaging incidents originate from poor IC management. It is noticeable that some participants had the impression that the introduction into a new job is especially neglected at higher levels of management. This suggests that knowledge is used as a source of power pointing to a decreasing managerial tenure in this firm. At top management positions, it may be dangerous if the knowledge transfer does not work and if the knowledge base of a company must consistently be rebuilt. However, if it takes half a year to understand the characteristics of the job (see interviewee 5) and retrieve existing knowledge, precious time gets lost in which the manager is only concerned with elaborating the status-quo instead of thinking ahead based on the status-quo. This does not only lead to risks and higher costs but also to frustration among “newcomers”. In the worst case, this could lead to the situation that the knowledge base remains at the status-quo. The following list summarizes the IC risks related to the job rotation process as experienced by the interviewees.: . High levels of stress among participants. . Frustration and demotivation. . Inefficient workflows – “reinventing the wheel”. . Loss of productivity, time and money. . Loss of knowledge and expertise (leading to repeated mistakes, wrong decisions, high costs etc.). . Inhibits progression of corporate knowledge base. . Decreased workplace attractiveness ! damage to corporate reputation. 4.2 Perception of IC risks among managers Not surprisingly, the term IC risk and the three IC dimensions were unknown among the interviewees. They preferred to use the term “knowledge”. The interviewees were convinced that attention to knowledge risks is insufficient. The importance of knowledge is growing for us. And experts are enablers for many of our business processes. The importance of knowledge increases but this is not enough realized yet. Above all, the knowledge transfer is not taken enough into consideration. Although this would be a core task of management (Interviewee C). It is risky if knowledge is not documented and if knowledge is very much isolated. And you don’t act accordingly as a manager (Interviewee B).
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Interviewee B further stated: The planning and implementation of a hand-over or introduction is only done rudimentarily. The plans are too little individualized [. . .] we should have more individualized activity- and action plans to ensure a smooth transition [. . .] But this is the main task of a team lead or department manager. I have to think about how my department needs to be structured to assure potential successors [. . .] But a clean and continuous succession plan is not done by all managers (Interviewee B).
Whereas the importance of IC management for company success is intensively discussed in the literature (e.g. Bollen et al., 2005), the findings indicate that this mindset has not yet reached practice in all respects. Although the interviewees emphasised the meaning of knowledge to the firm, this resource seems to be differently considered in comparison to financial capital. This might be a consequence of the fact that managers are assessed in a quantitative way by financial results and not by their contributions to knowledge transfer, preservation and advancement. The consequences of risks related to knowledge might be subtle in the beginning but in the end their devastating effects are reflected in financial results. Yet, the findings do not hint to any sort of early warning systems addressing that issue. This may have to do with the specific attributes of IC very much complicating the management and control of this type of capital (Lev, 2001). All of the interviewed managers were aware of the risk of (abrupt) personnel turnover. The majority of interviewees perceived the risks of inappropriate personnel planning, poor personnel development or insufficient knowledge transfer. Some of them saw significant dangers in wrong decisions taken by managers, resistance to change by employees, unclear communication, crimes by employees, time and pressure in daily business, the concentration of knowledge on only a few people or lack of managerial appreciation to such risks. On the other hand, aspects related to relational capital were neglected. Most interviewees could only think of customers in this context. The findings signify that knowledge is restricted to the minds of organizational members from a manager’s point of view. For most of the interviewees it was also plausible that knowledge has something to do with the infrastructure of the company, e.g. databases, systems and data repositories were mentioned. Yet, the company’s relationships with external stakeholders were not seen as a source of knowledge and thus risk. This finding addresses the problem of lacking attention and is consistent with previous research, stating that there is a lack of information about IC risks in companies (Kupi et al., 2008). Furthermore, the findings suggest that the perception of knowledge risks appears to depend heavily on each manager and the experiences that he or she has collected. When asked about knowledge risks, some managers had to think longer about their answers and could only think of a few dangers that came to their minds, for example data theft or absence of people. However, other managers could exemplify various problems they had had experienced during their career: The other risk is that somebody thinks that they have all the knowledge they need for the job and their way is the only way to get it done. They are closed-minded and are not open to ideas [. . .] also external ideas. There is a risk with that (Interviewee E). What I really think is the danger, but you can never avoid this, of rumours also. It’s always people who talk about things they don’t know exactly but they think they know. And then it
spreads over like fire and at the end it can be really dangerous for the organization because you can create panic for example that there will be another dismissal process. That creates fear and that is also a risk [. . .] I have experienced that. The only thing that you can do is that you communicate a lot (Interviewee D).
This finding would also enforce the argument that the comprehensive view is lacking as the management of IC is divided into different functions of a company (Lo¨nnqvist, 2007, as cited in Kupi et al., 2008). 4.3 Awareness of IC risks with regard to job rotation process When asked generally about potential sources of knowledge risks, none of the respondents mentioned the job rotation process itself. Whereas salient risks (e.g. personnel turnover) were mentioned numerously, the job rotation process as a potential trigger of subtle knowledge risks was not alluded. Apparently, some managers are not aware of subtle risks such as those potentially triggered by failures in the management of the transition from the predecessor to the successor. The loss of knowledge was named by five interviewees as potential risk related to the job rotation process. Failed knowledge transfer and loss of productivity and the danger of repeated mistakes followed this. Noticeably, many managers stated that knowledge risks are often neglected in departments suffering from “last-minute” fever: There are departments where it is very hectic and you know you always work, let’s say, last-minute. Everything is very urgent and it has to be ready tomorrow. In the last minute fever where things need to be done immediately you forget a little bit the very important thing of documenting and that you make sure the processes are clear and also that it’s clear to someone else. So this is more of a risk of the urgency that always exists in a company I think (Interviewee D).
Four out of six managers alluded that the transition times are often very tight and therefore managers run out of time to do a good hand-over planning and ensure a smooth transition. As can be taken from several interviews, it is apparently a fact that the fast moving business environment leads to the tendency of knowledge neglect and devaluation. The big risk is that you can never gain momentum of what leads you forward into the future. You have more of an up and down, up and down, up and down – like a rollercoaster ride. [. . .] It’s like running on a train but not really getting anywhere, you are just trying to maintain instead of moving forward and progressing. I think that is a danger too that you don’t have the time to focus on knowledge gaining, improvement and so forth [. . .] then you cannot sustain the status-quo and you don’t make progress (Interviewee F).
Finally, the existence and quality of the hand-over is up to a manager’s sensitisation to knowledge risks. The interviewees D and F had made negative experiences themselves as they participated in job rotation during their careers. They were frustrated and today make a great effort to protect knowledge during the transition phase: I always try to have a bit of an overlap. If the old person stays you can still meet with this person [. . .] It is best if you have someone next to you and do it with that person [. . .] you know, this is learning by doing. [. . .] I take precautions and make sure that the processes are written down and for every task I have one responsible person and one backup [. . .]. I also do hand-over planning and introduction planning for externals and internals (Interviewee D).
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Now that I have made this experience I instruct all of my team members to do a clean hand-over before leaving. I insist on that (Interviewee F).
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Comparing the risks named by the managers with the list of risks mentioned in the previous section leads to the conclusion that the entire magnitude of the risks potentially triggered during job rotation is not perceived. Some relational capital risks (damage to corporate reputation), structural capital risks (corporate knowledge base remaining at the status-quo) and human capital risks (stress, frustration, demotivation) were apparently underestimated respectively not associated with this process. The perception of risks related to knowledge was often department-specific and not holistic, enforcing arguments in previous research that the comprehensive view is lacking (Kupi et al., 2008). 5. Conclusion The purpose of this study was to shed light on the perception of IC risks by managers. Prior research has tended to underestimate this aspect. It is important to understand how managers deal with possible risks related to IC, as this asset is significant for a firm’s competitive advantage and survivability. The particular interest was to investigate the perception of IC risks in the job rotation process often applied in MNCs. Besides, this research has focused on the relationship between IC risks and the job rotation process. In prior research, job rotation has mainly been associated with its impact on productivity (Allwood and Lee, 2004; Bhadury and Radovilsky, 2006) and learning (Ortega, 2001; Eriksson and Ortega, 2006). The findings imply that the managers involved are only aware of a limited number of IC related risks, e.g. staff turnover or undocumented knowledge. Other possible IC risks are not taken into account or are not appreciated. This seems to be valid for risks related to the job rotation process too. This apparent neglect might be a consequence of the time pressure managers are facing. This consideration raises the question of how to implement IC/knowledge risk management approaches. Under time pressure, it is comprehensible that day-to-day business receives priority and that knowledge matters (e.g. documenting knowledge) are hardly taken into account. If transition times are very short sufficient knowledge transfers are virtually impossible. Knowledge risks, moreover, can sometimes not be prevented or predicted as these problems occur if people come together. For example if the relationship between predecessor and successor is based on antipathy, they will not be likely to share a lot of knowledge with each other – regardless of a corporate culture promoting knowledge sharing. Similarly, if someone is unexpectedly absent managers need to react fast and probably did not take proactive measures because they did not anticipate this situation. Thus the time needed for these measures must be weighted up with the knowledge risks and particular their implications for the firm. Although situations as the ones outlined previously will always occur, it is an important task of management to keep these risks to a minimum. Some of the demonstrated problems in this study could be solved by granting more importance to knowledge as a fundamental resource of a firm’s competitiveness. This would justify that the managers in the case firm are conceded more time for the succession process related to the job rotation process and other situations involving knowledge issues. As a result, they could take more time for considerations regarding the range of IC related risks and suitable measures to tackle them. With regard to the job rotation process, this would mean that a thorough introduction of top managers and employees or improved
and clearly planned hand-overs should take place. Managers should consider measures such as continuous succession planning, the predecessor’s responsibility to act as a mentor for a certain time period, an established network of contacts to provide the necessary knowledge and the previous documentation of important knowledge (exceptions, problem cases, etc.). These measures could compensate for short transition periods. Based on the findings it can be concluded that a sensitization of managers for the variety of IC related risks and their probable implications constitutes the fundamental starting point towards solution. A highly recommended beginning would be an exchange between the managers and those organization members having already experienced the pros and contras of job rotation to broaden the perspective of the former. This would help managers to better understand where possible risks might be located. Thus managers need to be ready to listen to those in the company directly concerned by job rotation. In order for IC risks to achieve acceptance and appreciation in the managers’ mindsets, the Human Resources department could play an educative role by designing guidelines, checklists or ways of monitoring the implementation of job rotation with regard to the handling of IC. Garcia-Parra et al. (2009) state that most research on intangible liabilities has been conceptual and not empirical. Besides, they criticize that little progress has been made on developing this topic since the work of Caddy (2000). This study contributes to the development and extent of the IC risks overview discussed by Kupi et al. (2008); thereby bringing in new aspects that are important with regard to the job rotation process (see Table III). The new items derived from this study are presented in Italics. This extended list helps to obtain a more complete and specific understanding of the varieties and characteristics of IC related risks firms could face in today’s business environment. A better understanding of IC risks is viewed as a fundamental contribution to the IC literature as it makes it possible to have a more complete and balanced picture of the concept of IC. Firms respectively managers using job rotation must be aware of the risks associated with IC and have in place ways to handle unwanted outcomes. The list of IC risks possible in the job rotation process may ensure that the individuals in charge are informed and can better anticipate and respond to critical events. This research has some limitations. First, the results were gained from a single organization thus statistical generalisation is not possible. However taking the exploratory nature of the study, one might be able to make an analytical generalisation (Yin, 2003). Another limitation is related to the fact that only executive personnel were included in the interviews meaning that only a limited view of the “manager” was provided. Future research could also include other perspectives, e.g. that of the firm’s risk manager, to obtain a more balanced understanding of the IC risk perception. To check for the findings’ transferability future research should be conducted in other organizations, e.g. similar MNCs. It is possible that individuals working in other types of organizations might place emphasis on different IC risks. These limitations may already present the basis for future research. Additionally given the time constraints managers are facing nowadays, future research may focus on the weighting of the IC risks identified. This enhances knowledge in that area and reduces the danger of overlooking significant risks due to lack of time. Overall, the topic of IC risks seems to be a promising field for further research.
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Human capital risks
Time and pressure ! stress Frustration and demotivation Unclear communication, rumours Concentration of knowledge on a few people Narrow mindedness, resistance to change Lack of managerial appreciation Ill-functioning knowledge transfer Unsuccessful recruitments Inadequate training and development of personnel Loss of competencies and expertise (leading to repeated mistakes and wrong decisions) Crimes of personnel against the company (Voluntary vs non-voluntary) personnel turnover Inexperienced top management
Relational capital risks
Low quality of products and services: decreasing customer satisfaction Underestimation or non-consideration of benefits related to relationships with different stakeholders Low commitment and trust of subcontractors and suppliers High turnover of customers, subcontractors and suppliers Loss or decrease of corporate image ! decreased workplace Attractiveness Risks related to strategic alliances Dependency of subcontractors and/or individual customers
Structural capital risks
Undocumented knowledge Organizational knowledge base remains at status-quo Inflexible organisation structure Inadequate information systems Lack of transparency, i.e. in terms of the knowledge base given Inappropriate corporate culture Inadequate product development Uncertainties related to product development processes Lack of innovations, patents and copyrights Risks related to intellectual property
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Table III. Intellectual capital risks
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Yin, R.K. (2003), Case Study Research: Design and Methods, 3rd ed., Sage, Thousand Oaks, CA, London and New Delhi. Zhou, A. and Fink, D. (2003), “The intellectual capital web: a systematic linking of intellectual capital and knowledge management”, Journal of Intellectual Capital, Vol. 4 No. 1, pp. 34-48. About the authors Julia Brunold is a Master student and works as a project assistant in the Institute for Entrepreneurship at the University of Liechtenstein. Her research interests include intellectual capital, international management, and corporate finance. Susanne Durst is Assistant Professor at the Chair in International Management, Institute for Entrepreneurship, at the University of Liechtenstein. Her research interests include intellectual capital management, entrepreneurship, and corporate governance. Susanne Durst is the corresponding author and can be contacted at:
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