Relationship between Intellectual Capital and Organizational Agility with Mediatory Role of Employee Empowering in Service Sector (Case Study: Karafarin Insurance Company)

Int. j. econ. manag. soc. sci., Vol(3), No (12), December, 2014. pp. 11-15

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Relationship between Intellectual Capital and Organizational Agility
with Mediatory Role of Employee Empowering in Service Sector
(Case Study: Karafarin Insurance Company)
Priya Ghafuri *
Master of Business Management, Allameh Tabataba’i University, Iran.

Akram Farhadi
Master of Public Administration - Allameh Tabataba’i University, Iran.

Ahmad Mansouri
Bukan Payame Noor University Faculty Member, Iran.
*Corresponding author: [email protected]

Keywords

Abstract

Intellectual capital
Human capital
Structural capital
Relational capital
Organizational agility

Passing agricultural and industrial era and moving toward information era has caused that markets witness
wider and more varied services and products and increasing competition has formed. Such changing
environment caused emergence of novel concepts such as organizational agility concept. In this competitive
space, acquiring knowledge is turned to an important motive for development and growth of organizations so
that they promote their competitive situation. Intellectual capital is one of major organizational capabilities
which can considerably help organizations in knowledge creation and sharing, and developing competitive
advantage compared to other organizations. Meanwhile, human resource empowerment is one of the most
effective ways of achieving competitive advantage. Current paper attempts to investigate relationship between
intellectual capital and organizational agility in Karafarin Insurance Co. it is of survey type and data were
collected using questionnaire, and 187 people were selected as sample using simple random sampling. In order
to answer the research hypotheses, confirmatory factor analysis (CFA) and structural equations modeling
(SEM) using SMARTPLS software were utilized. Research findings suggest significant relationship between
research variables. That is, there is positive significant relationship between human capital, structural capital
and relational capital in one hand, and organizational agility on the other hand.

Introduction
Today acquiring knowledge is an important motivation for development and growth of organizations so that they can improve their competitive
situation. Traditionally a company is placed in as competitive situation when it is able to produce products similar to its competitors’ in a lower
cost. However, in today knowledge based economy, intellectual capital constitutes the main element in this equation. Thus, intellectual capital
is recognized as a source of competitive advantages which increases the company’s profit.
Considering economic changes which are occurring rapidly in today world, current paper attempts to investigate usefulness of intellectual
capital (including human capital, structural capital, and relational capital) in organizational agility and responding to the changes and how
empowered human resource which necessary competency can be effective in this regards.
The main purpose of current paper is describing necessary role of intellectual capital through investigating intellectual capital and
organizational agility relationship in Karafarin Insurance Co., and then ranking aspects of intellectual capital (human capital, structural capital
and relational capital), and determining influence of each aspect on organizational agility.

Research Theoretical Foundations
Intellectual Capital
Organizations today face such environment that is characterized by increased complexity and globalization and dynamicity. Thus, the
organizations face novel challenges for continuation and establishment, exit of which requires higher attention to development and promotion
of internal skills and abilities. It is done through principles of organizational knowledge and intellectual capital, which are used by the
organizations for achieving better performance in the business world. Overall, three main classes of human capital, structural capital, and
relational capital have been accepted as the constituents of intellectual capital. In relation with insurance companies, human capital is a
collection of explicit and implicit knowledge of human forces which are acquired through formal or informal practical and educational
processes and are realized in their activities, and if they leave the organization, this knowledge is exited from the organization (Sanchez et al.,
2006 a, 4).
Structural capital of an insurance company is something which stays in the organization after leave of employees, and includes all non-human
knowledge reserves in insurance organization (Sanchez et al., 2006 a, 4).
Relational capital of insurance companies includes a collection of implicit and explicit knowledge related to methods and ways by which the
organization interacts to other institutions and social organizations (Ramirez et al., 2007).
Organizational Agility
One of the main survival and progress factors in the companies in today dynamic environment is their agility. The basic feature of such
environment is change and uncertainty (Vander and Korouis, 2003). Organizational agility is ability to cope with unwanted challenges to
overcome new and unexpected threats of the business environment and gaining advantages of changes as opportunities (Karami, 2007). Agile
organization is always prepared to learn from everything new which causes increased outcome resulting from utilizing new opportunities
(Jafarnejad and Shahaee, 2007).

Priya Ghafuri *, Akram Farhadi, Ahmad Mansouri

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International Journal of Economy, Management and Social Sciences Vol(3), No (12), December, 2014.

Table 1. Intellectual capital definitions
Author

Concept

Definition

Harrison and Sullivan (2000)

Intellectual Capital

The knowledge which can be turned into profit

Pabls (2003)

Intellectual Capital

Intellectual capital is difference between market value and book value of the
company. Intellectual capital is knowledge based resource which plays role in
gaining sustainable competitive advantage.

Moritson et a. (2004)

Intellectual Capital

Intellectual capital mobilizes cases such as staff, customers, IT, management and
knowledge.

Adapted from: Kaufman and Schneider (2004), Sanchez et al. (2006)

Considering newly emergence of organizational agility paradigm, various definitions have been proposed by the authors, some of which are
mentioned below.

Ability to act in a competitive environment resulting from continuous changes and rapid reaction to market changes and creating
value for products and services based on customer satisfaction (Qin and Nembhard, 2010).

In operational terms, agility is a combination of several companies, each with their own skills and competencies which have joined
operational cooperation. It enables cooperative companies (with the common profession) to adopt and respond to changes according
to customer needs.
Employee Empowerment
Since human resource is the most valuable production factor and the main capital and source of competitive advantage and creator of basic
capabilities in every organization, one of the most effective ways to achieve competitive advantage in current conditions is making employees
more efficient in the organizations. In today competitive world, one of the major tools for creating change and survival of the organization and
achieving respective goals and missions is human element. The fact is that if creative, knowledge, opportunist, and analysts people are not
utilized in the organizations, many opportunities and situations would be lost.
Employee empowerment includes a collection of systems, approaches, and measures which are used through development of people capability
and competency for improving and increasing productivity, excellence, and prospering the organization and human resources considering
organizational goals (Carter, 2001).

Conceptual Model or Research Theoretical Framework
Following plan depicts research conceptual mode in the form of a pattern including to main variables, and it proposes relationship between
variables.
In the current work, it is attempted to investigate respective models for determining indexes and components so that they are used in identifying
components and indexes of intellectual capital and organizational agility and finally in achieving the final research model.

Human capital

Accountability

Competency
Structural
capital
Flexibility

Intellectual
capital

Relational
capital

Organizat
ional
agility

Figure 1. Research conceptual model
Source: Sharifi, H. & Zhang, Z. (2000), Bontis (2002): adjusted model

Quickness

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Relationship between Intellectual Capital and Organizational Agility with Mediatory Role of Employee Empowering in Service Sector (Case Study: Karafar...
International Journal of Economy, Management and Social Sciences Vol(3), No (12), December, 2014.

Intellectual capital

Table 2. Indexes used in model with their sources
Human Capital

Education, skills, experiences, business knowledge, creativity, employee satisfaction (Campbell and Rahmatn, 2010)
Training, teamwork, developing and investing in innovation, talent preservation policy (Maria-luminita Gogan, 2014)
Skills, attitudes of employees, knowledge capital level, attitude and mental agility of employees and their capacity for
rapid decision making, problem solving and good interpersonal relationships (luminita -Maria-Gogan, 2013)
Staff professional knowledge, leadership abilities, lack of risk-taking, problem-solving ability, aptitude, attitude
(Bontis, 2002; Malone and Edvinsson, 1997)

Structural capital

Hardware, software, database, structure, patent, trademark, organizational charts, organizational strategies Malone
(1997)

Customer capital (relational)

Customer satisfaction, customer relations, financial relations, branding, distribution channels, partners, reputation of
company (Campbell and Rahmatn, 2010; Striukova et al., 2008)

Research Final Model
Research final model is as followed following identification of indexes.

Skills, experience and
qualifications of the workforce

Feeling, understanding & predicting changes

Employee Creativity and
innovation

Quick & immediate reaction to changes

Motivation and job satisfaction
and leadership ability

Working knowledge, problem
solving and teamwork skills

Creating, modifying & improving change

Human
capital

Accountability
Appropriate hardware and software technologies

Product & service quality

Hardware, software,
database

Competency

Trademarks, patents &
copyright
Organizational culture & climate
and organizational strategies

Cost effectiveness

Introduction of new products with an
increasing rate

Structural
capital

Intellectual
capital

Organizational
agility

Change management
Leadership & management
style

Flexibility

Effectiveness and efficiency of operations (lean)

Organization image

Customer loyalty

Competent and qualified persons with knowledge

Flexibility in product shape

Relational
capital

System of information feedback
from customers and suppliers

Quickness
New ideas & customer desire to
continue relationship with
company customer

Flexibility in organization & organizational
issues

Human resource flexibility
Speed of offering new products & services to
market

Organization relationship with
customers, employees, suppliers

Rapid operation implementation in short time

Organization relationship with
authorities and creditors

Figure 2. Research final model
Source: Sharifi, H. & Zhang, Z. (2000), Bontis (2002) (adjusted model)

Priya Ghafuri *, Akram Farhadi, Ahmad Mansouri

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International Journal of Economy, Management and Social Sciences Vol(3), No (12), December, 2014.

Research Purpose
The main purpose of study is investigating relationship between intellectual capital and organizational agility in Karafarin Insurance Co. also,
the way of relationship between intellectual capital aspects and organizational agility is determined and ranked. It is also studied to what extent
changes in organizational agility result from intellectual capital changes.

Research Hypotheses






There is relationship between intellectual capital and organizational agility in Karafarin Insurance Co.
There is positive significant relationship between human capital and organizational agility in Karafarin Insurance Co.
There is positive significant relationship between structural capital and organizational agility in Karafarin Insurance Co.
There is positive significant relationship between relational (customer) capital and organizational agility in Karafarin Insurance Co.
Intellectual capital aspects can predict organizational agility.

Methodology
In this research, standard questionnaire was used in order to answer research questions and describe conceptual model. In order to determine
the reliability, Cronbach's alpha was used. To analyze the data, confirmatory factor analysis and structural equation modeling using software
SMARTPLS is used.

Inferential Analysis of Research Findings
In this section confirmatory factor analysis (CFA) techniques and structural equation modeling (SEM) were utilized using SMARTPLS
software version 3 to answer the research hypotheses.

Results of Bi-Factor Confirmatory Factor Analysis (Measurement Model)
Table3 gives average variance explained (AVE), Cronbach's alpha (CA), Composite reliability (CR) and average response.

Table 3. Validity, reliability, and descriptive indexes and correlation matrix
Hidden variables
Relational capital
Human Capital
structural Capital
Organizational Agility
Average variance explained (AVE)
Composite reliability (CR)
Cronbach alpha
Mean

Relational capital

Human capital

Structural capital

Organizational agility

0. 712
0. 332
0. 355
0. 491
0. 506
0. 859
0. 806
3. 604

0. 759
0. 526
0. 517
0. 576
0. 844
0. 755
3. 202

0. 820
0. 461
0. 673
0. 892
0. 839
4. 211

0. 879
0. 772
0. 884
0. 852
3. 209

* All correlation coefficients are significant at error level below 1%
** Main diameter shows square root of average variance explained (AVE).

Table 4. Path coefficients (Beta), t statistics, coefficient of determination, and research hypothesis result
Impact
Coefficient of
Research Hypothesis
t statistics
Sig.
Impact type
factor (β)
determination
Intellectual capital -> organizational agility
0. 614
7. 246
0. 377
0. 000
+
Human Capital -> Organizational Agility
0. 315
3. 036
0. 000
+
Structural Capital -> Organizational Agility
0. 181
1. 698
0. 404
0. 09
+
Relational capital -> Organizational Agility
0. 322
3. 589
0. 000
+

Result
Supported
Supported
Rejected
Supported

|t|>1. 96 Significant at P<0. 05, |t|>2. 58 Significant at P<0. 01

Coefficient of determination is 0.404, thus all three variables of human capital, structural capital, and relational capital describe 40.4 percent of
organizational agility variable changes. Considering path coefficient it can be said that the highest relationship is observed between
organizational agility and relational capital (there is larger Beta coefficient) and lowest relationship is between organizational agility and
structural capital.

Discussion and Conclusion
Current research study was conducted aiming at investigating relationship between intellectual capital and organizational agility in Karafarin
Insurance Co. As research findings indicate, intellectual capital influences organizational agility. Among aspects of intellectual capital,
relational capital (customer) and then human capital have direct positive impact on organizational agility and their hypotheses are supported.
However, regarding structural capital, relationship between structural capital and organizational agility was not supported at level 95 percent.
But it was also supported by reducing confidence level to 90 percent.
Considering relational capital has highest impact on organizational agility among intellectual capital aspects I the sample under study, feeling
and perceiving market changes prediction is quicker in these companies due to establishment of suitable relationships with stakeholders and

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Relationship between Intellectual Capital and Organizational Agility with Mediatory Role of Employee Empowering in Service Sector (Case Study: Karafar...
International Journal of Economy, Management and Social Sciences Vol(3), No (12), December, 2014.

having perfect information about them, and they could react quicker to market changes and their customer demands. Thus, acquiring this
information helps companies to be more accountable, flexible, and agile than their competitors in a short timer by introducing new products or
performing tasks and responsibilities quickly.
Among other aspects of intellectual capital, human capital as the second most influential aspect on organizational agility represents clear role of
human capital in organizational agility.
The third influential aspect on agility of the insurance company under study is structural capital. It is clear that beside appropriate and competent
labor force, presence of suitable infrastructures in insurance companies, both in software and hardware aspects, considerably influences
organizational agility.

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