This chapter provides an overall view and understanding of this research. It will be covered with the background of the study, problem statement, purposes of the study, research questions, significance of the study, and definitions of terms to be used in this study to illustrate as well as navigate readers in understanding of the study.
Background of the Study
Today, the world faces a new form of economic component and development, professor from a prestige university; New York University Stern School of Business highlighted several important key features which all modern organizations should be focus on, for instance, strategy in managing human resources, capability to deliver continuous innovation, solid infrastructure for digital as well as communication technologies, such intangibles played as a vital component of the modern organizations, due to the constantly varying competitive business eco-system, the challenge arise as how to best measure, visualize and manage these intangibles become the center focus of theoretical and practical researches, however, most of the current research available are majorly focused on the traditional accounting transaction for historical cost based views and is becoming outdated, which did not capture factors that can significantly influence the modern knowledge organizations in knowledge economy, therefore, these unrealized intellectual capitals, also refer to the driver of modern organizational growth truly deserved for the more careful study to examine its importance as well as its impact (Lev & Zambon, 2003).
Fundamental concept of knowledge management is to utilize and leverage the existing resources in an organization to facilitate people on finding the best practices, instead of reinvent the wheel (Smith, 2001a). One of the distinguished professor and
scholar in Knowledge Management field argue with respect to large expansion of the professional services industry, as well as many other knowledge intensified companies or knowledge based firms, such an organizations or firms become the driving force of the modem economy, which largely substitute an importance of traditional manufacturing industry or other highly labor intensified industry, again the importance of intellectual capital in today's business society has been reinforced (Bontis, 1998).
Intellectual capital also known as the knowledge that one organization holds, has become one of most distinguished and widely discussed business administration subject of study, while knowledge grow at dramatic speed, intellectual capital serves as determinant factor of success and failure of modern organizations as well as the competitiveness of its business core (Edvinsson and Malone, 1997; Roos and Roos, 1997; Bontis, 1999, 2001).
Followed the accounting principle, it is relatively easy to determine the book value, the value of such book value is usually accounted by its physical assets, to represent the company’s value, in the past it is quite adequate, due to past businesses primarily focused on the tangible assets including land, machinery, factory and equipment, however, on facing the globalization, this rule has to be changed (Andriessen, 2004).
Without calculating the contribution of its human capital to the innovation perspective including design, ideas, also without the consideration of structure capital, which is the computer systems or information system that facilitate its human capital to gain access to world's leading information and technology to better carry out their innovation action, or without the relational capital, which can build a strong connection as well as engagement with customer and other stakeholders. All the criteria mentioned above are not mentioned in the traditional accounting principles, especially the relational capital of an organizations, such dimension is very important, in the ways that customer loyalty to the company and brands, can actually generate large volume as well
as stable income stream over time.
Study argue that by managing intellectual capital can assist companies in generating profits from products and services, licensing, joint venture or strategic alliances with other firms. In addition to that, intellectual capital serve as strategic positioning for the company, to penetrate its market share, gain leadership support as well as having access to latest innovation and technologies, facilitate customer recognition by branding, strong reputation and trademarking which allows company to acquire and fulfill the gap of its innovation capacity, gain loyal customer to its business operation also enhance the productivity (Harrison & Sullivan, 2000).
Due to unique characteristics of Intellectual Capital, including it is difficult to duplicate, as well as is usually presented by firm specific. Such advantages will allow companies to create their most specific value proposition also obtain a clear distinct competitive advantage from others, to best deliver advanced performance in comparison with their rival competitors (Bontis, 1998; Nahapiet and Ghoshal, 1998).
Today, the publicly listed company and knowledge intensified organizations, usually exists a large to substantial discrepancy between the company’s book value and market value by accounting perspective. Such trend and volume of similar firms, is going to expand rapidly in the next decade or so. Looking back to the fundamental and key concepts behind such phenomenal is usually due to the composition of modern organization structure is very much different from the past or how it used to be.
Modern organizational are primarily generate their value primarily come from the intellectual capital or knowledge that the organization holds, instead of traditional physical assets which reinforce the importance for discover the driving force of intellectual capital, which is in-depth look how the knowledge being generated, what are the enabler for the knowledge, and primary the strategy that we can use for knowledge management.
Problem Statement
This study argues in the modern knowledge economy, especially in current Financial Technology (FinTech) era, intangible assets in any given organizations or particularly in commercial companies actually deserve for relatively more attention on its importance. Comparison with the tangible assets in modern organization, to a certain extent, intangible assets like knowledge are becomes extraordinary important resources for businesses and organizations to create value and deliver value added services. The increasing gap between company market value and book value reinforce academics and businesses to consider intellectual capital as key determinant of value creation for companies, stakeholders and society as a whole (Viedma & Salmador, 2013).
In the 21st century, organizations and commercial companies face a more aggressive and dynamic environment, by the combination of globalization, much advanced technology development, shortened product life cycles, and various forms of network partnerships (Cardinal, 2001). Under the modern world economy, the dominant managerial practices with the traditional strategic focus on cost cutting, benchmarking, reengineering became relatively ineffective also insufficient to generate competitive advantage (Marr and Roos, 2005; Teece, 2007). In order to best determine the organization's key competiveness, the academic and practical research stream started to put down more weight on analyzing an intangible resources, which includes knowledge and competence of the employees, knowledge management databases, information technology support, effective operating processes, enhancement of customer relationship, empowering innovation activity, branding strategies, and organization cultures which supports the development of an organization (Andriessen, 2004; Kaplan and Norton, 2004).
There is only few literature analyzing how entrepreneurs or organizations on organizing their elements of intellectual capital to obtain competitiveness, thus, it is
important to analyze the process of intellectual flows to allow entrepreneurs better structure and organize intellectual on delivering better performance, which this study aims in minimizing such gaps in the research (Bontis, 1999).
Purpose of the Study
Organizations to evolve a holistic strategic positioning as well as competitiveness in the modern rapid varying and dynamic business society, it must take consideration for an importance of the intellectual capital, examine which factor can supports an internal and external growth opportunities, the valuation of non-financial factors such as human resource practices plays as critical role in determine the organization’s success, however, most of successful example driven by intellectual capital and intellectual process factors are primarily to be found in the Nordic countries, which the study conducted for other geographic region are unobserved (Lev & Zambon, 2003).
MIT Sloan Management Review (1999) mentioned the well-known American computer company Dell by adopting the knowledge management and its strategic approach, which enables Dell to develop a more customer-responsive innovations, successfully reform the supplier to become more transparent on prices, which dramatically shorten consumer’s waiting period for getting the next or new computer for their work or school, such strategic knowledge driven moves enhances the supplier's commercial success by better bridging the consumer needs with supplier's resources, altogether makes the successful and profitable business case of Dell computer.
Such breakthrough driven by sophisticated knowledge strategy which leverages the skills and resources of an organization to be maximized. However, a good knowledge management strategy stand alone is not sufficient to make the success of the knowledge intensified organization; therefore, the study must further explore the knowledge management strategy to knowledge enabler, knowledge enablers to intellectual capital and intellectual capital effect on business performance to better
illustrate the impact as well as an interesting dynamics embedded.
Only when the knowledge are linked together, can then form a knowledge or an intellectual network which allows knowledge or intellect to travel smoothly within an organization, as well as to enhance the development of an innovation and other intellectual process to be radical (Subramaniam and Youndt, 2005). This study try to examine the success of knowledge management and intellectual capital can also be observed in Taiwan. By conduct an empirical study focused on the financial institution in Taiwan to empirically test it. The nature of financial institutions known for heavily relies on human capital and other intellectual capitals to gain competitiveness and deliver exceptional business performance.
Now, this study would like to have an in-depth look and investigate at the knowledge management strategy, knowledge enabler, and intellectual capital’s influence on business performance for the financial institution in Taiwan. To investigate and further understand the driven force for each dimension, as well as to understand the positive impact from factors of each dimension which can be made to business performance of the modern knowledge intensified organizations. Therefore, the purposes of this study aims to fulfill the gap in current research, stated as following:
1. To empirically test the Knowledge Management Strategies, Intellectual Capital, Business Performance (KlPs) Model on analyzing the effect of knowledge management strategies on knowledge enabler of the Financial Institution in Taiwan.
2. To empirically test the KIPs Model on analyzing the Knowledge Enabler effect on Intellectual Capital for Financial Institution in Taiwan.
3. To empirically test the KIPs Model on analyzing the impact of intellectual capital to business performance on Financial Institution in Taiwan.
Research Questions
This study will seek to find how financial institution in Taiwan can best cope with FinTech challenges, by answer the following questions based on the above purpose.
This study however, has three major research questions to aid the researcher study and readers to understand its application by and large.
1. What aspects of knowledge management strategies will affects knowledge enabler on Financial Institution in Taiwan?
2. What aspects of the knowledge enabler will affects intellectual capital on Financial Institution in Taiwan?
3. What aspects of the intellectual capital will affects business performance on Financial Institution in Taiwan?
Significance of the Study
On facing the financial technology or FinTech challenges, many of the traditional financial institution’s existing business are replacing by the FinTech companies. For instance, consumer, small business and real estate related loans are among three of the major loan category for banks, are now became the center of peer to peer or market place lending; one type of FinTech company’s core business, which the traditional institution are noticed such emerging issue, start to raise its awareness on how to best cope with the new challenges poses by the FinTech (Athwal, 2016).
Most valuable asset which organizations can hold regardless of its industry is the knowledge, such valuable strategic resources deserve for a careful study to investigate its effort and impact to an organization by examine the different facilitator of knowledge (Zack, 1999). Especially in today's ultra-competitive knowledge economy, it is extraordinarily important for knowledge intensified organizations to understand how to best recognize, acquire, share, and apply knowledge (Smith, 2001b).
An example of how knowledge management strategy can transform workflow to become more efficient and effective, one must take consideration for the successful example of IBM, the internal consultants used knowledge management strategy to shorten the proposal waiting time to almost 1/7 of the time, or by numeric figure, time span reduced from an average of 200 hours reduced to 30 hours only, result is impressive indeed, again highlight an importance of the knowledge management strategy (McCune, 1999).
Two direction of research are typically appeared in the literature review. First, the majority of existing literature only focuses on the development and measurement of intellectual capital. Second types of existing research discuss the relationship between intellectual capital and performance as the center of interest for research, the discussion of the comprehensively examine the knowledge management strategy and other
knowledge facilitator’s influence on business performance are still lack of, which need to be examined, and highlight the significance of this research (Shang and Lin, 2010).
Therefore, this research serves as an enrichment of current knowledge management and intellectual capital study in Taiwan, to addresses some of the major gap found in the existing research and theory. The two center focus for this study are as follow. First, intellectual capital commonly considered as key variable which affect the modem enterprise's competitiveness, and the business performance is another key variable which organizations of all sizes and business discipline cares, putting a lot of resources to research and investigate, the study aims to perform careful analysis on analyzing the effect of knowledge strategies to enable the intellectual capital effect on business performance for an enterprise, to enrich the current study on intellectual capital study in Taiwan. Second, the study aims in fulfill the scarcity of contemporary research in providing an integrated framework for intellectual capital analysis, whereas the KIPs model was built (Cabrita & Bontis, 2008).
Four Major Significance of This Study:
1. This study is significant to academicians in that it provides an integrated KIPs model for intellectual capital analysis within an organization. The KIPs Model adopts various researchers’ findings in Intellectual Capital to have effectively influence on business performance. Therefore, this study is significant because it expands the concept of intellectual capital in integrated framework for analysis that has not often been achieved in previous research (Cabrita & Bontis, 2008).
2. This study is also significant for HR practitioners; in light of intellectual capital is the key strategic resource for modern knowledge firms to deliver better organizational performance (Longo et al., 2009). Intellectual capitals reinforce the priority of human resource objective about utilizing the human capital competence within an organization to deliver better performance and to evolve the adequate
strategy on business success of the twenty-one first century.
3. This study can significantly benefits the enterprises as it seeks to analyze the effect of intellectual capital on delivering better business performance to provide enterprise with a clear vision on how to best utilize and leverage their human resource and knowledge that corporate holds.
4. It is particularly important for the Financial Institution; whereas the core business of financial institutions is heavily rely on its intellectual capital for daily operation as well as on delivering exceptional business performance. The analysis perform in this research will provide a holistic view on dominant factor which affect the intellectual capital on business performance for financial institution in Taiwan.
Further, it allows organization to properly allocate the weight of each intellectual capital components to operate in the most strategic way to stay closer with their market needs (Jardon, 2015).
Definitions of Terms
In this section it will give both the theoretical and operational definitions of the variables used in this study from research done by previous researchers. The theoretical definitions outline the idea and concept of each variable and the operational definitions outline how each variable will be measured.
Knowledge Management Strategies
The systematic improvement in the process of working flows, knowledge flows can leverage the organizations asset, which serve as strategic resources for organizations to deliver better performance as a whole (Freeze and Kulkami, 2007).
Previous studies provide us a good foundation for the research direction to go further;
we must define the core capabilities and competencies for organization to execute the strategies to evolve the right strategy for organization to cope with twenty-first century intense competition on financial institution and FinTech challenges.
Knowledge Enabler
Researcher proposed that the knowledge enabler is one of the core capabilities in deliver the better organizational performance (Edvinsson and Malone, 1997). Since knowledge enablers are one of the influential factor for better business performance, sharing codified knowledge among organization facilitate employees within the organization to quickly acquire and adopt knowledge in the work place, which creates better off organizational wide (Chuang, 2004).
Intellectual Capital
The concept of intellectual capital (IC) first appeared in the letter which is written by Galbraith to Kaleeki, who is the editor-in-chief of the Economist Magazine, in 1969 (Masoulas, 1998). Galbraith attempted to explain the value gap between market value and book value with the concept. He considered that IC means intellectual action rather than knowledge or pure intellect and exists in the knowledge that helps firms create
differential advantage and accelerate the creation of value through valuable IC to connect the working team inside or outside the enterprises, customers, and suppliers (Galbraith, 1969). It implied that IC can be seen as a form of value creation. (Roos et al., 1997). The commonly accepted components of intellectual capital from the literature review were adopt it to this study, which are the human capital, structural capital, and relational capital (Bontis, 1998; Subramaniam and Youndt, 2005; Martinez-Torres, 2006; Hsu and Fang, 2009; Martin-de-Castro et al., 2011).
Human Capital
The human capital can refers to the competence that found in firm's human resources. Including the knowledge held and created by the company's employees, along with their attitudes, experience and skills. (Garcia-Pozo et al., 2014) accordingly, in previous studies have found that human capital represents a key source for innovation (Nonaka and Takeuchi, 1995; Bontis et al., 2000; Subramaniam and Youndt, 2005).
All kinds of organizations and companies has intellectual capital, by the previous research, the human capital can be further categorized as skills, competencies, and abilities of an individual or groups, in which, the skills are relatively a soft skills in contrast with the solid skills such as gardening, the human capital can also be a collective skills or aptitude of a team, which on other hand posts the challenges to the executives and management of how to effectively manage the truly outstanding talents within an organization, how to utilize their best capability and skills without over depending on only few star performers, as well as another very important part, is how to facilitate the star members willing to share their expertise and knowledge with the rest of the members in an organization, to have an overall vertical and horizontal improvement, therefore, it’s critically import in understanding the human capital, as the talents are the most important assets today (Stewart and Ruckdeschel, 1998).
The economists had long ago examined and identified the physical and human capital as the key resources for the companies to facilitate their operation and other
The economists had long ago examined and identified the physical and human capital as the key resources for the companies to facilitate their operation and other