This chapter offers a holistic view of the research. The chapter is divided into six sections. The first section, background of study, aims to provide the reader with some context about the investigation. Section two states the research questions that guided the study.
Section three explains the significance of the investigation. Section four lists the delimitations set by the investigator as well as the limitations of the research. Finally, key terms are defined and key assumptions made by the researcher are indicated.
Background of Study
Trust is commonly placed in a socio-cultural framework. Nonetheless, trust is more than a social virtue. When observed from an economics point of view, trust is an “economic imperative for business resilience in the global marketplace” (Fukuyama, 1995). As businesses today operate under a global market, increased competition and emerging technologies; agreements and relationships with coworkers, leaders and customers have dramatically changed. Employees must now make “on-the-spot” agreements and relationships with others in order to complete their tasks. Sometimes these agreements have to happen without ever having face-to-face contact, done only under good faith and trust.
This shift in business practices, primarily caused by today’s global economy, has led researchers to turn to trust, a concept that for many years has been associated with effective organizations (Barnes, 1981; Boss, 1978; Turnbull & Gibbs, 1987; Dwivedi, 1983; French &
Raven, 1968; Maslow, 1954; and Zand, 1972).
The 2008 global financial crisis underlined the fact that conventional tangible resources and financial capital do not fully support a company’s competitiveness. This development has increased researcher’s interest in the concepts of knowledge management (KM) and intellectual capital (IC). Skyrme (1997) suggests KM is the explicit and systematic management of vital knowledge and its associated processes of creating, gathering, organizing, diffusing, using and exploiting knowledge critical to the organization’s long-term performance (Huotari & Iivonen, 2004; Debowski, 2006). The role of KM is to enhance the value-creating capability of a more effective use of knowledge within an organization. Many scholars have proposed that KM and IC are complementary; therefore KM needs to be placed in the wider field of intellectual capital management. IC is knowledge that transforms raw materials (both tangible and intangible) increasing their value.
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The general notion of the value of intangible assets was first discovered in the early 1980’s when researchers took interest in the study of IC as a way to bridge the gap between book value and market value reflected in various businesses. Today, in light of the difficult economic situation, companies are looking to boost their competitive advantage by allocating resources in areas that will allow them to achieve a higher position in the market. Scholars like Handy have suggested that IC assets are three or four times the tangible book value of a company (1989), while Bassi & Van Buren (1999) stated that intangible assets represent more than two-thirds of the corporate value. Therefore, IC is an important asset for any organization.
In Honduras particularly, as a result of the 2008 global economic crisis, the economy experienced its first recession since 1999. According to the 2009 Preliminary Overview of the Economies of Latin America and the Caribbean published by the Comision Economica de Latino America y el Caribe [CEPAL]:
(in 2009) GDP is estimated to have contracted by 3%, with a 5% decline in per capita GDP, owing to effects of the international financial crisis and the political crisis in the country. Inflation fell significantly, closing the year at 3.5%. The slowdown in economic activity led to a sharp reduction in the current account deficit, which dropped from 14% in 2008 to 7.9% in 2009. By contrast, the central government deficit expanded from the equivalent of 2.4% of GDP, to 4.5% of GDP (p. 103).
One of the most affected industries during this time was the financial industry.
Financing lines from overseas banks were tightened and interest rates increased substantially.
“The nominal interest rate on deposits rose from 6.0% to 7.2% while the nominal lending rate increased dramatically from 17.4% to 19.6%” (CEPAL, 2009, p.104) in a period of 8 months.
Many financial institutions became reluctant to emit loans to the productive sector, highly important because it is a primary source of employment; causing great concern and distrust from its affiliates.
As Honduran financial institutions start to recuperate and operate in the post-crisis new economy, they must realize that if they intend to survive they must transform themselves into learning organizations that continually pursue the improvement in their knowledge assets.
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Purpose of the Study
This research has one (1) mayor objective and three (3) sub purposes:
Major objective:
1. Develop an integrated model to explore the effect of organizational trust on intellectual capital and how intellectual capital affects an organization's business performance and competence.
Sub Purposes:
1. Assess the effect of organizational trust on intellectual capital.
2. Assess the effect of intellectual capital has business performance.
3. Assess the effect of business performance on an organization’s survival and competitiveness.
Research Questions
Deriving from the research purposes, the research questions were formulated as follows.
Questions 1-3 inquire about the relationship between organizational trust, intellectual capital, business performance and survival and competitiveness. Questions 4-7 derive from the second sub-purpose and were formulated by the researcher in order to gain a better understanding of the relationship between the intellectual capital dimensions.
1. What effect does organizational trust have on intellectual capital?
2. What effect does intellectual capital have on the business performance?
3. What effect does business performance have on an organization’s survival and competitiveness?
4. What effect does innovation capital have on structure capital?
5. What effect does process capital have on structure capital?
6. What effect does customer capital have on intellectual capital?
7. What effect does structure capital have on intellectual capital?
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Significance of the Study
The 2008 global financial crisis completely changed the global economic landscape and marked either the survival or the collapse of a great number of companies. Those companies that survived are now turning their attention to factors that will give them a competitive advantage and add value to their products and services. Studies in organizational trust have been undertaken in order to understand how it relates to profits, innovation, successful international businesses, organizational survival and a variety of crucial work perceptions and behaviors. On the other hand, as traditional accounting measures continue to prove inadequate to determine the real value of organizations, researchers developing intellectual capital frameworks in an attempt to classify, understand and finally utilize intellectual capital assets to improve business performance. However, little research has been done where the relationship between organizational trust and intellectual capital is studied and then related to business performance and an organization’s survival and competitiveness.
This research has three important contributions. The first is theoretical, connecting psychology and knowledge management and integrating tangible and intangible property.
The second is practical, the development of an integrated model that fully supports the theory. Finally, it provides information with the potential to improve business performance in the financial sector, which in conjunction with other service industries contributes 60% of the country’s GDP (Central Intelligence Agency [CIA], 2012).
Delimitations and Limitations
In order to make the research feasible and narrow the scope of the investigation, delimitations were imposed by the researcher. First the study is delimited to the country of Honduras. Furthermore, it is delimited to a single financial institution. Ficohsa Financial Institution will serve as the case study for this investigation. Finally, the study will explore the relationship among variables using the Trust, Intellectual Capital and Performance (TIP) Model only. Considering the researcher’s restrictions of time and resources, the investigation has certain limitations. First, because the study is delimited to Ficohsa Financial Institution, the sample will only constitute of employees of this particular organization. This limits the generalization of results to another population. Second, a quantitative research method was adopted for this investigation therefore a self-response questionnaire was used to gather data.
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This limits the amount of information that can be obtained because respondents are confined to the questions stated in the questionnaire without an opportunity to expand upon their answers.
Definition of Key Terms
This section provides the reader with definitions of the key terms of this research.
Organizational trust: The organization’s willingness, based upon its culture and communication behaviors in relationships and transactions, to be appropriately vulnerable based on the belief that another individual, group, or organization is competent, open and honest, concerned, reliable, and identified with common goals, norms and values (Shockley-Zalabak, Ellis & Winograd, 2000).
Intellectual capital: Broad term considered synonymous with the corporation’s intangible assets. It is the knowledge, skills and technologies that create a competitive advantage in an organization and therefore financial gain (Organization for Economic Co-operation and Development [OECD], 1999; Meditinos, Sevic & Tsairidis, 2010).
Business performance: The businesses’ independent criteria used to assess overall outcomes in relation to its previously established goals (Atkinson, 1998). It is divided into two measures, market leadership and financial performance. Market leadership concerns the percentage of total sales revenue the business attains in comparison to its competitors.
Financial performance relates to the company’s financial health. Various measures are used to determine financial performance including revenues, expensed and profits.
Survival and competitiveness: The organizations effort to respond to changes in market and social conditions by developing the most appropriate and adaptive structure that will allow it to maximize its resources and meet organizational goals (Chan, 2011).
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Key Assumptions
The research is based on three (3) key assumptions:
1. The mayor factor that affects intellectual capital is organizational trust. Considering emerging theories and practices of KM emphasized the need to study trust in the context of management because knowledge creation and sharing, two critical aspects of IC, demand a certain amount of trust (Huotari & Iivonen, 2004).
2. The 9 factors that make up survival and competitiveness can be decomposed into three categories which are organization, employee and environment.
3. Responses obtained through this survey are truthful and willing considering the researcher obtained informed consent before its administration.
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