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Intellectual capital in Serbia’s Intellectual

capital in
hotel industry Serbia
Nick Bontis
DeGroote School of Business, McMaster University,
Hamilton, Canada, and
1365
Stevo Janošević and Vladimir Dženopoljac Received 4 December 2013
Revised 26 March 2014
Faculty of Economics, University of Kragujevac, Kragujevac, Serbia 5 June 2014
25 June 2014
Accepted 1 September 2014

Abstract
Purpose – The purpose of this study is to determine whether intellectual capital (IC) creates value in
the Serbian hotel industry. Specifically, this paper examines to what degree IC and its key components
affect the financial performance of hotels compared to physical and financial capital.
Design/methodology/approach – The sample included all of the hotels that operated as
independent entities in Serbia during 2009 –2012. value-added intellectual coefficient was used to
measure the level of IC contribution to value creation, which was linked to various measures of financial
performance, including operating profit, return on equity, return on assets, profitability and employee
productivity.
Findings – Results indicate that after controlling for firm size and leverage, employee productivity
and, to some extent, profitability were affected by human and structural capital. The research confirms
that the financial performance of hotels in Serbia remains predominantly influenced by efficient use of
physical capital.
Research limitations/implications – The study’s generalizability is limited to the hotel sector
within Serbia.
Practical implications – Senior managers in the hotel industry must recognize the importance of
managing both the physical aspects of their hotels and the intangible resources embedded in their
employees and processes.
Originality/value – The findings will aid recognition of the importance of investing in IC in hotel
industry as a crucial element of achieving competitive advantage in the information age. Moreover, the
findings suggest that long-term growth should not rely solely on physical and financial assets.
Keywords Hotel industry, Intellectual capital, Value creation, Serbia, Resource-based view,
Intangible assets, Corporate performance, Value-added intellectual coefficient
Paper type Research paper

1. Introduction
Novel theories of strategic management such as the resource-based view, the
competencies-and-capabilities-based view and the knowledge-based view of the firm are
improving our understanding of the nature and importance of intellectual capital (IC) as
a strategic resource. The resource-based view assumes that firms own different types of
resources that enable them to develop different strategies (Grant, 1991). Competitive International Journal of
Contemporary Hospitality
Management
Vol. 27 No. 6, 2015
This study was financially supported by the research project “Strategic and tactical measures to pp. 1365-1384
overcome the real-sector competitiveness crisis in Serbia” (179050) funded by the Ministry of © Emerald Group Publishing Limited
0959-6119
Education and Science, Republic of Serbia. DOI 10.1108/IJCHM-12-2013-0541
IJCHM advantage results from having superior resources and capabilities at hand and
27,6 exploiting those resources more productively. According to Barney (1991), firms are
seen as heterogeneous entities characterized by their unique resource base. In this sense,
particular resources may be of greater importance because of their potential to provide
the firm with sustained competitive advantage. Resources that are valuable, rare,
inimitable and non-substitutable have this potential. Different “packages” of resources
1366 enable firms to implement different activities with different degrees of success from
their competitors. Detailed analysis of the firm’s resources should offer a better
understanding of the sources of competitive advantage.
Knowledge is a powerful tool for competing in the present information age.
Knowledge and information enable firms to create optimum combinations of
tangible and intangible resources that create real financial and market results. In the
information age, corporate success depends less on tangible assets and more on
available intangible resources. These resources are invisible and relate to
knowledge and employee competence, customer relationships, relationships with
other stakeholders, organizational culture, working conditions, values, intellectual
property and brand. At the same time, intangible resources are the foundation of IC
(Bontis, 1999, 2001).
Defining IC is the first step toward understanding its nature and importance. The
literature offers various definitions that refer to the same concept, and similar
definitions that describe slightly different concepts. Hall (1992) provides one of the most
important definitions. He defines IC as a set of contemporary value drivers that
productively transform resources into material assets with added value. IC is directly
responsible for the creation of intellectual competitive advantage, which is the main
source of sustainable competitive advantage in the long term. According to Stewart
(1998), IC incorporates intellectual material – knowledge, information, intellectual
property and experience – that can be used for creating wealth. In other words, it
represents the collective brainpower of an organization (Kristandl and Bontis, 2007).
Bontis et al. (1999) define IC as a collection of intangible resources that interact to
produce added value. In other words, intangible resources are non-physical factors that
contribute to value creation in the company. Bukh et al. (2001) point to the interaction of
different IC components. They state that IC is not one item but a fragile construct that
needs constant support and control by many interrelated elements. A popular definition
describes IC as the accumulation of knowledge that resides within the organization at a
particular moment in time and that includes all those resources that are based on
knowledge and that cannot be found in traditional financial reports (Pablos, 2004).
To understand a particular concept, we must be able to identify its components.
There have been many attempts at categorizing IC. Efforts to identify the
components of IC represent attempts to understand and improve the process of
managing it. Sveiby (1989) introduced one of the first categorizations, in which the
traditional balance sheet of a company includes, alongside its standard elements,
three invisible constituents of IC. These elements are internal structure, which
incorporates all of the internal company systems, databases, business processes and
routines that function as a supporting mechanism; external structure, which
consists of all external relations and networks aimed at supporting business
operations; and capabilities, which include the individual experience, knowledge and
competence of employees. Edvinsson (1997) has popularized one of the most Intellectual
commonly used IC frameworks. He states that IC has three components: capital in
(1) human capital, which includes the individual knowledge of employees; Serbia
(2) structural capital, which includes corporate culture, information flows, and
databases; and
(3) customer capital, which is the potential for capitalizing on good customer 1367
relationships as well as external business networks.

Bontis (1998) also divides IC into three basic elements: human capital, structural capital
and customer capital. Lev (2001) highlights three nexuses of IC that create value in a
firm: discovery, organizational practices and human resources.
An often-cited categorization is that presented in the MERITUM (2002) guidelines.
According to this approach, IC includes the following elements: human, structural and
relational capital. Human capital is the knowledge that employees take with them when
they go home after work. Examples of human capital are innovation capacity,
know-how, experience, team effort, employee flexibility, tolerance, motivation,
satisfaction, capacity to learn, loyalty, formal training and education. Structural capital
is the knowledge that remains in the company after employees go home after work. It
consists of organizational routines, procedures, systems, corporate culture, databases
and so forth. Relational capital entails relationships with external stakeholders (clients,
suppliers and partners). It consists of human and structural capital elements that exist in
the relationships with creditors, clients, suppliers as well as the perceptions that these
stakeholders have of the company. In the hotel industry specifically, the total capital
comprises physical (e.g. specialized building exteriors and interiors, geographic location
and finances), human (e.g. competence, innovativeness, skills and know-how and
superior sales force) and organizational (e.g. structure and culture, management
philosophy, business processes, information technology, cost control systems and
human resource systems) forms of capital, which are used to implement value-creating
strategies (Kim et al., 2013).
IC is measured for the following several reasons:
• assistance during the phase of strategy formulation;
• monitoring strategy implementation;
• assistance regarding decisions to expand and diversify;
• the creation of adequate compensation schemes; and
• improving reports to external stakeholders (Marr et al., 2003).

This has led to the development of numerous financial and non-financial IC

measurement methods. They fall into four major categories: direct IC methods, market
capitalization methods, return on assets (ROA) methods and scorecard methods (Roos
et al., 2005). The first three categories are aimed at assessing the absolute size of IC in
financial terms. The fourth category (scorecard methods) focuses on non-financial
measures of IC, by which managers can monitor and manage IC in a company.
To materialize value within the financial market, it is necessary to connect and align
IC elements with strategy. Strategy provides a context for IC and transforms it into
tangible outcomes. Potential conceptual frameworks for connecting strategy with
IJCHM various components of IC are the balanced scorecard and strategy maps (Kaplan and
27,6 Norton, 1996, 2004). One of the main motives for developing and applying these concepts
is to identify the significance of IC in the process of value creation in a modern company.
Kaplan and Norton (2001) consider IC as an asset made up of human capital, information
capital and organizational capital. Because it translates strategy into specific goals,
measures, tasks and initiatives, the balanced scorecard can be marked as a means of
1368 communication between strategy and IC exploitation. In other words, the balanced
scorecard enables efficient identification and measurement of IC as well as improved
management of IC. A strategy map is a form of visualizing cause-and-effect
relationships between strategy and IC components. The application of IC is described
from the perspective of learning and growth with a strategy map and is the starting
point toward realizing the objectives identified from the financial perspective. The
learning and growth perspective serves to describe how the intangible assets of a
company can create value for owners and clients. Between, on the one hand, the learning
and growth perspective and, on the other hand, the marketing and financial perspective,
there is the perspective of internal processes. This describes the ways in which tangible
and intangible resources are transformed into the end product that represents value for
clients.
The remainder of this paper is structured as follows. First, we examine the impact of
effective usage of IC on financial performance in general. We then focus on the services
sector in particular by analyzing the relationship between IC and financial performance
in the hotel industry. Then, we develop a methodology that we use to study hotels in
Serbia. Finally, we conclude by presenting the results of our research.

2. Dimensions of IC and financial performance

2.1 IC and financial performance
The growth of IC research as an academic discipline is undeniable (Serenko and
Bontis, 2013). Many studies have investigated the impact of IC on corporate
performance. The majority have analyzed industries that are IC intensive by default
(e.g. the information technology sector and the pharmaceutical industry). In
addition, studies on the relationships between IC and corporate performance have
examined different regions in the world. Finally, all of the studies may be described
as either qualitative or quantitative. Qualitative studies have used some form of
specially adjusted questionnaire. Quantitative research has been aimed at
expressing IC components by using particular coefficients and monetary units
(Bontis et al., 2000; Chen et al., 2005; Clarke et al., 2011; Diez et al., 2010; Firer and
Williams, 2003; Janošević and Dženopoljac, 2012a, 2012b; Janošević et al., 2012,
2013; Kujansivu and Lonnqvist, 2004; Seleim et al., 2007; Tovstiga and Tulugurova,
2007; Wang, 2008; Zéghal and Maaloul, 2010). A study undertaken in Malaysia
(Bontis et al., 2000) concluded that the human capital component plays a significant
role in value creation regardless of the industry. The study showed that human
capital is of greater importance for manufacturing industries than for the services
industry. It also found that relational capital significantly influences structural
capital, which subsequently affects corporate performance.
Various empirical studies have investigated the relationship between the
value-added intellectual coefficient (VAIC) and corporate performance. Pulic (1998)
introduced his popular methodology to measure the contribution of certain IC
components compared with the physical capital of a company, based on the concept of Intellectual
added value. capital in
Serbia
2.2 IC and financial performance in the services industry
The services sector is one area of study that has not been extensively investigated with
regards to IC. Furthermore, the majority of studies in this field have focused on the
banking sector and financial services (Bontis et al., 2013; Goh, 2005; Kamath, 2007; 1369
Mavridis, 2004; Ting and Lean, 2009; Yalama and Coskun, 2007). A study conducted in
Malaysia between 1997 and 2007 (Ting and Lean, 2009), which included financial
institutions, showed that efficient use of IC correlated positively with ROA and
profitability. In the banking sector, a study in eight Asian economies (Hong Kong,
Indonesia, Malaysia, Philippines, Singapore, South Korea, Thailand and Taiwan)
between 1996 and 2001 identified IC among the main drivers of corporate performance
regarding commercial banks (Young et al., 2009). The results show that human capital
and capital employed were the main driving forces of value creation (i.e. measured by
value added). The researchers conclude that during the economic crisis, the value
creation potential of human capital diminished, while capital employed maintained its
importance.
Another interesting study in the services sector was carried out among 11 Australian
banks between 2005 and 2007 (Joshi et al., 2010). Its main objective was to analyze the
efficient use of IC in the Australian banking sector. The results show that there was a
significant relationship between VAIC and human resource costs as well as level of
value added. They also show that VAIC mainly consisted of human capital efficiency
(HCE). It is also interesting to note that smaller banks (measured by total assets, capital
and number of employees) were more efficient in using IC. Finally, the results indicate
that value creation ability depended directly on HCE. The efficiency of physical and
structural capital did not affect value creation. These results are in line with those
obtained in research undertaken in Malaysia (Goh, 2005), India (Kamath, 2007) and
Japan (Mavridis, 2004).
Research carried out among 17 Greek banks between 1996 and 1999 (Mavridis
and Kyrmizoglou, 2005) found that the corporate performance of commercial banks,
expressed as total revenues, total expenses, gross profit, net profit, number of
branches, number of employees and equity, were significantly influenced by IC,
mainly by the human capital component. However, in the banking sectors of
developing countries such as Serbia, IC has increased its value-creating potential in
terms of its impact on financial performance. A study of all Serbian commercial
banks during 2008 –2011 (Bontis et al., 2013) revealed that HCE determined only
employee productivity, whereas structural capital significantly affected total assets
and return on equity (ROE).

2.3 IC and financial performance in the hotel industry

The hotel industry is unique in many ways. As one of the most obvious representatives
of the services sector, the hotel industry is not necessarily considered to be knowledge
intensive (Engstrom et al., 2003). Before analyzing the effectiveness of IC exploitation, it
is important to address value propositions in the hotel industry. According to the results
of research in Cyprus (Krambia-Kapardis and Thomas, 2006), several critical success
factors in the hotel industry can be measured:
IJCHM (1) market (market share and market growth);
27,6 (2) strategy (growth strategy, marketing strategy and future growth plans);
(3) value-creating activities (customer satisfaction, service quality, customer
retention rate, customer loyalty, advocacy, quality of management, employee
development, training quality, employee satisfaction, product (service)
1370 innovations and brand value growth); and
(4) financial performance (benchmark and business unit analysis).

Besides these identified critical success factors, it is necessary to define key

performance metrics in the hotel industry. According to Engstrom et al. (2003), these
are the management’s ability to generate revenues and control expenses, revenue
per available room, percentage of occupied rooms, profit per room, food sales
profitability and employee costs. Several studies have attempted to determine the
nature and strength of the relationship between IC and the financial performance of
hotels. Employee knowledge and organizational knowledge (i.e. organizational
routines, systems and client databases) are viewed as key elements of IC that form
the basis of successful management in the hotel industry (Engstrom et al., 2003). In
other words, two IC components that predominantly influence the quality of
management in hotels are human capital and structural capital. Engstrom et al.
(2003) studied a sample of 16 hotels belonging to the Radisson SAS Hotels and
Resorts group. In this research, evaluation of each IC component was implemented
through a questionnaire. Their results show that IC improved the corporate
performance of selected hotels.
However, because IC also incorporates relational capital, some researchers have
investigated the impact of this component more thoroughly. Rudež and Mihalič (2007)
investigated the impact of human, structural and relational capital on financial
performance, using Slovenia as a case study, but their approach differed. They divided
relational capital into two components: end-customer relationship capital and
non-end-customer relationship capital. End-customer relationship capital consists of
customer satisfaction, customer loyalty, image and brand and direct distribution
channels. Non-end-customer relationship capital includes relations with commercial
partners and relations with other partners and interest groups (organizations for
tourism promotion, government, local community, competitors, creditors, special-
interest groups, media and the public). The researchers’ starting premise was that
positive outcomes from human and structural capital are capitalized through
relationships with key stakeholders. Their results show that four identified components
of IC are interrelated, that IC has a positive impact on financial performance and that
only end-customer relationship capital has a direct impact on the financial performance
of hotels.
A study in Australia investigated a sample of two hotels whose performance was
analyzed between 2004 and 2007 (Laing et al., 2010). The researchers found a gradual
growth in intellectual capital efficiency (ICE) during this period. In addition, the human
capital component was dominant over other elements of IC. However, the efficiency of
use of capital employed decreased over the same period. Along with the growth in ICE,
the observed hotels demonstrated a steady growth in the ROA ratio, which the
researchers link to the growth in ICE.
 Serbia’s economy has low efficiency in terms of IC exploitation within the Intellectual
manufacturing sector. The results of empirical studies in Serbia that investigated 100 capital in
companies with the highest net profits in 2011 and 2012 (Janošević et al., 2012, 2013) and
the 300 most successful export companies (Janošević and Dženopoljac, 2012b) show that
Serbia
IC has an insignificant influence on financial performance. In the case of the banking
sector in Serbia, human capital influences only employee productivity, structural capital
plays an important role in value creation, which results in higher values of total assets 1371
and ROE, and finally, physical capital predominantly influences profitability and ROE
(Bontis et al., 2013). Another interesting point made in the literature regarding the hotel
industry is the assessment of the most influential factors on profitability and
competitiveness in developing countries. One such study (Sharma and Upneja, 2005)
identified the lack of formal training and education opportunities of employees as a
significant factor in the low competitiveness of developing economies.
Given that there is a gap in the literature regarding investigations of IC and the
financial performance of hotels, particularly within developing economies, the present
paper analyzes the relationship between IC and the financial performance of hotels in
Serbia. The specific objective of the study focused on the attention that hotel managers
pay to alternate sources of competitive advantage such as human and structural
components of IC. The empirical study focused on hotels in Serbia because several
previous studies have been carried out in Serbia that have shown the state-of-the-art
regarding IC and corporate performance, but no previous study has analyzed the impact
of IC on the financial performance of hotels. In addition, we consider Serbia to be a
representative of developing economies, which previously have not been given
sufficient attention in the context of IC management issues.

3. Research methodology
The research used a sample of 34 hotels operating in Serbia as individual entities. Please
note that these 34 hotels represent the entire independent hotel industry in Serbia. The
research sample did not include hotels that do business as a dependent part of larger
hotel chains. The input data for statistical analysis were taken from publicly available
financial statements over four years (2009 –2012). The total number of observations was
136 during the period of four years. The sample comprised 15 three-star hotels, 14
four-star hotels and 5 five-star hotels. The majority of hotels in the sample achieved
positive results as measured by net profit. However, it is interesting to note that 4 of the
5 hotels in the five-star category had losses at the end of 2012. Among the hotels in the
identified period, around 50 per cent had up to 50 employees, and around 38 per cent had
between 50 and 250 employees. Only one hotel had over 250 employees. Because the
hotels in question were not always of comparable size in terms of number of employees,
total income and total assets of equity, firm size was used as one of the controlling
variables in the regression analysis.
To determine the influence of IC components on financial performance, we used
dependent and independent variables. The independent variables in our research model
are components of VAIC: ICE made up of HCE and structural capital efficiency (SCE),
which represent the two main elements of IC. Conversely, the research model takes into
account another two independent variables, which are capital-employed efficiency
(CEE) and the size of total equity as a representative of the physical and financial capital
of the hotels. The dependent variables are indicators of financial performance: operating
IJCHM profit, ROE, ROA, profitability and employee productivity. Some researchers (Lee et al.,
27,6 2014) have justifiably argued that indicators of financial performance, such as ROE and
ROA, are ex post measures. None of the hotels in our research sample was listed on the
stock market, and therefore, it was not possible to use certain market performance
measures (e.g. Tobin’s q). In the following, we set out the steps for calculating the
selected independent and dependent variables, and we present our research hypotheses.
1372 The main objective of the research was to identify the relationship between the
efficient use of IC and the financial performance of hotels in Serbia. However, the
research model separated the impact of ICE from the impact of physical and financial
capital, whose influence on financial performance is measured through CEE and the size
of total equity of the hotels in question. By doing this, the impact of IC was separated
from the impact of physical and financial capital on value creation in the hotels. The
research results should, therefore, show whether the corporate success of hotels in
Serbia depends on intellectual or physical and financial capital or on both intellectual
and physical and financial capital. In addition, by examining the values of components
of intellectual, on one side, and physical and financial capital, on the other, the results
will show whether hotel industry in Serbia is becoming more dependent on intellectual
capital during the observed period.
The starting point of the model developed and implemented by Pulic (1998, 2004) is
the calculation of value added as an indicator of a company’s efficient use of IC. The
basic idea behind this approach lies in determining the contribution of all company
resources (human, structural, physical and financial) to the value-added creation, which
is calculated as follows:

VA ⫽ OUT ⫺ IN

Outputs (OUT) are the total sales realized on the market. Inputs (IN) are the costs of
managing the company, except for those related to human resources, which are viewed
in this model as an investment, not as the cost. Further steps involve the calculation of
intellectual and physical capital efficiency coefficients. Value added can be calculated
from the company accounts in the following manner:

VA ⫽ OP ⫹ EC ⫹ D ⫹ A

where OP is operating profit, EC is employee costs, D is depreciation and A is

amortization. Thus, value added is treated as an objective indicator of business success
and shows the ability of a company to create value, which must include investments in
resources, including salaries and interests on financial assets, dividends to the investors,
taxes to the state and investments in future development. After value added has been
calculated, computation of the efficiency of resources, both intellectual and financial, is
a matter of simple mathematics (Pulic, 2004).
A company’s IC comprises human and structural capital. Calculation of HCE starts
with employee salaries and wages, which are not included as inputs in this model.
Therefore, this coefficient is calculated as follows:

HCE ⫽ VA/HC
where human capital (HC) denotes total salaries and wages during one fiscal year. In this Intellectual
manner, the model describes the relative contribution of human resources to the creation capital in
of added value. In other words, HCE represents added value per monetary unit invested
in human resources. The next component of IC, structural capital (SC), represents
Serbia
everything that stays in the office when employees go home. Structural capital
comprises hardware, software, organizational structure, patents, trademarks and all
other factors that support or increase employee productivity. SCE is calculated by: 1373
SCE ⫽ SC/VA

where SC represents the second component of a company’s IC, calculated as the

difference between value added and human capital costs. Therefore, the structural
capital of a company is viewed as everything that created value besides human
resources. The above-mentioned equation indicates that SCE is inversely related to its
human capital counterpart. ICE is obtained by summing the partial efficiencies of
human and structural capital:

ICE ⫽ HCE ⫹ SCE

Finally, the physical capital component, or CEE, is derived from the ratio of value added
to a company’s net assets:

CEE ⫽ VA/CE

where capital employed (CE) is the capital already invested in a company, that is, its net
assets. To enable a comparison of overall value creation efficiency, the two indicators
need to be added together as follows:

VAIC ⫽ ICE ⫹ CEE

Or

VAIC ⫽ HCE ⫹ SCE ⫹ CEE

This aggregated indicator, VAIC, allows us to understand a company’s overall

efficiency and indicates its intellectual ability. Put simply, VAIC measures how much
new value has been created per invested monetary unit. A higher value for this
coefficient indicates higher value creation using the company’s resources.
The literature offers many methods for measuring IC. However, none of these
methods offers sufficient reliability and comprehensiveness. The greatest flaw of the
studies reviewed here is that they rely on VAIC as a widely accepted measure for
assessing IC effectiveness in value creation. There are several important drawbacks
regarding VAIC. First, it is based on financial reports, which are an indicator of past
strategy. Second, VAIC does not take into account synergies that exist among the
various components of VAIC. Third, the model does not extensively analyze the
innovation capacity and relational capital of a company. Fourth, the VAIC model does
not take into account the aspect of social capital, which should be included as an
important factor in hotel industry performance. Finally, VAIC methodology does not
IJCHM include the important factors of success in hotel industry, like service quality, empathy
27,6 and responsiveness, culture or leadership style.
Despite its disadvantages, VAIC is becoming accepted by an increasing number of
researchers as a good indicator of a company’s efficient use of IC. Moreover, this method
was accepted by the former UK Department for Business, Enterprise and Regulatory
Reform and Department for Innovation, Universities and Skills (both now part of the
1374 Department for Business, Innovation and Skills) as a measure of IC in companies, thus
contributing greatly to the model’s validity (Zéghal and Maaloul, 2010).
The presented model uses value added as an indicator of value created from
intellectual labor or knowledge workers. The basic idea behind the VAIC approach is
not to put monetary value on intangibles, but to measure the level of total value created
by IC in a company. In other words, the VAIC approach focuses on determining the
relative contribution of IC and physical capital to the creation of value. The approach is
suitable for comparing the efficiency of IC with that of physical and financial capital. To
measure the size of created value, Pulic used the Value Added Income Statement
(Lazzolino and Laise, 2013). See Table I for a summary.
The independent variables used in our research model are the components of ICE
(HCE and SCE), CEE and total equity, whereas the dependent variables are the
traditional indicators of financial performance:
• operating profit;
• ROE, calculated as the ratio of net profit to book value of equity;
• ROA, calculated as the ratio of net profit to total assets;
• profitability, calculated as the ratio of operating profit to achieved sales revenues;
and
• employee productivity, calculated as the ratio of earnings before interest and
taxes to total number of employees.

The idea behind the selection of independent and dependent variables is to attempt to
show the relative and separate influence of, on the one hand, IC and, on the other hand,
physical and financial capital on the overall business performance of hotels in Serbia.
Therefore, the main hypotheses of our research are defined as follows:
H1. Efficient use of physical capital determines the overall business performance of
hotels in Serbia.
Because the hotel industry is capital intensive, we verify this hypothesis by using CEE
as an independent variable. In addition, this first hypothesis should confirm the

Sales OUT
⫺ costs IN
⫽ value added VA
⫺ salary and wages HC
⫽ structural capital (EBITDA) SC
⫺ amortization and depreciation A⫹D
Table I. ⫽ operating profit P
Value-added income
statement Note: EBITDA ⫽ earnings before interest, taxes, depreciation and amortization
characteristics of a developing economy business model in which physical assets Intellectual
continue to play an important role in the process of value creation (Firer and Williams, capital in
2003; Janošević and Dženopoljac, 2012a, b; Janošević et al., 2012):
Serbia
H2. The size of financial capital determines the overall business performance of
hotels in Serbia.
Bearing in mind that certain elements of the tangible resources of hotels are not easy to 1375
quantify (such as location, star category and quality of interiors and exteriors), we use
the size of total equity of hotels in Serbia as a proxy for the size of these resources.
Therefore, we attempt to verify that this aspect of the wealth of hotels significantly
affects their business performance:
H3. IC does not affect significantly the overall business performance of hotels in
Serbia.
In addition to investigating the significant positive impact of the physical and financial
assets of hotels in a developing country, we attempt to find evidence that supports the
notion that the hotel industry is capital intensive rather than knowledge intensive:
H4. IC has an increasing impact on the overall business performance of hotels in
Serbia.
Although we claim that IC does not affect the business performance of hotels in Serbia,
we expect that this type of asset is becoming increasingly important in the hotel
industry. Thus, we introduce this fourth hypothesis as a means of focusing managers’
attention on this form of property. To test this hypothesis, we will rely on increase in
value for VAIC components during the observed period for selected hotels and compare
them with values for physical and financial capital over time.

4. Results
4.1 Descriptive statistics and normality
After analyzing the descriptive statistics, we tested whether the data have a normal
distribution to undertake correlation analysis. The basic tests of normality applied for
this purpose were Kolmogorov–Smirnov and Shapiro–Wilk tests. The results of the
tests for normality show that analyzed variables do not have a normal distribution of
data ( p ⬍ 0.05). The importance of these normality tests lies in their explanatory power
regarding the choices made in the correlation analysis that follows. In other words, if the
results of the normality tests indicate that the analyzed variables do not show a normal
distribution of the data, the correlation analysis should use Spearman’s rank correlation
coefficient. Conversely, if the distribution is normal, the correlation analysis should be
performed using Pearson’s correlation coefficient.

4.2 Correlation analysis

Because the distribution of the data is not normal, it was necessary to use Spearman’s
rank correlation coefficient. Results were interpreted according to Cohen (1988). A weak
correlation has a coefficient between ⫺0.29 and ⫺0.10 or between 0.10 and 0.29. A
medium correlation has a coefficient between ⫺0.49 and ⫺0.30 or between 0.30 and 0.49.
A strong correlation has a coefficient between ⫺1 and ⫺0.5 or between 0.5 and 1.
The correlation analysis revealed several findings in terms of the relationship
between the independent and dependent variables in the research model. First,
IJCHM operating profit shows a strong correlation with human capital (Spearman’s rho ⫽
27,6 0.814) and structural capital (Spearman’s rho ⫽ 0.568) and, therefore, with ICE.
Moreover, CEE shows a strong positive correlation with operating profit (Spearman’s
rho ⫽ 0.462). Second, physical capital is more dominant in terms of value creation when
ROE and ROA are used as indicators of created value. Third, profitability shows a
stronger correlation with HCE (Spearman’s rho ⫽ 0.865) and SCE (Spearman’s rho ⫽
1376 0.610) than with CEE (Spearman’s rho ⫽ 0.508). Finally, as expected, employee
productivity showed a strong positive correlation with only HCE (Spearman’s rho ⫽
0.307).

4.3 Regression analysis

To analyze the relative contribution of IC and physical capital to the financial
performance of hotels in Serbia, we used standard multiple regression analysis, which
investigates the impact of several independent variables on selected dependent
variables. We selected multiple regression analysis as the most suitable method because
the components of intangible and tangible assets act simultaneously in a company and
because their contributions often overlap. We used five regression models to investigate
how the two components of ICE (human and structural), capital employed and total
equity affect operating profit, ROE, ROA, profitability and employee productivity. Most
of the previous empirical studies that interlinked IC and business performance
controlled for firm size, leverage and industry (Abidin et al., 2009; Clarke et al., 2011;
Firer and Stainbank, 2003; Zéghal and Maaloul, 2010). However, because the companies
in our study belong to the same industry (i.e. the hotel industry), it is not necessary to
control for the industry characteristic. Therefore, our research model includes two
controlling variables: firm size and financial leverage of hotels.
The first regression model describes the nature of the influence of individual
components of intellectual, and physical and financial capital on the operating profits of
hotels in Serbia. The validity of the first regression model is high because its
explanatory power is at the level where 67.5 per cent of variations in the dependent
variable can be explained by variations in the independent variables. In other words,
selected components of IC and physical and financial capital can explain 67.5 per cent of
variations in operating profit among hotels in Serbia. The resulting coefficients in the
model indicate that IC did not affect operating profit during 2009 –2012. However, the
two independent variables expressing physical and financial capital (CEE and total
equity) did have a significant effect on operating profit in the same period ( p ⫽ 0.000).
The second regression model describes the nature and strength of the relationship
between selected independent variables and ROE. Unlike the first regression model, the
second model has worse statistical fit because variations in values of ROE can be
attributed in 11.8 per cent of cases to variations in the values of components of ICE and
selected independent variables describing the impact of tangible resources. Through
analysis of coefficients in the second regression model, it is clear that the ROE of hotels
in Serbia was significantly positively affected only by physical capital. However, this
result is relative because the results of an analysis of variance test indicate that none of
the predictors in this regression model is significant for ROE.
According to the results from the third regression model, variations in the value of
ROA can be explained in 50.6 per cent of cases by variations in the values of independent
variables of the model. However, the resulting coefficients indicate that only CEE had a Intellectual
significant impact on ROA. capital in
The fourth regression model illustrates the nature and strength of the relationship Serbia
between hotels’ profitability and components of efficiency of IC, and physical and
financial capital. There is a moderate level of fit because the variations in profitability
can be explained in 41.9 per cent of cases by variations in the values of independent
variables. However, when we analyzed the regression coefficients, it was found that 1377
HCE, SCE and CEE significantly determined the level of profitability of hotels in Serbia
(p ⬍ 0.05).
The fifth regression model tests the nature and strength of the relationship between,
on the one hand, ICE, CEE and total equity and, on the other hand, employee
productivity. The quality of the fifth regression model is high, given that changes in the
values of employee productivity can be attributed in 95.4 per cent of cases to changes in
the values of selected independent variables. Employee productivity in hotels in Serbia
was influenced significantly by HCE. However, although this type of efficiency played a
significant role in employee productivity, this aspect of business performance remained
significantly affected by CEE and the size of equity (i.e. elements of the physical and
financial capital of hotels).
Figure 1 aims at determining the increasing impact of ICE on corporate performance
of hotels. The illustration presents the absolute values of different efficiency coefficients
during the period of four years. As shown, one can conclude that there is a growth in
values when it comes to efficiency coefficients of VAIC, thus pointing to the conclusion
that there is growing impact of certain components of IC on performance. For example,

Figure 1.
Determining the
increasing impact of
intellectual capital
IJCHM ICE has 79.38 per cent growth rate in 2012. HCE grew 84.35 per cent in the last year of
27,6 study, whereas SCE had 41.81 per cent growth rate in the same year.
When we look at the relative contribution of IC and physical capital on financial
performance of hotels in Serbia during the period of four years (Figure 2), we can also
conclude that the impact of CEE is decreasing. Relative contribution of CEE to value
creation dropped from 22.48 per cent in 2009 to 14.71 per cent in 2012. Detailed statistical
1378 analysis enabled us to confirm or disprove the research hypotheses. Table II provides an
overview of the overall results.
As shown in Table II, we completely confirmed one research hypothesis, which states
that CEE still significantly affects the overall business performance of hotels in Serbia.
Conversely, the second hypothesis was only partially confirmed because the size of
equity of hotels had a significant impact on operating profit and employee productivity.
However, the study revealed the increasing impact of HCE on business performance,
mainly in the form of profitability and employee productivity, whereas SCE affects only
the profitability level of hotels. Also, Figure 1 gave further insights into the increasing
impact of ICE in hotel industry in Serbia for the period of four years.

5. Discussion and conclusions

Conceptually, the impact of IC on corporate performance is evident and logical, but in
practical terms, these relationships cannot be completely confirmed in every economy
and in every industry. Some studies show that some industries are more intellectually
intensive than others. In addition, research shows that investing in IC is not always
adequately capitalized. Research carried out in countries that invest significantly in IC,
such as Australia (Clarke et al., 2011) and Finland (Kujansivu and Lonnqvist, 2004),
supports this claim. One possible explanation is that the effects of IC exploitation cannot
be expected to appear automatically. This opens up a new field of research regarding the
relationship between the style of managing IC and corporate performance. Moreover, IC
does not need to be a critical success factor. This can be seen by analyzing the results of

Figure 2.
Relative contribution
of VAIC components
to value creation
during the period of
four years
 Testing the main hypotheses
Non-parametric Multiple linear
Variables correlation regression
Independent Dependent Spearman’s rho p R2 ␤ p Hypothesis Comments on hypothesis confirmation

CEE Operating profit 0.462 0.000 0.675 0.320 0.000 H1 Yes

ROE 0.446 0.000 0.118 0.263 0.046 Yes
ROA 0.231 0.039 0.506 0.831 0.000 Yes
Profitability 0.508 0.000 0.419 0.279 0.010 Yes
Employee productivity ⫺0.006 0.957 0.954 0.094 0.002 Yes
Equity Operating profit 0.135 0.116 0.675 0.753 0.000 H2 Yes
ROE ⫺0.246 0.008 0.118 ⫺0.011 0.940 No
ROA ⫺0.276 0.001 0.506 0.207 0.062 No
Profitability 0.077 0.379 0.419 0.088 0.460 No
Employee productivity ⫺0.129 0.146 0.954 0.104 0.003 Yes
HCE Operating profit 0.814 0.000 0.675 0.075 0.293 H3, H4 HCE affects only profitability and employee
ROE 0.419 0.000 0.118 ⫺0.217 0.065 profitability, whereas level of efficient use
ROA 0.220 0.037 0.506 0.025 0.778 of structural capital affects only
Profitability 0.865 0.000 0.419 0.199 0.038 profitability. There is an increasing positive
Employee productivity 0.307 0.003 0.954 ⫺0.975 0.000 effect on business performance
SCE Operating profit 0.568 0.000 0.675 0.065 0.341
ROE 0.299 0.007 0.118 0.094 0.407
ROA 0.016 0.884 0.506 ⫺0.011 0.900
Profitability 0.610 0.000 0.419 ⫺0.586 0.000
Employee productivity 0.123 0.253 0.954 0.029 0.260

results
Table II.
1379
Serbia
capital in
Intellectual

Overview of research
IJCHM research carried out in Serbia as a representative of developing countries (Janošević and
27,6 Dženopoljac, 2012b; Janošević et al., 2013). The results indicate that IC has statistically
insignificant impact on the financial performance of companies in Serbia. Financial
performance is mainly determined by physical capital, and only a small portion of
financial performance can be attributed to human and structural capital (see Figure 3).
In terms of the theoretical contribution of our study, our research provides better
1380 insights into the intensity and nature of the relationship between IC and the financial
performance of hotels in Serbia, thus demonstrating the business model that exists more
generally in developing economies. In particular, the study offers a unique view of IC
performance within the hotel industry and, in this way, starts to fill the gap in the
literature in this challenging research field. The results of the statistical analysis show
that the financial performance of Serbian hotels is affected mainly by physical and
financial capital. The only exceptions are profitability and employee productivity,
which are significantly affected by the human capital component and the structural
capital component (Figure 3). This finding fits the conclusions of a study carried out on
a sample of US hotel owners and general and executive managers (Tavitiyaman et al.,
2012). The US study found that organizational structure had a major influence on the
behavioral, rather than the financial, performance of hotels. In Serbia, the impact of
structural capital (e.g. organizational structure) is statistically significant, but the
intensity of its impact is inverse (␤ has a negative value).
On the practical side, the research reveals one reason why Serbia has not yet achieved
economic progress. The answer lies in its poor efficiency in IC exploitation. Bearing in
mind the low level of development of Serbia’s economy as well as its low
competitiveness, our research results are not surprising. A similar conclusion is drawn
by Firer and Williams (2003), who found that “physical capital remained the most
significant underlying resource of corporate performance in South Africa despite efforts
to increase the nation’s intellectual capital base”. Our results also support the perception
that the hotel industry is not knowledge intensive (Engstrom et al., 2003), and that it
represents a sector that is mainly influenced by physical and financial capital. However,
our results indicate that IC components are having an increasing impact. Thus, hotel
managers need to pay more attention to the intangible aspects of their business or risk
missing the potential to create value through these intangible aspects in both developed

Figure 3.
Important
characteristics of the
business model in the
hotel industry in
Serbia
and developing economies. In the hotel industry, IC plays a complex and multilayered Intellectual
role. To create value, specific forms of intangible resources should be suitably linked to capital in
specific forms of tangible assets. These specific components of IC represent explicit and
implicit contexts for empowering and developing the hotel industry.
Serbia

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About the authors
Nick Bontis is Associate Professor and Chair of Strategy at the DeGroote School of Business,
McMaster University. He received his PhD from the Ivey Business School, Western University.
His doctoral dissertation is recognized as the first thesis to integrate the fields of intellectual
capital, organizational learning and knowledge management, and was the number one selling
thesis in Canada. He was recently recognized as the first McMaster professor to win Outstanding
Teacher of the Year and Faculty Researcher of the Year simultaneously. He is a 3M National
Teaching Fellow, an exclusive honour only bestowed upon the top university professors in
Canada. Dr Bontis is recognized in the world over as a leading professional speaker and consultant
in the field of knowledge management and intellectual capital. Nick Bontis is the corresponding
author and can be contacted at: nbontis@mcmaster.ca
Stevo Janošević is Full-time Professor at the Faculty of Economics, University of Kragujevac.
His undergraduate studies focused on strategic management. He focused on business strategy
during his master degree studies, and change management and competitive advantage at the
doctoral level. So far, he has published several books and led over 60 studies focusing on
companies in Serbia. At the moment, he is chairman of the board of directors at Metalac-Proleter.
His current areas of professional interest are change management and competitive advantage,
enterprise restructuring and strategic financial management.
Vladimir Dženopoljac is currently engaged as Research and Teaching Assistant at the Faculty
of Economics, University of Kragujevac. He currently teaches business strategy to master degree
students. He has published a number of papers in his field of professional expertise, and has been
involved in the implementation of several strategic projects for Serbian companies. His current
areas of research interest include strategic financial management and intellectual capital
management.

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