CHAPTER II

Review on Related Literature

Intellectual capital refers to the intangible assets that contribute to a company's bottom line.
These assets include the expertise of employees, organizational processes, and sum of
knowledge contained within the organization (investopedia.com, 2019)

Aurther & Sheffin (2003) defines human capital as a stock competences, knowledge and
personality attributes embodied in the ability to perform labor. It is the attributes gained by a
worker through education and experience, so as to produce economic value.

Smith, Adam (1776), in his book “An Inquiry into the Nature and Causes of Wealth of Nations”,
describes human capital as the acquired and useful abilities of all inhabitants and members of
the society. It always costs a real expense, which is a capital fixed in the person.

Structural capital is the supportive infrastructure that enables the rest of an organization to
function in a repeatable, scalable way. It is owned by an organization and remains with an
organization even when people leave. Structural capital includes processes, data, systems,
designs, and knowledge. (Jones, 2013)

Relational capital is one of the three primary components of intellectual capital, and is the value
inherent in a company’s relationships with its customers, vendors, and other important
constituencies. The idea behind the concept of intellectual capital is to emphasize the
importance of those intangible assets for the success of the company beyond key financial
performance measures. This is becoming increasingly important in knowledge driven
businesses. In literature there exist several definitions to Relational Capital. One definition is the
following:

“Relational Capital is a sub category of intellectual capital focusing on the intangible value
present in the relations an organization has with business partners and other external parties
that contribute to fulfill the company’s needs, and also includes elements like corporate
reputation and customer potential. RC represents the value of capability of a company to
interact with the outside world and all stakeholders.”
Intellectual capital represents “an asset that has no physical form, but creates value for the
company” (Bontis, Keow, & Richardson, 2000). Intellectual Capital or IC achieves the impact on
company operations through its components: human capital (HC), structural capital (SC) and
relational capital (RC). Thus, survival in market competition and long-term development of hotel
companies is ensured by constant investment in IC components and their efficient use. Service
companies are becoming more productive in developed industrial countries. As a consequence,
it can be said that we live in an economy based on services (Kianto, Hurmelinna-Laukkanen,&
Ritala, 2010). Hotel Management is one of these service industries, and it is one of the highly
profitable service industries in developed economies. The development of Hotel industry is
based on different types of knowledge – that of consumers’ needs, the ways of creating
services and methods of their differentiation. (Jones, 2013)
Since knowledge is the main component of both HC and itellectual capital, intellectual property
in hotel industry becomes more important than tangible assets. This is supported by the fact
that hotel management is a labor intensive industry and that performance largely depends on
the employees’ knowledge and skills. The other two IC components, SC and RC, which support
the operation of HC, also participate in the process of service design. In this way, the
consumers’ perception of the value and their choice are highly ifluenced by the knowledge and
skills of employees (whose work is supported by intangible infrastructure), cooperation with
consumers and the built brand, which makes the role of intellectual property in service creation
of utmost importance. Therefore, hotel managers, in addition to preparing and monitoring
financial statements, are also obliged to measure and report on the value of IC and its impact
on the increase in companies’ performance (Laing, Dunn, & Hughes-Lucas, 2010).