Intellectual Capital and the SME Life Cycle Model: A Proposed Theoretical Link

The purpose of this paper is to shed light on the nature of intellectual capital in small and mediumsized enterprises in conjunction with a life cycle model of the firm. Many studies conducted predominantly on large firms have investigated various issues concerning intellectual capital. A smaller body of research has focused on intellectual capital in SMEs, but most of these studies have been conducted in specific economic sectors and their results are thereby limited. Research concerning the creation of intellectual capital from the start-up of a new business is very scarce. Many micro enterprises fail within one year after start-up due to a variety of factors. Others, however succeed and experience growth. Thus the question becomes: what are the factors and conditions that lead to the creation of intellectual capital at the initiation of a new business, given the pitfalls that confront all start-ups? The response requires a dynamic perspective on the growth of firms. The life cycle model is helpful in understanding this growth process. A number of growth models have been developed and presented in the literature (Greiner 1998, Churchill & Lewis, 1983). Here, the work of Churchill and Lewis model (1983) is utilized, which consists of five stages: existence, survival, success, take-off, and resource maturity. Each stage has particular challenges and firms should approach each stage in a prescribed way. This paper draws on such literature to contribute to the theory of intellectual capital. The Churchill and Lewis model (1983) is employed to analyze the intellectual capital creation process at the phase of firm creation. Human capital and customer capital play an important role in this process. In particular, the role of the originating entrepreneur is examined. His of her leadership style, interpersonal relationships and communication (internal and external) affect knowledge flow and consequently, the creation of intellectual capital. A theory is proposed along with research propositions for future studies.