臺灣金融機構知識管理策略、知識促成要素與智慧資本對整體經營績效影響之研究

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(1)The Effect of Knowledge Management Strategy, Knowledge Enabler and Intellectual Capital on Business Performance in Taiwan Financial Institution by Mingchu Aibo Tsai. 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.. National Taiwan Normal University Taipei, Taiwan June, 2016.

(2) ACKNOWLEDGEMENT After three years of hard work. Now, comes to time for thesis completion. Through an MBA life and research journey, many of the challenges encountered, and I believe things happened for reasons, by overcome difficulties, I grow up intellectually. First, I would like to show deepest gratitude to my parents, for their continuous support for me to receive higher education worldwide, taught me to seek for better opportunities in life, and always push the boundary to achieve for higher goals, to enjoy life and help others. Now, I would like to show my special thanks to my thesis advisor; Dr. Cheng-Ping Shih, who used an unparalleled training, to train my brain for systematic mindset, push my limits by solve advanced tasks, and demonstrate an importance of having a functional family, as the key to his success. I would particularly like to thank Dr. WeiWen Chang, for her quality time, to provide me an adequate and useful counsel to broaden my future career options, as well as advices on advance educational achievement internationally. My gratitude must show to Dr. Pai-Po Lee & Dr. ChihChien Lai for being my thesis committee, as well as taught me features of an international cooperation, operation of NGO & NPO through class, also provides hands on experience in Association of Cross-cultural Training (Taiwan) to me as IT group leader, to build its official website without any prior experience, the challenges truly makes me become more well-rounded talent. During the MBA study, one particular course held by current director of our master program; Dr. Chu-Chen Yeh, an electronic human resource system actually taught me a lot on cooperation with an external vendors, especially with Oracle & Abeam Consulting, for reboot the PeopleSoft terminal situated at IHRD, and relevant training workshops, the class also provides me an opportunity to interview head of human resource from Colliers International Taiwan, in understand on how practical world used an E-HR system to leverage their job tasks, employee development & management. I must express my very profound gratitude to my fellow classmates Mr. Hildeberto Seca, Ms. Tatjana Tica & Mr. Eduardo Jimenez for providing me with technical support & continuous encouragement throughout my years of study, the process of researching and writing this thesis. This accomplishment would not have been possible without them. Also, thanks to other non-listed NTNU IHRD faculties, staffs, classmates and friends outside IHRD for accompany me through the unforgettable MBA journey. This journey is about to an end for MBA life, but new beginning for the next chapter of life..

(3) ABSTRACT. On facing the financial technology or FinTech challenges, large proportion of the business, which is traditionally dominated by the financial institution such as banks, are now became the core business of FinTech businesses. Financial market has observed one of the FinTech form of business; the Peer to Peer or Marketplace lending rally ever since year 2010, while the traditional bank’s loan issuance tumbled simultaneously, market share of traditional bank are also diluted by the FinTech challenges. FinTech challenges is a global phenomenon, such concern became financial institution’s priority. Theoretically, this study developed an integrated KIPs research model amd used the multiple variable analysis performed by SmartPLS statistical software to understand how the financial institution facilitate its intellectual capital to tackle FinTech challenges, and further examine the knowledge enabler to understand which enabler can best amplify the effect of intellectual capital, further explore on which knowledge strategy financial institution can adopt, to strategically tailored the financial institution to form its winning pattern, using such pattern to best cope with the FinTech challenges, the research model developed in this study can be used in future research, to perform an advanced analysis with the improved limitations. Practically, this study investigate the FinTech challenges to financial institution in Taiwan, also fulfill the current research gaps in lacking of an integrated research model to study about FinTech challenges to financial institution. There are five important findings in this study. First, the System Strategy of Knowledge Management Strategy can significantly influence Knowledge Enabler. Second, T-shaped skills of Knowledge Enabler can best leverage the Intellectual Capital. Third, Relational Capital of Intellectual Capital are key for financial institution to deliver exceptional Business Performance. Fourth, in terms of the Business Performance, financial institution cares its market leadership the most. Fifth, Knowledge Enabler has the most significant indirect effect to Business Performance as well as to Intellectual Capital.. Keywords: Knowledge Management Strategies, Knowledge Enabler, Intellectual Capital, Financial Technology, FinTech. I.

(4) TABLE OF CONTENTS. ABSTRACT................................................................................................ I TABLE OF CONTENTS ........................................................................... II LIST OF TABLES ................................................................................... IV LIST OF FIGURES ................................................................................... V CHAPTER I INTRODUCTION.................................................................1 Background of the Study ....................................................................................... 1 Problem Statement ................................................................................................. 4 Purpose of the Study .............................................................................................. 5 Research Questions ................................................................................................ 7 Significance of the Study ....................................................................................... 8 Definitions of Terms ............................................................................................ 11 Limitations ........................................................................................................... 21 Delimitations ........................................................................................................ 23. CHAPTER II LITERATURE REVIEW...................................................24 Knowledge Management Strategies .................................................................... 24 Knowledge Enabler .............................................................................................. 29 Intellectual Capital ............................................................................................... 32 Business Performance .......................................................................................... 40. CHAPTER III METHODOLOGY ...........................................................42 Research Framework ........................................................................................... 42 Research Hypotheses ........................................................................................... 43 Research Procedure .............................................................................................. 44 Data Collection .................................................................................................... 44 Measure Instrument ............................................................................................. 47 II.

(5) Validity and Reliability ........................................................................................ 48 Method of Data Analysis ..................................................................................... 50. CHAPTER IV DATA ANALYSIS & EMPIRICAL FINDINGS .............54 Taishin International Bank Pilot Study (N= 47) .................................................. 54 Sample Characteristics ......................................................................................... 61 Reliability and Validity Analysis ......................................................................... 64 Descriptive Statistics Analysis ............................................................................. 70 PLS Main Study Finding (N= 86)........................................................................ 89. CHAPTER V CONCLUSIONS AND SUGGESTIONS .........................97 Conclusions .......................................................................................................... 97 Implications.......................................................................................................... 99 Future Research Suggestions ............................................................................. 103. REFERENCES .......................................................................................104 APPENDIX A. RESEARCH QUESTIONNAIRE (ENGLISH) ............ 115 APPENDIX B. RESEARCH QUESTIONNAIRE (CHINESE) ............123 APPENDIX C. PLS RESULTS ..............................................................129 APPENDIX D. CODING .......................................................................137. III.

(6) LIST OF TABLES. Table 2.1. Classification of Knowledge Management Strategies ................................ 28 Table 2.2. Taxonomy of Knowledge Enablers ............................................................. 29 Table 2.3. Intellectual Capital Constructs .................................................................... 39 Table 3.1. Validity of Instrument ................................................................................. 49 Table 3.2. Reliability of Instrument ............................................................................. 49 Table 3.3. Constructs and Measurement of Data Analysis .......................................... 53 Table 4.1. Factor Loading and Internal Consistency & Reliability Analysis via PLS .58 Table 4.2. PLS Cronbach’s Alpha, Internal Consistency and R2 ................................ 60 Table 4.3. Empirical result of PLS Path Analysis (Hypothesis, Standardized Beta Coefficients and Adjusted T-values) ............................................................................ 60 Table 4.4. Distribution of Demographic (N= 149) ...................................................... 63 Table 4.5. Reliability Analysis on All Constructs by SPSS ......................................... 66 Table 4.6. Reliability Analysis on All Dimensions by SPSS ....................................... 68 Table 4.7. Result of Factor Analysis for All Constructs by SPSS................................ 69 Table 4.8. Questionnaire Items for Knowledge Management Strategies ..................... 72 Table 4.9. Questionnaire Items for Knowledge Enabler .............................................. 76 Table 4.10. Questionnaire Items for Intellectual Capital ............................................. 82 Table 4.11. Questionnaire Items for Business Performance ........................................ 87 Table 4.12. Main Study Test of Hypothesis Result ...................................................... 92 Table 4.13. Main Study of Total Effects, Mean, STDEV by PLS (N= 86). ................. 93 Table 4.14. Main Study of Indirect Effects, Mean, STDEV by PLS (N= 86) ............. 94 Table 4.15. Main Study of Path Analysis by PLS (N= 86) .......................................... 95 Table 4.16. Correlation Analysis by PLS of Main Study (N= 86) ............................... 96. IV.

(7) LIST OF FIGURES. Figure 3.1. Research framework .................................................................................. 43 Figure 3.2. Research procedure ................................................................................... 44 Figure 4.1. KIPs research model; analysis by PLS (Pilot study, N= 47) ..................... 56 Figure 4.2. Main study final result (N= 86) ................................................................. 89. V.

(8) CHAPTER I INTRODUCTION. This chapter provides an overall view and understanding of this research. It will be covered with the background of the study, problem statement, purposes of the study, research questions, significance of the study, and definitions of terms to be used in this study to illustrate as well as navigate readers in understanding of the study.. Background of the Study Today, the world faces a new form of economic component and development, professor from a prestige university; New York University Stern School of Business highlighted several important key features which all modern organizations should be focus on, for instance, strategy in managing human resources, capability to deliver continuous innovation, solid infrastructure for digital as well as communication technologies, such intangibles played as a vital component of the modern organizations, due to the constantly varying competitive business eco-system, the challenge arise as how to best measure, visualize and manage these intangibles become the center focus of theoretical and practical researches, however, most of the current research available are majorly focused on the traditional accounting transaction for historical cost based views and is becoming outdated, which did not capture factors that can significantly influence the modern knowledge organizations in knowledge economy, therefore, these unrealized intellectual capitals, also refer to the driver of modern organizational growth truly deserved for the more careful study to examine its importance as well as its impact (Lev & Zambon, 2003). Fundamental concept of knowledge management is to utilize and leverage the existing resources in an organization to facilitate people on finding the best practices, instead of reinvent the wheel (Smith, 2001a). One of the distinguished professor and 1.

(9) scholar in Knowledge Management field argue with respect to large expansion of the professional services industry, as well as many other knowledge intensified companies or knowledge based firms, such an organizations or firms become the driving force of the modem economy, which largely substitute an importance of traditional manufacturing industry or other highly labor intensified industry, again the importance of intellectual capital in today's business society has been reinforced (Bontis, 1998). Intellectual capital also known as the knowledge that one organization holds, has become one of most distinguished and widely discussed business administration subject of study, while knowledge grow at dramatic speed, intellectual capital serves as determinant factor of success and failure of modern organizations as well as the competitiveness of its business core (Edvinsson and Malone, 1997; Roos and Roos, 1997; Bontis, 1999, 2001). Followed the accounting principle, it is relatively easy to determine the book value, the value of such book value is usually accounted by its physical assets, to represent the company’s value, in the past it is quite adequate, due to past businesses primarily focused on the tangible assets including land, machinery, factory and equipment, however, on facing the globalization, this rule has to be changed (Andriessen, 2004). Without calculating the contribution of its human capital to the innovation perspective including design, ideas, also without the consideration of structure capital, which is the computer systems or information system that facilitate its human capital to gain access to world's leading information and technology to better carry out their innovation action, or without the relational capital, which can build a strong connection as well as engagement with customer and other stakeholders. All the criteria mentioned above are not mentioned in the traditional accounting principles, especially the relational capital of an organizations, such dimension is very important, in the ways that customer loyalty to the company and brands, can actually generate large volume as well 2.

(10) as stable income stream over time. Study argue that by managing intellectual capital can assist companies in generating profits from products and services, licensing, joint venture or strategic alliances with other firms. In addition to that, intellectual capital serve as strategic positioning for the company, to penetrate its market share, gain leadership support as well as having access to latest innovation and technologies, facilitate customer recognition by branding, strong reputation and trademarking which allows company to acquire and fulfill the gap of its innovation capacity, gain loyal customer to its business operation also enhance the productivity (Harrison & Sullivan, 2000). Due to unique characteristics of Intellectual Capital, including it is difficult to duplicate, as well as is usually presented by firm specific. Such advantages will allow companies to create their most specific value proposition also obtain a clear distinct competitive advantage from others, to best deliver advanced performance in comparison with their rival competitors (Bontis, 1998; Nahapiet and Ghoshal, 1998). Today, the publicly listed company and knowledge intensified organizations, usually exists a large to substantial discrepancy between the company’s book value and market value by accounting perspective. Such trend and volume of similar firms, is going to expand rapidly in the next decade or so. Looking back to the fundamental and key concepts behind such phenomenal is usually due to the composition of modern organization structure is very much different from the past or how it used to be. Modern organizational are primarily generate their value primarily come from the intellectual capital or knowledge that the organization holds, instead of traditional physical assets which reinforce the importance for discover the driving force of intellectual capital, which is in-depth look how the knowledge being generated, what are the enabler for the knowledge, and primary the strategy that we can use for knowledge management. 3.

(11) Problem Statement This study argues in the modern knowledge economy, especially in current Financial Technology (FinTech) era, intangible assets in any given organizations or particularly in commercial companies actually deserve for relatively more attention on its importance. Comparison with the tangible assets in modern organization, to a certain extent, intangible assets like knowledge are becomes extraordinary important resources for businesses and organizations to create value and deliver value added services. The increasing gap between company market value and book value reinforce academics and businesses to consider intellectual capital as key determinant of value creation for companies, stakeholders and society as a whole (Viedma & Salmador, 2013). In the 21st century, organizations and commercial companies face a more aggressive and dynamic environment, by the combination of globalization, much advanced technology development, shortened product life cycles, and various forms of network partnerships (Cardinal, 2001). Under the modern world economy, the dominant managerial practices with the traditional strategic focus on cost cutting, benchmarking, reengineering became relatively ineffective also insufficient to generate competitive advantage (Marr and Roos, 2005; Teece, 2007). In order to best determine the organization's key competiveness, the academic and practical research stream started to put down more weight on analyzing an intangible resources, which includes knowledge and competence of the employees, knowledge management databases, information technology support, effective operating processes, enhancement of customer relationship, empowering innovation activity, branding strategies, and organization cultures which supports the development of an organization (Andriessen, 2004; Kaplan and Norton, 2004). There is only few literature analyzing how entrepreneurs or organizations on organizing their elements of intellectual capital to obtain competitiveness, thus, it is 4.

(12) important to analyze the process of intellectual flows to allow entrepreneurs better structure and organize intellectual on delivering better performance, which this study aims in minimizing such gaps in the research (Bontis, 1999).. Purpose of the Study Organizations to evolve a holistic strategic positioning as well as competitiveness in the modern rapid varying and dynamic business society, it must take consideration for an importance of the intellectual capital, examine which factor can supports an internal and external growth opportunities, the valuation of non-financial factors such as human resource practices plays as critical role in determine the organization’s success, however, most of successful example driven by intellectual capital and intellectual process factors are primarily to be found in the Nordic countries, which the study conducted for other geographic region are unobserved (Lev & Zambon, 2003). MIT Sloan Management Review (1999) mentioned the well-known American computer company Dell by adopting the knowledge management and its strategic approach, which enables Dell to develop a more customer-responsive innovations, successfully reform the supplier to become more transparent on prices, which dramatically shorten consumer’s waiting period for getting the next or new computer for their work or school, such strategic knowledge driven moves enhances the supplier's commercial success by better bridging the consumer needs with supplier's resources, altogether makes the successful and profitable business case of Dell computer. Such breakthrough driven by sophisticated knowledge strategy which leverages the skills and resources of an organization to be maximized. However, a good knowledge management strategy stand alone is not sufficient to make the success of the knowledge intensified organization; therefore, the study must further explore the knowledge management strategy to knowledge enabler, knowledge enablers to intellectual capital and intellectual capital effect on business performance to better 5.

(13) illustrate the impact as well as an interesting dynamics embedded. Only when the knowledge are linked together, can then form a knowledge or an intellectual network which allows knowledge or intellect to travel smoothly within an organization, as well as to enhance the development of an innovation and other intellectual process to be radical (Subramaniam and Youndt, 2005). This study try to examine the success of knowledge management and intellectual capital can also be observed in Taiwan. By conduct an empirical study focused on the financial institution in Taiwan to empirically test it. The nature of financial institutions known for heavily relies on human capital and other intellectual capitals to gain competitiveness and deliver exceptional business performance. Now, this study would like to have an in-depth look and investigate at the knowledge management strategy, knowledge enabler, and intellectual capital’s influence on business performance for the financial institution in Taiwan. To investigate and further understand the driven force for each dimension, as well as to understand the positive impact from factors of each dimension which can be made to business performance of the modern knowledge intensified organizations. Therefore, the purposes of this study aims to fulfill the gap in current research, stated as following: 1. To empirically test the Knowledge Management Strategies, Intellectual Capital, Business Performance (KlPs) Model on analyzing the effect of knowledge management strategies on knowledge enabler of the Financial Institution in Taiwan. 2. To empirically test the KIPs Model on analyzing the Knowledge Enabler effect on Intellectual Capital for Financial Institution in Taiwan. 3. To empirically test the KIPs Model on analyzing the impact of intellectual capital to business performance on Financial Institution in Taiwan.. 6.

(14) Research Questions This study will seek to find how financial institution in Taiwan can best cope with FinTech challenges, by answer the following questions based on the above purpose. This study however, has three major research questions to aid the researcher study and readers to understand its application by and large. 1. What aspects of knowledge management strategies will affects knowledge enabler on Financial Institution in Taiwan? 2. What aspects of the knowledge enabler will affects intellectual capital on Financial Institution in Taiwan? 3. What aspects of the intellectual capital will affects business performance on Financial Institution in Taiwan?. 7.

(15) Significance of the Study On facing the financial technology or FinTech challenges, many of the traditional financial institution’s existing business are replacing by the FinTech companies. For instance, consumer, small business and real estate related loans are among three of the major loan category for banks, are now became the center of peer to peer or market place lending; one type of FinTech company’s core business, which the traditional institution are noticed such emerging issue, start to raise its awareness on how to best cope with the new challenges poses by the FinTech (Athwal, 2016). Most valuable asset which organizations can hold regardless of its industry is the knowledge, such valuable strategic resources deserve for a careful study to investigate its effort and impact to an organization by examine the different facilitator of knowledge (Zack, 1999). Especially in today's ultra-competitive knowledge economy, it is extraordinarily important for knowledge intensified organizations to understand how to best recognize, acquire, share, and apply knowledge (Smith, 2001b). An example of how knowledge management strategy can transform workflow to become more efficient and effective, one must take consideration for the successful example of IBM, the internal consultants used knowledge management strategy to shorten the proposal waiting time to almost 1/7 of the time, or by numeric figure, time span reduced from an average of 200 hours reduced to 30 hours only, result is impressive indeed, again highlight an importance of the knowledge management strategy (McCune, 1999). Two direction of research are typically appeared in the literature review. First, the majority of existing literature only focuses on the development and measurement of intellectual capital. Second types of existing research discuss the relationship between intellectual capital and performance as the center of interest for research, the discussion of the comprehensively examine the knowledge management strategy and other 8.

(16) knowledge facilitator’s influence on business performance are still lack of, which need to be examined, and highlight the significance of this research (Shang and Lin, 2010). Therefore, this research serves as an enrichment of current knowledge management and intellectual capital study in Taiwan, to addresses some of the major gap found in the existing research and theory. The two center focus for this study are as follow. First, intellectual capital commonly considered as key variable which affect the modem enterprise's competitiveness, and the business performance is another key variable which organizations of all sizes and business discipline cares, putting a lot of resources to research and investigate, the study aims to perform careful analysis on analyzing the effect of knowledge strategies to enable the intellectual capital effect on business performance for an enterprise, to enrich the current study on intellectual capital study in Taiwan. Second, the study aims in fulfill the scarcity of contemporary research in providing an integrated framework for intellectual capital analysis, whereas the KIPs model was built (Cabrita & Bontis, 2008). Four Major Significance of This Study: 1. This study is significant to academicians in that it provides an integrated KIPs model for intellectual capital analysis within an organization. The KIPs Model adopts various researchers’ findings in Intellectual Capital to have effectively influence on business performance. Therefore, this study is significant because it expands the concept of intellectual capital in integrated framework for analysis that has not often been achieved in previous research (Cabrita & Bontis, 2008). 2. This study is also significant for HR practitioners; in light of intellectual capital is the key strategic resource for modern knowledge firms to deliver better organizational performance (Longo et al., 2009). Intellectual capitals reinforce the priority of human resource objective about utilizing the human capital competence within an organization to deliver better performance and to evolve the adequate 9.

(17) strategy on business success of the twenty-one first century. 3. This study can significantly benefits the enterprises as it seeks to analyze the effect of intellectual capital on delivering better business performance to provide enterprise with a clear vision on how to best utilize and leverage their human resource and knowledge that corporate holds. 4. It is particularly important for the Financial Institution; whereas the core business of financial institutions is heavily rely on its intellectual capital for daily operation as well as on delivering exceptional business performance. The analysis perform in this research will provide a holistic view on dominant factor which affect the intellectual capital on business performance for financial institution in Taiwan. Further, it allows organization to properly allocate the weight of each intellectual capital components to operate in the most strategic way to stay closer with their market needs (Jardon, 2015).. 10.

(18) Definitions of Terms In this section it will give both the theoretical and operational definitions of the variables used in this study from research done by previous researchers. The theoretical definitions outline the idea and concept of each variable and the operational definitions outline how each variable will be measured.. Knowledge Management Strategies The systematic improvement in the process of working flows, knowledge flows can leverage the organizations asset, which serve as strategic resources for organizations to deliver better performance as a whole (Freeze and Kulkami, 2007). Previous studies provide us a good foundation for the research direction to go further; we must define the core capabilities and competencies for organization to execute the strategies to evolve the right strategy for organization to cope with twenty-first century intense competition on financial institution and FinTech challenges.. Knowledge Enabler Researcher proposed that the knowledge enabler is one of the core capabilities in deliver the better organizational performance (Edvinsson and Malone, 1997). Since knowledge enablers are one of the influential factor for better business performance, sharing codified knowledge among organization facilitate employees within the organization to quickly acquire and adopt knowledge in the work place, which creates better off organizational wide (Chuang, 2004).. Intellectual Capital The concept of intellectual capital (IC) first appeared in the letter which is written by Galbraith to Kaleeki, who is the editor-in-chief of the Economist Magazine, in 1969 (Masoulas, 1998). Galbraith attempted to explain the value gap between market value and book value with the concept. He considered that IC means intellectual action rather than knowledge or pure intellect and exists in the knowledge that helps firms create 11.

(19) differential advantage and accelerate the creation of value through valuable IC to connect the working team inside or outside the enterprises, customers, and suppliers (Galbraith, 1969). It implied that IC can be seen as a form of value creation. (Roos et al., 1997). The commonly accepted components of intellectual capital from the literature review were adopt it to this study, which are the human capital, structural capital, and relational capital (Bontis, 1998; Subramaniam and Youndt, 2005; MartinezTorres, 2006; Hsu and Fang, 2009; Martin-de-Castro et al., 2011).. Human Capital The human capital can refers to the competence that found in firm's human resources. Including the knowledge held and created by the company's employees, along with their attitudes, experience and skills. (Garcia-Pozo et al., 2014) accordingly, in previous studies have found that human capital represents a key source for innovation (Nonaka and Takeuchi, 1995; Bontis et al., 2000; Subramaniam and Youndt, 2005). All kinds of organizations and companies has intellectual capital, by the previous research, the human capital can be further categorized as skills, competencies, and abilities of an individual or groups, in which, the skills are relatively a soft skills in contrast with the solid skills such as gardening, the human capital can also be a collective skills or aptitude of a team, which on other hand posts the challenges to the executives and management of how to effectively manage the truly outstanding talents within an organization, how to utilize their best capability and skills without over depending on only few star performers, as well as another very important part, is how to facilitate the star members willing to share their expertise and knowledge with the rest of the members in an organization, to have an overall vertical and horizontal improvement, therefore, it’s critically import in understanding the human capital, as the talents are the most important assets today (Stewart and Ruckdeschel, 1998).. 12.

(20) The economists had long ago examined and identified the physical and human capital as the key resources for the companies to facilitate their operation and other economical involved activities, by the involvement of capabilities and knowledge, employees can then be empowered to do greater things and helps the organization in achieving the better outcome to outperform as well as to challenge its status-quo, hence, the study of human capital is both essential and inevitable to best understand the drive of patterns of winning by Intellectual Capital (Nahapiet and Ghoshal, 1998).. Structural Capital Structural capital includes the knowledge (know-how) found in the firm's infrastructure and processes that support human capital (Edvinsson and Malone, 1997). Organizational intelligence is not equal to the sum of individual intelligence unless the knowledge of workers is shared and stored in a repository of the organization, which reinforce the importance of the information system or known as process capital. Structural capital includes the firm's mechanisms and structures that assist individual's innovative capabilities. From the accounting and finance perspective, it did not capture the holistic view of intellectual capital besides the structural capital, which the patents and copyrights may be reflected in the financial report (Stewart and Ruckdeschel, 1998). The outdated business model for the financial institution must be revised, to adopt for the twentyfirst hyper competition, with the hybrid of business structure, an infrastructure became even more important.. Relational Capital Relational capital refers to the knowledge derived from the firm's relationships with the external (Garcia and Bounfour, 2014). Organizational relationships imply exchanges of knowledge, which can refer to the potential source of new ideas and innovation. (Schiuma et al., 2005). In the current knowledge economy, integrating with 13.

(21) external is extraordinarily important as the relationship can bring valuable and effective channel of new information to innovate company's products and services (Chesbrough, Vanhaverbeke, and West, 2006; Gatignon, Tushman, Smith, and Anderson, 2002). Good example of relational capital can refer to customer capital, which represents the value of the relationship between the firm and the customers to be captured in depth (penetration), breadth (coverage), and attachment (loyalty) (Stewart and Ruckdeschel, 1998). Customer capital is associated with profits of the business, since understanding your customer needs accurately determine the success of an innovation in business sense (Teece, 2007).. Innovation Capital To study about Innovation Capital, the understanding of why is it important, must be declared first, the innovation is an intrinsic action or motives, which helps individuals and organizations to identify the good opportunity at the given point in time or to identify the opportunity in help of creating new things, such as new products or services (Van de Ven, 1986), with no surprise, the innovation is used for pursuing the new and unique knowledge (Nonaka and Takeuchi, 1995), However, an interesting study found the individual expertise along cannot radically helps the development of innovation, which again highlight the intellectual capital is relatively exhibit in an interaction among all other sub-dimensions, and the relationship among which can then be best to fulfill its capacity (Subramaniam and Youndt, 2005). Innovation is nevertheless the key drive of modern organization’s success, in particular, the innovation capital is also serve as a key facilitator for the structural capital, in successfully carry out the tasks, to fully recognized the value and scope of influence of the Intellectual Capital, the study must not neglect the important subdimension within the intellectual capital, which is the innovation capital, the push and facilitator for an innovative ideas and other creative actions (Chen et al., 2005). 14.

(22) An intellectual is not exhibit by its own, in another word, the Intellectual Capital is a set of strategic capitals that combined together, in the previous literature, it categorized the four important factor for the intellectual capital, which is human capital, structural capital, innovation capital and customer or relational capital, which all these capitals are somehow interrelated, in foster and helping an organization grow effectively and efficiently, despite of four different components of Intellectual Capital. All of which has the effect or involvement in facilitating the innovation capital, in the ways that interactions between the capitals is in the wish of exploit new ideas and businesses, to help an organization grow, which the importance of the innovation capital, the author also argues in the Skandia Navigator, the innovation are categorized as under the structural capital, which under estimate the importance of innovation capital in the modern knowledge economy era, especially in the FinTech Era, where the use of and development of innovation is booming (Chen et al., 2004). The financial institutions must take innovation seriously, as an entire FinTech challenges are brought by technology firms and innovative way of doing business, if there must be a sentence to describe about the twenty-first century, the sentence is surely would be the innovation empower organizations and assure they can continue to grow at an international scale at a highly competitive manner.. Business Performance Stewart and Ruckdeschel (1998) found there is direct and positive association with between intellectual capital and business performance. The business performance is to measure the contribution that derive from intellectual capital, which enhance the customer satisfaction as primary focus of the modem organization, as well as to test the market value of the particular are increasing by the driving force of intellectual capital, as well as the profitability can be enhanced by the cause of intellectual capital rather than physical assets. 15.

(23) To have a clear understanding for the relationship between the knowledge management strategies and intellectual capital to business performance can helps the researcher and management from the company understand the cause and effect, in developing a more effective tool to improves the business performance as outcome, to satisfy both the stakeholders and stockholders, one of the key points is try to make sense of the dominant factor within each constructs, then it may be able to have a priority rank for the major influencer, to further understand the patterns of winning by intellectual capital and its initiative to derive a suitable strategy or strategic approach in cope with modern competitions (Wang and Chang, 2005).. Financial Technology (FinTech) Era Due to the Financial Institution in Taiwan and around the globe is a highly regulated industry by the government and other agencies from the civil services, which has many compliances needs to comply with as well as to regularly implement the internal control and auditing, such setting by its nature may potentially makes the financial institutions cannot be very stretched, in the ways that it may not be able to always stay connected with customer’s banking needs and wants, which potentially lose its customers. The technology companies observed such trend, and wish to fulfill the gaps, nowadays, more and more technology companies is doing what is used to be complete in the financial institutions such as banks, hence, the term Financial Technology or FinTech arise, in combine with the electronic payment, peer to peer lending, the traditional financial institutions is started to noticed the rapid growing number of such firms existence, with their customers are shifted away simultaneously for the first time, the awareness of such trend has been formed and widely sprayed within the financial institutions, including insurance companies, commercial banks, investment banks, venture capital and private equity, thereafter, the era of FinTech is officially took place, 16.

(24) and has drawn attention internationally, especially in the developing countries, as most of the application can substantially improves the quality of life and social welfare in these countries, where information asymmetry occurs frequently. Boitnott (2015) who is journalist and digital consult for “Inc.” argues that the financial technology can have eight different advantages, and this study would like to address few of the important advantages brought by FinTech. The first advantage for the financial technology is it can educate consumers to make smarter financial decisions, this is particularly helpful for the developing countries and people living below the average, because through the financial technology, they have a great opportunity to eradicate the asymmetry information flaws whether by their social standards, education or income level, the financial technology allows users to have access to the information, more importantly, it can potentially minimizes the risk of reoccurring financial disaster, by educate and promote the user to save more of their income or what they currently had, into a more reliable investment, further to help them evolve a more realistic investment strategies, which this is the primary focus for the financial technology, as more and more people is interested in making a smarter financial choices, also to have a tool which can helps them achieve their financial goals. Second, the financial technology can provide compliance assistance, which is a direct response and major assistance for the banks today. The financial regulation has no trend to loosen, but to strength and tighten, due to the transactions for 21st century is no longer simple, it becomes relatively complex compares to the past. Now, the transactions not only occurred offline, it occurred online as well, however, this is nothing new, the latest transaction is called O2O businesses, which is stands for Online to Offline or vice versa, which means the transaction can be Online and Offline separately or occurred simultaneously, which creates a lot complexities in data security, especially in encrypt the clients data and sensitive transaction information, such 17.

(25) capabilities is relatively insufficient in traditional financial institutions, however, is no big deal for the technology companies, as matter of fact, the financial technology are majorly promoted by a nested of technology companies, which their expertise can empower the financial institutions, such as banks in lighten its compliance workload. Third, the financial technology offers a diversify payment options for global ecommerce, and creates more job opportunities for the small and median businesses, in the ways that the technology can foster a user-friendly payment ecosystem, allows more customers to purchase goods and services internationally, which can potentially create jobs in some developing countries such as Africa, by exporting wooden furniture, and foster the local growth for small and median businesses, to create job opportunities as well as in improving people’s lives also social welfare as a whole. By the Financial technology, it can broaden the payment options by no longer worry individually about currency exchange rate, direct deposit, and Paypal, this is not only good for customer and buyers, also great for business owners to cut down transaction costs, automatic reminder for the tax code also tax policy amendments and the changes in regulatory environment, to really creates a more healthy business environment for both the buyer and seller, overall, increase the social welfare of all. Last advantage propose by the author this study would like to touch upon, is the financial technology can actually encourage investments from the general public, in sense that, often times individuals, especially in the United States and around the globe dislike to put their saving and money into an investment, due to the prior bad or awful reputation of the investment vehicle that provided to the general public, in addition to that, individuals are aware of the big and famous investment banks and firms has hits its all-time low in the recent years, which almost completely lose the trust of the investors.. 18.

(26) Those investment banks and firms not only creates a big to huge financial trouble to the public, also they often charges hidden fees, excess fees, and bad to nearly useless investment advices. Therefore, financial technology firms such as Wealthfront and Robinhood seek to fill the gap, to emerge and empower investors with small to little amount of money to invest, and firms like Acrons uses smartphone application to teach novice or investor with little experience and the general public to use their spare change to create an investment portfolio, for the return in the future, which such concepts and actions can promote the general public to be more aware of investment options, as well as to have a higher awareness in investing the money they already has while not having too much stress, for the better future of themselves. Well-known and recognized technology Billionaires as well as charity founder and donor; Bill Gates once said “Banking is necessary, banks are not” which inspires many, also makes the traditional financial institutions spike their awareness to this quote, Bill is a big fan for the financial technology, especially the mobile banking, which the innovation in technology for technology companies or smart technology devices can do some of the financial transactions better than the traditional financial institutions, such as banks, he states that “Digital technology provides a low-cost way for people in developing countries to send money to each other, buy and sell goods, borrow and save as long as the financial regulatory environment is supportive”, in spite of such financial technology is doing very well in enhance the living standards of developing countries, in the developed countries such as United States, mobile banking is already the primary way for people to complete financial transactions (Amberber, 2015). Another very realistic quote from Bill Gates stated “We need banking, but we don’t need banks anymore, which reinforce the idea of “Banking is necessary, banks are not”, he also stated “Do you think someday we can open bank account or ask for loan without physically have to come to the bank?” such quote is quite realistic. Nowadays, many of 19.

(27) the transaction can already be replaced by mobile, online banking or other services, to open an account without physically go to a bank’s branch isn’t as difficult as it should be, as long as the legislation and compliance can meet the public and safety standards to protect the general public. Thanks to the big data analytics surge, nowadays, financial technology not only focusing on moving the service from online to offline, moreover, it focuses on improving the data security, to assure each and every financial transaction will not have information leaks to make the general public expose to the danger of identity theft, or other illegal activities, one of which, the objectives of financial technology is to both improves the people’s quality of life, as well as be the leader in the financial regulations, by using the cutting-edge technology to protect and improves transaction.. 20.

(28) Limitations Please be noted that this study had six major limitations. Due to the limited time constraint, in order to make the research more tailor to the core of this research on understanding how traditional financial institution faces the challenges brought by FinTech. In fact, the identification of these limitations should serve as the direction for future studies to fulfill the gaps and provide future research’s direction. 1. This study only conducted in single financial institution in Taiwan. Due to the limit time constraint and difficulties to gather data from financial institution, with many of the internal control restriction, this study only conduct one financial institution in Taiwan. For the future, perhaps it can conduct research in various companies, to see if the research finding match with this study or it will have different a story to share. 2. This study only conducts in financial institution. As the financial institution heavily rely on human capital and other intellectual process to gain its competitiveness. Makes it perfect for this study to be the sample. For the future research, perhaps it can conduct in different knowledge intensified organizations, to compare whether to add an additional construct to the model can perform a more holistic analysis. 3. This study is limited to one issue; challenges from the financial technology or FinTech challenges. As the FinTech started to emerging since the time large financial institutions has got into trouble and triggered the global financial crisis, which lost the public’s faith, shift the public to find an alternative, emerge the FinTech companies such as Lending Club for peer to peer or marketplace lending, building powerful online lending platform, post challenge to financial institution. The furfure research can focus on different issue, such as global warming, corporate social responsibilities, industry 4.0, internet or things or other interesting ones.. 21.

(29) 4. This study is limited to the Taiwanese culture, or Asian culture, which might generate different result from the study that concentrate in western culture sample region. The culture setting may adopt certain cultural norms or actions, which affect the result to be biased. The result may be different when it is conduct in another culture, which the future research is advice to conduct in various culture setting. 5. This study is limited to the level of understanding for a particular language, as the understanding of the questions on questionnaire may be varied, due to an involvement of translation from English to Chinese and vice versa, the explanation may not be perfectly satisfy, due to the word choice of the questions. 6. This study’s sample are voluntary, which might exist self-selection bias, therefore, the sample may not be perfect. Future research is needed to expand the scope of investigation with multiple sampling methods to compare if result remains the same. Although this research has above six limitations, it has provided the theoretical and empirical justification for analyzing the effect of intellectual capital on business performance. However, it deserve for future research to conduct comparative analysis among different types of financial institution from different country to provide a holistic view for the analysis.. 22.

(30) Delimitations 1. This study is delimited to one particular issue to financial institution in Taiwan, which is the FinTech challenges, to best allow the reader aware also focus on the influence as well as the impact causing by FinTech companies to the existing financial institutions, understanding how financial institution can best allocate its intellectual capital, triggered by knowledge enabler, with knowledge management strategy to best cope with it. 2. This study is delimited to Financial Institution, the Cathy United Bank are the sample for the main study. With the timely manner, this study figured it’s best to focus on study one financial institution strategy to deal with current financial technology challenges, to have an in-depth look at how the intellectual capital can be best apply to remain its market share, as well as continue to deliver financial performance meet the standing of stakeholders, by adopting most suitable knowledge management strategy to strategically win over the competition. 3. This study is delimited to Taiwan for the sample’s geographic region. As sample of this study; Cathy United Bank has an international subsidiary, and is among one of the largest commercial banks in Taiwan, with a capital value of approximately $1.7 Billion USD, and some 160 branches across Taiwan. Therefore, this study believed, is best to limit sample to employees working in Taiwan, to understand on how Cathy United Bank can extend its business nationwide, become one of the largest commercial bank in Taiwan, and to best understand its intellectual capital strengths and weaknesses, by which knowledge enabler can best strengthen the intellectual capital, as well as on what knowledge strategy it adopts to stay competitive.. 23.

(31) CHAPTER II LITERATURE REVIEW. 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).. 24.

(32) 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).. 25.

(33) Classification of Knowledge Management Strategies The first classification of the knowledge management strategies are the most wellknown 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 26.

(34) 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).. 27.

(35) 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 Hansen et al. Swan et al. Choi and Lee. 1999 1999 2000 2002. Conservative and Aggressive Strategy Codification, Personalization Cognitive, Community Strategy 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.. 28.

(36) 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 Organizational & Managerial,. Infrastructure, and Industry. Specific. Lee & Choi. 2003. Collaboration, Trust, Learning, Centralization, Formalization, T-shaped skills, and IT support.. Chuang. 2004. Technical; 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. Structural;. Culture. and. Human. 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).. 29.

(37) 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 nonprofit, 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 forwardlooking, 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 30.

(38) 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 crosscommunication 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.. 31.

(39) Intellectual Capital Nowadays, most of the organization determined its exceptional performance by the intangibles, for instance, through exceptional talent pool and their multicompetences, 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 intraorganizational, 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, 32.

(40) 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) 33.

(41) 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 34.