Intellectual Capital and Organizational Performance: An Empirical Focus on Social Cooperative Enterprises (SIDREA Series in Accounting and Business Administration) 3030784789, 9783030784782

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SIDREA Series in Accounting and Business Administration

Francesca Sgrò

Intellectual Capital and Organizational Performance An Empirical Focus on Social Cooperative Enterprises

SIDREA Series in Accounting and Business Administration Series Editors Stefano Marasca, Università Politecnica delle Marche, Ancona, Italy Anna Maria Fellegara, Catholic University of the Sacred Heart, Piacenza, Italy Riccardo Mussari, Facultad de Economia, Università di Siena, Siena, Italy

This is the official book series of SIDREA – the Italian Society of Business Economics and Accounting. The books highlight contributions by SIDREA’s thematic research groups, operating at the national and international levels. In particular, the series aims to disseminate specialized findings on several topics – classical and cutting-edge alike – that are currently being discussed by the accounting and business administration communities. The series authors are respected researchers and educators in the fields of business valuation; governance and internal control; financial accounting; public accounting; management control; gender; turnaround predictive models; non-financial disclosure; intellectual capital, smart technologies, and digitalization; and university governance and performance measurement.

More information about this series at http://www.springer.com/series/16571

Francesca Sgrò

Intellectual Capital and Organizational Performance An Empirical Focus on Social Cooperative Enterprises

Francesca Sgrò University of Urbino Urbino, Italy

ISSN 2662-9879 ISSN 2662-9887 (electronic) SIDREA Series in Accounting and Business Administration ISBN 978-3-030-78478-2 ISBN 978-3-030-78479-9 (eBook) https://doi.org/10.1007/978-3-030-78479-9 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Disclaimer This volume is the result of the development of the Author’s PhD thesis available at: https://ora.uniurb.it/handle/ 11576/2655811#.YIb0CZAzbIW

Contents

1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

Role and Characteristics of Social Enterprises (SEs) within Nonprofit Organizations (NPOs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Nonprofit Organizations (NPOs) in Italy . . . . . . . . . . . . . . . . . . . . . 2.1.1 The Legal Evolution of Social Enterprises (SEs) . . . . . . . . . 2.1.2 The Entrepreneurial, Social, and Inclusive OwnershipGovernance Dimensions of SEs . . . . . . . . . . . . . . . . . . . . . 2.1.3 Social Enterprises as Hybrid Organizations . . . . . . . . . . . . . 2.2 Social Cooperative Enterprises (SCEs) as the most Entrepreneurial Form of SE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Cooperative Enterprises in the Literature on Economics and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 The Diffusion of Social Cooperative Enterprises in the European Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.3 Social Cooperative Enterprises in Italy . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

Intellectual Capital within Nonprofit Organizations (NPOs) . . . . . . . 3.1 The Origin and Evolution of Intellectual Capital . . . . . . . . . . . . . . 3.1.1 Intellectual Capital in the Economics and Management Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.2 Categories of Intellectual Capital . . . . . . . . . . . . . . . . . . . 3.1.3 The Evolution of Intellectual Capital Studies . . . . . . . . . . . 3.2 Intellectual Capital: A Focus on the Third Sector . . . . . . . . . . . . . 3.2.1 Intellectual Capital in Nonprofit Organizations: A Descriptive Review . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.2 The Strategic Importance of Intellectual Capital in Social Cooperative Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . .

1 3 5 5 5 7 9 10 10 13 14 17

. 21 . 21 . . . .

21 24 27 28

. 28 . 33

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3.3

An Innovative Multidimensional Measuring System of IC for SCEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.1 Human Capital in SCEs . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.2 Relational Capital in SCEs . . . . . . . . . . . . . . . . . . . . . . . . 3.3.3 Structural Capital in SCEs . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

5

6

7

. . . . .

35 37 38 40 41

Intellectual Capital and Firm Performance . . . . . . . . . . . . . . . . . . . . 4.1 Organizational Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1.1 Role and Evolution of SEs’ Managerial Performance . . . . . 4.1.2 Mission-Based Performance . . . . . . . . . . . . . . . . . . . . . . . 4.1.3 Economic and Financial Performance . . . . . . . . . . . . . . . . 4.2 Human, Relational, and Structural Capital as Drivers of SCE Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Hypothesis Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . .

47 47 47 49 50

Intellectual Capital: An Empirical Analysis . . . . . . . . . . . . . . . . . . . 5.1 Research Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.1 Sample and Variable Definition . . . . . . . . . . . . . . . . . . . . 5.1.2 Descriptive Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Principal Component Analysis of IC Subdimensions . . . . . . . . . . . 5.2.1 Principal Component Analysis of Services Provided by the Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Pearson Correlation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Regression Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . .

57 57 57 58 61

. . . .

62 63 66 70

Discussion of the Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1.1 Principal Component Analysis of the IC Subdimensions and the Services Provided by the Network . . . . . . . . . . . . . . . . . 6.1.2 The Relationship between the IC Subdimensions and SCE Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1.3 Managerial and Theoretical Implications, Limitations, and Further Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71 71

. 51 . 52 . 54

71 73 76 79

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Questionnaire Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Chapter 1

Introduction

In the knowledge-based economy, intellectual capital (IC) is considered an essential intangible resource for business success, and it is seen as the primary source of sustainable competitive advantage for both for-profit and nonprofit enterprises (Dumay et al., 2020). According to Inkinen (2015), the stream of research regarding the influence of IC on firm performance began to grow in the early 2000s and mainly focused on firms operating in the for-profit sector. However, as suggested by Dumay et al. (2020), IC studies should embrace a multifaceted perspective by proposing research covering subjects such as nonprofit organizations (Kong, 2010), IC utilization in practice (Dumay, 2013), innovation (Lerro et al., 2014), sustainability (Matos & Vairinhos, 2017), education (Secundo et al., 2018), and innovations in IC disclosure (Lombardi and Dumay, 2017). Notwithstanding the growing interest in enhancing the theoretical and empirical foundations of the relationship between IC and performance, academic studies investigating the human, relational, and structural sub-components that improve corporate performance in the nonprofit sector are still limited (Ab Samad et al., 2017; Arshad et al., 2016; Bontis et al., 2018). In fact, studies combining IC and NPOs show a fragmented trend, and publications on this subject have appeared mainly in recent years, especially since 2010. However, they are increasing, confirming that is a dynamic and emerging field of research that is thus far largely unexplored and, therefore, presents great opportunities for future research. This study represents the development of a work published by Bontis et al. (2018) in the Journal of Intellectual Capital, titled “Intellectual capital and financial performance in social cooperative enterprises,” and it responds to the gap in the extant literature by focusing on the relationship between IC sub-components and a particular type of NPO, known as social cooperative enterprises (SCEs). These enterprises represent the most entrepreneurial, articulated, and advanced example of social enterprises (Bontis et al., 2018; Borzaga et al., 2020), and they are identifiable as hybrid organizations since they operate at a crossroads by © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 F. Sgrò, Intellectual Capital and Organizational Performance, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-78479-9_1

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1 Introduction

simultaneously adopting economic and social practices with the aim of achieving social and economic performance (Doherty et al., 2014). IC is an important resource that SCEs need to develop to effectively implement their corporate strategy, acquire and maintain a long-lasting competitive advantage and improve their corporate performance (Benevene et al., 2017; Bontis et al., 2018). Specifically, IC plays a strategic role for SCEs in terms of achieving the mission or raison d’être for which they were established and to satisfy the general interest of local communities, persons, or social groups by operating commercial activities (Bontis et al., 2018). Therefore, investing in IC is crucial for the strategic positioning of SCEs (Benevene et al., 2017). Thus, this study can be considered original for several reasons. First, it enriches the extant literature by providing empirical evidence on the principal components of IC subdimensions (human, relational and structural capital) and on the effect of IC subdimensions of the social and financial performance of SCE. In fact, studies regarding IC and different types of NPOs mainly focus on the reporting and disclosure of IC and its role as a strategic management tool within the nonprofit sector. Conversely, studies on the relationships between IC and the performance of SCEs and the perception of IC components are still few in number. Heeding all of this, the current study falls in the third phase of IC studies, given that it aims to provide empirical evidence of the relationships between human, relational, and structural capital and organizational performance, and in the fifth phase, as it adopts social cooperative enterprises, a particular type of NPO, as its research setting (Dumay et al., 2020). Second, this study adopts a mixed-methods approach (Wisdom & Creswell, 2013) so as to provide a deeper understanding of the strategic role of IC within an SCE setting. In fact, most of the studies regarding IC in the nonprofit sector adopt mainly quantitative methodologies. Third, the research setting, social cooperative enterprises, presents another innovation. In fact, only a few studies have focused on SCEs, which are the most entrepreneurial, articulated, and advanced examples of social enterprises. Therefore, to accomplish the research goal, a survey was administered to the total population of 151 Italian social cooperative enterprises that were involved in the studies of Bontis et al. (2018); the questionnaire was designed to gather background information about the social cooperative enterprise, as well as data pertaining to the three sub-components of IC. Financial performance data were gathered from the AIDA database. After data collection, several empirical analyses were conducted. First, principal component analysis (PCA) was performed, followed by an orthogonal varimax rotation to identify the principal components for each IC subdimension. Second, two ordinary square regression models were used to test the hypotheses and to verify the effect of each IC subdimension on the financial and social performance of cooperative enterprises. Hence, the study tries to answer the following research questions:

References

3

(RQ1) What are the principal components of IC subdimensions for SCE? (RQ2) What elements of IC influence the financial performance of SCE? (RQ3) What components of IC affect the social performance of SCE? The work is structured as follows: Chapter 2 reviews the role of nonprofit organizations in Italy by highlighting the essential characteristics of social cooperative enterprises (identified as social enterprises) by highlighting their diffusion in Europe, specifically in Italy and by providing an overview of their main features. Chapter 3 describes the concept of intellectual capital and how it has been analyzed within the economic and management literature, illustrates the evolution of IC studies, and describes several definitions and taxonomies that have emerged over time. In addition, the chapter offers an in-depth summary of the extant literature on intellectual capital in nonprofit organizations, specifically in SCEs, and on a set of IC key performance indicators that have been developed to reveal the value generated by human, relational, and structural capital in SCEs to underline the strategic importance of these resources in the nonprofit sector. Chapter 4 presents a framework useful for measuring SCE performance in terms of social and economic dimensions. In addition, details regarding the importance of IC for corporate performance and information on the development of the research hypotheses are provided. Chapter 5 is devoted to describing the methodology of the research by providing insights referring to sample and variable definitions, principal component analysis, and regression models that have been employed to investigate the effects of IC sub-components on SCEs’ social and economic performance. Chapter 6 provides a discussion of the results, highlighting the main findings regarding the identification of the main component of IC and the effects of human, relational, and structural capitals on firms’ organizational performance. Finally, managerial and theoretical implications, study limitations, and paths for further research are delineated.

References Ab Samad, N. H. B., Yusof, N. B. M., & Roslan, N. B. (2017, May). Effectiveness of social Enterprise in Managing Intellectual Capital. In International accounting conference. Arshad, R., Ab Samad, N. H., Kamaluddin, A., & Roslan, N. (2016). Intellectual capital, accountability and sustainability in non-profit organizations. Asian Journal of Scientific Research, 9(2), 62–70. Benevene, P., Kong, E., Barbieri, B., Lucchesi, M., & Cortini, M. (2017). Representation of intellectual capital’s components amongst Italian social enterprises. Journal of Intellectual Capital. Bontis, N., Ciambotti, M., Palazzi, F., & Sgro, F. (2018). Intellectual capital and financial performance in social cooperative enterprises. Journal of Intellectual Capital.

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Borzaga, C., Galera, G., Franchini, B., Chiomento, S., Nogales, R., & Carini, C. (2020). Social enterprises and their ecosystems in Europe. Comparative synthesis report. Luxembourg, LU: Publications Office of the European Union. Doherty, B., Haugh, H., & Lyon, F. (2014). Social enterprises as hybrid organizations: A review and research agenda. International Journal of Management Reviews, 16(4), 417–436. Dumay, J. (2013). The third stage of IC: Towards a new IC future and beyond. Journal of Intellectual Capital. Dumay, J., Guthrie, J., & Rooney, J. (2020). Being critical about intellectual capital accounting in 2020: An overview. Critical Perspectives on Accounting, 70, 1–9. Inkinen, H. (2015). Review of empirical research on intellectual capital. Journal of Intellectual Capital, 16(3), 518–565. Kong, E. (2010). Analyzing BSC and IC's usefulness in nonprofit organizations. Journal of Intellectual Capital. Lerro, A., Linzalone, R., Schiuma, G., Cabrilo, S., Nesic, L. G., & Mitrovic, S. (2014). Study on human capital gaps for effective innovation strategies in the knowledge era. Journal of Intellectual Capital. Lombardi, R., & Dumay, J. (2017). Guest editorial: Exploring corporate disclosure and reporting of intellectual capital (IC): Emerging innovations. Journal of Intellectual Capital, 18(1), 2–8. Matos, F., & Vairinhos, V. M. (2017). Intellectual capital management as a driver of competitiveness and sustainability. Journal of Intellectual Capital. Secundo, G., Lombardi, R., & Dumay, J. (2018). Intellectual capital in education. Journal of Intellectual Capital. Wisdom, J., & Creswell, J. W. (2013). Mixed methods: Integrating quantitative and qualitative data collection and analysis while studying patient-centered medical home models. Rockville: Agency for Healthcare Research and Quality.

Chapter 2

Role and Characteristics of Social Enterprises (SEs) within Nonprofit Organizations (NPOs)

2.1 2.1.1

Nonprofit Organizations (NPOs) in Italy The Legal Evolution of Social Enterprises (SEs)

In the past 30 years, the nonprofit sector (also called the “third sector”) has emerged as one of the most important key players in providing public and social services across Europe (Monzón & Chaves, 2012; Borzaga et al., 2019). According to the latest data provided by the Italian National Institute of Statistics, in Italy, there are 359.574 NPOs in Italy, and they produce 3.3% of Italy’s GDP and employ 853.476 workers. The growth of this sector has been seen in all Italian regions, and the increase can be primarily attributed to the growth in the number of paid workers, volunteers, external workers, and temporary workers and the expansion of the services provided (i.e., health care, education, and social development). However, the highest increase, during the 2017–2018 time frame, was registered in the northeast (27.9%), northwest (22.8%), and centre of Italy (22.2%) (ISTAT, 2020). Amon the several types of NPOs, social enterprises (SEs) have garnered great interest over time thanks to a growing recognition of their role in tackling societal and environmental issues and in ensuring and fostering inclusive growth. In particular, there are four main reasons that can justify the birth and evolution of these enterprises, and all of them are clearly related to deep changes in the economic, social, and cultural issues that have taken place since the 1970s (Borzaga et al., 2020). First, the Italian welfare system was unable to respond to the emergence of new needs from the community. In fact, society was suffering from the slowdown in

This chapter is the result of the development of the author's PhD thesis available at: https://ora. uniurb.it/handle/11576/2655811#.YIb0CZAzbIW © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 F. Sgrò, Intellectual Capital and Organizational Performance, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-78479-9_2

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2 Role and Characteristics of Social Enterprises (SEs) within Nonprofit. . .

economic growth caused by the oil crisis and by the political, economic, and social problems that occurred during 1960s and 1970s. In this context, the state was unable to cope with the increases in drug addiction, the number of disadvantaged youth and adults, homelessness, and unemployment, and the few institutions that were dealing with these problems tended to address social needs by providing monetary compensation rather than offering services or help integrating into society (Borzaga & Santuari, 2001; Thomas, 2004; Galera & Borzaga, 2009). Second, in the 1980s, a societal crisis became rooted in the community, which led to the emergence of voluntary associations aimed at making up for the shortcomings of Italian public institutions. This social cooperation arose from moral beliefs, ideals, and values, such as solidarity, of people who were committed to the pursuit of common social and economic well-being (Borzaga & Santuari, 2001). This process birthed a legal form of cooperation: a commercial organization with a social function. However, the area of competency of these “social” solidarity cooperatives was not clear in terms of rules and legal regulations. Third, the major turning point in the legislative recognition of SEs (as a legal form of social solidarity cooperative) as players in the Italian welfare system primarily came from the introduction of specific legislative measures. In fact, the growth of these enterprises was supported by favorable political and social contexts in terms of legislation, social capital, and the willingness to create an effective local welfare system (Borzaga & Santuari, 2001; Picciotti et al., 2014). Some of the main laws introduced in 1990 and 1991 were concerned with the recognition and regulation of voluntary organizations (Law No. 266) and social cooperatives (Law No. 381). Since 1991, social cooperatives have become the most commonly used legal form adopted by social enterprises. Fourth, in the following years, additional legal provisions emerged in an attempt to reorganize social policies, the provision of social and general interest services was adopted, new types of nonprofit organizations were introduced, and Legislative Decree N. 117/2017, known as the Code of the Third Sector, was passed in an effort to harmonize the normative fragmentation traditionally characterized by overlapping laws by grouping the entities belonging to the third sector into the shared status of “entities of the third sector.” Since the implementation of Decree 112/2017, the “qualification” of social enterprises can be selected and assumed by any private legal entity, regardless of its incorporation as a nonprofit or a for-profit company. However, each firm must comply with the requirements of scope, performed activities, and governance set by the new decree. Therefore, a social enterprise is a private legal entity involved in the production and exchange of goods and services with social utility, it aims to provide social and public benefits (rather than maximize profit), and it is now characterized by its sharing of profits and distribution of dividends, albeit with limitations. On the one hand, companies can distribute up to 50% of their profits generated in a given year to investors, or they can donate these resources to other third-sector organizations. On the other hand, at least 50% of the profits generated must be reinvested in the social enterprise, and the assets must remain locked.

2.1 Nonprofit Organizations (NPOs) in Italy

7

Moreover, to help them overcome resource constraints, social enterprises have access to forms of capital raising (e.g., crowdfunding), tax incentives, specific financial funds, and representatives working in private businesses or public administrations on their boards and one or two statutory auditors within supervisory bodies. Each SE has to be registered in the Social Enterprise Section of the Register of Enterprises managed by the Chamber of Commerce and has to publish its financial and social balance sheets. Finally, an SE needs to respect some ethical governance principles, such as transparency, openness, and participatory decisionmaking. These changes have led to the formal legal recognition of the concept of social enterprises (Wilkinson et al., 2014; Borzaga et al., 2020). Legally recognized social enterprises are those with a distinct legal identity in the country concerned, either by operating in a legal form exclusively designed for social enterprises or by holding a legal status as a social enterprise (i.e., as determined by Law 381/1991 and Decree 112/2017). De facto social enterprises are entities that fully meet the criteria laid out by the EU definition and span a wide variety of organizational and legal forms, such as cooperatives, associations, and mainstream enterprises. Thanks to the legal evolution of norms regarding SEs, a clear picture of the main features of these enterprises has been provided.

2.1.2

The Entrepreneurial, Social, and Inclusive Ownership-Governance Dimensions of SEs

The EMES European Research Network identifies several criteria that are useful for describing an “ideal type” of social enterprise, and three dimensions determine whether an organization qualifies as an SE: the entrepreneurial, social, and inclusive ownership-governance dimensions (Defourny & Nyssens, 2012; Borzaga et al., 2020). Within the economic and entrepreneurial dimensions, data on four criteria were collected. The first comprises the firm’s involvement in continuous activities of production and the sale of goods and services. In fact, the core business of SEs, unlike other nonprofit organizations, relies not on advocacy activities or the redistribution of financial resources but on commercial activities geared toward the provision of goods and services to satisfy societal needs over time. The second criterion is related to the adoption of a significant level of economic risk inherent to the reference business that the social enterprise totally or partly assumes. Unlike public institutions, social enterprises’ financial viability highly depends on the firm’s ability to balance tangible and intangible resources such as workers, members, external investments, and financial funds. Third, SEs benefit from a high degree of autonomy. In fact, these firms are created by people who can activate, manage, and terminate the activity autonomously. Finally, a minimum amount of paid work represents the fourth criterion. The activities undertaken by these enterprises require

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2 Role and Characteristics of Social Enterprises (SEs) within Nonprofit. . .

a minimum level of paid workers, and they can also combine monetary and non-monetary resources and voluntary and paid workers. Therefore, SEs engage in economic behavior to pursue their socially oriented missions. The economic and financial dimensions a means to an end. The social creation value is prioritized as important; however, it is strictly linked making the management of the enterprise economically and financially sustainable over time (Bagnoli & Megali, 2011). Being financially responsible, economically sustainable, and accountable are conditions that must be met to accomplish the institutional mission. Unlike with public institutions, the viability of an SE depends on the efforts of its members and workers to secure adequate resources. Activities are carried out with a specific mix of human and financial resources, and an SE may also combine tangible and intangible resources. Furthermore, social entrepreneurs explore all types of resources, from donations to commercial revenues. With regard to the social dimension, pursuing social aims is the purpose of these mission-oriented organizations. Social enterprises are involved in the provision and production of goods and services that directly and positively affect the entire community or specific groups of people and that promote a sense of social responsibility at the local level. The definition of social objectives is clarified in the mission statement. Moreover, these firms are characterized by their private nature, and they are autonomous associations of people who voluntarily cooperate to provide mutual, social, economic, and work benefits. This collective dimension involves people belonging to a community or to a group that shares a well-defined need or aim, and it must be maintained over time. Finally, the inclusive ownership-governance dimension allows them to strengthen their social and cultural orientation (Borzaga & Galera, 2012). Participatory ownership implies that ownership rights and control power are assigned to all of the most relevant stakeholders, and this practice increases organizational efficiency by limiting opportunistic behavior since governance team members share the same needs, aims, values, or moral beliefs. The nonprofit distribution constraint is seen as a mechanism for increasing the firm’s capitalization. This implies that net earnings are reallocated for financing the general interest activities that the organization carries out. These constraints help build legitimacy, improve public confidence, and guarantee that resources are put toward the stakeholders’ interests (Anheier, 2014). According to Vamstad (2012), the nonprofit distribution constraint ensures the quality of the services delivered, attracts stakeholders with the social aims pursued by the social enterprise, efficiently allocates tangible and intangible resources, and ensures social and economic wealth creation for the reference community.

2.1 Nonprofit Organizations (NPOs) in Italy

2.1.3

9

Social Enterprises as Hybrid Organizations

The term hybridity has been used in numerous organization and entrepreneurship studies (Battilana & Lee, 2014; Doherty et al., 2014) to refer to a specific type of organization that “steals” and “recombines” features and logics that are typical of well-known organizational legal forms into a blended organizational form. Social enterprises represent a prime example of hybrid organizations since they pursue the dual mission of social purpose and financial viability by spanning the boundary between the public, private, and nonprofit sectors, thereby offering blended value (Doherty et al., 2014). In fact, a social enterprise is an organization that generates revenue from sales and fees but not for private gain. This trading process is guided by the principle of societal benefit realized by the firm’s ability to meet social and environmental goals that help create positive externalities (Santos et al., 2015). According to Coskun et al. (2019), there are numerous definitions of SEs that highly depend on country-level institutional factors. In the United States, the literature focusing on SEs mainly refers to organizations that adopt market-based approaches to income generation and social change (Defourny & Nyssens, 2010a, b), whereas in Europe, these organizations are strongly rooted in the cooperative tradition of collective social action (Borzaga & Santuari, 2001; Defourny & Nyssens, 2010a, b). Finally, the United Kingdom takes features from both traditions and states that an SE is “a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximize profit for shareholders and owners” (DTI, 2002). However, all of these definitions highlight two focal points: the adoption of some commercial activities to generate revenue and the achievement of social goals (Doherty et al., 2014). Thus, SEs differ from for-profit organizations that seek to maximize profit for private gain by instead prioritizing social goals to create social and economic wealth in the community by integrating the work of paid employees and with that of volunteers—features borrowed from the public and nonprofit sectors. Therefore, SEs are strongly related to the social motivations of wealth giving, cooperation, and community development (Lumpkin et al., 2013; Doherty et al., 2014). In this context, the pivotal role of social enterprises emerges in both social and economic terms (Rivera-Santos et al., 2015) since such entities are characterized by a balanced combination of the entrepreneurial and social dimensions (Defourny & Nyssens, 2012). This means that social enterprises typically have to face the challenge of creating social impact while being financially sustainable (Mair & Marti, 2006; Lashitew et al., 2018); thus, the achievement of the social mission is strictly linked to economic and financial aspects. These enterprises must be able to operate in an economic and financially balanced way and to effectively manage the available resources to survive in the long term. Thus, they have to be capable of effectively and efficiently employing tangible and intangible resources. However,

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recent studies suggest that the meaning of hybridity goes beyond the duality of social and commercial logics and that it comprises differences based on the firm’s growth strategies in terms of client or community orientations (Kannothra et al., 2018), the choice of beneficiaries to serve (Siegner et al., 2018) and which social mission to prioritize (Dufays, 2019) and, finally, the firm’s orientation regarding the pursuit of “mutual interest” or the “general interest” (Bauwens et al., 2019). Therefore, the process of aligning these logics can lead to ambiguity and create tensions both within the social enterprise and among stakeholders (Nielsen et al., 2019). One of the main tensions, performance, arises from the need to simultaneously be financially sustainable and fulfil social objectives. The main challenge for SEs is represented by the firm’s ability to implement a measurement performance system able to balance and integrate short-term quantitative measures for commercial performance with measures for social performance, which are mainly qualitative and intangible and for which there are no standardized metrics (Ebrahim & Rangan, 2010). Another issue of tension is related to the firm’s process of gaining legitimacy from diverse stakeholders (Pache & Santos, 2011; Lumpkin et al., 2013). Social enterprises should be able to balance both social and economic dimensions to avoid mission drift and, consequently, legitimacy loss. Mission drift happens when SEs become too focused on generating income and thus neglect their social objectives, or vice versa (Santos et al., 2015). Moreover, attempting to fulfil both social and commercial goals generates organizational, belonging, and learning tensions (Battilana & Dorado, 2010). Organizational tensions arise from the presence of different organizational structures, cultures, and practices within the enterprise (Carlsson-Wall et al., 2016), whereas belonging tensions happen when stakeholders focus on different logics that lead to diverse ideas on how a firm’s goals should be prioritized (Grimes, 2010). Finally, learning tensions emerge from differing perspectives on time, such as seeking shortterm financial outcomes or long-term social impact (Smith et al., 2013).

2.2 2.2.1

Social Cooperative Enterprises (SCEs) as the most Entrepreneurial Form of SE Cooperative Enterprises in the Literature on Economics and Management

Between the end of the 1980s and the beginning of the 1990s, numerous studies were conducted to highlight the peculiarities of cooperatives with respect to for-profit organizations. More specifically, three tracks can be identified: classical studies, mutual-type studies, and social and economic doctrine.

2.2 Social Cooperative Enterprises (SCEs) as the most Entrepreneurial Form of SE

11

The classical perspective, which originated with the studies of Pantaleoni (1898), affirms that cooperative enterprises are similar to for-profit organizations, as both pursue economic and financial goals, but there is one prominent difference. In fact, the economic and financial objective of for-profit organizations is to maximize profit, while cooperatives seek to reach a reasonable level of remuneration and to promote activities that are able to develop the well-being of humans. In this context, cooperative enterprises are seen as a means to promote human capital and social, economic, and national political well-being. In the same stream of studies, Tessitore (1968) affirms that cooperatives are autonomous associations of people who employ economic and personal resources to satisfy common goals. The author specifically highlights that all the cooperative’s members assume an entrepreneurial function (as is the case in for-profit organizations), and even the organizational goals are linked to the satisfaction of organizational members (which is different from for-profit organizations, where the strategic goals are linked to the satisfaction of a limited number of stakeholders). Another difference is that for-profit organizations and cooperatives reinvest their profits in their own development rather than maximize them. According to Vermiglio (1990), the main points that distinguish cooperative enterprises from for-profit organizations are the type of economic entity, stakeholder interests, and equity capital. The economic entity is composed of individuals; each member has power and rights and follows the principle of “one member, one vote.” The stakeholder interests are divided into internal and external interests, and the first group of interests is broader in cooperatives than in for-profit organizations, given each one’s institutional purposes. With regard to equity capital, cooperatives have more difficulty obtaining economic and financial resources than for-profit enterprises do. The second stream of research refers to mutual-type studies, which affirm that the differences between cooperatives and for-profit organizations are based on different final organizational purposes and organizational autonomy. According to Fauquet (1948), these differences are expressed in two types of enterprises. The first is an enterprise in which the maximization of profit and entrepreneurial benefits (through commercial activities) is the primary goal. For the other types of enterprises, the satisfaction of social needs is the main strategic purpose. In 1977, Marchini highlighted that the satisfaction of social needs must be correlated with economic and financial viability to guarantee the long-term, sustainable development of cooperatives. The author distinguishes between two types of cooperatives: pure and spurious. Pure enterprises, on the one hand, are “damno evitando,” which means that these enterprises pursue expenditure savings and that there is no competitor market. In this market, there is no exchange of resources, given that the providers of these resources are the organizational members, and there is a continuous exchange between consumer and producer members. Spurious cooperatives, on the other hand, are “damno evitando” and “lucro captando.” These enterprises have market relationships with external partners, which are sources of economic and financial advantages (Marchini, 1977).

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Finally, Matacena (2017) is the most prominent supporter of social and economic doctrine. Matacena affirms that the ultimate purpose of cooperatives is related to economic and social creation processes. The creation of social well-being is possible through corporate, economic, and financial autonomy and long-term sustainability. The underpinning goal of social cooperatives is to pursue social well-being according to the criteria of economic efficiency and the effective use of available resources. In this context, the innovative concept of social-cooperative enterprises emerges, defined by International Co-operative Alliance (ICA) as “an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.” In Europe, the International Co-operative Alliance (ICA) established the foundation for the development of fundamental values that guide the operational activities of cooperative enterprises. These values include democracy in the organization’s management based on the one-member-one-vote principle, and stemming from this, participatory governance depends on the element of mutuality. Mutuality refers to the organizational attitude of achieving social purposes by providing goods, services, and revenue and doing so without profit objectives. Finally, solidarity is seen as the help that cooperatives offer to specific groups of individuals and to the reference community in order to create broad social and economic well-being. To satisfy the social needs expressed in its mission statement, an effective cooperative must respect economic and financial viability (Bagnoli & Megali, 2011; Matacena, 2017). The cooperative’s primary aim is not to maximize profit but to produce profit as a means to achieve successful organizational performance. The operating profits gained by the organization’s operations activities are divided, in limited amount, among several members and then invested in the development of new activities in the form of additional benefits for all the beneficiaries. This is the expression of the member-economic participation principle. The principle of autonomy and independence refers to the ability of a cooperative to make agreements with reference communities (such as public and private organizations, enterprises, and financial institutions) and, at the same time, to maintain its autonomy. Finally, the principles of cooperation among cooperatives and concern for the community are related to sustainable development at the local, national and international levels of society.

2.2 Social Cooperative Enterprises (SCEs) as the most Entrepreneurial Form of SE

2.2.2

13

The Diffusion of Social Cooperative Enterprises in the European Context

In the context of social enterprises, social cooperatives represent the most entrepreneurial, articulated, and advanced example of SEs (Borzaga & Galera, 2012; Defourny & Nyssens, 2010a, b). Two main approaches to forming SEs can be observed across Europe (Wilkinson et al., 2014). Countries such as Italy, Spain, and France have created new, legal forms for SEs by adapting the legal form for cooperatives. Additionally, Portugal, Poland, Hungary, and Greece have recognized social cooperatives (or the social purpose of cooperatives) in their existing legislation covering cooperatives, while the United Kingdom has developed a legal “community-interest company” that specifically adapts the company form to fit SEs. In Europe, traditional cooperative forms have evolved into cooperativas de iniciativa social (cooperatives of social initiative) in Spain, Sociétés Coopérative d’Intérêt Collectif (SCICs) (cooperatives of collective interest) in France, solidarity cooperatives in Portugal and social cooperatives in Poland, Hungary, and Greece. In France, for example, SCICs pursue social and economic goals, and they are related to the production or sale of products that offer a social benefit (“caractère d’utilité sociale”). The legal form of the Portuguese “social solidarity cooperative” (cooperativa de solidariedade social) was created in 1997. This type of cooperative provides services with the aim of fostering the integration of vulnerable groups. Portuguese social solidarity cooperatives combine service users, workers, and volunteers in their memberships. Spain introduced the legal form of the “social initiative cooperative” in 1999 (National Law 27/1999), following the examples of some other EU member states, such as Italy. National law 27/1999 defines social initiative cooperatives as “those cooperatives that being non-profit and independent, mainly engage in either the provision of welfare services in health, educational, cultural or other activities of social nature, or in the development of any economic activity whose object is the employment of persons suffering from any kind of social exclusion and, in general, they satisfy social needs not met by the market.” In Hungary, social cooperatives (under Act X of 2006 on cooperatives) provide employment opportunities for the long-term unemployed or disadvantaged groups in the labor market. Social cooperatives in the Czech Republic pursue a wide range of social goals, from sustainable development to the protection of the environment. However, these enterprises operate with a local focus, fulfilling local needs, and using local resources. Greek law 4019/2011 complements the legal recognition of traditional SEs by introducing three different types of social cooperatives—Kinoniki Sineteristiki Epihirisi (Koin.S.E.P)—categorized according to their goals, such as socioeconomic inclusion through the work integration of persons belonging to vulnerable groups of

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2 Role and Characteristics of Social Enterprises (SEs) within Nonprofit. . .

the population (Inclusion Koin.S.E.P); the production and supply of goods and the provision of social care services to specific groups of the population, such as elderly people, infants, children, and people with disabilities or chronic illness (Social-Care Koin.S.E.P); and the production and supply of goods, the maintenance of traditional trades and the promotion of local products (Koin.S.E.P of Collective and Productive Purpose), and the provision of services for satisfying collective needs in areas related to culture, the environment, ecology, education, and common interest services. Even the United Nations recognized the importance of the cooperative sector by declaring 2012 to be the International Year of Cooperatives (IYC), highlighting the strengths of the cooperative business model as an alternative means of doing entrepreneurial business while furthering socioeconomic development. According to Borzaga and Galera (2012), it is also possible to recognize the increasing importance of the role of cooperatives during economic crises. The authors have emphasized the robustness of the cooperative model: “In most countries, cooperatives have responded more effectively to the crisis than investor-owned firms. The resilience of cooperatives has increasingly been acknowledged, and policy and opinion makers are eager to understand how cooperatives can play a role in tackling the dramatic consequences of the global crisis and reforming the system that has contributed to generating it.” However, Italy was a pioneer in introducing legal frameworks for social cooperative enterprise models with the law adopted in 1991, and other European countries followed suit later (Costa et al., 2014).

2.2.3

Social Cooperative Enterprises in Italy

In Italy, social enterprises obtained their own distinct legal identity for the first time thanks to the emanation of the 1991 Act on Social Cooperatives (Law no. 381/1991), which states that these enterprises pursue the general interest of the community in promoting personal growth and integrating people into society by providing social, welfare and educational services, and carrying out different activities for the purposes of providing employment for disadvantaged people. Law 381 distinguishes between two types of social cooperatives, according to whether they manage social welfare or educational services (A-type social cooperatives) or they undertake any other activity—agricultural, manufacturing, or commercial—or deliver services (other than social services) to increase the work integration of disadvantaged persons (B-type social cooperatives). Therefore, the main aim of SCEs is to create social value, boost cultural wealth, promote socioeconomic development, and stimulate social change. These enterprises are characterized by their private nature, as they are autonomous associations of people who voluntarily cooperate for mutual, social, economic, and working benefits, and they may rely on public subsidies; however, they are not managed, either directly or indirectly, by public authorities or other organizations. They have the right to manage, continue, and terminate their activities autonomously. In fact,

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these businesses are owned and managed by partners, and their purpose is to satisfy the needs of people who have been ignored (or whose needs have been inadequately fulfilled) by the private and public sectors. Therefore, these firms are engaged in economic activities to deliver goods and services with social utility and increase work integration in an entrepreneurial way (Matacena, 2017). According to Art. 2082 of the Italian Civil Code, their activity must therefore be productive, professional, economical, and organized. The concepts of social utility and work integration include activities related to sectors with social utility, such as welfare, health, education, construction, culture, and environmental protection. In terms of the work integration of underprivileged or disabled people, the sector of activity is irrelevant since the activity is carried out by employees, at least 30% of whom are disadvantaged people. Furthermore, SCEs are mission-driven organizations. This means that most decisions and operational activities are based on the organization’s corporate mission, vision, and strategic plan. Strategic goals are linked to the creation of social value for society, and economic and financial viability is a means to accomplish the mission (Costa et al., 2012). The role of HC in achieving the mission is crucial. In fact, SCEs are characterized by human-capital-intensive processes. Employees, members, and volunteers are directly involved in the production and provision of services. Strong, strategic human resource management practices are required to optimize the effectiveness and efficiency of the organization (Veltri & Silvestri, 2011) and to guarantee the quality of the provided services (Benevene et al., 2018). The supplied services and goods are tailored to meet user needs, and they are characterized by high relational capital content (Lettieri et al., 2004). SCE governance and ownership structures are based around the active involvement and engagement of all relevant stakeholders, such as users or beneficiaries, employees, volunteers, and other partners. In fact, investors are not the only ones with ownership rights and power. Through their commitment, all stakeholders are empowered and can ensure adequate quality to meet existing needs. Additionally, a high level of stakeholder cohesion empowers the local community, enhances social cohesion, fosters a more participatory democracy, and allows for strategic decisionmaking (Borzaga & Galera, 2012). Decision-making power is based not on capital ownership but on the principle of “one member, one vote.” SCEs adopt an open and participatory governance model in which members, workers, volunteers, and donors have ownership rights and control power. The engagement of various stakeholders operating in a cooperative network with public and private institutions attracts a mix of resources that are able to help with firms’ low capitalization and difficulties in accessing the credit sector (Borzaga & Galera, 2012). The increase in the available resources allows for improvements in efficiency and the provision of social interest services. Thanks to the interactions that they establish with other business sectors, private and public institutions, and other SCEs or NPOs, they have the ability to transform and shape the social and economic system in which they operate to the entire community’s advantage.

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2 Role and Characteristics of Social Enterprises (SEs) within Nonprofit. . .

Additionally, these organizations require a broad consensus in terms of agreedupon values and the high motivation of the human resources and reference community because a quality relationship and reliable reputation are essential for the legitimacy of enterprises looking for external funding, volunteer support, and public trust (Lettieri et al., 2004; Defourny & Nyssens, 2010a, b). The ownership structure of social cooperatives may simultaneously include several categories of associates, and the discipline of social cooperatives previews the existence of two of these categories: the members and the financial backer. Members are those who are interested in the mutuality of the relationship that was established with the cooperative to obtain a good or service at a lower price so that one or another market benefits (Agliata et al., 2014). This category has the following limitations: restrictions on the remuneration of equity, the prohibited distribution of reserves during the life of the company, and the devolution, at the dissolution of the cooperative, of the resources that exceed the equity capital to other relationships based on mutuality in order to promote the development of the cooperative. Additionally, the members can be divided into ordinary and volunteer members. First, ordinary members are those who carry out an activity for which they receive remuneration, and they are also equal to employees. Within this category, identified disadvantaged individuals must comprise at least 30% of the members (this is compulsory for B-type cooperatives). Second, volunteers are members whose working activities fall into the scope of solidarity; their numbers must be determined in the statute governing the cooperative, and they have the right to be reimbursed for the expenses they incur in relation to their working activities for the cooperative. This category may not constitute more than 50% of the total workforce. While financing members are legal entities or individual investors who bring money to cooperatives with investment aims, these members are defined as suppliers of capital and have limited rights to participate in the decision-making and governance of the organization. Furthermore, legal entities that are “eligible as members of social cooperatives. . .are public or private legal persons whose statutes provide for the funding and development of cooperative activities” (Lionzo, 2002). Members can choose between two types of rewards: variable and fixed (Lionzo, 2002). First, variable rewards are related to the reward distribution to members based primarily on the operating results; in this way, they participate in the share of capital risk. Second, fixed rewards are based on a specific national employee contract. Additionally, social cooperatives can benefit from fiscal incentives attached to the legal form, depending on their characteristics (Borzaga et al., 2020). In fact, either these companies are exempt from the payment of corporate income tax or a reduced rate applies to them; furthermore, if they belong to type B, they are exempt from national insurance contributions for the disadvantaged workers that they employ. In addition, SCEs benefit from the status of preferred providers in local authority procurement, as agreed upon with the European Commission, which allows local authorities to enter into direct agreements with type-B and type-A cooperatives for contracts up to €300,000 and €200,000, respectively. Moreover, there are tax exemptions for private donations to social cooperatives, and these cooperatives can also benefit from a reduced value-added tax (VAT) rate for any health, social,

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or educational services they offer. The portion of surpluses that is allocated to the mandatory reserves is not taxed, and in some regions, there is a reduction or exemption of the regional tax. Finally, these companies enjoy a reduction of one-quarter in cadastre and mortgage taxes. Therefore, social cooperatives operate in a political, social, and economic environment in which value, a code of ethics, reciprocal trust, and the personal characteristics associated with the stakeholders of the organization help to establish cooperative interactions, social exchange, commitment, and responsibility for shared purposes. However, the “way of being” of social cooperatives depends, directly or indirectly, on the reference community. The structure of the reference community, the quality and strength of the ties between partners within the network, the intensity of the shared goals and values amongst partners, and the collaboration between organizations, communities, and public and private institutions are the basis of the development of intellectual capital (IC).

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Chapter 3

Intellectual Capital within Nonprofit Organizations (NPOs)

3.1 3.1.1

The Origin and Evolution of Intellectual Capital Intellectual Capital in the Economics and Management Literature

The important contribution of immaterial resources to corporate success and value creation was recognized by Thorstein Veblen, an economist and sociologist, in 1904, when he affirmed that a substantial part of the foundation of an industrial corporation is its immaterial assets and that intangible resources, such as the source of organizational sustainability and competitive advantage, are the most important production factors. From an economic perspective, Adam Smith (1776) was one of the first classical economists to recognize the importance of human capital as a source of social and economic growth. According to Smith, the production factors (inputs) were divided into land (such as natural resources), labor (successively called human efforts or human capital), and capital stocks (machinery, tools, buildings, etc.). Smith’s classification included capital stock factors such as machines and instruments of trade, profitable buildings, the improvement of land, and, especially, “the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise of that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labor, and which, though it costs a certain expense,

This chapter is the result of the development of the Author's PhD thesis available at: https://ora. uniurb.it/handle/11576/2655811#.YIb0CZAzbIW © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 F. Sgrò, Intellectual Capital and Organizational Performance, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-78479-9_3

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repays that expense with a profit” (Smith, 1776, pp. 265–266). Smith underlined the key role of worker and employee knowledge and skills in the effectiveness of a production process and the quality of its output. In fact, he noticed that the productivity of skilled workers was higher than that of unskilled workers, and he recognized that education and workers’ skills can increase the well-being of a state and the success of an enterprise. Economics took almost two centuries to return to Smith’s remark that investment in people’s knowledge and skills leads to profits and the enrichment of a nation. Alfred Marshall (1890), in his definition of wealth, included the concept of human resources and the pivotal role of the family in creating value. Gary Becker (1964) provided a framework to begin talking about a different kind of capital, named human capital, and assumed that “schooling raises earnings and productivity mainly by providing knowledge, skills, and a way of analysing problems”; therefore, Becker saw education and training as the most important investments in value creation processes. John Kendrick (1972) recognized that the accumulation of physical capital could not, by itself, explain the performance or growth of a country or industry. In fact, many other “residual factors,” such as investment in research and development, education, training and skills, health care, and mobility and the acquisition and transmission of knowledge assets, affect the growth, development, and productivity of a nation or a company, especially in the government sector. John Kenneth Galbraith was the first to use the term “intellectual capital,” and this asset then began to be recognized as a type of capital with a decisive impact on the generation of wealth and on economic growth. All of these studies contributed to forming the basis of human capital theories and the development of an IC framework that, since the beginning of the 1990s, has undergone remarkable development. Human beings are no longer considered to be “machines” or means of production but are rather seen as highly skilled resources who must be valorized and satisfied to increase their value and the organization’s wealth. In fact, human willingness always underpins growth in terms of technological, innovation, and organizational development. Therefore, people simultaneously become the necessary condition for a corporation’s existence and the final purpose of the realization of its business activities; therefore, human capital is the value driver of both economic and social creation processes (Ciambotti et al., 2016). According to Teece’s dynamic abilities (2000), firms’ superior performance strongly relies on the integration of tangible and intangible assets into the production and managerial processes, on the flows from the knowledge transfer from inside to outside the organizations, and on the effective use of technologies when needed. Therefore, knowledge management is one of the most important strategic factors for firms, as it is associated with a firm’s ability to achieve competitive advantages. More specifically, these competitive advantages are derived from the resources and capabilities a firm control (Barney, 1991). From an accounting and managerial perspective, two main approaches have emerged (Brännström et al., 2009). The first focuses on quantifying and measuring IC resources according to the idea that only things that can be measured can be

3.1 The Origin and Evolution of Intellectual Capital

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managed; the second approach focuses on the management of IC components with the aim of making visible what is invisible. However, these two streams of research seem to be linked to each other for three main reasons. First, both perspectives were developed with the aim of recognizing, measuring, and reporting IC. Second, the perspectives are related through a value creation dynamic; therefore, knowing how to manage IC resources (i.e., the managerial perspective) is strictly linked to knowing how to measure those resources in terms of value realized (i.e., the realization perspective). Finally, both approaches overcome the traditional accounting view, assuming that traditional management control models and financial accounting regulations are not able to unveil the value generated by IC assets. In this context, numerous studies have emerged regarding the methods for measuring IC, the development of key IC performance indicators, and guidelines for disclosing and reporting IC elements. In this context, the idea that intellectual capital can be conceptualized according to a static or dynamic approach emerged (Kianto et al., 2017). Whereas the focus in the static approach is on IC as a stock of resources owned by the firm, the dynamic approach concerns the relationships among IC sub-components and the activities undertaken to increase, manage, and coordinate all these resources. Therefore, the dynamic perspective assumes that none of the IC sub-components is sufficient, in itself, to generate value but that it is necessary for each component to interact with the others to increase corporate performance. In fact, intellectual capital sub-components are dynamically interrelated, and they allow organizations to transform a set of tangible, financial, and human resources into a system that is able to pursue sustainable value creation processes. That is, the interrelated use of IC is needed to transform knowledge and a firm’s tangible assets into strategic value drivers for the firm, its stakeholders, and the entire community. This is even more important if we consider that knowledge-based resources, such as IC, are continually undergoing a transformation process at both the individual and organizational levels. In this light, “knowledge is understood as emerging from the ongoing interactions between the organizational members, and the focus is not on the intangible assets per se but on the organizational capabilities to leverage, develop and change intangible assets for value creation” (Kianto, 2007, p.3). Furthermore, there are three main dynamic interpretations for IC: value creation dynamic, organizational activities, and change capabilities. The value creation dynamic argues that the value is created not by resources themselves but by how these resources are combined with each other. These interactions highly depend on managers’ ability to allocate, acquire, and manage those resources to maximize value creation and improve organizational performance and decision-making (Marr et al., 2004; Kianto, 2007). The view of IC as activities emphasizes “the activity-related and context-bound nature of knowledge and IC” (Kianto, 2007; p. 349); therefore, it is important not how many knowledge-based resources an organization owns but how these resources are integrated into a social process in action. Finally, in the last interpretation, IC expresses its dynamicity through the organizational capability of producing and

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mastering change by activating processes of perpetual learning and innovation (Kianto, 2007). From a strategic point of view, two main theories have been developed: the resource-based view and competence-based theory (Wernerfelt, 1984; Barney, 1991; Grant, 1991). Both theories state that a firm’s resources and capabilities are fundamental drivers for achieving competitive advantages and that tangible and intangible assets are equally important in value creation processes. However, in order for these resources to provide competitive advantages, the tangible or intangible assets have to be valuable, rare, inimitable, and non-substitutable (Barney, 1991); therefore, any competitive advantage depends on the extent to which resources can be imitated or substituted. However, both theories are highly focused on firms’ internal capabilities and provide a conceptual framework rather than insights into how these resources can be activated or put into practice (Kong, 2008).

3.1.2

Categories of Intellectual Capital

Numerous researchers and practitioners have attempted to categorize intellectual capital (Sveiby, 1997; Brooking, 1996; Edvinsson & Malone, 1997; Stewart, 1997; Petty & Guthrie, 2000; Kianto et al., 2017), and it appears that the terms intangible assets, knowledge assets, and intellectual capital are interchangeable and widely used. Specifically, “intangible assets” is mainly used in the accounting literature, “knowledge assets” is primarily utilized by economists, and “intellectual capital” is mainly employed in the management and law literature (Lev, 2000). These IC categories derive directly from the different measurement methods that have been developed over the years (Bontis, 2001). One of the most famous models regarding the analysis of intellectual capital is known as the Skandia Navigator, which aims to identify the factors underlying the path of a company’s value creation (Edvinsson & Malone, 1997). Intellectual capital is defined as “the possession of knowledge, applied experience, organizational technology, customer relationships and professional skills that provide [. . .] a competitive edge in the market,” and it is divided into human capital (the capabilities of the company’s employees in providing solutions to customers, innovating, and renewing), structural capital (quality and information technology systems, company images, databases, organizational concepts, and documentation), customer capital (the sum of the external and internal interactions established by the company’s employees), and innovation capital (the value creation processes devoted to the realization of new products and services). The IC Index developed by Roos and Roos (1997) can be considered an evolution of the Skandia Navigator and an attempt to consolidate into a few indexes the overall value of IC. More precisely, IC is the sum of human and structural capitals. Human capital comprises competencies, motivations, and intellectual property, while structural capital involves interfirm relationships, organizational processes, and research and development capabilities.

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Additionally, the model developed by Stewart (1997) can be considered a variant of the Skandia Navigator. Stewart’s model defines intellectual capital as “the intellectual material—knowledge, information, intellectual property, experience— that can be put to use to create wealth.” The model considers intellectual capital to be the result of the merging of three types of capitals (human, relational, and structural capital); thus, once an organization is able to align and manage these assets, it becomes able to create the best possible financial capital (value). Brooking (1996) contributed to the IC literature by developing an intellectual capital audit, in which IC is represented by the combined action of four components: market assets, human-centered assets, intellectual property assets, and infrastructure assets. Specifically, market assets are intangibles that are strictly related to the market, such as brands, distribution channels, customers, and others; humancentered assets focus on the collective expertise, creative and problem-solving capability, and entrepreneurial and managerial skills embodied by the employees of an organization; intellectual property assets comprise resources that can be legally protected by copyright and patents; and infrastructure assets involve technologies, methodologies, and processes that enable the organization to operate. In addition, Sveiby (1997) proposed a new conceptual framework by developing an intangible asset monitor, in which intangibles are classified into three categories: employee (individual) competencies (which include skills, education, experience, values, social skills, and the capacity of the human resource to act in various situations); internal structure (which refers to what the organization “owns” in terms of patents, concepts, models, and computer and administrative systems); and external structure (such as relationships with stakeholders, brand names, trademarks, and reputation). Moreover, according to Kianto et al. (2017), IC is considered “the sum of all of the intangible and knowledge-related resources that an organization is able to use in its productive process in the attempt to create value,” and to date, IC is mainly categorized into three main components: human capital (HC), relational capital (RC), and structural capital (SC). Human capital seems to represent a key strategic resource for firms since it refers to the knowledge embedded in employees’ minds in terms of educational background, competence, experience, skills, creativity, innovativeness, and problemsolving ability (Kianto et al., 2017; Inkinen, 2015; Youndt & Snell, 2004). Trained and educated employees provide the main source for innovation performance and adaptability to strategic changes (Cabrilo & Grubic-Nesic, 2013). In fact, the creation of new knowledge is based on the stock of knowledge assets already existing within each organization, which is mainly related to employees and managers. Relational capital, as the sum of a firm’s relationship with external stakeholders, is able to promote innovation performance (Buenechea-Elberdin et al., 2018; Kianto et al., 2017) since not all of the knowledge useful in innovation is located within a firm’s boundaries. Typically, RC refers to a firm’s relationships established with customers, suppliers, and public and private institutions (Kianto et al., 2017; Bontis, 1998; Inkinen, 2015). These interfirm relationships shape an effective network that is

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able to gain and develop new resources and additional abilities, improve cooperation among partners, share costs and risks, reduce information asymmetries, and improve innovation performance (Schilling, 2011; Carmona-Lavado et al., 2010; BuenecheaElberdin et al., 2018; Agostini et al., 2017). Finally, SC involves all the tacit knowledge that lies in information systems, routines, and other structural arrangements (Bontis et al., 2000; Inkinen, 2015; Khalique et al., 2018). In other words, SC can be considered the sum of knowledge that stays within a firm when employees and managers have gone (Roos & Roos, 1997; Youndt & Snell, 2004). These tools enable the accumulation, preservation, and improvement of collective knowledge, which then enables a firm’s processes and activities to contribute to innovation performance (Bozbura, 2004). However, several authors (Inkinen, 2015; Kianto et al., 2017) have highlighted one criticism of the three-dimensional model of IC, stating that to have a more accurate representation of the phenomena, the IC framework should be expanded by including both internal and external capital, renewable capital, entrepreneurial capital, and trust capital. More specifically, relational capital refers to relationships with intra- and extraorganizational stakeholders. Renewable capital should be included to refer to the organization’s ability to renew its processes through knowledge-based activities such as learning and creativity (Kianto et al., 2017). This capital is also called innovation capital, and it represents the capacity of the organization to create, develop, share, and transfer knowledge in the development of new products, services, and skills. In addition, renewable capital should be studied separately from structural capital because the first assesses renewal through learning and knowledge creation, while the second involves strategies, databases, information systems, processes, routines, and other structural arrangements (Inkinen, 2015). Moreover, entrepreneurial capital is related to entrepreneurial behavior in terms of the values, ethics codes, reciprocal trust, and personal characteristics associated with entrepreneurs and shown by the members of the organization. Such capital comprises the firm’s pro-activeness in picking up signals from the market to land new opportunities, the acceptance of risk-taking ability, and the capacity to gain competitive advantages through improved cohesion, loyalty, shared values, and trust among the employees of the organization (Inkinen et al., 2017). Finally, trust capital is the main source of efficiency and effectiveness in a network, and it has some interconnections with the three-dimensional IC concept. First, trust is an essential part of organizational climate and culture, and it is strongly related to both structural and relational capital. Second, trust is embedded in an organization’s relationships and members, which makes it an attribute of RC (Nahapiet & Ghoshal, 1998). It is clear that the concept of IC is dynamic and researchers continuously add new components to the IC categories, but as argued by Edvinsson and Malone (1997) and Sveiby (1997), it is not possible to provide a full and comprehensive list of a company’s intangible assets. In fact, IC sub-components differ based on the sector, industry, typology, size of the firm, etc. In other words, IC is a firm-specific issue (Kianto et al., 2017; Inkinen et al., 2017).

3.1 The Origin and Evolution of Intellectual Capital

3.1.3

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The Evolution of Intellectual Capital Studies

The area of intellectual capital studies has evolved over the past two decades in five distinct stages (Dumay, 2014, 2016; De Villiers & Sharma, 2017). The first stage, in the early 1990s, developed awareness regarding the components of IC as a driver in creating a sustainable competitive advantage in terms of corporate market value (Dumay, 2014). In this phase, the researchers tried to “make the invisible visible” by developing numerous IC definitions, taxonomies, and models useful for the visualization and understanding of IC sub-components and for improving managers’ awareness regarding the pivotal role of IC in influencing the firm’s economic well-being. Therefore, in this context, pioneering studies have tried to explain “what intellectual capital is” (Dumay, 2014) with the aim of uncovering the true, hidden value in intangible resources via the direct measurement of its elements (Mouritsen & Larsen, 2005). The main criticism of such work is that numerous studies have focused too much on trying to prove the relationship between IC and firm performance, almost in a mechanistic way, to the detriment of understanding the real functioning of IC (Dumay, 2014). The second stage, at the beginning of the 2000s, was characterized by deeper research on the implications of managing IC and its external and internal disclosure. In this phase, several guidelines, standards, and indexes were developed to manage and report IC, and numerous methods were developed to gather information about the impact of IC on the corporate performance and value creation processes of for-profit organizations (Dumay et al., 2020). Therefore, the first and second stages aimed at developing a common terminology of IC, introducing different methods to quantify IC, and providing guidelines to disclose IC (Dumay & Garanina, 2013). The third stage highlighted the need to change the research question from “What is IC?” to “How is IC used in the different industry sectors in which it is utilized?” (Veltri & Bronzetti, 2015; Dumay & Garanina, 2013). The question deals with how IC can be applied in practice in relation to economic and social issues (Guthrie et al., 2012). The third phase particularly “focuses on the deeper managerial implications of managing IC in all types of organizations and can be classified as bottom-up research as opposed to top-down” (Dumay & Garanina, 2013, p. 13). According to Dumay (2013), this phase evolved into a fourth stage that saw the evolution of IC boundaries around a new perspective on value creation processes that include environment and social value. The IC’s boundaries are extended into wider ecosystems such as countries, cities, and communities, as opposed to specific firms. Therefore, “the third stage of IC concentrates on building strong organisations (beautiful canaries), while the fourth stage concentrates on building strong economic, social and environmental eco-systems, where healthy organisations can flourish. If we build strong organisations without also concentrating on building a sustainable environment, surely the canaries will not be able to survive” (Dumay, 2013, p. 8).

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In this new ecosystem, there was a call to create new methods to measure the value created in these fields (Ferrara Bardy & Massaro, 2013). There was a need to increase the utilization of rigorous statistical analyses to develop specific studies that did not translate methods and theories that were already indistinctly utilized across the fields of research but that took into account the reference- and context-specific nature (in terms of the characteristics and activities of the organization), the management philosophy, and the value creation mechanism of its business sector (profit and nonprofit). To date, IC research has shifted from its primary purpose of measuring, managing, and reporting IC to a fifth phase concerned with the investigation of IC under a multifaceted perspective to understand if “managing IC [is] a worthwhile endeavour” (Dumay et al., 2018, p. 34). Specifically, as suggested by Dumay et al. (2020), the topics forming the fifth phase cover issues such as nonprofit organizations (Kong, 2010a), IC utilization in practice (Dumay, 2013), innovation (Lerro et al., 2014), sustainability (Matos & Vairinhos, 2017), education (Secundo et al., 2018), and innovations in IC disclosure (Lombardi & Dumay, 2017).

3.2 3.2.1

Intellectual Capital: A Focus on the Third Sector Intellectual Capital in Nonprofit Organizations: A Descriptive Review

In the business and management literature, there are a lack of studies regarding intellectual capital and its key performance indicators (KPIs) in NPOs. To outline the evolution of the business and management literature devoted to intellectual capital in NPOs, SEs, and SCEs, the present dissertation adopts a descriptive literature review (King & He, 2005). Hence, the following paragraphs aim to individualize the gap in the literature about the role of IC in the third sector and to map the main value drivers of intellectual capital (i.e., human, relational, and structural capital) that can affect SEs’ value creation process (i.e., social cooperatives) through various KPIs. Keyword searches were performed in the title and abstract fields using various combinations of the following terms: “intellectual capital” and “nonprofit organizations” or “social enterprises” or “social cooperative enterprises.” The scientific databases selected for the review are Scopus and Web of Science (WOS) because they are capable of producing the most accurate search results amongst all major scientific databases (Inkinen, 2015; Civitillo & Nardo, 2019) Considering that the author’s main expertise and interest are in business administration, this research was limited to the areas of business, management, and accounting. The search was focused on articles published from 1990 to 2020 (December 1st) in academic journals, books, and conference proceedings written in English or

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7 6 5 4 3 2

2020

2019

2018

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

0

2017

1

Fig. 3.1 Articles on IC in NPOs, SEs, or SCEs per year

Italian. After the application of the selection criteria and the removal of duplicates, the literature search identified 38 publications. With this group of publications, the abstract or full text (when needed) was read to select articles specifically focused on intellectual capital in nonprofit sector organizations, and papers that did not deal with the analyzed theme were deleted. Using this strategy, the literature search identified 31 contributions, of which 26 were published in academic journals, 2 in conference proceedings, 1 as a book chapter, and 2 as books. Fig. 3.1 shows the trend of articles per year and shows that research regarding IC into NPOs, SEs, or SCEs began to grow during the time frame 2003–2020, with a peak in 2010. The descriptive analysis identified the journals that have published the largest number of articles on intellectual capital in nonprofit organizations. In particular, the Journal of Intellectual Capital has published the most studies on the topic (9 articles out of 31). From a geographical point of view, the most widespread research locations were Italy, Australia, and the United States. Through an in-depth analysis of the 31 papers under review, it was possible to identify the type of adopted methods, as shown in Fig. 3.2. The most common research method type was qualitative (14 papers on 31). Mixed methods were used in 8 of the 31 works. Seven were conceptual papers, and the remainder adopted quantitative methods (2 articles). In Table 3.1, the main themes have been highlighted. The first is the conceptualization of IC as a strategic managerial tool. Specifically, several scholars (Kong, 2008, 2010a, c; Bontis et al., 2007; Kong et al., 2010; Sillanpää & Laihonen, 2012) have argued that the IC approach is more effective in managing social service organizations than other strategic management tools (such as SWOT analysis and the balanced scorecard) and other theories (such as the

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Fig. 3.2 Research methods

6% Qualitative

21%

Conceptual paper 53% 20%

Mixed methods Quantitative

Table 3.1 Main areas of research Main themes IC as a strategic managerial tool IC reporting practices

IC and firm performance IC component perceptions

Key References Kong (2008); Bontis et al. (2007); Kong (2010a, b, c, d); Kong and Ramia (2010); Kong and Thomson (2006a, b); Bontis et al. (2007); Kong et al. (2010); Sillanpää and Laihonen (2012); Agoston (2014) Chu et al. (2006); Bronzetti and Veltri (2007a, b); Guthrie et al. (2009); Bronzetti et al. (2011); Bronzetti and Veltri (2013); Veltri (2014); Veltri and Bronzetti (2015); Sicoli et al. (2016); Veltri et al. (2017) Arshad et al. (2016); Ab Samad et al. (2017); Kong (2017); Bontis et al. (2018); Sgrò et al. (2019, 2020) Benevene and Cortini (2010a, b); Benevene et al. (2017, 2018, 2019)

resource-based view and the core competency and knowledge-based view) are. In fact, IC drives social enterprises to exploit the knowledge that leads to innovation in the pursuit of social and commercial activities (Kong, 2010a, b) and to the formulation of effective strategies for long-term development (Kong & Thomson, 2006a, b). Moreover, Kong and Ramia (2010) confirmed that IC assists nonprofit organizations in managing the social–commercial divide but that managers’ understandings of the IC concept are often different from those contained in the IC literature. In fact, managers have recognized the valuable role of HC and RC in firms’ value creation, while SC was not identified as useful for corporate success. Conversely, Kong (2017) argued that structural capital helps social enterprises facilitate human capital development and management for innovation. Finally, Agoston (2014) found that an effective management system is positively associated with the improvement of IC. More specifically, the creation and development of intellectual capital are influenced by the efficient use of organizational resources, creativity, innovation, the control system, and organizational mission and vision. Conversely, factors such as the ability to communicate and collaborate and firm autonomy seem to be less effective in boosting IC. The second theme in Table 1 is IC reporting practices within the nonprofit sector. Bronzetti et al. (2011) affirmed that IC reporting provides the right conceptual framework for defining and systematizing intangible resources and that it can be considered the right strategic tool for measuring, managing, and reporting intangible information to NPO stakeholders. This is even more important when considering

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that IC reports seem to be a fundamental tool in the disclosure of nonprofit activities (Sicoli et al., 2016). Managers should report the IC of their organizations to effectively manage the firm’s internal intangible resources rather than report IC for economic benefits such as attracting investors and additional finance (Veltri et al., 2017). Moreover, Veltri (2014) suggested that ANPAS Piemonte, a nonprofit organization, has adopted a management approach to stakeholders, trying to handle stakeholders’ expectations for its own managerial purposes instead of involving stakeholders in the organizational decision-making process. In addition, other scholars (Bronzetti & Veltri, 2007a, b, 2013) have found that this company has expended considerable efforts on developing an IC measurement and reporting model and has a well-established IC reporting procedure; however, a comprehensive view of IC and of the synergies among IC subcategories is still lacking. Guthrie et al. (2009), by focusing on the IC report of the Australian Red Cross Blood Service (ARCBS), found that information regarding internal and external capital is the most commonly disclosed information and that there is less focus on human capital. Moreover, by analyzing the intellectual capital reports of ITRI (a nonprofit Taiwanese R&D organization), Chu et al. (2006) determined that reporting activity is a driver for understanding how value is generated and how firm resources can be effectively allocated. Finally, Veltri and Bronzetti (2015) highlighted the factors responsible for the introduction within the organization of an IC measurement, management, and reporting system. These elements are related to context-specific variables (such as the external input of the consultant society and the availability of public funds) and to firm-specific factors (strongly related to the manager appointed in ANPAS Piemonte, specifically his culture and beliefs). The third theme emerging in the table relates to IC and firm performance. Specifically, studies (Sgrò et al., 2019, 2020) have suggested that human capital (e.g., a social entrepreneur’s knowledge), relational capital (e.g., local and global relationship quality) and structural capital (e.g., long-term and up-to-date firm knowledge) are strategic resources for improving the value creation process and performance of African SEs. Moreover, Bontis et al. (2018) focus on Italian SCEs and provide empirical evidence on a positive relationship between IC components and firms’ economic and social performance. The findings highlighted that HC, in terms of the presence of employees with degrees and value added per employee, positively affects economic performance, while yearly training per employee negatively contributes to economic performance. In addition, HC and RC contribute to explaining mission-based performance, which is positively affected by yearly training, the value added per employee, and the quality of customer relationships. However, mission-based performance is negatively affected by the quality of the relationship with the local community. Therefore, relational capital would seem to affect only mission-based performance, and human capital would seem to influence both dimensions of corporate performance. Structural capital does not affect the performance of social cooperatives. In addition, Ab Samad et al. (2017) and Arshad et al. (2016) show that IC influences the effectiveness of Malaysian social enterprises in terms of financial viability and sustainability. On the one hand, Ab Samad et al. (2017), using multivariate analysis, argued that human capital has a significant

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positive influence on the financial viability of social enterprises, while structural capital and relational capital do not have a significant relationship. On the other hand, Arshad et al. (2016) concluded that the efficient management of human capital is critical, as it can act as a driver in transforming the stock of a company’s intellectual capital into market value. The fourth theme concerns the perception of IC components. Benevene et al. (2017) investigate how senior managers of Italian social enterprises represent their organization’s intellectual capital and discover a gap between the theory and practice of IC. In fact, managers have limited awareness about IC components, and this perception determines difficulties in the exploitation of social enterprises’ organizational knowledge (Benevene et al., 2018). Moreover, Benevene and Cortini (2010a, b) find that Italian NPOs’ organizational culture seems to be action-oriented and self-referral rather than knowledge-oriented and that neither training nor organizational culture helps the development of human capital, especially because senior managers are mainly self-taught and lack adequate competence regarding human resources. In addition, by focusing on small and medium nonprofit sociocooperatives, Benevene et al. (2019), show that IC management is unplanned, unsystematic, and short-term and that these firms adopt an employee-centered approach. Therefore, organization members play a pivotal role in generating knowledge, and relationships with external stakeholders are fundamental for business success. By focusing on the extant literature regarding IC within NPOs, four are the main topics treated here: IC as a strategic managerial tool, IC reporting practices, IC and firm performance, and IC component perceptions. However, it should be noted that the majority of studies focus mainly on the reporting and disclosure of IC and its role as a strategic management tool. Conversely, studies on the relationships between IC and the performance of NPOs and on the perception of IC components are still few in number, and there is no unanimous consensus on which components of human, relational, and structural capital are useful for improving firms’ performance, especially taking into account both social and economic dimensions. These issues represent important research gaps and open the way for many different potential research paths. More specifically, concerning IC as a strategic managerial tool, there are a lack of studies examining the relationship between knowledge management (KM) practices and intellectual capital. In fact, KM and IC are two strictly related managerial concepts, as the first can be considered the “driver” of the growth and development of IC (Paoloni et al., 2020). These activities, if effectively implemented, enhance knowledge sharing within the organization, which, in turn, increases the company’s ability to exploit value from its IC (Kianto et al., 2017). Therefore, academics should investigate the relationship between knowledge management (KM) practices and intellectual capital. Thus, the following questions can be investigated: What KM practices can foster or hinder the creation, development, and transfer of IC sub-components? To what extent do KM practices contribute to shaping IC sub-components and, therefore, to what extent are business models able to create

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positive social change? What role(s) do IC and/or KM play in effectively encouraging social managerial practices and hybrid organizations? By focusing on the use of IC reporting in NPOs as well as on the perception of IC components, research can investigate the effects of the mandatory disclosure of social reporting for Italian SCEs on IC practices and how this legal obligation can influence managers’ and entrepreneurs’ perception of IC in SCEs. With regard to the relationship between IC and firm performance, the following questions could be investigated: What is the role of IC in mediating or moderating the relationship between KM practices and social innovations? What KM practices and/or IC components influence the firm’s survival? What KM practices and/or IC components support entrepreneurs in opportunity recognition and exploitation and thereby improve firm performance?

3.2.2

The Strategic Importance of Intellectual Capital in Social Cooperative Enterprises

Social cooperative enterprises, as hybrid organizations, address a societal need (e.g., access to health and social assistance, education, work integration) and engage in commercial activities to address those needs (Davies & Doherty, 2019). Unlike public institutions, the viability of SCEs depends on the efforts of the SCE entrepreneurs, workers, and members to secure adequate resources. These activities are carried out through a specific mix of human and financial resources, and they may also involve the combination of tangible and intangible resources. The process of creating social value is strongly related to the firm’s ability to develop innovative strategies for engaging multiple stakeholders (Bridgstock et al., 2010), combining available resources to meet social needs (Di Domenico et al., 2010) and finding new ways to overcome social challenges (Murphy & Coombes, 2009). Therefore, there are several reasons that the IC framework is an adaptable strategic management tool in social cooperative enterprises. First, social cooperative enterprises are mission-driven organizations, and IC is strongly related to the concept of corporate identity, mission, and vision, helping answer questions about “who you are, and what you want to be” (Mouritsen & Larsen, 2005; Kong, 2010a). This concept is emphasized in social enterprises, as these organizations are driven by internal initiatives that are driven by paid employees and volunteers rather than external forces such as government agencies (Kong, 2008) and are born to address societal issues while being financially sustainable (Doherty et al., 2014; Ciambotti & Pedrini, 2019). Thus, the raison d’être of these organization guides the decision-making process, provides a strategic path forward, incentivizes donations, and improves the efforts of workers and volunteers. These factors represent the foundations upon which business strategies are built and develop. In other words, “IC helps social enterprises to reinforce their social raison

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d’être by placing social dimensions at the centre of their commercial strategies” (Kong, 2010c). Specifically, the social entrepreneur is strongly motivated to meet social objectives by creating social wealth while maintaining financial sustainability. Therefore, the main player in accomplishing the organizational mission by effectively aligning the firm’s activities with social goals is the entrepreneur (Sgrò et al., 2020). In this process, features such as the entrepreneurs’ skills, educational and cultural background, previous experiences, and motivations for running the business are fundamental to achieving the social mission. Moreover, the social entrepreneur greatly influences the willingness to address the social needs that exist in its community and the ability to find innovative solutions to these issues. The entrepreneur is one who, aware of the economic, political, and social situation of the context in which he or she operates, can handle the resources in hand to create value (Sgrò et al., 2020). Second, SEs are characterized by human-intensive production processes, which means that HC is directly involved in the provided services; it is responsible for the quality of the operations undertaken to accomplish the mission and thus for corporate performance (Benevene et al., 2017; Bontis et al., 2018). Therefore, human capital represents a key resource on which enterprises rely to achieve their goals and successful corporate performance (Kong, 2010a; Defourny & Nyssens, 2010a; Bontis et al., 2018), and it is one of the most important resources for social enterprises, given their resource constraints and small dimensions (Sgrò et al., 2019). Finally, SEs are a multi-stakeholder organization, and considering that social enterprises typically operate in a highly challenging environment, which is characterized by increasing demand for services by the community because of the inefficiency of the welfare state, the role of social entrepreneurs is pivotal in transforming and shaping the social and economic system in which SEs operate in a way that benefits the entire community (Doherty et al., 2014). Accordingly, the social entrepreneur represents the main resource on which an SE relies to implement its partnership and networking strategies. In fact, social entrepreneurs tend to stimulate, promote, and highlight employees’ competencies and behaviors and stakeholders’ relationships by leveraging issues such as corporate mission and vision, inspirational leadership skills, the inspiration of confidence, and the ability to attract factors of production such as financial and knowledge resources and to guarantee that resources are employed in the interest of stakeholders and communities. Hence, relational capital is one of the most important resources for firms, considering that social partnership and social networking activities increase the firm’s resource access and stimulate social innovation (Sgrò et al., 2019). Social entrepreneurs drive relationships with stakeholder groups and shape an effective network through interfirm relationships that can generate and develop new resources, additional abilities, and new opportunities for social and economic well-being within the specific territorial system (Dacin et al., 2010; Kong & Ramia, 2010). Hence, allocating proper investment to IC sub-components is a crucial factor in the strategic positioning of a business (Kong & Thomson, 2006a, b; Kong & Ramia, 2010), and IC is one of the most important resources to exploit and effectively

3.3 An Innovative Multidimensional Measuring System of IC for SCEs

35

manage in order to pursue a firm’s economic, financial and social objectives (Bontis et al., 2018).

3.3

An Innovative Multidimensional Measuring System of IC for SCEs

An innovative IC measuring system that is able to identify and measure the IC subdimensions of SCEs should follow three phases: 1. The identification of the strategic IC components. 2. A proxy of the measurement of the chosen IC components. 3. The consolidation of the IC management system into the organization’s management routines. Intellectual capital is the “glue” that links external and internal inputs with activities, performance measurement, and final outcomes. Furthermore, a strong relationship exists between strategies, measures, and actions (Dixon et al., 1990). Intangible assets are a crucial lever for a firm’s management performance and effectiveness (Kong, 2010a). The first step in identifying the strategic set of IC subdimensions is the definition of the organizational objectives from top to bottom and by the definition of the mission and vision that characterize every company structure. Strategic IC components are the critical factors and key drivers that contribute to the value creation processes, and they involve the core competencies that the company owns or requires to achieve its strategic objectives. The starting point for the formulation and implementation of the corporate strategy is the analysis of the mission, vision, historical profile, main corporate purposes, and value set (that constitute the corporate identity). Through these details, the corporate goals and, consequently, the actions needed to achieve them can be identified. Intellectual capital KPIs are strongly related to the concept of corporate identity through questions such as “Who are you? What do you want to be? What makes your product or service unique?” The identification process shapes an accurate picture of the strategic IC components and of the activities undertaken to develop to reach the organizational goals. The second step consists of developing a measurement system for these IC components. To identify the impact on the business’s performance, the set of indicators should be consistent with the organizational resources and strategic objectives (Grasenick & Low, 2004). The management of IC is a strategic issue for any type of organization, and it is strictly linked to the organization’s capacity to create, share, and transfer value. The efficient and effective management of intangible resources allows for better strategic planning and a better implementation of the management control system.

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The identification of IC through KPIs improves awareness about the key role of this asset in the value creation process and in the success of corporate performance. The use of a set of KPIs highlights how intangibles influence and contribute to success in different areas of corporate performance and how they contribute to the achievement of corporate goals. In this context, it is appropriate to implement a cause-effect multidimensional measuring system that takes into account IC resources, tangible resources and business performance. These IC KPIs could reinforce the narrative description of a company’s own value creation mechanisms, which are closely linked to its business strategy (Mouritsen, 2006). This measurement system could capture the dynamics of IC. In fact, it is possible to measure the IC components and the relationships that they develop with each other and with other variables regarding the specific business in which they are used. This perspective would ensure the availability of information to support and guide the value creation processes and the efficient and effective management of business performance and IC dimensions. The last phase involves integrating the IC management system into organizational routines. During this process, the IC strategic components are evaluated, and the strengths and weaknesses of the system are identified, as are the additional IC KPIs, including where they are missing. This process has a medium- and long-term orientation. Based on the above articulation of the division of IC into HC, RC, and SC, the peculiarities of the subcategories of IC are now specified through KPIs in order to identify the factors that affect corporate value creation and to integrate them into business reporting so as to make the data and information more accessible, comparable, and credible for the effective and efficient management of the resources and to execute a successful strategy. A much broader and more interconnected disclosure of information requires integrated thinking and decision-making that is based on measures that provide a clear and concise representation of how an organization demonstrates sustainability and creates value. Key performance indicators may be financial or nonfinancial in nature; they may also be market-oriented, industry-specific, or company-specific indicators. The integrated disclosure of financial and nonfinancial data or information allows one to monitor, manage and communicate the full complexity of the value creation process and how it contributes to success over time (IIRC, 2013). Both financial and nonfinancial information are able to explain the company’s corporate value creation mechanism and strategy as well as the potential impact of these on the company’s current and future performance. An organization’s value creation process depends on numerous value drivers, many of which are now intangible (WICI, 2016). Depending on the main elements of the value creation process, KPIs may be related to leadership, innovation, organizational knowledge, processes, risk management, governance, relationships, teamwork, or other factors. However, these types of indicators may be included only if they are relevant to a specific company’s value creation mechanism.

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Since every company has its own way of creating value and utilizing resources, the same KPIs are not applicable to all companies in general or to a given industry. The WICI group (the world’s business reporting network) has set up the most frequent KPIs, which are useful for the for-profit sector as informative examples that can guide companies. These KPIs are available for the oil and gas, electricity, hightech, pharmaceutical, ICT, fashion, and luxury sectors. The utilization of IC KPIs in NPOs is uncommon. Therefore, the purpose of the following section is not to define a set of KPIs for mandatory disclosure in any organization but to identify some frequently used KPIs as informative examples that can guide SCEs. It aims to provide a conceptual IC framework that is able to fill the gap in the literature about KPIs for NPOs, especially for SCEs. Over time, this IC-KPI framework can be modified as needed in response to significant changes in an industry-specific or business environment.

3.3.1

Human Capital in SCEs

Human capital is one of the most important resources for SCEs. In fact, SCEs are labor-intense organizations, and the effective management of the workforce is crucial for corporate performance since the workforce is mostly responsible for the quality of the provided services (Benevene et al., 2018). In fact, the people within an organization play a fundamental role in the realization of its mission (Bontis et al., 2018), regardless of whether they are employees, members, beneficiaries, or people belonging to the local community (Benevene et al., 2018). Training and education are the most important areas of investment in HC, and the improvement of professional skills and competencies is seen as a pivotal driver in delivering social value and quality services (Bontis et al., 2018). This is even more important when considering that companies are made up of people and that HC, which includes knowledge, skills, capabilities, problem-solving abilities, personal traits, creativity, and willpower (Bontis et al., 2000), is the most important production factor in determining economic and social growth (Bontis et al., 2018). Moreover, it is important to note that an effective and efficient enterprise needs people with experience and that the contribution of a collaborator increases over time as a result of the process of learning from experience if adequately integrated with specific investments in staff development (Bontis et al., 2000; Kong, 2010a; Defourny & Nyssens, 2010a, b). Therefore, having a high number of specialized employees guarantees more competencies and stability and a high quality of services, while having a high number of volunteers inspires confidence, motivates employees, and reduces the costs associated with the supply of services. Furthermore, HC can promote the sharing and transmission of knowledge, help in the development of social and business interactions, and encourage technological innovation (Kong, 2010a; Defourny & Nyssens, 2010a, b; Benevene et al., 2017).

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Table 3.2 Human capital KPIs (Author’s adaptation from Bontis et al., 2018) Human capital KPIs Training

Measures The number of yearly training hours for employees

Graduate Employee satisfaction

Value added_Emp

The number of employees with university degrees scaled by total employees Employee satisfaction is assessed through a 1-to-7 Likert-type scale, and it represents the judgement given by the respondent about the degree of employee satisfaction The total value added (total revenues minus external operating costs) scaled by the total employee cost

Benefits Increases motivation, Improves skills and competencies Improves the quality of the management processes Improves internal and external communication and production systems Increases organizational outcomes

Every company has its own organizational culture, which is constituted by the mission, vision, beliefs, ideologies, and values that the members of the organization share. Therefore, a cultural atmosphere that promotes organizational commitment and cross-functional integration among board members, employees, and volunteers is able to improve employee satisfaction. In fact, having a shared culture helps keep employees motivated and loyal to the management of the organization and contributes to increasing employee satisfaction, which affects the organization’s effectiveness (Bhatti & Qureshi, 2007; Benevene et al., 2018). Therefore, for SCEs, the following human capital KPIs have been developed (Table 3.2).

3.3.2

Relational Capital in SCEs

With regard to RC, interfirm relationships shape an effective network that is able to secure and develop new resources and additional abilities, which sets up the foundations for competitive and sustainable growth within the specific territorial system. Companies operating in the nonprofit sector are heavily involved in external relationships with government agencies, business corporations, different types of NPOs, potential donors, employees, volunteers, customers, and end-users. Therefore, the sustainability and successful performance of SCEs depend on their community reputation (Benevene et al., 2018; Bontis et al., 2018). The strength of relationships with and loyalty between customers and public and financial institutions, the cooperation among partners, the continuous flow of information between the network of businesses, and the opportunities for resource sharing all improve the economic-financial and mission-based performance of social cooperatives (Ordóñez de Pablos, 2003; Kong, 2010a; Ciambotti et al., 2016).

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Table 3.3 Relational capital KPIs (Author’s adaptation from Bontis et al., 2018) Relational capital KPIs Customer

Community

Partnership

Web presence

Network

Measures The quality of relationships with customers is measured through a 1-to-7 Likert-type scale, and it represents the judgement given by the respondent about the quality of relationship with users The quality of relationships with the reference community is measured through a 1-to-7 Likert-type scale, and it represents the judgement given by the respondent about the quality of relationship with the community The quality of relationships with partners is measured through a 1-to-7 Likert-type scale, and it represents the judgement given by the respondent about the quality of relationships with partners (other social cooperatives, for-profit enterprises, associations, universities, government agencies, users, etc.) The quality of presence on web is measured through a 1-to-7 Likert-type scale, and it represents the judgement given by the respondent about the quality and effectiveness of web presence through a site, blog, etc. The belonging to a network is a dummy variable that takes the value 1 if the social cooperative enterprise belongs to a network (consortium, association, etc.); otherwise, it is 0

Benefits Helps acquire new clients Increases client loyalty and customer satisfaction, boosts co-creation

Improves the company’s reputation, Strengthens co-operation

Strengthens co-operation, Increases the level of company transparency, Improves the quality of processes, Improves the communication system, Increases new business opportunities

Improves company reputation and collaboration

Improves information sharing, image promotion, new business opportunities, credibility, and legitimacy

Being part of a network provides many opportunities in terms of information sharing, image promotion, new business opportunities, credibility, and legitimacy. Additionally, it allows access to supporting services that would otherwise be impossible to acquire (Benevene et al., 2017). Having an online web presence is essential in every business since it provides organizations with opportunities to reach out to and engage with existing and prospective members and with new collaboration opportunities. It also helps with the sharing of information, and it is able to spread the organizational mission (Greenberg & MacAulay, 2009). Additionally, online communication reinforces the relationship between citizens and NPOs. For social cooperatives, the RC subdimension has been examined by measures that focus on social networking relationships and involvement in the network through the exploitation of provided services, as presented in Tables 3.3 and 3.4.

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Table 3.4 Services provided by the social cooperatives’ relational capital (Author’s elaboration) Network services/ support Strategy support

Image promotion Information sharing Training services Competition support New services promotion General contracting Commercial services Administration services Recruitment support

3.3.3

Measures This is assessed through a 1-to-7 Likert-type scale, and it represents the judgement about the exploitation of strategy support. These services involve strategic support in terms of the creation of structure and processes for day-to-day operations. This is assessed through a 1-to-7 Likert-type scale, and it represents the judgement about the exploitation of image promotion services. This is assessed through a 1-to-7 Likert-type scale, and it represents the judgement about the exploitation of information sharing services. This is assessed through a 1-to-7 Likert-type scale, and it represents the judgement about the exploitation of training services. This is assessed through a 1-to-7 Likert-type scale, and it represents the judgement about the exploitation of competition support. This is assessed through a 1-to-7 Likert-type scale, and it represents the judgement about the exploitation of new services promotion. This is assessed through a 1-to-7 Likert-type scale, and it represents the judgement about the exploitation of general contracting services. This is assessed through a 1-to-7 Likert-type scale, and it represents the judgement about the exploitation of commercial services. This is assessed through a 1-to-7 Likert-type scale, and it represents the judgement about the exploitation of administration services. This is assessed through a 1-to-7 Likert-type scale, and it represents the judgement about the exploitation of recruitment support.

Structural Capital in SCEs

Structural capital is a supportive infrastructure for human resources (Benevene & Cortini, 2010a). There are various important aspects, such as innovative behavior, investment in networking activities, sustainability certifications, and the dissemination of corporate culture among workers, volunteers, and board members, as shown in Table 3.5. Innovative behavior strongly affects the success of the enterprise and helps people and organizations continually adapt to environmental changes. In NPOs, innovation is considered to be a key factor in creating value, and it is assessed through the capacity to develop new services that can satisfy different needs and beneficiaries (Skandia, 1994; Bontis, 1998; Ciambotti et al., 2016). The adoption of sustainability or quality certifications (ISO 9001, EMAS, SA8000, etc.) can represent a fundamental change in business philosophy and corporate practices, generating a common language among different partners of the organization. Furthermore, investment in ICT promotes the acquisition and transfer of knowledge and the development of skills throug the faster creation, distribution, and consumption of information (Ciambotti et al., 2016).

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Table 3.5 Structural capital KPIs (Author’s adaptation from Bontis et al., 2018) Structural capital KPIs Services Ability to provide new services

Certifications

Measures The number of provide services scaled by total employees The ability to provide new services is measured through a 1-to-7 Likert-type scale, and it represents the judgement given by the respondent about the capacity to supply new services to users The certifications held by the social cooperative enterprise is a dummy variable that takes the value 1 if the cooperative enterprise holds one or more certifications (ISO 9001, ISO 14001, EMAS, SA 8000, etc.); otherwise, it is 0

Benefits Satisfies social needs Increases innovative processes

Improves changes in business philosophy and corporate practices, generating a common language amongst different partners of the organization

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Petty, R., & Guthrie, J. (2000). Intellectual capital literature review. Journal of Intellectual Capital. Roos, G., & Roos, J. (1997). Measuring your company's intellectual performance. Long Range Planning, 30(3), 413–426. Schilling, M. (2011). Strategic management of technological innovation (3rd ed.). New York, NY: McGraw Hill. Secundo, G., Lombardi, R., & Dumay, J. (2018). Intellectual capital in education. Journal of Intellectual Capital. Sgrò, F., Ciambotti, G., Bontis, N., & Ayiku, A. (2020). Intellectual capital in east and west African social enterprises. Knowledge and Process Management, 27(4), 332–344. Sgrò, F., Ciambotti, G., & Cheboryot, D. (2019, May). Intellectual capital and social enterprises: Empirical evidence from Kenya and Uganda. In European conference on intangibles and intellectual capital (pp. 253–XIV). Academic Conferences International Limited. Sicoli, G., Rubino, F. E., Giovanni, B., Maurizio, R., & Tenuta, P. (2016). A new third sector intellectual capital model. In Impact of economic crisis on education and the next-generation workforce (pp. 27–43). IGI Global. Sillanpää, V., & Laihonen, H. (2012). Managing intellectual Capital in non-Profit Elderly Care Organizations. International Journal of Information Systems in the Service Sector (IJISSS), 4 (4), 74–87. Skandia, A. F. S. (1994). Visualizing intellectual capital in Skandia. Supplement to Skandia’s Annual Report, Sweden. Smith, A. (1776). The wealth of nations. Oxford: Oxford University Press. Stewart, T. A. (1997). Intellectual capital. The new wealth of nations. New York Doubleday/ Currency. Sveiby, K. E. (1997). The intangible assets monitor. Journal of Human Resource Costing & Accounting. Teece, D. J. (2000). Strategies for managing knowledge assets: The role of firm structure and industrial context. Long Range Planning, 33(1), 35–54. Veltri, S. (2014). Do stakeholder expectations shape organizational intellectual capital reports? Knowledge and Process Management, 21(3), 177–186. Veltri, S., & Bronzetti, G. (2015). A critical analysis of the intellectual capital measuring, managing, and reporting practices in the non-profit sector: Lessons learnt from a case study. Journal of Business Ethics, 131(2), 305–318. Veltri, S., Bronzetti, G., & Dumay, J. (2017). Intellectual capital reporting: A knowledge tool to coordinate a group of regional non-profit organisations. International Journal of KnowledgeBased Development, 8(4), 313–333. Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180. WICI. (2016). Intangibles Reporting Framework version 1.0. Youndt, M. A., & Snell, S. A. (2004). Human resource configurations, intellectual capital, and organizational performance. Journal of Managerial Issues, 337–360.

Chapter 4

Intellectual Capital and Firm Performance

4.1 4.1.1

Organizational Performance Role and Evolution of SEs’ Managerial Performance

The nature of organizational performance and its performance measurement system (PMS) are some of the most difficult aspects of a company’s management, especially for SEs (Costa & Andreaus, 2020). The measurement of SE performance appears complicated due to such enterprises’ hybrid nature (Staessens et al., 2019). In fact, SEs need to implement a PMS that includes a multitude of objectives ranging from economic to social issues, but it is difficult to choose the measures that should be monitored, considering the variety of sectors, sizes, stakeholders, and purposes characterizing these firms (Ebrahim & Rangan, 2010). Over the past ten years, as suggested by Costa and Andreaus (2020), two have been the main streams of research on performance measurement for social enterprises. According to Arena et al. (2015), these two branches differ based on the approach used: multi-dimensional or multi-stakeholder. Multi-dimensional systems include the balanced scorecard (Kaplan & Norton, 1996), which evolved into the social enterprise balanced scorecard (Somers, 2005); the contingency PMS models (i.e., Bagnoli & Megali, 2011; Ebrahim & Rangan, 2010); the PMS models that started to integrate stakeholder perspectives (i.e., Neely et al., 2002; Simmons, 2003); and the system based on the social return on investment (SROI) (i.e., Millar & Hall, 2013). Conversely, tools and instruments based on a multi-stakeholder approach consider internal and external stakeholders in the implementation of the performance measurement systems (i.e., Haberberg & Rieple,

This chapter is the result of the development of the Author's PhD thesis available at: https://ora. uniurb.it/handle/11576/2655811#.YIb0CZAzbIW © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 F. Sgrò, Intellectual Capital and Organizational Performance, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-78479-9_4

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200). In this context, the need to identify stakeholders and investigate how to achieve a unanimous consensus on key performance emerges (Arena et al., 2015). Despite the numerous methodologies developed to measure the performance of SEs, there is no consensus on which techniques are best. The reason for this is twofold: on the one hand, some studies are general and do not offer specific indicators or measurement tools, only frameworks or guidelines about the steps that companies operating in the nonprofit sector should follow to implement a PMS; on the other hand, some studies are too specific and focus only on particular types of NPOs. Therefore, these methods do not allow significant comparative analysis across organizations (Staessens et al., 2019). As suggested by Epstein and McFarlan (2011), designing an appropriate PMS benefits the entire organization, since it helps increase the formulation, implementation, and review of a business strategy; strengthen relationships with stakeholders through better communication of the achieved results; and improve the motivation of employees, members, volunteers, and managers, thereby promoting organizational culture and learning. Moreover, it allows an organization to receive feedback and identify changes over time, and it establishes an informed basis for making organizational decisions (Arena et al., 2015). More specifically, the performance measurement system must be designed and implemented in accordance with a company’s business strategy to link the strategy to the objectives of functions, groups of people, and individuals as well as to operational aspects of the company (Ebrahim & Rangan, 2014). This path highlights a few advantages, such as opportunities to measure quantitative and qualitative variables, focus on the entire process that is at the core of management, and encourage a long-term vision and a deep interrelationship between strategy, inputs, actions, outputs, and outcomes (Bagnoli & Megali, 2011; Stevens et al., 2015). However, the prospective integration of the economic and financial dimensions into the social (or mission-based) dimension gives organizations a more wellinformed picture of their corporate performance and better transparency and legitimacy with regard to society (Staessens et al., 2019). The assessment of economic-financial performance is necessary to understand whether SEs are able to satisfy the social purpose for which they have been created in a continuous, sustainable, and autonomous way (Andreaus & Costa, 2014; Costa & Carini, 2016). The management of this dimension has to be economically and financially sustainable over time to guarantee the achievement of the social mission in the long term (Staessens et al., 2019). In addition, as suggested by Staessens et al. (2019, p. 326), social enterprises “that place a relatively high emphasis on the economic aspects tend to have better success over time, thereby achieving longterm sustainability.” However, social enterprises cannot rely only on their financial efficiency, and there is a need to consider their effectiveness in satisfying organizational purposes, that is, the strategic goals related to the corporate mission (Bagnoli & Megali, 2011; Ebrahim et al., 2014). Mission-based performance specifically considers the social impact, in terms of the benefits and positive effects generated through business activity aimed at achieving the social mission, on specific categories of individuals

4.1 Organizational Performance

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or stakeholders. This dimension refers to the evaluation of the coherence of the activities undertaken to accomplish the mission and its aims. The assessment of this dimension considers the organizational inputs (tangible and intangible) used to support activities or processes for the production of goods or the supply of services (Ebrahim & Rangan, 2010). Therefore, once corporate identity (as the sum of the mission and vision) is defined, there is a need to develop key performance indicators that are able to measure and represent the action carried out to reach the final outcomes. These measures cannot fall within traditional economic and financial metrics (Epstein & McFarlan, 2011).

4.1.2

Mission-Based Performance

A suitable evaluation of mission-based performance must take into account different aspects related to the entire process of meeting social needs. The features are related to inputs (resources that contribute to the realization of the organizational mission), outputs (in terms of products or services offered to achieve the mission), outcomes (in terms of benefits for intended beneficiaries), and impact (the long-term results for the wider community) (Ebrahim & Rangan, 2010). Inputs can be tangible or intangible. Tangible inputs are related to economic and financial resources, while intangible resources refer to IC. The output measures are evaluated in terms of the physical products or services delivered by the organizational activities. Outcomes are related to the evaluation of the qualitative results (positive effects on beneficiaries) of the activities undertaken to accomplish the mission. Finally, the impact measurement has a medium- and long-term view; it focuses on the organization’s contribution to the community in terms of economic and social value creation and collective well-being. In these terms, the mission-based performance of SEs is measured by analyzing the social impact. It represents the outcomes of social changes, improvements, or benefits that result from the mission program and that affect targeted individuals, society, or communities (Costa & Andreaus, 2020). This dimension focuses on qualitative results, with the aim of evaluating the positive effects that flow from activities undertaken to accomplish the mission. The outcomes can be measured through KPIs related to the development and exploitation of resources. These KPIs cannot be evaluated through conventional accounting measures, since they are, by definition, intangible, and difficult to quantity (Costa & Pesci, 2016). Some of the suggested measures for social impact are related to one of the following: the quality of the services provided, in relation to a quality standard; the gap between the actual services provided and the perception that users and beneficiaries have of their quality; the achieved results; and the situation that would have occurred if the services had not been offered (Manetti, 2014). All of these measures regarding a relational dimension are primarily based on stakeholder perspective, which every organization has the moral duty to answer to in terms of

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strategies and actions that have an impact on anyone who may affect or influence the achievement of an organization’s objectives (Sanchis-Palacio et al., 2013; Ebrahim & Rangan, 2010). Furthermore, the outcomes focus on qualitative results and on the positive effect or benefits, which can be measured through indicators related to the positive effects on the satisfaction of a beneficiary, client, user, or employee and through indicators of the level of success of a mission in relation to the chosen objectives (Bagnoli & Megali, 2011; Arena et al., 2015). In particular, Bagnoli and Megali (2011) and Costa and Andreaus (2020) point to social effectiveness and to the responsible use of resources in terms of the cost efficiency of outputs and outcomes, socially or environmentally certified suppliers, and healthy work conditions as the aspects on which the management of an SE should focus the most. Moreover, according to Kirk and Nolan (2010), the measures that are able to represent mission performance are the target clients served, geographical coverage, and areas of offered services. However, among these measures, there is no common definition of organizational mission indexes since social or mission-based performance is strictly linked to organizational specificity (Staessens et al., 2019).

4.1.3

Economic and Financial Performance

For social enterprises, economic and financial performance is a “constraint” that must guarantee appropriate monetary and capital resources in a constant and balanced way in order to be sustainable over time and to be able to reach the social (or mission) dimension (Epstein & McFarlan, 2011). In fact, economic-financial performance helps identify organizational strengths and weaknesses by detecting financial anomalies, focusing attention on issues of organizational importance, and sustaining its existing level of services. Therefore, it is a crucial index for the realization of the mission and the organization’s corporate goals and values (Staessens et al., 2019). One example of the economic-financial measures that can assess whether financial resources are sufficient to support the organizational mission is related to how efficient management is able to use its assets to generate earnings (i.e., return on assets) and the availability of expendable net assets to cover the debt that the organization might require to settle its obligations (i.e., viability ratio). These measures provide a snapshot of financial strength and flexibility by indicating how long the institution could function using its expendable reserves without relying on additional net assets generated by operations, and they represent the amount of money remaining after accounting for all operating expenses (i.e., primary reserve ratio) (Abraham, 2006; Sanchis-Palacio et al., 2013). Other authors have recognized the need to measure the economic dimension in terms of costs incurred and revenue growth (Epstein & McFarlan, 2011) and in terms

4.2 Human, Relational, and Structural Capital as Drivers of SCE Performance

51

of indexes related to revenue, economic and social value added (VAES), cash flow, and the proportion of production costs to revenue (Bagnoli & Megali, 2011). Moreover, Magnanelli et al. (2016) affirm that the measurement of economic and financial performance is the greatest challenge for companies operating in the third sector and split performance into organizational and operational components. The first component can be measured as the return on equity (ROE), while the second can be measured as the return on assets (ROA). Costa et al. (2012) and Costa and Carini (2016) suggest that measures such as profit (or loss)/turnover, turnover/total operating expenses, equity/total assets, and fixed assets/total assets can be utilized to evaluate the overall performance of social cooperative enterprises. More specifically, these measures are intended to reflect the amount of self-financing conducted, highlight the part of a business’s production value that remains after accounting for production costs and the members’ and partners’ remuneration, unveil the relation between operating expenses and turnover from the business activity, show the cooperative’s degree of capitalization, and measure the rigidity of assets by demonstrating the amount that will return to liquidity in the long term. Despite the growing importance of SEs, there is much that remains to be understood in terms of their economic dimension (Staessens et al., 2019).

4.2

Human, Relational, and Structural Capital as Drivers of SCE Performance

According to Inkinen (2015), the stream of research on the influence of IC on a firm’s performance began to grow in the early 2000s. However, these studies have mainly focused on firms operating in the for-profit sector, and as suggested by the author’s descriptive review (see Sect. 2.2.1), studies combining social enterprise performance and IC are still limited and are mainly focused on European firms, followed by Asian and African companies. However, the role played by intellectual capital is crucial in the context of social enterprises, especially for corporate performance (Arshad et al., 2016; Ab Samad et al., 2017; Benevene et al., 2017, 2018, 2019; Bontis et al., 2018; Sgrò et al., 2020). According to Benevene et al. (2018), senior managers of Italian SEs perceive IC to be positively associated with organizational growth, successful performance, and competitive advantage, as well as feelings of belonging, organizational commitment, and loyalty. Specifically, human capital appears to be fundamental for workforce development, the quality of the service provided, and a sense of belonging among employees; relational capital results in a more positive image of the enterprise in terms of loyalty, advantages, and economic returns; and organizational capital is correlated with efficient coordination in terms of the successful transfer of knowledge between organizational members (Benevene et al., 2017).

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Arshad et al. (2016) recognize the importance of social enterprises in identifying the intangible factors that can improve corporate performance. These authors find that effectively managing structural capital has the most significant positive influence on the sustainability of social enterprises. Specifically, the sustainability index was developed on the basis of four key elements (leadership capacity, adaptive capacity, management capacity, and technical capacity), while the value-added intellectual coefficient (VAIC) method is used to measure IC. In contrast, Ab Samad et al. (2017) examine the effect of intellectual capital on the financial viability of social enterprises located in Malaysia and affirm that human capital is the most influential factor in enabling the financial viability of the company, while neither structural capital nor relational capital has a significant positive relationship with the effectiveness of SEs. Specifically, the authors used the valueadded intellectual coefficient method to measure IC. Sgrò et al. (2020), focusing on SEs located in East and West Africa, identify the main factors of knowledge assets that affect the value creation process and, thus corporate performance. Factors such as human capital (e.g., a social entrepreneur’s knowledge), relational capital (e.g., the quality of local and global relationships), and structural capital (e.g., long-term and up-to-date firm knowledge) have been recognized as the most important resources in the value creation process in African SEs. Moreover, Bontis et al. (2018) provide empirical evidence of the relationship between intellectual capital and economic and social performance, with a focus on social cooperative enterprises. By investigating 151 SCEs operating in Italy, the authors find that human capital, in terms of the presence of employees with university degrees and value added per employee, positively affects economic performance as measured by the return on assets. Conversely, employees’ training seems to negatively influence economic performance. Additionally, the relationship between mission-based performance and IC is characterized by the positive effect of human and relational capital on corporate performance. Specifically, IC sub-components such as employee training, the value added per employee, and the quality of relationships with customers positively influence the number of users served as a measure of mission-based performance. However, the relationship quality with the reference territorial community seems to negatively affect mission-based performance. Finally, the authors affirm that structural capital does not affect social firms’ performance. Therefore, IC seems to be useful in the process of value creation, thus leading to better performance (Bontis et al., 2018; Benevene et al., 2019; Sgrò et al., 2020).

4.3

Hypothesis Development

This research represents the development of a study published by Bontis et al. (2018) in the Journal of Intellectual Capital titled “Intellectual capital and financial performance in social cooperative enterprises,” which was aimed at providing empirical evidence of the relationship between intellectual capital and a firm’s performance.

4.3 Hypothesis Development

53

Accordingly, to deeply investigate the effects of IC on a firm’s performance, the previous analysis has been replicated. In fact, studies should look at IC over time because, as noted by Dumay et al. (2015, p.277), “IC is not an event, but a journey.” Intellectual capital is a strategic management tool for SCEs, especially considering their features, such as their hybrid nature, dual mission, human-intensive production processes, social partnership and networking activities, and high relational content, which are highly rooted in IC sub-components (Bontis et al., 2018; Benevene et al., 2019). The following framework establishes the conceptual procedure for evaluating the influence of each IC sub-component on performance: thus, the importance of each intangible asset in achieving corporate goals. IC is divided into human, relational, and structural capital to highlight the main value drivers for SCEs and their effects on a firm’s performance. In terms of performance, there are two management reference fields: the missionbased field and the economic and financial field. Therefore, the goal of cooperative enterprises is twofold: to increase economic performance (i.e., financial outputs) and to promote mission-based performance (i.e., the production of social outputs) (Bontis et al., 2018; Staessens et al., 2019). Social (or mission-based) performance considers the social impact, in terms of benefits and positive effects, generated through the pursuit of the business activity that is aimed at meeting the social mission related to certain categories of individuals or stakeholders. Therefore, an SCE’s mission-based performance can be measured by the number of users served, given that HC is the engine of the operational activities and the final purpose that has to be satisfied. As suggested by Bontis et al. (2018), investigating the number of users served allows us to indirectly assess the number of services provided, the needs satisfied and the organization’s effectiveness. The assessment of economic-financial performance is necessary to understand if SCEs are able to satisfy the social purpose for which they have been created in a continuous, sustainable, and autonomous way. Economic performance can be measured by the return on assets (ROA), and it is calculated as the ratio of operating profit to total assets. The operating profit is generated from the firm’s core business operations, and it is obtained through the difference between gross income and total operating expenses. Total assets refer to the overall tangible and intangible resources that the enterprise owns and must be effectively and efficiently employed. Given that SCEs run commercial activities to achieve their missions, the measurement of ROA allows for the assessment of its ability to create value and maximize its assets without relying on external resources. Low values of this index may reflect a low ability and poor efficiency of organizational activities in generating profits, and they emphasize the need for greater reinvestments in internal assets (tangible and intangible) each year. Hence, to evaluate the effect of the IC sub-dimension on social cooperatives’ performance (RQ2 and RQ3), two hypotheses have been developed:

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Hp2—The IC sub-dimensions (human capital, relational capital, structural capital) affect the economic-financial performance of social cooperative enterprises. Hp3—The IC sub-dimensions (human capital, relational capital, structural capital) influence the social performance of social cooperative enterprises.

References Abraham, A. (2006). Financial management in the nonprofit sector: A mission-based approach to ratio analysis in membership organizations. The Journal of American Academy of Business, Cambridge, 9(2). Ab Samad, N. H. B., Yusof, N. B. M., & Roslan, N. B. (2017, May). Effectiveness of social Enterprise in Managing Intellectual Capital. In International accounting conference. Andreaus, M., & Costa, E. (2014). Toward an integrated accountability model for nonprofit organizations. In Accountability and social accounting for social and non-profit organizations. Emerald Group Publishing Limited. Arena, M., Azzone, G., & Bengo, I. (2015). Performance measurement for social enterprises. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 26(2), 649–672. Arshad, R., Ab Samad, N. H., Kamaluddin, A., & Roslan, N. (2016). Intellectual capital, accountability and sustainability in non-profit organizations. Asian Journal of Scientific Research, 9(2), 62–70. Bagnoli, L., & Megali, C. (2011). Measuring performance in social enterprises. Nonprofit and Voluntary Sector Quarterly, 40(1), 149–165. Benevene, P., Kong, E., Barbieri, B., Lucchesi, M., & Cortini, M. (2017). Representation of intellectual capital’s components amongst Italian social enterprises. Journal of Intellectual Capital. Benevene, P., Kong, E., De Carlo, A., Lucchesi, M., & Cortini, M. (2018). A qualitative study on the perception of intellectual capital among a group of senior managers of Italian social enterprises. Knowledge Management Research & Practice. Benevene, P., Kong, E., Lucchesi, M., & Cortini, M. (2019). Intellectual capital management among Italian non-profit socio-cooperatives. Journal of Workplace Learning. Bontis, N., Ciambotti, M., Palazzi, F., & Sgro, F. (2018). Intellectual capital and financial performance in social cooperative enterprises. Journal of Intellectual Capital. Costa, E., & Andreaus, M. (2020). Social impact and performance measurement systems in an Italian social enterprise: A participatory action research project. Journal of Public Budgeting, Accounting & Financial Management. Costa, E., Andreaus, M., Carini, C., & Carpita, M. (2012). Exploring the efficiency of Italian social cooperatives by descriptive and principal component analysis. Service Business, 6(1), 117–136. Costa, E., & Carini, C. (2016). Northern and southern Italian social cooperatives during the economic crisis: A multiple factor analysis. Service Business, 10(2), 369–392. Costa, E., & Pesci, C. (2016). Social impact measurement: Why do stakeholders matter? Sustainability Accounting, Management and Policy Journal. Dumay, J., Guthrie, J., & Puntillo, P. (2015). IC and public sector: A structured literature review. Journal of Intellectual Capital. Ebrahim, A. S., & Rangan, V. K. (2010). The limits of nonprofit impact: A contingency framework for measuring social performance. Harvard Business School General Management Unit Working Paper No. 10–099. Ebrahim, A., & Rangan, V. K. (2014). What impact? A framework for measuring the scale and scope of social performance. California Management Review, 56(3), 118–141.

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Ebrahim, A., Battilana, J., & Mair, J. (2014). The governance of social enterprises: Mission drift and accountability challenges in hybrid organizations. Research in Organizational Behavior, 34, 81–100. Epstein, M. J., & McFarlan, F. W. (2011). Measuring the efficiency and effectiveness of a nonprofit’s performance. Strategic Finance, 93(4), 27. Inkinen, H. (2015). Review of empirical research on intellectual capital. Journal of Intellectual Capital, 16(3), 518–565. Kaplan, R. S., & Norton, D. P. (1996). Using the balanced scorecard as a strategic management system. Harvard Business Review. Kirk, G., & Beth Nolan, S. (2010). Nonprofit mission statement focus and financial performance. Nonprofit Management and Leadership, 20(4), 473–490. Magnanelli, B. S., Raoli, E., & Sacchi, A. (2016). Key factors for success of social enterprises in Italy: Analysis of financial and operating performance. Review of Economics & Finance, 6, 43–60. Manetti, G. (2014). The role of blended value accounting in the evaluation of socio-economic impact of social enterprises. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 25(2), 443–464. Millar, R., & Hall, K. (2013). Social return on investment (SROI) and performance measurement: The opportunities and barriers for social enterprises in health and social care. Public Management Review, 15(6), 923–941. Neely, A. D., Adams, C., & Kennerley, M. (2002). The performance prism: The scorecard for measuring and managing business success. London: Prentice Hall Financial Times. Sanchis-Palacio, J. R., Campos-Climent, V., & Mohedano-Suanes, A. (2013). Management in social enterprises: The influence of the use of strategic tools in business performance. International Entrepreneurship and Management Journal, 9(4), 541–555. Sgrò, F., Ciambotti, G., Bontis, N., & Ayiku, A. (2020). Intellectual capital in east and west African social enterprises. Knowledge and Process Management, 27(4), 332–344. Simmons, J. (2003). Balancing performance, accountability and equity in stakeholder relationships: Towards more socially responsible HR practice. Corporate Social Responsibility and Environmental Management, 10(3), 129–140. Somers, A. B. (2005). Shaping the balanced scorecard for use in UK social enterprises. Social Enterprise Journal. Staessens, M., Kerstens, P. J., Bruneel, J., & Cherchye, L. (2019). Data envelopment analysis and social enterprises: Analysing performance, strategic orientation and mission drift. Journal of Business Ethics, 159(2), 325–341. Stevens, R., Moray, N., & Bruneel, J. (2015). The social and economic mission of social enterprises: Dimensions, measurement, validation, and relation. Entrepreneurship Theory and Practice, 39(5), 1051–1082.

Chapter 5

Intellectual Capital: An Empirical Analysis

5.1 5.1.1

Research Methodology Sample and Variable Definition

To test the previous research hypothesis (Hp2 and Hp3), a survey was conducted during the period March 2018–June 2018, and a questionnaire and cover letter were sent via email to the founding members of Italian social cooperative enterprises that were also involved in the author’s earlier research project (Bontis et al., 2018). The survey method is particularly well suited for studies regarding the relationship between IC and corporate performance, and it can provide a deep understanding of the phenomena under investigation (Andreeva & Garanina, 2016; Bontis et al., 2018; Ferramosca & Ghio, 2018; Sgrò et al., 2020). Therefore, the total population of 151 organizations from the previous research was selected (Bontis et al., 2018), the firm’s financial data were collected from the AIDA database (according to the respondents of the previous research), and the final sample was composed of the social cooperatives identifiable as typology A (i.e., health care, social, or educational services) or typology B (i.e., other services, such as agricultural and commerce services as well as general services) as defined in Italy’s legislative decree 381/1991. Specifically, the sample’s social cooperatives belong to four specific sectors of activity (Ateco codes 2007: 85–education, 86– health service activities, 87–residential care services, 88–nonresidential social activities, and 96–other personal service activities). The sample’s territorial dimension was determined according to the definition of northern, southern, and central Italy used by the Italian Institute of Statistics (ISTAT).

This chapter is the result of the development of the Author's PhD thesis available at: https://ora. uniurb.it/handle/11576/2655811#.YIb0CZAzbIW © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 F. Sgrò, Intellectual Capital and Organizational Performance, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-78479-9_5

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Marche, Lazio, Umbria, and Tuscany belong to the central region. Valle D’Aosta Piemonte, Liguria, Lombardia, Emilia Romagna, Veneto, and Friuli Venezia Giulia belong to northern region. Finally, Sardinia, Sicily, Calabria, Basilicata, Puglia, Campania, Molise, and Abruzzo belong to the southern region. The survey was designed to gather background information about each social cooperative enterprise, as well as data pertaining to the three sub-components of IC, while financial performance data were gathered from the AIDA database. The survey asked a variety of questions in four sections, such as the respondents’ information, SCEs’ general details, social (or mission-based) performance, and intellectual capital sub-components (see the appendix for the complete questionnaire). After data collection, several empirical analyses were conducted. First, a principal component analysis (PCA) and an orthogonal varimax rotation were employed to identify the principal components for each IC subdimension. Second, two ordinary square regression models were used to test the hypotheses and verify the effect of each IC subdimension on the financial and social performance of cooperative enterprises.

5.1.2

Descriptive Statistics

A total of 125 completed questionnaires were returned for a response rate of 82.78%. More specifically, the sample consisted of 98 enterprises providing social, health, and educational services (i.e., type A) and 27 enterprises providing work integration for disadvantaged people (i.e., type B). Based on educational level, almost half of the respondents (48%) had a bachelor’s or master’s degree, 41% declared that they had a high school diploma, and finally, only 11% had postgraduate training. Fifty-five percent of the sample had total assets equal to or superior to the sample’s median of 1,387,000 euros. Social cooperatives located in the northern and central regions were, on average, larger than social cooperatives located in southern Italy. In addition, type-A social cooperatives were characterized, on average, by a greater number of employees (221 employees) than type-B social cooperatives were (71 employees). The workforce size was, on average, higher for SCEs located in the northern regions than for SCEs in the rest of Italy. Table 5.1 shows the geographical distribution of the same based on the sector of each SCE. The sampled social cooperatives are mainly located in the northern region, which has 41.6% of all type-A cooperatives and 15.2% of all type-B cooperatives, while in the central region, type-A cooperatives are more prevalent (26.4%) than type-B cooperatives (2.4%). The south is home to 10.4% of all type-A cooperatives and 4% of all type-B cooperatives. Table 5.2 shows that social cooperatives in northern Italy are older than those located in the central and southern regions and that, on average, type-A cooperatives are older than type-B cooperatives.

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Table 5.1 Number of social cooperatives by geographic location and by sector Geographic distribution North Centre South Total

Number of type-A social cooperatives 76 25 23 124

% of social type-A cooperatives 61% 20% 19% 100%

Number of type-B social cooperatives 19 3 5 27

% of type-B social cooperatives 74% 11% 15% 100%

Table 5.2 Age of social cooperatives by geographic location and by sector Geographic distribution North Centre South

Mean age of type-A social cooperatives 22 21 21

Mean age of type-B social cooperatives 19 17 11

Table 5.3 Descriptive statistics Variable ROA17 Users17 ValueAdd_Empl Web_presence Network Certifications NewServicesAbility Customers Community Partnership Services Graduate Training Empl_satisfaction

Obs. 125 125 125 125 125 125 125 125 125 125 125 125 125 125

Mean 0.0411 2187.8 2.0811 5.6781 0.8432 0.7563 6.4271 6.9895 5.0318 6.4462 4.2817 108.95 1650.9 6.1167

Std. Dev. 0.0132 6827.5 0.6983 1.4313 0.2459 0.3829 2.0012 0.7689 2.0024 1.2034 3.0895 371.21 2897.3 0.8972

Min. 0.2106 128 0.8951 1 0 0 2 1 2 2 3 11 8 1

Max. 0.6302 7015.6 13.413 7 1 1 7 7 7 7 54 2879 10,000 7

Table 5.3 shows descriptive statistics for the sample. The average ROA is equal to 4.11%, with a standard deviation of 0.0132, a minimum value of
43.06%, and a maximum value of 21.06%. The average number of users served is 2187, with a maximum value of 7015 users. The average total training hours per year is 1650, with a minimum value of 8 and a maximum value of 10,000. The mean value of employees with university degrees is 108,85, with minimum and maximum values of 11 and 2879, respectively. The average value added per employee cost is 2.08, with a minimum value of 0.89 and a maximum value of 13.41. Average employee satisfaction is 6.11, with a minimum value of 1 and a maximum value of 7. The capacity to provide new services ranges from poor (2) to very good (7), and the average value is 6.4. Cooperative enterprises holding one or more certifications

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5 Intellectual Capital: An Empirical Analysis

Table 5.4 Descriptive statistics of network services by geographic localization Geographic distribution Variables Image promotion Information sharing Training activities Strategy support New services promotion Competition support Recruitment support General contracting Administration support Commercial services

North Mean 4.031 5.136 5.117 3.652 4.121 3.568 2.852 2.694 4.231 3.273

Std. Dev. 1.789 1.692 1.170 1.736 1.805 1.998 1.673 1.973 2.304 2.175

Centre Mean 4.428 5.500 6.000 4.357 4.500 4.464 2.714 3.357 4.392 3.107

Std. Dev. 2.007 1.551 1.465 1.850 1.753 1.773 1.674 2.058 2.424 1.728

South Mean 4.296 5.074 5.222 3.703 4.481 4.518 2.777 2.740 4.488 4.407

Std. Dev. 1.877 1.298 1.671 1.564 1.718 1.888 2.114 2.176 2.375 2.341

Table 5.5 Descriptive statistics of network services by sector Activity sector Variables Image promotion Information sharing Training activities Strategy support New services promotion Competition support Recruitment support General contracting Administration support Commercial services

Type-A Mean 4.217 5.233 5.362 3.862 4.387 3.927 2.870 2.846 4.451 3.266

Std. Dev. 1.828 1.562 1.735 1.721 1.770 1.930 1.933 2.004 2.352 2.032

Type-B Mean 3.385 5.037 5.148 3.592 4.148 3.740 2.666 2.666 4.185 3.259

Std. Dev. 1.875 1.764 1.680 1.906 1.915 2.211 1.980 2.166 2.512 2.158

constitute 81.60% of the sample. The quality of customer relationships ranges from very bad (1) to very good (7), and the average value is 6.98. In addition, the average quality of the relationship with the reference community is 6.03 and ranges between poor (2) and very good (7). The average quality of relationships with partners is good (6.44), with values ranging from poor (2) to very good (7). The web presence of social cooperatives is considered, on average, to be sufficient (5.67). Tables 5.4 and 5.5 show the descriptive statistics of network services by the geographic localization and sector of the SCEs. The social cooperatives belonging to a network represent 75% of the sample. The network allows access to a wide range of services supporting the SCEs’ core activities. These enterprises, especially if they are located in the South and if they belong to type-A SCEs, are more likely to use network services such as commercial services, competition support, and administrational services.

5.2 Principal Component Analysis of IC Subdimensions

61

In addition, type-A social cooperatives, mainly if located in central Italy, exploit the services of image promotion, information sharing, training, strategy support, new service promotion, and general contracting support. Moreover, type-A enterprises are more likely to use recruitment support services, particularly if they are located in the northern region.

5.2

Principal Component Analysis of IC Subdimensions

To answer the first research question (RQ1)—what are the principal components of IC subdimensions for SCEs?—a PCA was performed to identify the main factors for each IC sub-dimension. For human capital, two main factors have been identified (Table 5.6); the first component is called education, and it includes training and the number of employees with university degrees, which represent the most important investments in human capital by SCEs. The second component is called employee productivity and satisfaction, and it refers to the value added relative to employee cost and to the degree of employee satisfaction. In fact, a positive correlation exists between the two variables, but it is not significant. These two components of human capital explain 78.53% of the cumulative variance. Two main components were found for relational capital (Table 5.7). The first component is called relationship quality and concerns the quality of the SCE’s relationships with customers and the reference territorial community, while the second component is called collaborative and communicative capacity and is related to the corporate capacity to effectively collaborate with external partners and Table 5.6 PCA for Human Capital HC main components Education Employee productivity and satisfaction

Items Training Graduate EmplSatisf ValueAdd_Empl

Value loadings 0.727 0.689 0.756 0.717

Extraction method: principal component analysis. Rotation method: varimax rotation Keiser Meyer Olkin (KMO): 0.772 and Bartlett’s test: sig.: 0.000 Table 5.7 PCA for Relational Capital RC main components Relationship quality Collaborative and communicative capacity

Items Customer Community Partnership Webpresence

Value loadings 0.711 0.701 0.746 0.722

Extraction Method: principal component analysis. Rotation Method: varimax rotation Keiser Meyer Olkin (KMO): 0.821 and Bartlett’s test: Sig.: 0.000

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5 Intellectual Capital: An Empirical Analysis

Table 5.8 PCA for Structural Capital SC main components Social need satisfaction Service innovation

Items Users14 Services14 NewServicesAbil

Value loadings 0.691 0.711 0.937

Extraction method: principal component analysis. Rotation method: varimax rotation Keiser Meyer Olkin (KMO): 0.791 and Bartlett’s test: sig.: 0.000 Table 5.9 PCA on network services Services main components Strategic and competitive services

Administrative and commercial services

Items Strategy support Image promotion Information sharing Training services Competition support New services promotion General contracting Services commercial Administrative support Recruitment support

Value loadings 0.727 0.710 0.778 0.756 0.778 0.709 0.601 0.764 0.771 0.662

Extraction method: principal component analysis. Rotation method: varimax rotation Keiser Meyer Olkin (KMO): 0.831 and Bartlett’s test: sig.: 0.000

communicate with external actors via the SCE’s website. The cumulative variance of 81.19% is explained by two components. Finally, after performing a factor analysis of structural capital variables, two main components were identified (Table 5.8). The first is called social needs satisfaction and is related to the capability to satisfy social needs by providing services and served users, while the second component is called service innovation and concerns the ability to provide new services. The explained cumulative variance is 70.26%.

5.2.1

Principal Component Analysis of Services Provided by the Network

To focus on the importance of belonging to a network, a principal component analysis was applied to identify the main network service categories exploited by SCEs (Table 5.9). The first, called strategic and competitive services, refers to the network services that can improve the competitive ability of SCEs through innovation, training, information sharing, and image promotion. The second component is administrative and commercial services. The explained total cumulative variance is 71.51%.

5.3 Pearson Correlation

5.3

63

Pearson Correlation

The Pearson correlation coefficient is typically used for jointly normally distributed data and provides information about the magnitude of the association, or correlation, as well as the direction of the relationship (Schober et al., 2018). Therefore, to measure the linear correlation between the variables of both models, the Pearson correlation was applied, as shown in Tables 5.10 and 5.11. The normalized variables were used to obtain reliable results. In all cases, the coefficients of Pearson correlation are lower than 60%. ROA17 is weakly and positively correlated with the quality of the partnership established with stakeholders (0.120), the quality of the relationship with the reference community (0.174), employee satisfaction (0.131) and finally, the value added per employee (0.218). Therefore, productivity per employee, satisfaction and the perceived quality of the relationship with the community seem to be positively associated with better financial performance. Users17 is weakly and positively correlated with the value added per employee (0.245), the number of training hours per employee (0.168), the number of employees with a university degree (0.139), and finally, employee satisfaction (0.127). Conversely, Users17 is weakly and negatively correlated with the quality of the relationship established with the reference community. Hence, the higher the stock of HC in terms of value added per employee, level of education, and hours of training is, the higher the number of users served will be. Moreover, a high level of employee satisfaction seems to be associated with better mission-based performance. Indeed, there is a significant and negative correlation between the number of users served and the relationship with the community (
0.125). This means that SCEs should rely more on building strong community relationships to increase awareness regarding their key role in providing services that contribute to economic and social well-being. The value added per employee is weakly and positively correlated with the training hours per employee (0.034) and with employee satisfaction (0.116). Hence, employee productivity seems to be positively associated with the learning process activated through training activities and with employee wellbeing. The ability to create new services is significant and positively correlated with several variables, such as the quality of the customer relationship (0.335), the number of services provided (0.468), the number of graduates (0.123), and the online web presence (0.199). This means that a good relationship with customers can stimulate firms’ ability to innovate in terms of new services and that an online web presence can help the company determine and satisfy customers’ needs. Moreover, the ability to create new services seems to be positively associated with a high level of education and a well-established set of offered services. In addition, the quality of the customer relationship is significantly and positively correlated with several variables, such as the quality of the relationship with community (0.430), partnership (0.383), the number of services offered (0.177), the number of employees with university degrees (0.256), and finally, with employee

ROA17 1 0.218* 0.081 0.070 0.174* 0.120* 0.022 0.179
0.113 0.131*
0.115

1 0.088
0.108 0.079 0.173 0.091 0.153 0.034* 0.116* 0.144

Value_add

1 0.335* 0.093 0.129 0.468* 0.123* 0.003 0.070 0.199*

New Serv

Note. *indicates significance at the level of 0.05

ROA17 Value_add New Serv Customer Community Partnership Services Graduate Training Empl_sat Web_pres 1 0.430* 0.383* 0.177* 0.256* 0.087 0.263* 0.130

Customer

1 0.608* 0.092 0.093 0.169 0.272* 0.168

Community

Table 5.10 The Pearson correlation between economic performance and IC

1 0.205* 0.079 0.204* 0.176* 0.168

Partnership

1 0.149* 0.277* 0.062 0.221*

Services

1 0.227* 0.067* 0.138

Graduate

1 0.309* 0.136*

Training

1 0.701

Empl_sat

1

Web_pres

64 5 Intellectual Capital: An Empirical Analysis

Users17 1 0.245*
0.070
0.158
0.125*
0.241 0.218 0.139* 0.168* 0.127*
0.018

1 0.088
0.108 0.079 0.173 0.091 0.153 0.034* 0.116* 0.144

Value_add

1 0.335* 0.093 0.129 0.468* 0.123* 0.003 0.070 0.199*

New Serv

Note. *indicates significance at the level of 0.05

Users17 Value_add New Serv Customer Community Partnership Services Graduate Training Empl_sat Web_pres 1 0.430* 0.383* 0.177* 0.256* 0.087 0.263* 0.130

Customer

1 0.608* 0.092 0.093 0.169 0.272* 0.168

Community

Table 5.11 The Pearson correlation between mission-based performance and IC

1 0.205* 0.079 0.204* 0.176* 0.168

Partnership

1 0.149* 0.277* 0.062 0.221*

Services

1 0.227* 0.067* 0.138

Graduate

1 0.309* 0.136*

Training

1 0.701

Empl_sat

1

Web_pres

5.3 Pearson Correlation 65

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5 Intellectual Capital: An Empirical Analysis

satisfaction (0.263). Therefore, a good relationship with customers seems to rely on good links with external partners, with the reference community and the quality of the services offered to beneficiaries. Additionally, HC, in terms of the number of employees with university degrees and employee satisfaction, seems to be positively associated with a better quality relationship with customers. The relationship with the community is significantly and positively correlated with partnership (0.608) and employee satisfaction (0.272). In addition, the relationship with external partners is weakly and positively correlated with the services offered (0.205), the training activities (0.204), and employee satisfaction (0.176). This means that SCEs have to continue to strengthen relationships with stakeholders and improve the work environment for employees as well as their learning processes. The number of services offered is positively correlated with the number of employees with university degrees (0.149), with training activities (0.277), and with the online web presence (0.221). Therefore, corporate offerings seem to be positively associated with employees’ knowledge and the activities that are undertaken online. Moreover, both training (0.227) and employee satisfaction (0.067) are positively correlated with the number of university graduates. Therefore, the educational level of employees seems to be positively associated with a higher level of satisfaction at work and an inclination to attend training activities. Finally, training results were positively and significantly correlated with online web presence (0.136) and employee satisfaction (0.309). In fact, an online presence can be considered important support for obtaining access to potential advocates and volunteers, training programs, and additional resources that are useful for increasing employees’ well-being.

5.4

Regression Models

In accordance with the statistical requirements for OLS analysis, dependent and independent variables were identified. In particular, the first regression model developed investigates the effect of IC sub-components on economic performance for the fiscal year 2017. The dependent variable is represented by ROA, an operating profitability measure commonly used in financial analysis and calculated as the ratio between operating profit and total assets (Kong & Thomson, 2006a, b; Sanchis-Palacio et al., 2013; Bontis et al., 2018). Although social cooperatives are nonprofit organizations, they must be able to operate in a fiscally balanced way and effectively manage their assets to survive in the long term. Thus, they have to be capable of effectively and efficiently employing tangible and intangible resources, expressed by total assets. The independent variables are the key performance indicators in each IC subdimension (human, relational, and structural capital) and are identified in Tables 3.2, 3.3, and 3.5, respectively. These sets of variables are measured through a Likert scale ranging from 1 to 7 that is used to prevent respondents from choosing

5.4 Regression Models

67

the mean value without expressing a positive or negative judgement. In this case, respondents can make a positive or negative assessment with a different degree of intensity. The second model investigates the effect of IC sub-components on social performance for the fiscal year 2017. The dependent variable is represented by the number of users served (Bontis et al., 2018), which represents the social output, calculated as the ratio between the number of users and the number of employees in 2017. In both models, control variables have been added. Control variables are related to the dependent variable and help avoid the distortive effect due to possible missing independent variables. All variables have been normalized. Three control variables have been used as follows: • Sector is a dummy variable that takes the value of 1 if the enterprise is type-A and 0 otherwise. • North is a dummy variable that takes the value of 1 if the enterprise is located in northern Italy and 0 otherwise. • Center is a dummy variable that takes the value of 1 if the enterprise is located in central Italy and 0 otherwise. These control variables are traditionally used in performance studies for SEs (Arshad et al., 2016; Ab Samad et al., 2017; Bontis et al., 2018). Once all the variables are defined, the two models are tested. Model 1, dedicated to financial performance, is presented as follows: Hp2—The IC subdimensions (human capital, relational capital, structural capital) affect the economic-financial performance of social cooperative enterprises. ROA17 ¼ αi þ β1 Trainingi þ β2 Graduatei þ β3 EmplSatis f i þ β4 ValueAdd EmplCosti þ β5 Servicesi þ β6 NewServicesAbili þ β7 Certificationsi þ β8 Customer i þ β9 Communityi þ β10 Partnershipi þ β11 Webpresencei þ β12 Networki þ β13 Sectori þ β14 Northi þ β15 Centeri þ εi Model 2, devoted to social performance, is presented as follows: Hp3—The IC subdimensions (human capital, relational capital, structural capital) influence the social performance of social cooperative enterprises. USERS17 ¼ αi þ β1 Trainingi þ β2 Graduatei þ β3 EmplSatis f i þ β4 ValueAdd EmplCosti þ β5 Servicesi þ β6 NewServicesAbili þ β7 Certificationsi þ β8 Customeri þ β9 Communityi þ β10 Partnershipi þ β11 Webpresencei þ β12 Networki þ β13 Sectori þ β14 Northi þ β15 Centeri þ εi

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5 Intellectual Capital: An Empirical Analysis

Table 5.12 IC and financial performance of social cooperatives for 2017 ROA17 Graduate Training Empl_Satisfaction ValueAdd_Empl Customers Community Partnership Web_presence Network Certifications NewServicesAbility Services Sector Nord Centre _cons

Coef. 0.2787 0.3387 0.0404 0.2348 0.0652 0.1824
0.0638
0.2004 0.0498
0.0914 0.0452 0.0712 0.4717
0.7011
0.5054 0.4949

Std. Err. 0.1842 0.0981 0.1200 0.2315 0.1005 0.1094 0.0984 0.1022 0.1807 0.2313 0.1719 0.1266 0.2012 0.2023 0.1996 0.2383

t 0.32 1.11 1.27 2.41 0.56 1.55
0.54
1.77 0.24
0.36 0.41 0.77 1.89 2.85
1.67 5.41

P > |t| 0.034** 0.109* 0.104* 0.017*** 0.576 0.102* 0.589 0.080* 0.814 0.717 0.681 0.446 0.061** 0.005*** 0.197 0.234

Note. ***, **, and *indicate significance at the levels of 0.01, 0.05, and 0.10 (two-tailed test) Number of obs. ¼ 125, F (18, 124) ¼ 3.44; prob. > F ¼ 0.0001; R-squared ¼ 0.3128; adj. R-squared ¼ 0.1994 Cameron and Trivedi’s decomposition of IM-test: Heteroskekasticitychi2 ¼ 81.84; df ¼ 77; p ¼ 0.0316 skewness chi2 ¼ 11.08; df ¼ 11; p ¼ 0.0621 kurtosis chi2 ¼ 1.05; df ¼ 1; p ¼ 0.611 Durbin-Wu-Hausman test for endogeneity: Durbin (score) chi2(1) ¼ 1.678 Wu-Hausman F (18, 124) ¼ 1.912

The results of the first model (model 1) are discussed in Table 5.12. This model investigates the effects of IC components on the economic performance of social cooperatives. The adjusted R-squared of the model is 19.94%, and VIFs are lower than 1.63; therefore, multicollinearity does not affect the data. Moreover, the Hausman test provides evidence that there are no problems with endogeneity. Therefore, the results obtained by applying the previous observations are statistically significant in the model under investigation. The findings show that human capital positively influences economic performance. Specifically, the presence of employees with university degrees positively affects the operating profitability at 5%, with a coefficient of 0.278; the value added per employee positively influences performance at 1%, with a coefficient of 0.234; employee satisfaction positively influences performance at 10%, with a coefficient of 0.040; and finally, training activities affect the return on asset at 10%, with a coefficient of 0.338. With regard to relational capital, only the relationship established with the community positively and significantly affects performance (at 10%, with a

5.4 Regression Models

69

Table 5.13 IC and social performance of social cooperatives for 2017 USERS17 Graduate Training Empl_Satisfaction ValueAdd_Empl Customers Community Partnership Web_presence Network Certifications NewServicesAbility Services Sector Nord Centre _cons

Coef. 0.0556408 0.1329319 0.2219813 0.2164637 0.0220979 0.0261705 0.1528552
0.0231359 0.2214227 0.0160597 0.0399086 0.0055588
0.1210309 0.0382993 0.0026076 0.0418455

Std. Err. 0.1573285 0.0442546 0.0032098 0.0082591 0.0339234 0.0195071 0.0426329 0.0213681 0.0268691 0.0244822 0.0441405 0.0072159 0.099596 0.0350269 0.0341961 0.1181091

t 0.35 2.12 0.62 0.78 0.65 1.34 1.24 1.08 0.80 0.66 0.90 0.77
1.22 1.09 0.08
0.35

P > |t| 0.104* 0.003** 0.058* 0.005** 0.106* 0.083* 0.091* 0.281 0.068* 0.513 0.368 0.343 0.227 0.315 0.839 0.172

Note. ***, **, and *indicate significance at the levels of 0.01, 0.05, and 0.10 (two-tailed test) Number of obs. ¼ 125, F (18, 124) ¼ 4.54; prob. > F ¼ 0.0000; R-squared ¼ 0.3230; adj. R-squared ¼ 0.3819 Cameron and Trivedi’s decomposition of IM-test: Heteroskekasticitychi2 ¼ 113.44; df ¼ 114; p ¼ 0.0147 skewness chi2 ¼ 21.18; df ¼ 14; p ¼ 0.0787 kurtosis chi2 ¼ 2.15; df ¼ 1; p ¼ 0.1429 Durbin-Wu-Hausman test for endogeneity: Durbin (score) chi2(1) ¼ 1.872 Wu-Hausman F (18, 124) ¼ 1.889

coefficient of 0.182). Conversely, online web presence negatively and significantly affects performance at 10%. Finally, belonging to the educational-health sector positively and significantly affects performance, while localization in the northern regions has a negative and significant effect on profitability. Therefore, the research hypothesis (Hp2) can partially be accepted. Table 5.13 shows the results of the second model (model 2) that investigates the effects of IC components on the social performance of cooperative enterprises. The adjusted R-squared of the model is 38.19%, and VIFs are lower than 1.84; therefore, multicollinearity does not affect the data. Moreover, the Hausman test provides evidence that there are no problems with endogeneity. Therefore, the results obtained by applying the previous observations are statistically significant in the model under investigation. The findings show that human capital positively influences mission-based performance. Specifically, the presence of employees with university degrees positively and significantly affects performance at 10%, with a coefficient of 0.055; the yearly training per employee positively and significantly (1%) influences the social

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5 Intellectual Capital: An Empirical Analysis

performance, with a coefficient of 0.132; the value added per employee positively and significantly (1%) influences performance, with a coefficient of 0.216; and finally, employee satisfaction positively affects social performance at 5%, with a coefficient of 0.221. With regard to relational capital, the quality of relationships with partners has a positive and significant effect on social performance (at 10%, with a coefficient of 0.152). Additionally, the quality of the relationship with the reference community positively and significantly affects performance at 10%, with a coefficient of 0.026. Moreover, the quality of relationships with customers has a positive and significant effect on social performance (at 10%, with a coefficient of 0.020). Finally, belonging to a network positively influences mission-based performance at 10%. Therefore, the research hypothesis (Hp3) can partially be accepted.

References Ab Samad, N. H. B., Yusof, N. B. M., & Roslan, N. B. (2017, May). Effectiveness of social Enterprise in Managing Intellectual Capital. In International accounting conference. Andreeva, T., & Garanina, T. (2016). Do all elements of intellectual capital matter for organizational performance? Evidence from Russian context. Journal of Intellectual Capital. Arshad, R., Ab Samad, N. H., Kamaluddin, A., & Roslan, N. (2016). Intellectual capital, accountability and sustainability in non-profit organizations. Asian Journal of Scientific Research, 9(2), 62–70. Bontis, N., Ciambotti, M., Palazzi, F., & Sgro, F. (2018). Intellectual capital and financial performance in social cooperative enterprises. Journal of Intellectual Capital. Ferramosca, S., & Ghio, A. (2018). Leveraging intellectual capital in developing countries: Evidence from Kenya. Journal of Intellectual Capital. Kong, E., & Thomson, S. B. (2006a). Intellectual capital and strategic human resource management in social service non-profit organisations in Australia. International Journal of Human Resources Development and Management, 6(2–4), 213–231. Kong, E., & Thomson, S. B. (2006b). Intellectual capital and strategic human resource management in social service non-profit organisations in Australia. International Journal of Human Resources Development and Management, 6(2–4), 213–231. Sanchis-Palacio, J. R., Campos-Climent, V., & Mohedano-Suanes, A. (2013). Management in social enterprises: The influence of the use of strategic tools in business performance. International Entrepreneurship and Management Journal, 9(4), 541–555. Schober, P., Boer, C., & Schwarte, L. A. (2018). Correlation coefficients: Appropriate use and interpretation. Anesthesia & Analgesia, 126(5), 1763–1768. Sgrò, F., Ciambotti, G., Bontis, N., & Ayiku, A. (2020). Intellectual capital in east and west African social enterprises. Knowledge and Process Management, 27(4), 332–344.

Chapter 6

Discussion of the Results

6.1 6.1.1

Findings Principal Component Analysis of the IC Subdimensions and the Services Provided by the Network

To answer the first research question (RQ1)—what are the principal components of IC subdimensions?—a principal component analysis was applied to a set of IC subdimensions, and it was possible to identify the main components of IC involved in the value creation processes of Italian SCEs. The factor analysis allowed for the identification of six principal components of IC (as presented in Table 6.1): education, employee productivity, employee satisfaction, relationship quality, collaborative and communicative capacity, the satisfaction of social needs, and service innovation. These factors represent effective levers for use in fostering IC, which guarantees the long-term survival of corporate companies. More specifically, human capital (i.e., employee productivity, satisfaction, and education) contributes to value creation processes as well as to the realization of organizational performance. In SCEs, social entrepreneurs are strongly motivated to meet social objectives by creating social wealth while being financially sustainable (Staessens et al., 2019). Therefore, the main players involved in accomplishing the organizational mission by effectively aligning the firm’s activities with social goals are the entrepreneur, managers, employees, and volunteers (Bontis et al., 2018; Benevene et al., 2018). All of them are also fundamental in decision-making processes, especially as organizations are made up of people who, at different levels and with different responsibilities, handle resources in order to create value. In doing

This chapter is the result of the development of the Author's PhD thesis available at: https://ora. uniurb.it/handle/11576/2655811#.YIb0CZAzbIW © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 F. Sgrò, Intellectual Capital and Organizational Performance, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-78479-9_6

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6 Discussion of the Results

Table 6.1 Principal components of IC subdimensions for Italian social cooperatives Intellectual Capital Human capital Structural capital Relational capital

Main components Education Satisfaction of social needs Relationship quality

Employee productivity and satisfaction Service innovation Collaborative and communicative capacity

so, factors such as entrepreneurs’ education, employee productivity, and satisfaction, the number of employees with university degrees and the value added per employee are fundamental to achieving the SCEs’ social mission, especially in a context where firms suffer from resource limitations. Accordingly, the entrepreneur makes significant and diverse contributions to the business and community by effectively exploiting his or her personal skills, educational background, and high-skilled employees. There are two main components of SC. The first is called social needs satisfaction, and it refers to the capability of satisfying the social needs of users by providing services; the second component is called services innovation, and it concerns the ability to provide new services to increase the scale and scope of the organization’s mission. The findings suggest that innovation assumes a pivotal role in SCEs. Innovation is the ability to create new services as the scale of an organization’s activities changes and evolves over time. The organization should pursue innovative behaviors to increase its ability to respond to environmental changes and succeed in its strategic goals and should increase its ability to create social value by offering social services that can satisfy different needs and beneficiaries. With regard to RC, relationship quality and collaboration and communication capacity have been identified as the most important components for corporate value creation. Specifically, for SCEs, a high level of stakeholder cohesion reinforces the relationship with the local community, improves the decision-making process, enhances social cohesion, and fosters more participatory democracy (Bontis et al., 2018). Through their commitment, all stakeholders help ensure the sufficient adequate quality of the services provided to meet the relevant social needs (Benevene et al., 2019). Therefore, strong, loyal, and high-quality relationships with several stakeholders allow for the continuous flow of information amongst partners, which increases opportunities for resource sharing and improves the economic and mission-based performance of social cooperatives. Moreover, the increase in available resources allows for improvements in efficiency and the provision of social interest services. Consequently, interactions with other business sectors, private and public institutions, and other SCEs or NPOs create the opportunity to transform and shape the social and economic systems in which these entities operate and to do so to the entire community’s advantage (Benevene et al., 2018). Moreover, the values of trust and cooperation, as well as moral beliefs, feelings of solidarity, and democracy, are driven by an effective online web presence that provides organizations with opportunities to reach out to and engage with existing and prospective members and

6.1 Findings

73

collaborate with new partners; it further helps in the sharing of information and in spreading the organization’s mission (Greenberg & MacAulay, 2009). It is clear that good RC management can shape an effective network, which is highly important for social enterprises. In fact, a reliable network provides access to financial resources, greater legitimacy, advanced knowledge, and new markets that can set the foundation for competitive and sustainable growth within a specific territorial system (Folmer et al., 2018). Measuring the use intensity of network services allows one to indirectly assess RC, which is fed by social capital and rooted in trust, as well as the willingness to cooperate, shared values, and common languages amongst several stakeholders. For this purpose, the principal component analysis applied to a set of services provided by a network to SCEs enables the identification of two principal components within network services: strategic and competitive services and administrative and commercial services. The first component (strategic and competitive services) implies that social cooperatives that belong to a network are more interested in utilizing services related to core activities, which are useful for improving the competitive capacity of SCEs. The second component (administrative and commercial services) includes the operative services (administrative, commercial, and recruitment) that are designed to reduce corporate costs. The findings imply that social cooperatives that belong to a network are more interested in utilizing services that are able to improve resources and competences that establish strategic and competitive advantages than in exploiting operative services.

6.1.2

The Relationship between the IC Subdimensions and SCE Performance

Two regression models have been employed to investigate the effect of human, relational, and structural capitals on SCE performance in order to answer the following research questions: (RQ2) Which elements of IC influence the financial performance of SCEs? (RQ3) Which elements of IC influence the mission-based performance of SCEs? Regarding the main findings of the studies (see Tables 5.12 and 5.13), HC is one of the most important assets in driving SCE performance in terms of return on assets and the number of users served. Particularly, the presence of employees with university degrees, yearly training, value added per employee, and employee satisfaction significantly and positively affect the return on assets as well as the number of users served. Therefore, the efforts, skills, willingness, and involvement of human resources in organizations play a key role in improving corporate profitability and the creation of social value. This is even more important in SCEs belonging to the educationalhealth sector and social cooperatives, where human resources are directly involved in the production and provision of services that have high levels of relational content

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and whose quality strongly depends on human resource traits (Benevene et al., 2019). In fact, services demanded in this market are known to be expensive and of high quality, and highly skilled people are required to set the foundation for competition and success in this market. This implies that training is important for guaranteeing a specific standard of quality for the services provided to users and for effectively achieving the organization’s mission. Training affords organizations the opportunity to develop new skills and accumulate the knowledge they require to achieve their strategic goals (Kianto et al., 2017). Moreover, especially in the long and medium term, training activities result in a positive effect on organizational performance (Nikandrou et al., 2008). Moreover, employee satisfaction results have a positive influence on SCE performance. Therefore, implementing corporate policies devoted to improving employee compensation and work/life balance can help organizations achieve better organizational performance (Melián-González et al., 2015). By investigating the effect of human capital on SCE performance, social entrepreneurs, and managers can gain awareness of and clear ideas about how effective management of human resources can influence the activities and success of their organization in terms of profitability and the creation of social well-being, thus helping them make more informed decisions that can lead to conscious strategic planning. Relational capital, in terms of relationship quality, influences mission-based performance. Specifically, the strength of relationships with customers, communities, and partners allows a strong orientation toward the growth of the local environment aimed at effectively satisfying societal needs in terms of users served. Stronger ties with stakeholders strengthen the firm’s ability to understand and meet societal needs. In fact, being able to establish quality relationships with stakeholders provides many benefits in terms of business opportunities and financial access (Benevene et al., 2019). Therefore, effectively operating in a network in collaboration with the reference community, customers, and partners (such as financial institutions and international and governmental organizations) provides the opportunity to gain wider and even global access to resource procurement processes that set the foundation for the realization of social impact. With regard to economic performance, the quality of relationships with the community is significant and has a positive impact. This result suggests that establishing strong, quality ties with the reference community contributes indirectly to increasing customer loyalty and satisfaction, in turn increasing the firm’s profitability, ability to understand and meet beneficiaries’ needs, and transparency and legitimacy. Additionally, the online web presence results negatively influence the economic dimension. The negative effect is probably associated with the cost of developing that web presence; however, it may just be that it can take some time before the value of online activities, in terms of productivity, profitability, and competitiveness, can be seen and measured. With regard to mission-based performance, the network variable seems to directly and significantly affect the number of users served. These social networking

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practices are driven by the entrepreneur’s ability to manage resource dependency, community engagement, and relationship ties (Dacin et al., 2010). Therefore, the social entrepreneur drives relationships with stakeholder groups and shapes an effective network through interfirm relationships that can secure and develop new resources, additional abilities, and new opportunities for social and economic wellbeing within the specific territorial system. This means that RC sub-components require a large amount of resource expenditure in terms of time and people to be fully exploited within the social and economic value creation processes. Finally, none of the sub-components of SC seem to directly affect SCE performance. More specifically, the adoption of certifications is not significant, and it has a positive coefficient for social performance—measured by the number of users served. In fact, the adoption of sustainability or quality certifications (ISO 9001, EMAS, or SA8000, among others) can represent a fundamental change in business philosophy and corporate practices, generating a common language amongst different partners of the organization and increasing legitimacy and recognition among users. Conversely, this variable is negative and not significant for economic performance. This could be because certification adoption requires a large investment, which increases operating costs; however, over time, obtaining certifications is a means to fulfil the organization’s mission. Additionally, neither the number of services provided nor the ability to create new services are significant for either type of performance. Therefore, it is possible to suppose that SC adds value in supporting HC and RC and that both affect corporate performance. Finally, two control variables—sector and geographic localization—affect SCE’s economic and financial performances. The sector of activities positively affects the return on assets, which implies that SCEs operating in the health education sector have higher profitability than those operating in other activities. In addition, being located in northern Italy negatively affects the return on assets. This finding may be related to the economic crisis that has hit northern Italy (where most social cooperatives are located) much harder (in terms of economic performance) than central and southern Italy (ISTAT, 2020). Thus, SCEs may have lost their effectiveness in creating social value even in times of economic uncertainty. The findings of this study are partially in line with the work of Bontis et al. (2018), whose results show some agreement and some differences. In terms of differences, the study of Bontis et al. (2018) found that training activities were negatively and significantly correlated with the return on assets and that employee satisfaction was not significantly correlated with the return on assets but did have a positive coefficient. This difference can be explained by the fact that the negative finding for training is probably attributable to an important cost increase that necessarily reduces the operating profit but that, in the long term, translates into value. Moreover, in Bontis et al. (2018), employee satisfaction was not significant but had a positive coefficient. The nonsignificant employee satisfaction variable may

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be related to the fact that creating a pleasant work atmosphere requires time and leaders who are able to develop and implement practices to spread well-being across all organizational functions and levels. Therefore, improvement in employee satisfaction is based on a long-term process that creates a positive work environment, employee engagement practices, and work–life balance. With regard to agreement between the two studies, the strategic role of HC in terms of the number of employees with university degrees and the value added per employee in influencing the return on assets is also confirmed by the new study. Moreover, the results show the positive effect of operating in the health care or educational sector on a firm’s profitability and show that the negative effect of being located in northern Italy can affect economic performance. Moreover, with regard to mission-based performance, it is relevant that yearly training hours and the value added per employee positively influence the number of users served. Therefore, the results are confirmed. This difference comes from the fact that in the study of Bontis et al. (2018), the relationship with the reference community negatively affected the social dimensions, which is attributable to the fact that SCEs need time to establish a relationship with stakeholders in the reference community and that this link pays off over time following investment in transparency and communication, which generates social legitimacy.

6.1.3

Managerial and Theoretical Implications, Limitations, and Further Research

There are several implications that arise from these findings, and they are particular to this research setting. From a scholarly standpoint, this study makes two main contributions to the extant literature regarding the role of IC within NPOs, especially in social cooperative enterprises. First, this study identified the main KPIs that are useful for representing the features of IC and firms’ value creation mechanism. The identification of this conceptual framework could increase managers’ awareness of the significance of sub-components of IC for the nonprofit sector in pursuing social outcomes while preserving economic-financial sustainability. Second, this work attempts to fill the gap in the literature on the relationship between IC and corporate performance, taking into account the SCE features linked to the hybrid nature of SCEs, illustrated by how the organization obtains financial resources, runs activities with a human-centered perspective, forms relationships with a myriad of external and internal stakeholders and determines the nature of their organizational mission. Specifically, this relationship has been expressed by providing empirical results highlighting the important role that human capital, as well as a quality relationship with the reference community, can play in increasing social and economic value creation, and reinforcing the pivotal role that good relations with

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external partners and customers can play in achieving mission-based performance goals in terms of users served. As for practical contributions, the empirical results can improve SCE managers’ awareness of the positive implications of intellectual capital for firm performance. For the senior leaders of social cooperatives, there is a need for in-depth knowledge about managing the sub-components of IC in SCEs and NPOs as well as about the strengths and weaknesses of their roles in value creation processes. In fact, there is a lack of studies carried out on these topics, and the findings from these analyses might increase the awareness of IC management in this specific context and provide a better understanding of opportunities for growth. Additionally, the findings highlight the pivotal role of HC in generating value for social cooperatives. Therefore, managers should increase their firm’s investment in human resources as a source of knowledge accumulation, as this can provide competitive advantages and superior organizational performance. Additionally, the positive influence of RC is related more to the quality of relationships with the reference community than to that with customers. Senior leaders should, consequently, increase the awareness of RC management in terms of external networking, strategic partnerships, collaboration, transparency, and communication. These findings suggest that managers should pay more attention to the strategic planning of interorganizational relations. They should also improve the cultural atmosphere that promotes organizational commitment and cross-functional integration among board members, employees, volunteers, and other stakeholders. Conversely, it was found that SC does not affect corporate performance. This result might be related to leaders’ limited awareness of exploitation opportunities linked to knowledge embedded within the organization. Managers should try to develop SC to support the effective and efficient management of HC and RC. There is a strong need for SCE managers and professionals to undergo training on IC management, implementation, and knowledge-creation processes. Insights into their organizations’ IC opportunities could be useful for increasing their awareness of the added value embedded in intangible assets, with the aim of fully exploiting IC benefits. Therefore, managers should be involved in the evaluation of their organization’s performance. They should also be in the control of the alignment between the definition of the organization’s objectives and the assessment of the results through the definition of the main strategic assets of the company. Finally, this study also has implications for governments that influence the activities of NPOs across Europe with the purpose of contributing to such organizations’ social, economic, and sustainable development. In particular, while the pivotal role of social entrepreneurship is well established among academics, there is still space to act with governmental policies aimed at developing and supporting the effective foundation of social enterprises and, thereby, of social cooperatives. Therefore, this study helps establishing a path for the formulation of governmental recommendations on improving efforts to help and support (social) entrepreneurs in creating relationships with stakeholders (such as the community, volunteers, employees, and private and public institutions), as well as to promote policies for recruiting skilled employees and providing training devoted to the long-term

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learning process. This is even more important if we consider that SCEs operate with financial resource limitations, and intellectual capital resources may be contribute to overcome such limitations. There are several study limitations that should be mentioned. The main limitation of this work is the restricted sample size, which means that the generalizability of the results is limited to the Italian context in which the data were collected. Moreover, the sample includes social cooperatives that belong exclusively to five specific sectors, which represent only a small portion of the broader world of SCEs. The second limitation is the geographical area covered in this research: all of the social cooperatives that were studied are in Italy. Therefore, the results could potentially be influenced by the context. Third, this study adopts a mixed-methods approach, and to understand and disclose more relevant information on the generation of IC within an SCE setting, the study should be replicated over time, as 1 year of analysis is insufficient to comprehensively identify the impact of IC on firm performance. Moreover, it should be noted that the descriptive review is limited by the databases accessed and by the search criteria, search method, and inclusion and exclusion criteria. Therefore, further research could improve the analysis by covering more topics related to the concept of IC within nonprofit organizations and extending the period of the investigation since the topic is continuously evolving. Furthermore, there are no shared models for evaluating and estimating the effects of IC on the financial and social performances of NPOs. In fact, the PCA and OLS regression models focus exclusively on a limited set of variables representing the human, relational, and structural dimensions and a set of network services, and these could be expanded and integrated with other intellectual capital indicators and performance measurements. Further research should try to develop shared and effective KPIs to measure the effect of IC subdimensions on SCE performance so that decision makers can manage value drivers. It would be interesting to focus on RC and SC to identify better KPIs, since these IC subdimensions are positively correlated with HC, which is the main IC dimension impacting corporate performance. To this end, it could be useful to assess the effects of SC and RC on HC. Additionally, due to the explorative nature of this research, a qualitative approach, for example, semistructured interviews, could be adopted to provide a deeper understanding of the tacit perceptions that NPO managers and leaders have about their organizations’ IC sub-components. In fact, a deeper understanding of regarding how IC is implemented within organizations is required. It could also be interesting to extend the survey to other European countries to compare the findings and understand the weight of the reference context in which SCEs operate. Additionally, the specifics of particular sectors and cultures could be considered as moderators in the relationship between the IC subdimensions and firm performance.

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References Benevene, P., Kong, E., De Carlo, A., Lucchesi, M., & Cortini, M. (2018). A qualitative study on the perception of intellectual capital among a group of senior managers of Italian social enterprises. Knowledge Management Research & Practice. Benevene, P., Kong, E., Lucchesi, M., & Cortini, M. (2019). Intellectual capital management among Italian non-profit socio-cooperatives. Journal of Workplace Learning. Bontis, N., Ciambotti, M., Palazzi, F., & Sgro, F. (2018). Intellectual capital and financial performance in social cooperative enterprises. Journal of Intellectual Capital. Dacin, P. A., Dacin, M. T., & Matear, M. (2010). Social entrepreneurship: Why we don't need a new theory and how we move forward from here. Academy of Management Perspectives, 24(3), 37–57. Folmer, E., Nederveen, C., & Schutjens, V. (2018). Network importance and use: Commercial versus social enterprises. Social Enterprise Journal. Greenberg, J., & MacAulay, M. (2009). NPO 2.0? Exploring the web presence of environmental nonprofit organizations in Canada. Global Media Journal: Canadian Edition, 2(1). ISTAT. (2020). Struttura e profili del settore non profit. Censimenti permanenti l’Italia giorno dopo giorno, Istituzioni Non-Profit. https://www.istat.it/it/files/2020/10/REPORT_ISTITUZIONI_ NONPROFIT_2018.pdf Kianto, A., Sáenz, J., & Aramburu, N. (2017). Knowledge-based human resource management practices, intellectual capital and innovation. Journal of Business Research, 81, 11–20. Melián-González, S., Bulchand-Gidumal, J., & López-Valcárcel, B. G. (2015). New evidence of the relationship between employee satisfaction and firm economic performance. Personnel Review. Nikandrou, I., Apospori, E., Panayotopoulou, L., Stavrou, E. T., & Papalexandris, N. (2008). Training and firm performance in Europe: The impact of national and organizational characteristics. The International Journal of Human Resource Management, 19(11), 2057–2078. Staessens, M., Kerstens, P. J., Bruneel, J., & Cherchye, L. (2019). Data envelopment analysis and social enterprises: Analysing performance, strategic orientation and mission drift. Journal of Business Ethics, 159(2), 325–341.

Chapter 7

Conclusion

The importance of knowledge-based resources, such as intellectual capital, in the nonprofit sector cannot be understated, considering that it has been recognized as a key factor in the success of organizational performance and value creation processes. Despite this, too little research has been conducted within the context of social enterprises and, thereby, in social cooperative enterprises. This work aimed to provide a representation of the main components of IC that characterize firms’ operation in the nonprofit sector by focusing on social cooperative enterprises (identifiable as the most articulated form of social enterprises) and to propose a set of IC KPIs able to unveil the role that human, relational, and structural capitals can have in influencing corporate performance. More specifically, the findings show that human capital plays a fundamental role in promoting both economic and social performance and that RC mainly affects mission-based performance in terms of users served. In this study, the intent was not only to take into account the evaluation of IC sub-components but also to consider the entire process, starting from the intrinsic features of SCEs linked to their hybrid nature and the identification of multidimensional performance (social and economic) to the construction of the KPIs based on the processes of value creation leading to the achievement of the enterprise’s raison d’être. The study adopted a mixed-methods approach, systematically integrating qualitative and quantitative data (collected by a questionnaire submission and analyzed by two statistical techniques, such as principal component analysis and ordinary least squares). It is clear that measuring IC sub-components is a complex task, as IC is a continuously evolving phenomenon strongly related to firm specificities and interacting with numerous tangible and intangible resources. Heeding this, it is clear that to unveil the importance of human, relational, and structural capitals for SCEs, it is necessary to identify a set of measures able to quantify the “stock” of IC and to simplify the underlying phenomenon as well as be able to highlight the value creation process for firm’s performance. This concept is © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 F. Sgrò, Intellectual Capital and Organizational Performance, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-78479-9_7

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strongly related to the availability of accounting tools in the nonprofit sector. In fact, traditional annual reports result have some limitations when applied to nonprofit organizations (Cordery et al., 2019), considering that those tools are primarily developed to capture the value of the for-profit organizations and are not able to measure the specificities of NPOs. In this context, the integrated reporting can be considered the solution, since it promotes the rethinking of the overall organization, from the planning processes to the communication ones (Dameri & Girella, 2019). This tool allows the disclosure of the entire value creation story of a firm by reporting both financial and intangible-based aspects (i.e., natural capital, social capital, relational capital, and human capital). There are some points that have to be highlighted as specific features of IC management in the SCE research setting. It is important to note that SCEs have a workforce made up of a mix of human resources ranging from paid/unpaid workers to disadvantaged people and that the quality of services provided greatly depends on the alignment between employees’ motivations and the values shared by the company. In fact, the centrality of the human perspective and values such as self-help, self-responsibility, democracy, equality, equity, and solidarity affects the development path of these enterprises. Therefore, it is clear that human capital, in terms of training, educational level, employee satisfaction, and value added per employee, is a strategic factor in competing in the market, innovating, and improving corporate performance. Moreover, SCEs rely on revenues from their commercial activities and donations to support the set of activities they undertake to accomplish the social mission and guarantee financial viability. However, this particular type of SE suffers from financial resource constraints, and resources such as intellectual capital are imperative assets in overcoming these limitations. In addition, SCEs are continuously devoted to responding to a large number of requests coming from a wide range of stakeholders, such as customers, beneficiaries, private and public institutions, employees, members, and volunteers. These relationships imply a notable exchange of knowledge, effective problem-solving activities, and a high level of engagement at all organizational levels from volunteers to entrepreneurs and from employees to managers. For SCEs, belonging to an effective network is one of the main means of improving their ability to innovate, compete and boost social growth. What emerges clearly is that the hybrid nature of social cooperative enterprises influences the managerial approach and that the old conception of enterprises as organizations promoting profit maximization and the individualistic interest of the entrepreneur is overcome by the emergence of enterprises aiming at creating social and economic values for the community and by the recognition of a new figure of an entrepreneur as social entrepreneurs. This is even more important in light of the current economic, social, and political situations that numerous companies are facing due to the advent of the COVID-19 pandemic. Society is experiencing social distancing and isolation, public health systems are revealing their strengths and weaknesses, governments are providing recovery programs and companies have been extremely affected in terms of supply,

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demand shock, and liquidity shortages (OECD, 2020). Despite these numerous issues, the crisis offers to the worldwide economy a “fresh start” driven by social, economic, and environmental consciousness, and in accomplishing this change, social enterprises, as well as social cooperatives, may represent new forms of organizations and governance that are able to establish the foundation for the required societal transformations.

References Cordery, C., Belal, A. R., & Thomson, I. (2019, January). NGO accounting and accountability: Past, present and future. In Accounting forum (Vol. 43, No. 1, pp. 1–15). Routledge. Dameri, P., & Girella, L. (2019). Putting integrated reporting where it was not: The case of the notfor-profit sector. FINANCIAL REPORTING, FrancoAngeli Editore, 2019(2), 111–140. OECD. (2020). Coronavirus (COVID-19): SME policy responses.

Appendix

Questionnaire Design Sect. 1: Respondents information Questions My level of education attained: 1. High school Diploma; 2. bachelor or master degree; 3. Post graduate training. My years of professional experience. . . My role within this organization is. . . Sect.2: SCEs general information Questions My company is geographically located in: 1. North of Italy; 2. Centre of Italy; 3. South of Italy. My company belongs to SCEs: 1. Type A; 2. Type B. Sect. 3: Social performance Questions The number of users served is equal to. . . Sect. 4: Intellectual capital sub-dimensions Questions The number of yearly training hours for employee. The number of graduated employees scaled by total employees. The level of employees’ satisfaction: Likert scale from 1 (very bad) to 7 (very good).

Areas of investigations Educational level Year of experiences Role within the organizations Areas of investigations Geographic localization Sector of activities Areas of investigation Mission-based performance Areas of investigation HC: training HC: Graduate HC: Employee satisfaction (continued)

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 F. Sgrò, Intellectual Capital and Organizational Performance, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-78479-9

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86 Sect. 1: Respondents information The total value added (total revenues minus external operating costs) scaled by the total employee cost. The level of quality relationships with customers: Likert scale from 1 (very bad) to 7 (very good). The level of quality relationships with the reference community: Likert scale from 1 (very bad) to 7 (very good). The level of quality and effectiveness of web presence: Likert scale from 1 (very bad) to 7 (very good). Does your company belong to a network: 1. Yes; 2. No. The number of services provided is. . . The ability to create new services Likert scale from 1 (very bad) to 7 (very good). Does your company hold a certification: 1. Yes; 2. No. Source: Author’s adaptation from Bontis et al. (2018)

Appendix

HC: Value added Employee RC: Customers RC: Community RC: Web-presence RC: Network SC: Number of services SC: New services ability SC: Certification