The Effect of Organizational Trust and Intellectual Capital on Ficohsa Financial Institution's Business Performance and Competence in Honduras

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(1)The Effect of Organizational Trust and Intellectual Capital on Ficohsa Financial Institution’s Business Performance and Competence in Honduras. By Alejandra Funes. A Thesis Submitted to the Graduate Faculty in Partial Fulfillment of the Requirements for the Degree of. MASTER OF BUSINESS ADMINISTRATION. Major: International Human Resource Development. Advisor: Cheng-Ping Shih, Ph.D. Graduate Institute of International Human Resource Development National Taiwan Normal University Taipei, Taiwan May 21, 2013..

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(3) ACKNOWLEDGMENT As I begin to write the final page of my master thesis I take a moment and think back to when I began this process and of the all the people who have helped me along the way, and I would like to take this opportunity to recognize and thank them. I would like to begin by thanking Banco Ficohsa for giving me the opportunity and the support to successfully conduct my research. Next, I would like to express my deepest appreciation to, Dr. Shih, my advisor. Your guidance throughout this process was invaluable. To my committee members: Dr. Pai-Po Lee, Dr. Ted Tsai and Dr. Vera Chang, thank you for your feedback and encouragement. To the rest of my professors, thank you for sharing your knowledge and experiences with me. To my classmates, thank you for your support, feedback, and encouragement. For sharing your knowledge and experiences with me, but most importantly for your friendship! I would specially like to mention Dian and Edward, my editors. Thank you for your hard work. To my family, thank you for always believing in me, you are a true blessing! Finally, I would like to thank David, your love, continuous support and words of encouragement have given me the strength to push through and be where I am today. From the very first day you have been my rock and the one to remind me that everything can be achieved through hard work, courage and determination, even when I did not believe it myself..

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(5) ABSTRACT Emerging technologies and globalization have blurred the boundaries between nations, making our word a global village. For businesses this has meant a radical change in the way they do business, forcing agreements to happen without ever having face-to-face contact, done only under good faith and trust. It has also transformed work dynamics, in which organizations struggle to perform in a transformed fierce, highly competitive, cut-through global market. To meet these high demands organizations are now moving towards becoming learning organizations where intellectual capital and knowledge are the key to giving them a competitive advantage and add value to their products and services. However in order to have successful knowledge sharing within and organization a well-established culture of trust in indispensable. This is especially true for the Honduran financial industry, the most affected industry in the country after the 2008 global financial crisis. By developing an integrated model, the TrustIntellectual Capital and Performance Model (TIP) Model developed by Shih and Funes, this research explores the effect organizational trust has on intellectual capital, the effect intellectual capital has on business performance and the effect business performance has on survival and competitiveness by using partial least square regression (PLS). The data for this study was collected from 254 employees of Ficohsa Financial Institution, Honduras third most important bank. Results obtained suggest organizational trust has a significant and positive effect on intellectual capital; intellectual capital has a significant and positive effect on business performance and business performance significantly and positively affects an organization’s competitiveness. Regarding intellectual capital, results also suggest innovation capital has a positive, highly significant effect on structural capital and structural capital has a positive, highly significant effect on intellectual capital, which includes human and organizational capital. Process capital appears to have a positive, significant effect on structure capital and finally, customer capital seems to have a positive, significant effect on intellectual capital.. Key words: Organizational Trust, Intellectual Capital, Business Performance, Competitiveness, Knowledge sharing.. I.

(6) TABLE OF CONTENTS Abstract……...……………………………………………………………………………….........I List of Tables ................................................................................................................................ IV List of Figures ................................................................................................................................ V CHAPTER I INTRODUCTION .................................................................................................... 1 Background of Study .................................................................................................................. 1 Purpose of the Study ................................................................................................................... 3 Research Questions ..................................................................................................................... 3 Significance of the Study ............................................................................................................ 4 Delimitations and Limitations..................................................................................................... 4 Definition of Key Terms ............................................................................................................. 5 Key Assumptions ........................................................................................................................ 6 CHAPTER II LITERATURE REVIEW ....................................................................................... 7 Trust ............................................................................................................................................ 7 Organizational Trust ................................................................................................................... 8 Intellectual Capital .................................................................................................................... 12 Business Performance ............................................................................................................... 19 Survival and Competitiveness................................................................................................... 19 An Overview of Honduras’ Recent Economic Performance .................................................... 20 CHAPTER III METHODOLOGY .............................................................................................. 22 Research Framework ................................................................................................................ 22 Research Hypotheses ................................................................................................................ 23 Research Procedure ................................................................................................................... 24 Research Design........................................................................................................................ 24 Data Collection ......................................................................................................................... 25 Instrument ................................................................................................................................. 26 Construct Coding and Scales .................................................................................................... 27 Data Analysis ............................................................................................................................ 31 CHAPTER IV DESCRIPTIVE STATISTICS FINDIGNS AND DISCUSSION ...................... 35 Sample Characteristics .............................................................................................................. 35 Descriptive Statistics ................................................................................................................. 36 Correlation Analysis ................................................................................................................. 44 Validity and Reliability Analysis .............................................................................................. 46 Common Method Variance (CMV) .......................................................................................... 49 CHAPTER V PLS FINDINGS AND DISCUSSION .................................................................. 51 II.

(7) Pilot Test Results ...................................................................................................................... 51 Results of Main Study............................................................................................................... 56 REFERENCES ............................................................................................................................. 67 APPENDIX A: RESEARCH QUESTIONNAIRE ....................................................................... 75 APPENDIX B: SPANISH TRANSLATION OF RESEARCH QUESTIONNAIRE .................. 81 APPRENDIX C: PROCEDURE TO USE SMARTPLS………………………………...………88 APPRENDIX D: PROCEDURE TO USE IBM SPSS STATISTICS 20………………………..96. III.

(8) LIST OF TABLES Table 1.1. Components of Intellectual Capital...……..……………………...…………………..15 Table 3.1. Items Measuring Organizational Trust…..………………………………..……….…27 Table 3.2. Items Measuring Intellectual Capital….……………………………...……………....29 Table 3.3. Items Measuring Business Performance.…………………………...………………...30 Table 3.4. Items Measuring Survival and Competitiveness……….………………..…………...31 Table 3.5. Guidelines for Factor Loading Cutoff Points Based on Sample Size…………….......32 Table 4.1. Characteristics of Sample Population Based on Demographic Variables…….….......36 Table 4.2. Organizational Trust by Likert-Scale, Mean and Standard Deviation…….….…...….37 Table 4.3. Intellectual Capital by Likert-Scale, Mean and Standard Deviation…….………...…39 Table 4.4. Business Performance by Likert-Scale, Mean and Standard Deviation……….......…41 Table 4.5. Survival and Competitiveness by Likert-Scale, Mean and Standard Deviation…...…42 Table 4.6. Correlations among Constructs…………...…...……………………………………...45 Table 4.7. Cronbach’s Alpha Values...……….…………………………..……………………...46 Table 4.8. Internal Consistency and R2 Values……………………………………..……………47 Table 4.9. Pilot Test Loadings…...………………………………….....………………………...47 Table 4.10. Sample Loadings……….………………………….………………..……………….47 Table 4.11. Pilot Test Factor Analysis Results for All Constructs…….…………...…………....48 Table 4.12. Main Study Factor Analysis for All Constructs……..………………………...…….49 Table 4.13. Single Factor Test…………...………………………………………………………49 Table 5.1. PLS Path Analysis Results………...………...……………………...………………...51 Table 5.2. Measurement Model Results Using Average………...….….…………………..…...53 Table 5.3. PLS Loadings Using Averages………...……..……………………..………………..53 Table 5.4. Path Analysis Results Using Average…....………………………….…….…………54 Table 5.5. Measurement Model Results Using Individual Questions….....……………..………54 Table 5.6. Path Analysis Results Using Individual Questions…….....………………………..…54 Table 5.7. PLS Path Analysis Results………...………………………………………...………..56 Table 5.8.Measurment Model Results……...……………………………………………………58 Table 5.9. Factor Loadings of IC Constructs……………………...…………………………..…59 Table 5.10.Path Coefficients for IC………..…………………………………………………….59. IV.

(9) LIST OF FIGURES Figure 2.1 Model of Organizational Trust, Job Satisfaction and Effectiveness…...……....…….10 Figure 2.2. The Navigator…….……………….……………………………………..……..……16 Figure 2.3. Survival and Competitiveness Model..…………………………………….….…….19 Figure 3.1 TIP Model…..………………………………………………………………….….....22 Figure 3.2. Research Process.…………………………………………………………...…….…24 Figure 5.1. Structural Model…..………….……………………………………………....……...52 Figure 5.2. IC Structural Model….…………………………………………………………...….55 Figure 5.3. Structural Model….……………………….………………………………………....57 Figure 5.4. IC Structural Model….……………….……………………………………………...60. V.

(10) CHAPTER I INTRODUCTION 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.. 1.

(11) 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.. 2.

(12) 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?. 3.

(13) 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.. 4.

(14) 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 (ShockleyZalabak, 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).. 5.

(15) 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.. 6.

(16) CHAPTER II LITERATURE REVIEW This chapter presents a review of the available literature relevant to this research. The chapter discusses trust by presenting its different concepts and definitions. Then, organizational trust is conceptualized and defined and its dimensions presented. Empirical studies related to organizational trust are then reviewed. The concepts and definitions of intellectual capital are mentioned. Followed by an explanation of its importance, the evolution in the development of intellectual capital theories, its components and finally empirical studies are reviewed. The chapter ends with an explanation of business performance, survival and competitiveness.. Trust Concept and Definition of Trust In order to understand the role trust plays in an organization, it is important to first discuss what trust is. By nature, trust is a multidimensional concept (Barber, 1983), moreover it is intangible. Trust is also multidisciplinary; it has been studied from the fields of sociology, psychology and organizational studies. The different disciplines consider trust in their respective contexts and have related it to individual expectations, interpersonal and inter-organizational relations, economic transactions and social structures (Huotari & Iivonen, 2004). Therefore it is difficult to define. Often, research on trust is definitionally and conceptually vague. Although the conceptualization of trust varies, most of the research points to three basic features: a) trust is based on expectations, beliefs and interpretations, b) trust is manifested in people’s behavioral patterns and c) trust makes a difference (Huotari & Iivonen, 2004). Each of these features will be discussed below. Concerning the first principal, trust is primarily based on the expectation of other people’s willingness and ability to fulfill ones needs and wishes (Fukuyama, 1995; Nooteboom, 2002). Mishra and Spreitzer (1998) describe trust as a dynamic construct reflecting an individual’s beliefs about personenvironment relationships. Bhattacharya, Devinney and Pillutlas (1998) also establish a link between trust and expectancy and define trust as “an expectancy of positive (or non-negative) outcomes that one can receive based on the expected action of another party in an interaction characterized by uncertainty” (p.462). Organizational management literature strongly emphasizes this idea in both intra-organizational and inter-organizational relations. For 7.

(17) example, Fukuyama (1995) defines trust as “…the expectation that arises within a community of regular, honest, and cooperative behavior, based on commonly shared norms, on the part of other members of that community” (p.26). Similarly, Shaw (1997) as cited by Huotari and Iivonen (2004) defines trust as “…a belief that those on whom we depend will meet our expectations of them” (p.8). Interactions then are critical, since trust develops between individuals as expectations are continuously met. It is then natural that trust is more critical between acquaintances than strangers and more significant for long-term relationships. The second principle states trust is manifested in people’s behaviors. Even though trust is intangible, its effect on the individual’s behavioral patterns is observable and can easily be described. “Trust imposes a concrete form on people’s behavior, how they treat each other, and how they communicate” (Huotari & Iivonen, 2004, p.9). Trust is stronger when an individual’s behavior is predictable and is perceived by others as honest. The communicational aspect of trust was first discussed by Hardy et al. (1998). Their work suggests trust is a communicative process that aids in closing the gap between different groups. Furthermore, they assert that in an organization, trust grows out of non-opportunistic behavior and the communication process under which shared values and meanings are developed. Finally, the third basic feature regards trust as an agent of change. The ability of trust to make a difference is primarily being emphasized in management literature. According to Huotari and Iivonen (2003), trust has several advantages such as promoting open exchange of information, knowledge and learning, facilitating economic activities and reducing transaction costs. Today’s complex and highly dynamic business environment poses a great deal of uncertainty, this has turned researcher’s attention to trust. The ability of trust to make a difference makes it crucial to the management of organizations looking to establish optimal knowledge processes, thus trust is strongly noticeable in the concept of intellectual capital.. Organizational Trust Concepts and Definitions of Organizational Trust As with trust, the conceptualization of this term varies within the literature. However, most definitions of organizational trust describe the application of the concept of trust to the organizational context. For example, the Institute for Public Relations defines organizational trust as “the outcomes from interactions at the co-worker, team, organizational and inter8.

(18) organizational levels” (p.6). Similarly, Shockley-Zalabak, Ellis & Cesaria (2003) define organizational trust as the “expectations individuals have about networks of organizational relationships and behaviors” (p.37), while Gilbert and Tang (1998) characterize it as “confidence and support in an employer” (p.322). The definition of organizational trust seems to be evolving and becoming more complex as authors try to incorporate different concepts in an attempt to obtain a more holistic concept. Shockley-Zalabak et al. (2003), in an attempt to build upon the work of Mishra, define organizational trust as: 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 identifies with common goals, norms and values (p.4).. Because of the integration of the different elements of organizational trust, this definition was adopted for the thesis.. Dimensions of Organizational Trust Existing literature coincides in describing organizational trust as a multidimensional construct. Empirical studies in both marketing (Swan, Trawick, Rink & Roberts,1988) and organizational studies (Bromiley & Cummings, 1993) provide empirical support for the concept of an overall trust construct composed of multiple dimensions. However different terminology is often found when stating the dimensions of trust. For example, the Institute for Public Relations (n.d.) proposes four dimension of trust, which are: integrity, commitment, dependability and competence. On the other hand, Mishra (1996) suggests four different dimensions: openness and honesty, concern for employees, reliability and competence. Although the terminology varies, a closer review of the literature suggests an overlap in concepts (Chathoth, Mak, Jauhari & Manaktola, 2007). This research adopted the five dimensions of organizational trust proposed by the Model of Organizational Trust, Job Satisfaction and Effectiveness by Shockley-Zalabak et al. (2003). The model (depicted below), was used to explore the relationship between organizational trust, job satisfaction and perceived effectiveness. It is in part, based on the work of Mishra (1996) and uses the four original dimension of trust: concern for employees,. 9.

(19) openness and honesty, reliability and competence; plus identification, a fifth dimension contributed by the authors. A brief explanation of each dimension is offered below.. Figure 2.1. Model of Organizational Trust, Job Satisfaction and Effectiveness. Adapt from “Measuring organizational trust: Cross-cultural survey and index,” by Shockley-Zalabak, P., Ellis, K., & Cesaria, R., 2003, IABC Research Foundation p.8. The first dimension: concern for employees, refers to the employee’s belief that their superiors care, empathize and accept them. It also denotes a belief that their superiors are sincerely concerned about their well-being and safety (Mishra, 1996). Employees also have confidence that their bosses will not take unfair advantage of them. It is important to mention that concern for employees does not mean a lack of self-interest or a disregard for meeting organizational goals; however, it does imply a balance between self-interest, profit and the interest in the welfare of others. The second dimension: openness and honesty, involves several aspects of communication and knowledge sharing. This dimension involves not only the amount and accuracy of information that is shared, but also how sincerely and appropriately it is communicated within the organization (Shockley-Zalabak et al., 2003). Similarities can be found between openness and honesty and integrity. The term integrity can be found in other organizational trust models as that proposed by the Institute for Public Relations. Both terms discuss honesty and truthfulness. However, integrity tends to focus more on the individual whereas openness and honesty focuses more on information sharing. The third dimension is identification. As stated earlier, this dimension was integrated into the original model proposed by Mishra in 1996. In other models, it can be found described as commitment (Chathoth et al., 2007). The dimension of identification, as 10.

(20) explained by Shockley-Zalabak et al. (2003) relates to “how individuals manage the paradox of separation and association as an organizational member” (p.40). In other words, it is the extent to which employees hold common goals, norms, values and beliefs associated with the organization’s culture. The closer the goals, norms and values of employees align to those of the organization, the stronger the sense of affiliation. Identification also indicates how connected employees feel to managers and to co-workers. The fourth dimension of trust is reliability. Because “inconsistency between words and actions decrease trust” (McGregor, 1967, p.164) the consistency and dependability of coworkers, teams, suppliers and the organizations actions are very important. Also identified in extant literature as dependability by Chathoth et al. (2007) and consistency by Kirkpatrick & Locke (1991) the dimension always describes regularity in behavior and following through with what is said. The fifth and final dimension is competence. It relates to the organization’s ability to compete in the market, including the leadership qualities of the organizational members, which collectively create a perception of organizational competence or incompetence. (Mishra, 1996; Shockley-Zalabak et al. 2003) The dimension also extends to the perception of employees on the effectiveness of co-workers and leaders. Effective co-workers and leaders translate to an effective organization with the capability to survive and lead in the marketplace.. Review of Organizational Trust Empirical Studies Aneil K. Mishra (1996) examined the role of trust in organizational response to crisis. Although his research centralized on organizational response to crisis, Mishra also studied the relationship between trust and organizational performance. Based on prior research and on interviews with 33 top managers, Mishra conceptualized trust into four dimensions: a) competence, b) openness, c) concern and d) reliability and hypothesized trust to be positively related to organizational performance. The results of the investigation showed a positive correlation between trust and organizational performance, supporting her hypothesis. Mishra (1996) concluded “trust in a central factor enhancing organizational performance, long-term success and survival, especially as environments have become more uncertain and competitive” (p. 25). The qualitative method adopted in the research does not provide a clear explanation of the relationship between trust and organizational performance; however, the. 11.

(21) importance of his work to the study of organizational trust lies in the conceptualization of the four dimensions of trust which served as a foundation for other researchers. In 2003, Shockley-Zalabak, et al. built upon the knowledge gained from previous research, including the work of Mishra, and studied the importance of organizational trust while developing an instrument for its measurement. Results strongly supported their model indicating that concern for employees, openness and honesty, identification, reliability and competence are strong predictors of job satisfaction, which in turn influence perceptions of organizational effectiveness. A key finding of their research was evidence suggesting the five dimensions of organizational trust did not differ by geographic culture or industry type. Finally, statistical testing of the 29-item OTI, the tool developed to measure organizational trust, reflected high reliability and validity, indicating the instrument is stable over time and internally and externally consistent. Lee and Choi (2003) developed a research model that interconnected knowledge management factors in an attempt to fill the literature gap left by the empirical research of the time that had explored the relationship between these factors separately. The model included 7 enablers: collaboration, trust, learning, centralization, formalization, T-shaped skills and information technology support. Lee and Choi hypothesized that when relationships were high in trust people were more willing to participate in knowledge exchange. Results showed trust is a significant predictor of all knowledge creation modes and that knowledge creation is positively related with organizational performance.. Intellectual Capital Concept and Definition of Intellectual Capital During the mid-1980’s people started noticing a gap between book value and market value in several companies. Looking to explain this phenomenon, John Kenneth Galbraith, a Canadian-American economist, developed the concept of “intellectual capital”. From this point on, and as traditional accounting measures became inadequate to determine the real value of a company, the importance of valuing IC became vital to determining an organizations exact corporate value. Numerous scholars have contributed and analyzed the role and relevance of IC in the performance and value creation capability of organizations (Maditinos et al., 2010). According to Tseng and Goo (2005) the literature is still lacking a common and clear definition that appropriately describes the term of IC. Edvinsson (1997) explains IC as the 12.

(22) knowledge, skills and technologies that create a competitive advantage and therefore, financial gains. Olve et al. (1999) considers IC as a market premium while Bontis (1998) refer to it as the result of effective experience and knowledge against the company’s data. Stewart (1997) defines IC as “the intellectual material-knowledge information, intellectual property, experience- that can be put to use to create wealth” (p.64). Even though there are differences in the conceptualization of IC two basic characteristics can be identified throughout the literature: it is intangible and it creates value within an organization.. The Importance of IC Today’s global markets is moving organizations towards knowledge and technological innovation in an effort to gain a competitive advantage in today’s cut-throat, highly-competitive global economy. The role of IC in creating value has become crucial for organizations to obtain a competitive advantage in the marketplace (Usoff, Thibodeau & Burnaby, 2002). The importance of IC has been described by numerous authors. For example, Drucker (1995) stated “knowledge has become the key economic resource and the dominant-and perhaps even the only-source of comparative advantage.” (p.54) His idea is supported by Bontis (1998) who mentions “…firms that are thriving in the new strategic environment see themselves as learning organizations pursuing the objective of continuous improvement in their knowledge assets” (p.64). Antal et al. as cited by Bontis (1998) goes even further and boldly declares “organizations that have been unable to enhance their knowledge assets have failed to survive and are left wondering what the fuss is all about” (p.64).. The Development of IC Theories Since the beginning of the IC movement, scholars have developed theories and models to aid in its evaluation and measurement. In 1986 Karl-Erik Sveiby, often described as one of the “founding fathers” of knowledge management, published his first book titled The Know-How Company. In his work, he explores how to manage the rapidly growing “knowledge companies” and addresses the dimensions of human capital in IC. A year later, Itami and Rhehl published their work title Mobilizing Invisible Assets. In it, the authors described the effect of invisible assets on the management of Japanese companies. Both of these studies initiated an interest in employee knowledge and experience that would be later further developed by scholars. 13.

(23) Both theoretical and empirical research on the intangible assets of organizations began to emerge. Lev and Sougiannis (1996) valued and calculated intangibles and then correlated those values with financial measures. Inspired by Sveiby’s concepts, Edvinsson and Malone (1997) identified the intangible assets of a company and re-labeled them as IC. In 1998 Bontis associated IC with business performance and in 2000 Bontis et al. further supported their original findings by positively associating human, customer and structural capital with business performance in both service and non-service organizations. Chen et. al (2004) also observed there is an important association between IC and business performance. Furthermore, they found a significant relationship among the elements of IC. Finally, Tseng and Goo (2005) explored the relationship between the elements of IC and corporate value and found a positive relationship exists between these variables.. Components of IC IC does not exist isolated; it is made up of various components. Several models of IC can be found in the literature allocating IC into different categories. For example, Bontis (1998) divides IC into a) human capital, b) structural capital and c) customer capital. Chen et al. (2004) divides it into a) human capital, b) structural capital, c) innovation capital and d) customer capital. The classification of IC varies depending on the researcher however, as pointed out by Cabrita and Bontis (2008) contemporary research seems to have adopted a common tri-partite dimension as can be observed in Table 1.1.. 14.

(24) Table 1.1. Components of Intellectual Capital Author Year HC OC Bontis 1996 X Edvinsson 1997 X X Roos & 1997 X Roos. CC X X X. SC X X X. X. Brooking et al.. 1998. X. X. Van Buren. 1999. X. X. InC. PC. X. X. X. X. Explanation. OC is included in SC Market asset added to CC intellectual property assets and infrastructure Includes aspects of RC (relationships with customers, competition, suppliers, associations and government) to CC. Bontis 2000 X X X Chen et al. 2004 X X X X Note. HC represents human capital; OC represents organizational capital; CC represents customer capital; SC represents structure capital; InC represents innovation capital; PC represents process capital; RC represents rational capital.. Skandia AFS is Sweden’s largest insurance company. It is recognized as one of the first companies to work with their IC (Bontis, 2001). Leif Edvinsson, director of Intellectual Capital developed the Navigator, a dynamic and holistic IC model. This model can also be found in the literature with the name of Skandia’s model, Skandia’s value distinction tree or Skandia Navigator. For the purpose of this study, the IC components proposed in this model were adopted and are described below.. 15.

(25) Figure 2.2. The Navigator. Adapt from “Developing Intellectual Capital at Skandia,” by L. Edvinsson, 1997, Long Range Planning, 30(3), p.226-373. Human Capital (HC) “represents the individual knowledge asset of a company’s employees” (Maditinos et al., 2010, p. 5). It refers to employee’s tacit knowledge, skills, capability and attitudes. The essence of human capital is the sheer intelligence of the organizational members. It embodies the knowledge, talent and experience of an employee. Defined from the individual’s level, it is the combination of genetic inheritance, education, experience and attitudes about life and business of the organizational member (Bontis & Fitzenz, 2002). Employees generate IC through their competency and attitudes. Organizational performance is enabled by HC as employees develop products and services that customers are willing to pay for yielding a profit for the company. Even though employees are considered the most important corporate asset in a learning organization, this asset is not owned by them, therefore if an employee does not serve the company with his/her brainpower that asset cannot be converted into market value (Chen et al., 2004). Organizational capital (OC) incorporates: work-force training, employee voice and work design. Training that takes place within the organization is an important component of OC. “Work-place training is a joint decision undertaken by the worker and the firm to invest in additional skills training after an employment relationship has begun. This training raises the productive capacity of a company” (Chen et al., 2004). Employee voice integrates the organizational structures that give workers, especially those in non-managerial positions, input in the decision making processes. Practices associated with employee voice vary and can range from a simple employee suggestion box to more elaborate schemes as a formal 16.

(26) complaint resolution system (Ichniowski, 1990). Work design refers to processes set up within the organization which will allow a more flexible allocation and re-allocation of employees in order to respond to changing environmental factors. Flexible organizational structures that enable rapid reengineering efforts, job rotation and job sharing are examples of such practices (Chen et al., 2004). Customer capital (CC) is the knowledge that develops through the customer-supplier relationship when business is conducted. Bontis (1998) represents CC as any potentials of the company regarding its customers. According to Chen et al. (2004) CC acts as a bridge and a catalyst in the operations of IC. CC is most directly related to a company’s business performance because without it market value and consequently organizational performance cannot be achieved. CC relies on the support of HC, SC and InC. Structure Capital (SC) holds “all the non-human storehouses of knowledge in organizations, which include the databases, organizational charts, process manuals, strategies, routines and anything whose value to the company is higher than its material value” (Bontis, 1998, p.92). Chen et al. (2004) states that “SC and HC enable enterprises to form, develop, and use IC and CP in a coordinated way” (p.9). It is synthesized into the knowledge management system (KMS) that retains packages and moves knowledge within the organization. According to Bontis (1998) SC contains “elements of efficiency, transaction time, procedural innovativeness and access to information for codification into knowledge, it also supports elements of cost minimization and profit maximization per employee” (p.66). SC helps employees optimize intellectual performance and therefore has the potential to improve business performance. However, if a company has a poor KMS it will not have a positive impact on performance. Innovation capital (InnC) is defined as the ability to build previous knowledge and generate new knowledge. Innovation can be technological or organizational. It is the competence of a company in organizing and implementing research and development in order to bring forth new products, patents, technologies and services to meet the demand of customers. It is founded on a culture of innovation where corporate culture supports and encourages employee’s’ innovation (Chen, Zhu & Xie, 2004). From a technological perspective, InnC refers to the development of new goods and/or services while organizational innovation is the creation of new processes (Maditinos et al., 2010). Chen et al. (2004) state “innovation can be made only with the combination of excellent employee, reasonable regulations, culture and technique” (p.9). Economic growth is driven by innovation rather than capital; therefore InnC plays a key role in gaining or retaining a 17.

(27) company’s competitive advantage. InnC permits the creation of new products and/or services that meet customer demands. Process Capital (PC) is “the non-human storehouses of knowledge which are embedded in its technological, information, and communications systems as represented by its hardware, software, databases, laboratories and other organizational structures which sustain and externalize the output of HC” (Bontis, 2004). The use of information and communication technology (ICT) within an organization enables employees to process, store and retrieve information easily regardless of distance, time and/or volume. The use of adequate ICT facilitates the creation, accessibility and dissemination of knowledge within an organization.. Review of Intellectual Capital Empirical Studies Previous studies (Bontis, 1998; Bontis et al., 2000; Cabrita & Bontis, 2008) identify a positive relationship between IC and business performance (BP). The results of the above mentioned studies, conducted in Canada, Malaysia and Portugal respectively all support this relationship. Results indicate that HC significantly influences SC and RC, and also impacts BP indirectly through SC and CC. Also, SC and CC showed a significant influence on BP with the exception of the research conducted in Malaysia. Maditinos et al. (2010) conducted a similar study examining the relationship between IC with BP in Greek listed companies. The researchers found that HC is important and positively associated to CC in both service and non-service industries. CC has an influence in SC rather than in non-service industries. InnC seems to have an important and positive relationship to SC, regardless of the industry type. Finally, SC has a positive relationship to BP in both industry types, and especially in non-service industries. The results support the findings of Bontis, (1998); Bontis et al, (2000) and Cabrita & Bontis ( 2008). Chen et al. (2004) conducted an empirical study in the Chinese high-tech industry with the purpose of designing a measurement model and a qualitative index system of IC. Consistent with previous research regarding IC and BP, Chen et al. found there is a significant relationship between the scores of the four IC elements of a company and its BP. Furthermore, results showed a remarkable relationship between the four IC elements. Chen, Cheng & Hwang (2005) used Taiwanese listed companies to explore the relationship between IC and a firm’s current and future financial performance. Results of this investigation supported the authors’ hypothesis that a firm’s IC has a positive impact on 18.

(28) market value and financial performance, and may be an indicator of future financial performance. The empirical results obtained by Chen and his collaborators are also in line with previous findings regarding IC and BP.. Business Performance The ultimate goal of an organization implementing IC best practices is to improve its business performance. Although IC is an intangible asset, its outcomes have tangible commercial value (Dewboski, 2006). Business performance is divided into market leadership and financial performance. Market leadership refers to having the largest percentage of total sales revenue (the market share) of a market. A market leader often dominates its competitors in customer loyalty, distribution coverage, image, perceived value, price and profit. Financial performance is a measure of how well a company uses its assets to generate revenues. There are many different ways to measure financial performance, however, the most common used items are: after tax return on sales, after tax return on assets and profit growth.. Survival and Competitiveness Knowledge organizations seek to identify, generate and retain IC to ensure their survival and maintain their competitive advantage (Debowski, 2006). From his research in knowledge management, Lin (2012) developed the Survival and Competitiveness Model where he identifies 9 factors that mainly affect the survival and competitiveness of an organization. The factors proposed in this model were adopted in this research to measure survival and competitiveness. · · · · · · · · ·. Innovation capability Flexible organizational structure Adapt to environmental capacity Dynamic organization Good working environment Good relationship of customers, suppliers and partners Employees with key knowledge Employees learning and update speed Excellent and distinctive culture and value system. The Survival and Competitiveness of the Enterprise. Figure 2.3. Survival and Competitiveness Model. Adapted from The Knowledge Management by D. Lin , 2012, 3rd. ed., John Wiley and Sons Publishing Co. LTD. p. 77.. 19.

(29) An Overview of Honduras’ Recent Economic Performance According to the World Bank, Honduras is the third poorest country in Latin America with a per capita income of US$ 3,870. The shift in the production structure that began at the end of the 1980’s and a closer integration with the international economy over the years, brought a cycle of relative stability that helped improve the country’s overall economic development (Cordero, 2009). From 2004 to 2007 GDP increased more than 6% per year. By 2007, this growth in GDP put Honduras ahead of all the countries in the region with the exception of Costa Rica. In 2008 and 2009 the trend slowed down as a result of two events. The first was the 2008 world recession. In Honduras, the global financial crisis led to an increase in prices. In an attempt to control the rise of prices, the Central Bank put forward policies that resulted in an increase on the lending rate which went from 16.5% in 2007 to 20% in 2008 (Cordero, 2009). Financial institutions reduced the availability of credit in order to maintain high levels of liquidity. The combination of these elements had an immediate adverse impact on the population. In 2009 the country’s economy was further hit by the political instability that resulted from the removal of President Zelaya from office. The political crisis had a significant adverse impact on the economy. In January of that year the economy was forecasted to have a .70% growth. However, by late September it was lowered to -2.6% as a result of the political crisis (Cordero, 2009). From July 2 to November 3 international reserves at the central bank fell by US$ 444.6 million, an equivalent to 18.4% (Cordero, 2009). Access to international relief funds, such as the International Monetary Fund (IMF), was denied because the new government elected after the removal of Zelaya was not internationally recognized. The curfew imposed by the government is calculated to have cost the Honduran economy US$ 50 million per day. There was also a sharp fall in foreign direct investment as well as income produced by the tourism sector.. The Honduran Financial Sector The Honduran financial sector is small in comparison with others in the region. It is constituted by 17 privately owned commercial banks, 2 government owned banks, 11 financial cooperative associations and 12 insurance institutions. According to the Comision. 20.

(30) Nacional de Bancos y Seguros (2011), privately owned commercial banks have a total of Lps. 241,955 million in total assets (approximately US$12 billion). In comparison, financial cooperative associations own roughly Lps. 5,556.3 million (approximately US$ 277 million) in total assets. Over the years, the financial industry has become an important source of income for many families. In 2008, the financial sector employed around 16,570 individuals. To date, they provide employment for nearly 19,407 people. One of the most successful and recognized privately owned bank is Banco Ficohsa. Banco Ficohsa is a part of Grupo Financiero Ficohsa (Ficohsa Financial Group), a group of privately owned financial institutions that includes: Banco Ficohsa, S.A, (Ficohsa Bank) Ficohsa Seguros, S.A. (Ficohsa Insurance), Ficohsa Case de Cambio (Ficohsa Money Exchange) and Ficohsa Casa de Bolsa (Ficohsa Brokerage Firm). This financial institution has been functioning in Honduras since July 18, 1994. Ficohsa is recognized by the public for its continuous product and service innovation and the constant update in the use of technology. Ficohsa operates both nationally and internationally with agencies in Panama and Guatemala. According to the Annual Statistical Bulletin of the Financial and Insurance System developed by the Comision Nacional de Bancos y Seguros (2011), Banco Ficohsa ranks third among Honduran commercial banks with a total of Lps. 34,451.6 million (approximately US$ 1.7 billion) in total assets; Lps. 2,831.9 million (approximately US$ 0.14 billion) in capital and reserves; and Lps. 41.4 million (approximately US$ 2.05 million) in utilities.. 21.

(31) CHAPTER III METHODOLOGY The subsequent chapter outlines the research methodology. It includes the research framework, states the hypothesis tested by the researcher, depicts the research procedures that were followed, describes the research design and ends with an explanation of the statistical analysis methods through which the empirical data obtained was evaluated.. Research Framework The TIP Model (which stands for Trust, Intellectual Capital and Performance) shown in figure 3.1 was developed by Shih and Funes based on the Model of Organizational Trust, Job Satisfaction and Effectiveness of Shockley-Zalabak, Ellis and Cesaria (2003), Scandia’s Navigator (Edvinsson, 1997) and the Survival and Competitiveness of the Enterprise Intellectual Capital Model (Lin, 2012). The TIP model served as the research framework for this study. The framework clearly depicts the hypothesis tested and the variables studied by the researcher.. Organizational Trust Intellectual Capital · · · · ·. Competence Openness/honesty Concern for employees H1 Reliability Identification. H1. Survival and Competitiveness Employee · Employees with key knowledge · Employees learning and update speed. H7 Structure Capital. Customer Capital. H4. Environment · Adapt to environmental capacity · Good working environment · Good relationships of costumers, suppliers and partners. Innovation capital. H3. · ·. Human Capital (Employee) Organizational Capital. H6. Organization · Innovation capability · Flexible organizational structure · Dynamic organization · Excellent and distinctive culture and value system. Business Performance. Intellectual Capital · ·. H2. Market leadership Financial performance. Figure 3.1. TIP Model.. 22. H5. Process capital.

(32) Research Hypotheses Based on the research questions, and the literature review, the following nullhypotheses were formulated as follow:. H1: Organizational trust has no effect on intellectual capital. H2: Intellectual capital has no effect on business performance. H3: Business performance has no effect on survival and competitiveness. H4: Innovation capital has no effect on structure capital. H5: Process capital has no effect on structure capital. H6: Customer capital has no effect on intellectual capital. H7: Structure capital has no effect on intellectual capital.. 23.

(33) Research Procedure The research was conducted following the subsequent research process: Identify Research Questions and Hypothesis Review of Literature Develop Theoretical Framework of the study Develop Research Method of the Study Instrument Development Translation, Backward-translation and Expert Review of instrument Conduct Pilot Study. Gather Data Data Analysis Report research Findings and Conclusions Figure 3.2. Research Process. Research Design Because this study is a survey correlational research, a quantitative approach was implemented. This methodology was selected because it was the intent of the researcher to collect numerical data which was then analyzed using mathematically based methods with the purpose of testing whether or not there was a statistical relationship between the variables of interest (Sukamolson, 1996). In addition, a quantitative method approach facilitates the description, illustration and exploration of a given phenomenon (Yin, 2003), therefore it is deemed appropriate for the purposes of this research.. 24.

(34) Data Collection The target population of this research are employees of Ficohsa Financial Institution. Because of this institution’s relevant position within the Honduran financial system, it was considered appropriate by the researcher to use for this investigation. To gather the necessary data, an online questionnaire was utilized. The instrument was first tested on a group of 30 Ficohsa employees who participated in a pilot study. Once the instrument was revised and validated, it was then implemented to gather data for the main study. To date, Ficohsa employs 1,200 people; therefore, the minimum sample size in order to be able to make generalizations about the entire population from the results obtained is of 291 individuals. This number was acquired by utilizing the sample size formula for an infinite population and then using the sample size derived from that calculation to calculate the sample size formula for finite population. This procedure is followed to calculate the minimum sample size of a population less than 50,000 as is the case with this organization. (Godden, 2004):. ( ) (. ). Where SS= Sample size; Z= Z-Value; p= percentage of population picking a choice, expressed as a decimal and C= confidence interval, expressed as a decimal. For the purpose of this study the Z-value, which represents the probability that a sample will fall within a certain distribution, was 1.96 because a 95% confidence level was used, P= .5 because this is the number used when determining sample size needed and C= .05 because for this research a Standard Error of 5% is considered acceptable. (. ( Where Pop= population. 25. ). (. )).

(35) (. (. )). Convenience sampling was used throughout the research. However, in order to improve the validity of the investigation respondents for both the pilot study and main investigation were randomly chosen. Employees are assigned an employee identification number when they first join the organization. In order to select participants for the research a web based random number generator, Random.com was used to obtain 330 numbers (30 numbers for the pilot study and 300 for the main study). Numbers obtained were then sent to the HR manager who matched them with the corresponding employee identification numbers. The HR manager then contacted participants using the company’s intranet requesting their participation in the study. After they agreed, the HR manager emailed respondents a link to access Kwiksurvey, an online survey builder, were the questionnaire was hosted. This method was chosen because of its convenience and low cost. All ethical guidelines as well as the confidentiality of all participants were strictly upheld during the course of this research. Instrument The instrument consists of 8 variables and has a total amount of 70 questions that are divided into four distinct parts, these are: part I) organizational trust; part II) intellectual capital; part III) business performance and survival and competitiveness; and part IV) demographics. Parts I through III were evaluated by using a 5 point Likert-type Scale asking participants to rate each statement based on their opinion about their company (1=strongly disagree, 2=disagree, 3=average, 4=agree,5=strongly agree). For part IV, respondents were asked to choose one of different available options. Part I, which relates to organizational trust, was adapted from the 29-item Organizational Trust Index (OTI) developed by Pamela Shockley-Zalaback, Donald Morley, Ruggero Cesaria and Kathleen Ellis. The index was developed by making normative comparisons from data obtained from a total of 53 organizations from the United States (25 states), Italy (11 cities), Sydney, Singapore, Hong Kong, Tokyo, Bombay and Taiwan. This data expressed the opinions of a total of 4,000 supervisory and nonsupervisory employees from multiple industries including banking, telecommunications, manufacturing, IT, sales and customer service. The validity and reliability of the 29-item OTI was sufficiently established in the author’s original work. 26.

(36) Part II was adapted from questionnaires relating to intellectual capital and management systems by Cabrita & Bontis (2008), Debowski (2006), Bukowitz & Petrash (1997), Black & Lynch (2005) and Bontis (2004). A total of three questions per variable were selected from the different questionnaires adding up to a total of 18 items. The validity and reliability of each one of the above mentioned instruments were also sufficiently established in the author’s original work. Part III explores two dimensions: survival and competitiveness and business performance. The 9 items for survival and competitiveness were adapted from the work of Lin (2012) on knowledge management. Primarily, the questions used in this section are based on the literature discussing the factors that mainly affect the survival and competitiveness of an enterprise. Finally, business performance is assessed through market leadership and financial performance. The 10 items for this section (5 for market leadership and 5 for financial performance) were adapted from the empirical research of Lee and Choi (2003). The validity and reliability of the items, as established in the authors’ original work, are suitable for this research.. Construct Coding and Scales Tables 3.1 thru 3.4 show the items used to measure the variables of this study. Each item was given a code that was later used in the statistical analysis of the data. Dummy variables were created to code part IV of the measurement instrument pertaining to demographics. Table 3.1 Items measuring Organizational Trust Construct Code. Questionnaire Item. Competence. Comp1. Overall operational efficiency.. (Comp; 4 items). Comp2. Overall quality of financial products and/or services offered to clients.. Openness/Honesty. Comp3. Capacity to achieve objectives.. Comp4. Capability of employees.. Op/h1. Honesty with immediate supervisor when things. (Op/h; 9 items). are going wrong. Op/h2. Freedom to disagree with immediate supervisor. (continued) 27.

(37) Table 3.1 (continued) Construct. Code. Questionnaire Item. Op/h3. Say in decisions that affect job.. Op/h4. Ability of immediate supervisor to keep confidences.. Op/h5. Reception of adequate information regarding job performance.. Op/h6. Reception of adequate information regarding performance evaluation.. Op/h7. Reception of adequate information about how job-related problems are handled.. Op/h8. Reception of adequate information regarding how organizational decisions that affect job performance are made.. Op/h9. Reception of adequate information regarding long-term organizational strategies.. Concern for employees. Conc1. (Conc; 7 items). Willingness of immediate supervisor to listen to employees.. Conc2. Sincerity of top management in their effort to communicate with employees.. Conc3. Willingness of top management to listen to employee’s concerns.. Conc4. Concern. from. immediate. supervisor. for. employee’s personal well-being. Conc5. Concern from top management for employee’s well-being.. Conc6. Sincerity of immediate supervisor in his efforts to communicate with team members.. Conc7. Supervisors speak positively about subordinates in front of others.. Reliability (Reli; 4 items). Reli1. Follow through by immediate supervisor on what he says.. Reli2. Consistent behavior from immediate supervisor.. (continued) 28.

(38) Table 3.1 (continued) Construct. Code Reli3. Questionnaire Item Ability. of. top. management. to. keep. commitments to employees. Reli4. Ability of immediate supervisor to keep commitments to team members.. Identification (Iden; 5 items). Iden1. Connection to peers.. Iden2. Connection to organization.. Iden3. Connection to immediate supervisor.. Iden4. Similarity in values to peers.. Iden5. Similarity in values to immediate supervisor.. Table 3.2 Items measuring Intellectual Capital Construct Code Human Capital (HC; 3 items). Organizational Capital (OrgC; 3 items). HC1. Questionnaire Items Understanding and good use of employees abilities.. HC2. Creative employees.. HC3. Low turnover rate.. OrgC1. Variety of training (formal and informal).. OrgC2. Formal and effective grievance procedure or complaint resolution system.. Customer Capital (CuC; 3 items). OrgC3. Flexible organizational structure.. CuC1. Customer satisfaction.. CuC2. Circulation and understanding of customer’s feedback and comments.. Structure Capital (StruC; 3 items). CuC3. High-value added customer service.. StruC1. Knowledge management system improves job performance.. StruC2. Regular update and ability of knowledge management. system. to. provide. real-time. information. (continued) 29.

(39) Table 3.2 (continued) Construct. Code StruC3. Questionnaire Item Knowledge management system meets user’s needs.. Innovation Capital (InnC;3 items). InnC1. Open-minded culture that supports innovation.. InnC2. Knowledge sharing.. InnC3. Management style supports and encourages innovation.. Process Capital (ProC;3 items). ProC1. Taking full advantage of information and communication technology to facilitate the transfer of information.. ProC2. Software. allows. easily. processing,. store,. retrieving and communicating information. ProC3. Hardware adequately supports software.. Table 3.3 Items measuring Business Performance. Construct Code Market Leadership (Mark; 5 items). Questionnaire Items. Mark1. Market share.. Mark2. Future prospect.. Mark3. Industry market leadership.. Mark4. Overall. financial. product. innovation.. Financial Performance (Finp; 5 items). Mark5. Average sales growth.. Finp1. After tax return on sales.. Finp2. Profit growth.. Finp3. After tax return on assets.. Finp4. Average profit.. Finp5. Overall business performance.. 30. and. service.

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