Intellectual capital in non-profit organizations: an empirical analysis on the role of intellectual capital on the performance of social cooperative enterprises

The number of non-profit organizations (NPOs) has significantly increased in recent years (Salomon, 2010) with a growth rate of 28% in Italy from 2001 to 2011 (International Co-operative Alliance, 2016). The increase can be primarily attributed to the growth in the number of paid workers (approximately 681 000), volunteers (approximately 4.7 millions) and an expansion in the services provided (i.e., health care, education, social development).Currently, there are over three hundred thousand NPOs that produce 3.3% of Italy’s GDP. Amongst several type of NPOs, social enterprises are defined as hybrid organizations, since they are characterized by an entrepreneurial, social and participatory governance dimension (Defourny and Nyssens, 2012). This means that they have to face the challenge to create social and economic value (Dart et al., 2010; Borzaga and Galera, 2012) and that the realization of the organizational mission is strictly linked to the economic and financial aspects. The entrepreneurial dimension consist of run, principally and continuously, a commercial activity producing goods or services in order to satisfy social needs. Being financially responsible and economically sustainable are conditions to respect in order to accomplish the institutional mission (Costa et al., 2011). The commercial activities are carried out combining a mix of intangibles and tangible resources, internal and external (Ebrahimet al., 2014; Epstein and McFarlen, 2011; Mook, 2014) in order to satisfy the social dimension, preserving the financial and economic sustainability. Therefore, the necessity to introduce accounting practices able to measure not only economic and financial performance, but also a mission-based performance emerges in order to identify the social results (Bagnoli and Megali, 2011; Ebrahimet al., 2014; Manetti, 2014). The participatory ownership implies that ownership rights and control power are assigned to all of the most relevant stakeholders. This structure increases the organizational efficiency by avoiding opportunistic behaviours, allowing to build social legitimacy, to strengthen the enterprise’s social and cultural orientation, to improve public confidence and to guarantee that resources are employed in the stakeholders’ interests (Costa et al., 2014). Social cooperative enterprises (SCEs), which has grown almost 100% in the last decade, represent the most entrepreneurial, articulated and advanced example of social enterprises (Costa et al. 2014; Borzaga and Galera, 2012; Defourny and Nyssens, 2010). To date, in Italy, there are almost 12,319 social cooperatives. Law 381/1991 adopted by the Italian Parliament distinguishes between two types of social cooperatives: those providing social, health and educational services (identifiable in typology A), and those providing work integration for disadvantaged people and supplying other services, such as agricultural and commerce services, as well as general services (identifiable in typology B). Social cooperatives must be able to operate in economic and financial balance and to effectively manage the available resources in order to survive in the long-term. Thus, they have to be capable to effectively and efficiently employ tangible and intangible resources. The social dimension concerns the strategic goals related to the corporate mission which are not easy to define and measure (Bagnoli and Megali, 2011; Ebrahimet al., 2014). This dimension can be measured through the assessment of the social needs’ satisfaction degree. The assessment of mission-based performance has to consider the organizational inputs (tangible and intangible) used to support activities or processes for the production of goods or supply of services (Ebrahim and Rangan, 2010). In the knowledge-based economy, intellectual capital is considered an essential intangible resource for business success and it is seen as the primary source of sustainable competitive advantage for both for-profit and non-profit enterprises (Teece et al., 1997; Choo and Bontis, 2002; Subramaniam and Youndt, 2005). In more detail, this competitive advantage allows to perform at a higher level than others in the same industry or market. Additionally, enterprises with an efficient and effective management of IC resources show better financial performance than other competitors (Bontis et al., 2000). Intellectual capital produces multiple effects throughout the enterprise and guarantees real benefits, because knowledge-based resources tend to be valuable, rare and neither imitable nor substitutable (Nelson and Winter, 1982; Barney, 1991; Bolino et al., 2002; Kong and Ramia, 2010). Intellectual capital (IC) is an important resource that SCEs need to develop in order to effectively implement corporate strategy, acquire and maintain a long-lasting competitive advantage and improve corporate performance (Martinson and Hosley, 1993; Lettieri et al., 2004; Murray and Carter, 2005; Hume C. and Hume M., 2008). Intellectual capital is the “glue” that links together external and internal inputs with activities, performance measurement and final outcomes. According to Kong (2007, 2010), IC can be applied as a conceptual framework for effective strategic management for NPOs; particularly IC can play a strategic role for social cooperatives in order to achieve the mission or the raison d'être for which they have been established and to satisfy the general interest of local communities, persons or social groups, by operating commercial activities. Therefore, investing in IC becomes crucial for the strategic positioning of a NPOs ( Kong and Prior, 2008; Kong and Ramia, 2010). This work contributes to the IC literature in several ways. First, the purpose of this research is to identify the principal components of IC sub-dimensions (human, relational and structural capital) for Italian social cooperative enterprises. Second, the research aims to highlight the effect of IC subdimensions on the social and financial performance of SCE. Additionally, it can be considered original for two reasons: the use of the survey method and the use of not for profit enterprises as research setting. In fact, the study tries to answer the following research questions:  which are the principal components of IC sub-dimensions for SCE?  which elements of IC influence the financial performance of SCE?  which components of IC affect the social performance of SCE? The work is structured as follows: chapter one reviews the literature on NPOs and social cooperatives; in chapter two the link between SCE and IC have been developed and investigated; in the third section the performance measurement system of NPOs have been described; then in chapter four the research hypothesis and the methodology of the research are described, then chapter five presents the findings and finally, discussion and conclusions follow.