Proceedings of the 3rd European Conference on Intellectual Capital

Magdi El-Bannany
resource-based perspective-only a few companies are making a serious effort to capture, measure
and better manage it’.
Therefore measuring <strong>the</strong> performance <strong>of</strong> intellectual capital as invisible powers can be seen a difficult
task because <strong>of</strong> <strong>the</strong> absence <strong>of</strong> specific guidelines in that context.
As argued above, intellectual capital consists <strong>of</strong> many important components but as mentioned by
Albert Einstein ‘what is important cannot always be measured’ and because <strong>of</strong> <strong>the</strong> availability <strong>of</strong>
reliable data for human capital component compared to o<strong>the</strong>r components <strong>of</strong> intellectual capital as
argued by El-Bannany (2008); human capital will be used a proxy for intellectual capital performance.
Different features related to human capital have been argued in <strong>the</strong> literature and <strong>the</strong>se are:
“ <strong>the</strong> individual knowledge stock <strong>of</strong> an organisation as represented by its employees”
(Bontis et al., 2000, p. 87).
“human capital generates innovation – whe<strong>the</strong>r <strong>of</strong> new products and services or
improving business processes” (Riahi-Belkaoui, 2003, p.217).
“<strong>the</strong> know-how, information, relationships, and general capabilities that individuals bring
to bear on behalf <strong>of</strong> <strong>the</strong> firm through <strong>the</strong> employment relation” (Galunic and Anderson,
2000, p.3).
“such factors as employees’ knowledge, skill, capability, and attitudes in relation to
fostering performances which customers are willing to pay for and <strong>the</strong> company’s pr<strong>of</strong>it
comes from” (Chen et al., 2004, p.201).
We can conclude that human capital as a major intellectual capital component contains invisible
powers which can lead to improving <strong>the</strong> efficiency <strong>of</strong> <strong>the</strong> companies and hence gaining a competitive
advantage in <strong>the</strong> market which in turn result in higher value for <strong>the</strong> company.
As argued by El-Bannany (2008), human capital can not act without <strong>the</strong> existence <strong>of</strong> physical capital
(<strong>the</strong> initial investment to buy <strong>the</strong> core components <strong>of</strong> <strong>the</strong> business) so this part can not be ignored in
constructing <strong>the</strong> measure <strong>of</strong> intellectual capital performance.
Several measures for intellectual capital performance have been used in <strong>the</strong> literature but <strong>the</strong> Value
Added Intellectual Capital (VAIC) method explained by Pulic (1998) and followed by previous studies
about intellectual capital performance in banks (see for instance, El-Bannany, 2008; Kamath and
Complex 2007; Yalama & Coskun, 2007; Goh, 2005; Mavridis, 2004 & 2005 and Williams, 2001) can
be seen more convenient than o<strong>the</strong>rs for <strong>the</strong> present study because <strong>of</strong> it is simplicity and overcome
<strong>the</strong> problem <strong>of</strong> data availability in some countries which might be needed with more sophisticated
measures:
The steps to calculate <strong>the</strong> Value Added Intellectual Capital (VAIC) as summarized by El-Bannany
(2008) are as follows:
Output = Gross income
Input = Operating expenses (excluding personal costs)
Value added (VA) = output – input
HC = personal cost (considered as investment)
CA = physical capital
Value added <strong>of</strong> human capital (VAHC) = VA/HC
Value added <strong>of</strong> physical capital (VACA) = VA/CA
Value Added Intellectual Capital (VAIC) = VAHC + VACA
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