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The Impact of Human Resource Configurations on Intellectual
Capital in the Australian Biotechnology Industry
Chao-Ying Lee, Assistant Professor, Chia Nan University of Pharmacy & Science, Taiwan
ABSTRACT
The objective of this study is to examine the impact of human resource (HR) configurations (combinations) on
intellectual capital (IC) in the Australian biotechnology industry. Various stages of data analysis were undertaken to
test the hypotheses including the preliminary analyses, confirmatory factor analysis (CFA), and regression analyses.
The results have provided support for the view that the six HR configurations (recruitment & selection, training &
development, documentation, information systems, egalitarian, and collaborative) were all significantly related to an
organisation’s level of IC, human, organisational, and social capital respectively. It contributes to IC theory
development, as the creation, formation, measurement, valuation, and reporting of IC are still at an early stage (e.g.,
Andriessen, 2004; Marr, Gray, & Neely, 2003; Wu, 2005), and some related important concepts lack a consensus
(Canibano, Garcia-Ayuso, & Sanchez, 2000). In a practical sense, this study offers useful and specific managerial
guidelines for effective IC management to practitioners in the Australian biotechnology industry.
Keywords: Human Resource Configurations, Intellectual Capital, Biotechnology Industry
INTRODUCTION
The resource-based view (RBV) of the firm has been given considerable attention (e.g., Barney, 1991; Diericks &
Cool, 1989; Ray, Barney, & Muhanna, 2004; Rumelt, 1984; Wernerfelt, 1984; Wright, Dunford, & Snell, 2001),
becoming one of the most frequently used theories within strategic human resource management (SHRM), accentuating
the links between a firm’s internal resources, its strategy and its performance (Wright, McMahon, & McWilliams,
1994). SHRM scholars argue that human resources can assist to build sustained competitive advantages (Wright, et al.,
2001; Wright & MacCallum, 1992). The RBV of the firm (Barney, 1991) serves as the grounding for the study as it
brings legitimacy to the human resource assertion that people are strategically crucial for a firm’s success. The rise of
the knowledge economy is attributable to the increased prominence of intellectual capital (IC) as a business and
research topic (Petty & Guthrie, 2000), and the IC literature has grown tremendously in the past decade. The assertion
that knowledge and brainpower supersede physical assets as the foremost source of competitive advantage is now
commonly accepted in the management literature (Quinn, Anderson, & Frinkelstein, 1996; Stewart, 1997). In particular,
the realisation that an organisation’s stock of intellectual assets is a critical contributor to its capacity to secure a
sustainable competitive advantage is growing (Bismuth & Tojo, 2008). The ‘multi-faceted phenomenon’ of IC is of
particular interest to organisations that derive their profits from innovation and knowledge-intensive services
(Edvinsson & Sullivan, 1996). Biotechnology is one emerging industry with such characteristics which urgently
requires more empirical studies since it is one of the fastest growing industries in Australia. In recent years, Australia
has attracted much of the overall share of venture capital invested in the Asia Pacific region; it is the biotechnology hub
of the Asia-Pacific region, increasingly being regarded internationally as a bio-innovation powerhouse. The significance
of undertaking this study is threefold. Firstly, although it has been acknowledged by both academic and business
strategists that human resource management (HRM) plays a key role in developing and managing strategic resources
and core competencies, theoretical development and empirical studies have been slow to follow (Youndt & Snell, 2004).
Secondly, the RBV of the firm (Barney, 1991) focuses on the internal resources of the firm as the foremost determinant
of competitive advantages. Nevertheless, it can be argued that not all the resources that a firm owns or controls have the
same strategic value. Some of a firm’s resources, such as intangible assets (IC), can be more valuable than others (e.g.,
Barney, 1991; Grant, 1996; Hall, 1992, 1993; Itami, 1987). IC is the source of a firm’s competitive advantage
(Edvinsson & Malone, 1997) being of particular interest to firms deriving their profits from innovation and knowledge-
The Journal of International Management Studies, Volume 7, Number 1, April, 2012 202
intensive services (Edvinsson & Sullivan, 1996). Thirdly, it focuses on one single industry, the Australian
biotechnology industry, rather than cross-industries or cross-sectors. Very limited empirical studies have been
undertaken in the context of the Australian biotechnology industry; it is an emerging industry which urgently requires
more empirical studies as Australia is largely accepted as an active biotech nation, claiming the sixth position globally
in the industry (Herpin, Karuso, & Foley, 2005).
LITERATURE REVIEW
Human resource management has shifted away from being a cost factor to a success factor in an internal market
(Afiouni, 2007). Coinciding with this shift was the rise of the resource-based view of the firm (RBV) (Barney, 1991),
and the more strategic view of the firm championed by the intellectual capital (IC) movement. The resource-based view
of the firm emphasises firm’s internal resources as the foremost determinant of competitive success. It brings legitimacy
to the human resource assertion that people are strategically crucial for a firm’s success. Cappelli and Singh (1992)
within the industrial relations literature, propose that the resource-based view might offer a theoretical rationale for why
human resources could have implications for strategy formulation and implementation.
The term ‘intellectual capital’ was first published by the American economist, John Kenneth Galbraith, in 1969
who believes that IC meant more than merely ‘intellect as pure intellectual’; it incorporated a degree of ‘intellectual
action’ (Feiwal, 1975). The implication of this view is that IC is an ideological process rather than a static intangible
asset in itself. Agreement on the categorization of IC elements has not yet been accomplished in the existing literature.
Studies examining the development, use and performance effects of IC spent considerable time defining its
subcategories of IC; nevertheless, great confusion still exists as to what the term IC actually represents (Edvinsson &
Malone, 1997; Stewart, 1997). In general, three knowledge-categories are distinguished: knowledge related to
employees (human capital), customers (customer or relational capital), and company only (structural or organisational
capital). Youndt and Snell (2004) synthesised and conceptualised intellectual capital as having three distinct categories:
human, organisational, and social capital. The present research stemmed from the Youndt and Snell’s (2004)
classification of intellectual capital given that their work is considered to be the most comprehensive of the existing
literature. Human capital can be considered as the most fundamental component of intellectual capital (N Bontis &
Fitz-Enz, 2002; Edvinsson & Malone, 1997; Stewart, 1997; Sveiby, 1997) due to the fact that employees are the most
valuable corporate asset. Human capital contains the knowledge, know-how, talent, expertise, and experience of an
individual employee (Edvinsson & Malone, 1997) required to provide solutions to customers (Saint-Onge, 1996).
Youndt and Snell’s (2004) define organisational capital as representing institutionalised knowledge and codified
experience stored in databases, routines, manuals, structures, patents, trademarks and so forth. Social capital resides
neither at the individual nor the organisational level. Adler and Kwon (2002) and Nahapiet and Ghoshal (1998) view
social capital as an intermediary form of intellectual capital consisting of knowledge resources embedded within,
available through, and derived from networks of relationships possessed by an individual or social unit, meaning the
networks and relationships an organisation builds up both internally and externally.
THEORETICAL FRAMEWORK AND HYPOTHESES DEVELOPMENT
Youndt, Subramaniam, and Snell (2004) aver that a natural outcome of the various differences between the three
IC elements (human, organisational, and social capital) is that each element requires distinctive HR investments. More
specifically, this study hypothesises that the six HR configurations (recruitment & selection, training & development,
information technology, egalitarian, and collaborative) facilitate the development of the three elements of IC (human,
organisational, and social capital).. IC is of particular interest to firms that derive their profits from innovation and
knowledge-intensive services (Edvinsson & Sullivan, 1996). This study proposes that each of the three IC elements
require distinctive HR investments (Youndt, et al., 2004).
Human capital requires the employing, training, and retaining of staff; organisational capital requires the
establishment of knowledge storage devices and structured recurrent practices; and social capital requires the
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development of norms that facilitate interactions, relationships, and collaboration. Typically, human capital theorists
have argued that firms can increase their human capital by either externally attracting individuals with high knowledge
and skill levels from the labour market, or by internally developing their employees’ knowledge and skills (Hatch &
Dyer, 2004; Youndt, et al., 2004). Firms can either ‘buy’ human capital externally, or ‘make’ human capital internally.
A recruitment and selection HR configuration including comprehensive selections, complemented by higher wages and
employee ownership can facilitate the development of human capital. Training and development have been the main
focus of human capital theory for a long time. Firms can develop superior human resources through investments in
training (Hatch & Dyer, 2004). Comprehensive training activities tend to be cornerstones of a ‘make’ strategy (Huselid,
1995; Snell, Lepak, Dean, & Youndt, 2000). In short, a training and development HR configuration including
comprehensive training, complemented by promotion-from-within, development performance appraisal, and
skill/knowledge-based pay can facilitate the development of human capital.
Hypothesis 1: A recruitment & selection HR configuration positively affects an organisation’s level of human capital.
Hypothesis 2: A training & development HR configuration positively affects an organisation’s level of human capital.
While human capital can only be borrowed or rented, organisational capital is the only sort of intellectual capital
an organisation actually owns. The core responsibilities of the HRM function in developing organisational capital are to
create and/or to fill knowledge storage bins and repositories. A firm can either institutionalise knowledge into
organisational capital or interface with it by providing an infrastructure that supports this knowledge codification. A
documentation HR configuration including knowledge codification, employee work redesign, and employee suggestion
systems can facilitate the development of organisational capital. Information systems form the backbone or
infrastructure of many knowledge management efforts in firms (Davenport & Prusak, 1998; Huber, 1990; Stewart,
1997). An information systems HR configuration focuses on accessibility, user-friendliness, and integration to facilitate
the development of organisational capital.
Hypothesis 3: A documentation HR configuration positively impacts an organisation’s level of organisational capital.
Hypothesis 4: An information systems HR configuration positively affects an organisation’s level of organisational
capital.
Building social capital requires a collaborative organisational environment where knowledge and information can
flow freely. Pfeffer (1994) points out that an egalitarian HR configuration consists of five categories: eliminating status
symbols, creating flatter firms, minimising job classifications, utilising flat pay structures and empowering employees.
An egalitarian HR configuration which includes elimination of status symbols, and hierarchical levels, minimisation of
job classification, utilisation of flat pay structure, and empowerment can facilitate the development of social capital. A
collaborative HR configuration focuses on permeability and network intimacy of work structure, teamwork, and group
incentives to facilitate the development of social capital.
Hypothesis 5: An egalitarian HR configuration positively affects an organisation’s level of social capital.
Hypothesis 6: A collaborative HR configuration positively affects an organisation’s level of social capital.
METHODOLOGY
A census sample size was used as the sampling frame of the Australian biotechnology companies is not very large
(777 companies). In total, 158 out of 777 questionnaires were returned, indicating the response was 20.33 percent. The
multi-item scales of the six HR configurations (1)recruitment & selection, 2) training & development, 3) documentation,
4) information systems, 5) egalitarian, and 6) collaborative) were mainly derived from Youndt and Snell’s (2004)
empirical study. Intellectual capital, was conceptualised into three constructs (human, organisational, and social capital),
and then each construct was operationalised and measured by five-, four-, and five- item scales respectively.
Quantitative data analyses include preliminary analyses, confirmatory factor analysis (CFA), and regression analyses.
CFA was performed through LISREL 8.72 for construct validity verification (convergent validity, discriminant validity,
nomological validity and face validity) and the overall goodness of fit of the proposed model.
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FINDINGS AND DISCUSSIONS
Convergent validity (factor loadings, variance extracted, and construct reliability) resulted in all factor loadings
being significant (at least at 95 % confident interval), variance extracted by each construct was adequate convergence
(all above the accepted level of 0.5), and construct reliability was good (all above the accepted level of 0.7).
Discriminant validity resulted in the difference of χ² all being greater than 3.84; therefore, discriminant validity was
established at 95 percent confidence with a degree of freedom being one. CFA was used to test whether the
measurement theory of intellectual capital (human, organisational, and social capital) confirms or rejects the results of
Youndt and Snell’s (2004) study. Overall, the results of CFA (Table 1) were satisfactory; therefore, the present study
confirms Youndt and Snell’s (2004) measurement theory of intellectual capital as no item has being deleted.
Table 1: Overall Goodness of Fit Index of the Measurement Models
Goodness of fit
χ² with 74 degrees of freedom (d.f.) =148.97 (p=0.000)
Incremental Fit Index (IFI) =0.98
Goodness of Fit Index (GFI) =0.88
Adjusted Goodness of Fit Index (AGFI) =0.83
Root Mean Square Residual (RMSR) =0.050
The results of regression analyses are presented in Table 2. Firstly, support was found for Hypotheses 1 and 2 as
the recruitment & selection (standardised beta=.237, p<.01) and the training & development (standardised beta=.240,
p<.01) HR configurations were significantly related to an organisation’s level of human capital. A recruitment &
selection HR configuration includes comprehensive selection (extensive and intensive search), compensation and
reward systems and employee ownership (Youndt & Snell, 2004). A training & development HR configuration
comprises of comprehensive training encompassing intensity and scope, promotion-from-within, performance appraisal,
and skill-based pay (Youndt & Snell, 2004).
Secondly, Hypotheses 3 and 4 were supported as the documentation (standardised beta=.243, p<.01) and the
information systems (standardised beta=.351, p<.001) HR configurations were significantly related to an organisation’s
level of organisational capital. Firms can either institutionalise knowledge into organisational capital or interface with
organisational capital by providing an infrastructure that supports this knowledge codification. Information systems
may catalyse the development of organisational capital because they are easily accessible, provide a user-friendly
interface, make communication nearly instantaneous (Ruggles, 1998) and aggregate what were once disparate
knowledge repositories into an integrated whole (Youndt & Snell, 2004).
Thirdly, support was found for Hypotheses 5 and 6 as the egalitarian (standardised beta=.352, p<.001) and the
collaborative (standardised beta=.423, p<.001) HR configurations were significantly related to an organisation’s level of
social capital. An egalitarian HR configuration consists of five categories: eliminating status symbols, creating flatter
firms, minimising job classifications, utilising flat pay structures and empowering employees (Pfeffer, 1994). A
collaborative HR configuration focuses on permeable and network intimate work structures, team development, and
group incentives. Likewise, group-based incentives are emphasised by Yahya and Goh (2002) in order to stimulate
knowledge exchange and group collaboration.
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Table 2: Regression Analysis: HR Configurations and Intellectual Capital
Human Capital
Standardised Beta
Organisation Capital
Standardised Beta
Social Capital
Standardised Beta
Recruitment &
selection .237**
Training &
development .240**
Documentation .243**
Information systems .351***
Egalitarian .352***
Collaborative .423***
R² .170 .253 .469
F 15.064*** 25.115*** 66.733*** * p<.05, ** p<.01, *** p<.001 (One-tailed)
Conclusion, Limitations, and Future Recommendations
This study has provided support for the six HR configurations (recruitment & selection, training & development,
information systems, egalitarian, and collaborative) positively affecting an organisation’s level of IC namely human,
organisational, and social capital) respectively. In short, each of the three IC elements requires distinctive HR
investments in order to achieve ultimate organisational performance. This study highlighted the need for practitioners to
recognise the importance of IC as it has become a crucial factor affecting an organisation’s ability to remain
competitive, particularly for knowledge-intensive industries (Tan, Plowman, & Hancock, 2007).
Limitations of the study should be acknowledged; however, they do not mar the significance of the findings. The
sample size of the Australian biotechnology industry was relatively small with a total number of 777 biotechnology
companies in Australia. Therefore, the findings of the study were represented in an aggregate fashion rather than in a
segregated one, this study failing to compare the similarities and differences of the segmentation among small- ,
medium- , and large-sized Australian biotechnology companies in terms of their practices in human resource
management and intellectual capital management. A cross-sectional rather than a longitudinal study was undertaken
given that it was constrained by a limited budget and time. Various scholars have suggested that HR configurations may
have lagged effects on both intellectual capital (IC) and organisational performance.
Several recommendations are proposed for future research in the area of human resource management and
intellectual capital management. Focus should be placed on a firm’s overall profile of intellectual capital in the
aggregate, rather than disparately in order to understand comprehensively how intellectual capital develops and drives
organisational performance. Future research can take a more holistic approach to explore whether the ‘three’ elements
of IC work independently, complementarily, or interactively, and may or may not enhance organisational performance.
Prior empirical studies failed to examine the coexistence of IC elements. For intellectual capital to be effective, it must
depend on reciprocal coordination among each element of intellectual capital (N Bontis, 1999). In Han’s (2001)
research framework, the components within intellectual capital are complementary to each other. The generation of
synergy effects can create noticeable performance. A criticism of Youndt, Subramaniam, and Snell (2004) is that
researchers tend to treat each component of intellectual capital as completely independent constructs, thus losing sight
of the whole. Carmeli and Tishler (2004) also point out that more research is needed to extend the set of intangible
resources, and simultaneously estimate the effect of tangible and intangible resources on organisational performance.
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