Examining the Influence of Operational Intellectual Capital on Capabilities and Performance

M have long been challenged by an abundance of internal and external demands and uncertainties in their operating environments. Anecdotal evidence and a growing number of research studies have advocated process flexibility and product innovation as organization-level operating capabilities critical for responding to such demands and uncertainties, and have highlighted the need for more efficient and effective management of the firm’s knowledge-based resources. Leveraging arguments from the resource-based and knowledge-based views of the firm, we introduce a second-order latent construct called operational intellectual capital, which represents the organization’s operating know-how embedded in a system of complementary (i.e., covarying) knowledge-based resources. We argue that operational intellectual capital influences organizationlevel operating capabilities such as process flexibility and product innovation, which, in turn, influence business performance. We empirically examine these relationships using structural equation modeling on a cross-section of U.S. manufacturing survey data. Statistical results from the estimation of a coalignment model and comparisons with several other models support our operational intellectual capacity conceptualization and its impact on operating capabilities and business performance, respectively. Our research thus suggests the importance of possessing and leveraging a system of complementary knowledge-based operating resources, and addresses the need for the reformulation of operations strategy theory in terms of the emergent knowledge-based view of the firm.