Chapter Overview
This section provides a comprehensive evaluation of the appropriate literary works which helped the research and readers to have in-depth understanding about the issues, why intellectual capital is extremely important for the research to study and in what aspects the intellectual capital can influence modern organizations. First, in this section, literature review will provides an understanding about the origins and definitions of each terms and their relevant knowledge. Then, it will address the key and current research progress on such research topics or issues, to have an even more rigorous understanding for the current research progress in each particular field.
Knowledge Management Strategies
Knowledge management is pretty much similar to knowledge that is hardly to define in one simple sentence or to provide a clear definition, the focus on knowledge management first introduced in the 1990s as a managerial method focus on knowledge itself, instead of the traditional focus of management focus in the land, machinery or other physical capital which is the key factor for business success in the industrial era, nowadays, more and more business realized their success of business come from the knowledge that from external and what they hold internally, which keeps the company's aware that in order to success in the twenty-first century it has to focus more on managing their most critical resource which is knowledge, and not only the management alone is sufficient, it also have to think strategically to better utilize the organization, which reinforce the importance of the knowledge management strategies (Earl, 2001).
Knowledge management can be viewed as a foundation on facilitating the strategic thinking, process innovation and advanced technology on leverage the organizational learning (Satyadas, Harigopal and Cassaigne, 2001). Moreover, knowledge management strategy or known as KMS, can be defined as infrastructure for managing the knowledge gaps within any organization, the gap can be described in any level of forms, processes, organizational change guideline or technological advancement (Satyadas et al., 2001). Knowledge management strategy focused on continuing transform all types of knowledge to be systematic, to fulfill the gaps between existing and ongoing needs, on preventing the knowledge gap and issue continue to arise to a level that can no longer handle or fulfill, in this sense, the knowledge management strategy allow organization to see a clear picture of the shortfall of their knowledge and to clearly address the complimentary plan in a most systematic ways.
Importance of Knowledge Management Strategies
For organization to have a clear picture of their strategic vision once can align with their knowledge management strategies, will help organization to better plan, execute and assess on their regular operation cycle (Teece, 2000). However, to better align the strategic vision with the operation alone is not sufficient to make an organization competitive in modern society, focus on innovation is almost the norm in today's business world for business growth and performance, therefore, to effectively manage and organize the critical intellectual capital becomes relatively important, to successfully for employee's in the organization to carry out, the knowledge leader must sketch a clear map for the root principle for everyone in the organization to better understand how their action can fulfill their organization strategic vision (Jafari and Ashraf, 2009).
Classification of Knowledge Management Strategies
The first classification of the knowledge management strategies are the most well-known tacit-oriented and explicit-oriented strategy, to seek out the best balance between the two, in order to push innovation as well as deliver better business performance as an outcome ( Jordan and Jones, 1997). Later on, the researcher propose an idea that if the firm only focus on their internal knowledge storage are consider as adopting the conservative strategy, while for those organization seek out knowledge outside their organization, with strong ambition to make their organization grow in a rapid speed with substantial growth can be consider as adopting the aggressive strategy (Zack, 1999).
By a careful study regarding the management consulting business, it found out that there are two different types of strategy, one is refer to as codification strategy and another is refer to personalization strategy, the difference is the codification as we know about knowledge management is the type of knowledge that been codified and stored in the company or organization data warehouse or databases which allow the access from employees, members to facilitate them better carry out the daily work or business operation, on other hand, the personalization strategy is the type of knowledge that stored in person's mind, it is mostly tacit, to access the knowledge, one must have the person to person contact, due to its unique characteristic of knowledge, this form of knowledge even they want to share with others, because it is not been codified, it may sometimes be difficult for other person or party to understand and acquire in just a minute (Hansen, Nohria and Tierney, 1999).
The knowledge management strategies sounds very practical and useful for organization to adopt, however, nothing is perfect, the critiques about the knowledge management strategies is that the knowledge management is mostly carried out by IT technology, therefore, the contradictory propose the two different knowledge strategy
as cognitive and community strategy (Swan, Newell and Robertson, 2000). In spite of there are many different classification of knowledge management strategies, in the modern world, the more clear taxonomy of the knowledge strategy can be sort as human-orientation and system-orientation strategy, which one is about the more person to person interaction, social network to acquire the knowledge from experienced, skillful person, which the knowledge sharing is consider as informal, in comparison, the system strategy are mainly focused on acquiring as well as to store the codified knowledge through the information technology, the knowledge sharing are consider more formal, with regards to the fact that knowledge are considered as codified in the essence, the system strategy has a more clear path than human strategy for the knowledge management process (Choi and Lee, 2002).
Human Strategy
Knowledge is usually shared in an informal ways with mostly internal channel for the knowledge to be disseminated (Jordan and Jones, 1997). However, the communication channel for human orientation knowledge strategies are not completely internal, though the social networks, people with similar mind and mutual interest get to meet each other, which most of the times, we can refer this to as professional groups, teams which disseminate the knowledge with the boundary of similar group of people (Scott, 1998). When the knowledge is acquired from experienced professionals or majorly shared through an inter-personal communication, of some focused social networks to obtain the knowledge, the study considered such strategic approach as Human Strategy (Choi and Lee, 2002).
System Strategy
This is another strategy for knowledge to be create, acquire, store, share and utilized the explicitly knowledge, through the information technology, knowledge can be codified and share on a portal or other online source for employees and members in an organization to receive the knowledge they need and acquire in a timely manner (Choi and Lee, 2002). There's another advantage of system orientation strategy, because it is easier for organization to track down their employees and members of an organization's special expertise with real time communication (Bloodgood and Salisbury, 2001).
Table 2.1. Classification of Knowledge Management Strategies Classification of Knowledge Management Strategies
Author Year Classification of KMS
Jordan and Jones 1997 Tacit and Explicit Oriented Strategy Zack 1999 Conservative and Aggressive Strategy Hansen et al. 1999 Codification, Personalization
Swan et al. 2000 Cognitive, Community Strategy Choi and Lee 2002 Human and System Oriented Strategy Note. KMS= Knowledge Management Strategies.
In the table 2.1 above, in spite of which knowledge strategies that the organization adopt, it will both allow organization to acquire, create and leverage knowledge their knowledge, to make the organization to transform from traditional physical assets intensified into knowledge intensified organization to better cope with the twenty-first century competition. In addition, knowledge management strategy helps organization to better create; store and transfer knowledge in one department or across different department in an organization.
Knowledge Enabler
It is very important to know how knowledge can be created, more importantly, is to focus on effectively implement the knowledge, the knowledge becomes indispensable in terms of discussion of successful knowledge management, it is critical focus on knowledge enabler in such regard. Knowledge enabler can be referring to structural or function keys for organizations to continuous implement the knowledge management practice (Stankosky, 2005). This study sorted the classification of the knowledge enablers; please refer to the table 2.2.
Table 2.2. Taxonomy of Knowledge Enablers Taxonomy of Knowledge Enablers
Author Year Knowledge Enabler Characteristics Gold et al. 2001 Technology, Structure, and Culture.
Nemati 2002 Cultural, Structure, IT Infrastructure, Organizational & Managerial, and Industry Specific.
Lee & Choi 2003 Collaboration, Trust, Learning, Centralization, Formalization, T-shaped skills, and IT support.
Chuang 2004 Technical; Structural; Culture and Human Resources.
Stankosky 2005 Learning, Leadership, Organization Structure, and Technology.
Hsieh 2007 Technology, Structure, and Organizational Culture.
Yang et al. 2009 Trust Culture, Centralization Structure, T-Shaped Skills, and IT-Support.
The most common knowledge in an organization is the leadership, strategy, people, culture, structure and information technology (Gold, 2001). In addition to that, the culture can be specified into learning culture which plays as an important role in today's organization, due to the rapidly changing society, the ability for organization to learn, and create such atmosphere become very important (Lee and Choi, 2003).
However, the knowledge enabler are usually compose with various components, due to the effect of any single enabler may be not very significant, which in order to see a clear effect deliver by knowledge enabler, the study must find a good balance to cooperate with each factor of knowledge enabler, to make the best use out of it, which Leadership, Learning, Organization Structure and Technology are equally important or weighted correspondingly (Stankosky, 2005). Previous literature give us a glance look of the factor such as learning culture, technology, T-shaped person and structure are the most critical factor for knowledge enabler.
Centralization
The idea of centralization in an organization regardless of it’s for profit or non-profit, is the idea for locus of control by decision group in an organization from top management to the bottom (Caruana, Morris and Vella, 1998). Interestingly, the previous state that centralization can actually affect organizational creativity (Choi and Lee, 2003). Such finding is a little bit of counter-factual, under centralization, it usually gives a great burden and less stress to the employees.
However, the previous literature do argue it can facilitate the organizational creativity, perhaps is through the hierarchical structure to push employee’s forward-looking, nevertheless, the factor may have something to do with the generation, during the period, the Baby Boomers taking large portion of employment group, which its characteristics are famous of hard-working, loyal to its management, winning and expecting to work with others, which overall, the Baby Boomers accept absolute order, expect the leader to give them direction and guide them toward goals (Raths, 1999).
The result may be different in modern working environment, a large group of Generation X is replacing the Baby Boomers, which characterized as ranking personal satisfaction over working hard, always looking for new opportunities, royal to the profession rather than supervisor, management in hierarchical structure, demand for
high degree of self-control and flexibility, did not pay much attention to the leadership idea, and they are tech-savvy, using such capability to update large volume of knowledge quickly to help them gain competitiveness (Keaveney, 1997). The effect of centralization in today’s working environment are deserve for a more careful study, as Generation Y or Millennial represent for confidence, and seek for entitlement, the effect of centralization in knowledge enabler are deserved for a careful study and discussion.
T-Shaped Skills
Modern organization requires employees, candidate to have T-Shaped skills as one of their competitive competence in 21st century. The depth of T are representation of how deep of its professional knowledge, and width of T is representation of the broad range of knowledge which one can have, combination of the profound professional knowledge with the rich range of different knowledge, it will make an individual as competitive as it would be, therefore, organizations who holds more of this types of employee will likely to gain competitive over time (Leonard-Barton, 1995).
The collaboration of various knowledge can helps both individual and organization to adopt the cutting-edge technology, stay tuned with real time business’s knowledge, to best helps the organization to grow and evolve, especially in the forms of cross-communication capability can be triggered by the T-shaped skills (Madhavan and Grover, 1998). On facing the financial technology challenges, the cross-communication and multi-tasking skills become one of an essential capability for the 21st century organization; the scope of change by such factor must carefully examine.
Intellectual Capital
Nowadays, most of the organization determined its exceptional performance by the intangibles, for instance, through exceptional talent pool and their multi-competences, capability to innovate, as well as aligned stakeholder’s relationship management, exceptional infrastructure for technical and non-technical support, these intangibles are powerful, and can make an impact to organizational-wide. An economists named Kenneth Galbraith in 1959, introduced the exciting concept of intellectual capital to the public and the discussion of an intellectual capital are then started (Bontis, 1998).
Today, often times, the existence of large discrepancy between market and book value of the modern organizations can easily be observed, the cause of such differences are mainly due to an intangible factors which an organization holds but did not exploit or discuss on the financial statement for its value, to be specific, these intangibles are the intellectual capitals (Roos et al., 1997). However, multiple constructs of an intellectual capital are established by researchers, the most commonly agreed constructs are listed as human capital, structural, and relational capital (Bontis, 1996).
The knowledge embedded in human capital can actually travel inter or intra-organizational, therefore, to strategically manage and facilitate these knowledge became extremely important, therefore, it deserve for a careful study. Under intensified competition of financial market, particularly, innovation is the critical factor which makes significant differences among competition, however, human capital are the most critical factor to initiate innovations (Rothaermel & Hess, 2007).
Kenneth Galbraith in 1969 believed that intellectual capital was more than just pure intellect, relatively; it’s an intellectual action (Bontis, 1998). Usually, an intellect moves in an interestingly spiral fashion, for instance, individuals will seek intellect from multiple channels, for intellect which can be applied to the workplace or daily life,
when particular intellect are found, individuals will seek ways to apply such intellect to real situations, then try to transform the useful intellect into a knowledge for future use.
In order to effectively adopt and leverage an intellect, often times the need of networking will arise, in an intellectual capital literatures refer such networking capability as the relational capital, which allow individuals or organizations to quickly acquire, apply and transform the knowledge into skills through the interaction with others. However, to build a powerful network, the structural capital in an intellectual capital plays an important role; with regard to its capability in assist an organization, individuals to transform knowledge through powerful IT systems or other infrastructures.
The idea of intellectual capital can be confused some time, due to researchers often interchangeably using the terms of intellectual capital and human capital, various definitions are then presented on literatures depend on the level of analysis it applied, and the qualitative nature of intellectual capital. For those who viewed intellectual capital as an individual level construct, such as knowledge and skills that individuals had, therefore they also refer as human capital.
Ulrich (1998) argues that intellectual capital lies mostly with the skilled and competence ready individuals, who are committed to business goals, which Ulrich provide a simple expression for intellectual capital as it is equal to competence multiplied commitment. The intellectual capital at the individual level, are considered as human capital, while some other research view intellectual capital functioning at the collective level and viewed as a meta-competence idea than just human capital.
As mentioned previously, intellectual capital can be viewed as firm's holistic capacity or multiple disciplines to explore challenges and exploit opportunities in its continual search and support of value creation (Rastogi, 2002). Such view expressed intellectual capital as assets that connect through the entire firm. Mouritsen et al., (2002)
used the similar approach to view intellectual capital as organization-wide knowledge resources which combine all aspects of capabilities, to make an organization able to take the necessary actions.
The individual and collective levels of analysis actually simply differ on how an intellectual is approached. Some argue that intellectual capital is something that can create value in the future, or can potentially create the value (Keenan and Aggestam, 2001), while there are some argued intellectual capital are considered as the critical factor in determine the firm’s performance, as an intellectual capital considered to be very valuable by itself, even without converting into the physical dollar sign.
Now, let’s illustrate the idea furthermore, many views intellectual capital as knowledge which can be converted into value or intellectual material; knowledge, information, intellectual property and experience that can be used to create wealth (Bontis et al., 2000). Another key definition which falls within the category is the Edvinsson (2000) who views intellectual capital as the future earning potential deriving from a combination of human capital with an organization individual’s potential.
On other hand, authors who used the resource-based view of the firm as a theoretical foundation in understanding an intellectual capital viewed the intellectual capital as a current asset and capital with value assigned in real time. Therefore, intellectual capital is a resource, regardless whether at an individual’s or firm’s level, the intellectual capital shares some common criteria, such as it’s valuable, rare, difficult to copy and is non-substitutable (Barney, 1991).
Despite of above discussion, however, this study found there are another direction to analyze the intellectual capital, as carefully reviewed the previous literatures, this study found there’s two major research direction distinction. First, some authors viewed intellectual capital “as an input to the value creation process”, considered intellectual capital as a value creation process by itself. Second, other authors viewed intellectual
capital “as an intangible output from the firm's value creation processes”, which is external, rather than internal idea viewed by first category of authors.
In spite of series of intellectual capital research direction discussed here, there’s also an integrated analysis perform at various levels of analysis, from individual, collective knowledge and skills, simultaneously, considered an organizational processes and structures effect, viewed intellectual capital as a process function within and across organizations. Any particular organizational set routines or organizational culture, will influence the way of creating value, therefore, the process can be considered as one of the intellectual capital as well, however, the most dominant current research, are still the discussions regarding intellectual capital as firm’s potential values.
Human Capital
Becker (1964) Human capital theory uses economic logic to study individual decisions dealing with investments in productivity enhancing skills and knowledge;
Becker (1964) Human capital theory uses economic logic to study individual decisions dealing with investments in productivity enhancing skills and knowledge;