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The Typology of Intellectual Capital and knowledge Management in Malaysian Hotel Industry

January3

In order to sustain in the 21st century, organizations need to manage their knowledge based resources such as knowledge that is embedded in people, relationship and organization.  This study explores the knowledge management practices used by Malaysian hotels in exploiting their intellectual capital. This study employs case study approach, where interviews were conducted with Human Resource Managers of seven hotels. The hotels were from various star rating categories. In analyzing the data, within and cross-case analyses were performed. The findings supported the proposition that the development of intellectual capital in Malaysian hotel industry must correspond to the rating achieved by the hotel. The evidence from this study indicates that structural capital and human capital are significant in managing knowledge in Malaysian hotel industry. The outcome of this study ia a typology of knowledge management practices and intellectual capital in accordance to the star rating given by the Malaysia Ministry of Tourism and Heritage.

Keywords: knowledge management, human resource management, organizational knowledge, intellectual capital and case study.

INTRODUCTION

Factors such as globalization that leads to new technology, free flow of capital, increased competition, the demand for innovation, changes in customer demand, changes in economic and political structures are constantly reshaping the way business is carried out (Buckley and Carter, 2000; Thorne and Smith, 2001).  Previous research has acknowledged the fact that organizations have begun to realize that sustainable advantage relies on managing intangible resources such as the knowledge embedded assets. According to Stewart (2002), in the 21st century, knowledge embedded assets have become more important to the organizations than financial and physical assets. Therefore, in order to compete in this millennium, organizations must have the ability to create value, be agile and sensitive to the market.

As such, knowledge embedded assets such as ideas, practices, talents, skills, know-how, know-what, relationships and innovations (Stewart, 2002), that arise from the creation of intellectual capital have become a pre-eminent economic resource and the basis for competitive advantage (Finney, Campbell and Powell, 2004; Demediuk, 2002; Graves, 2002). These knowledge embedded assets determine the success or failure of an organization. Sveiby (1997) believes that knowledge embedded assets can be found in three areas: the competencies of the employees; organization’s internal structure such as patents, models, computer and administrative systems; and organization’s external structure such as brands, reputations, relationship with customers and suppliers. On the other hand, Stewart (2002) believes that  knowledge embedded assets comprise of talents, skills, know-how, know-what, relationships and also include machines and network that can be used to create wealth to an organization. In short, many intellectual capital theorists have termed the knowledge embedded assets as intellectual capital (Demediuk, 2002; Sullivan, 1999; Stewart, 1997).

There is a dearth of research into intellectual capital management practices, and in particular practices of hotels. Previous research concentrates on intellectual capital measurement and reporting practices (Bart, 2001; Zsidisin et al., 2003; Abesekera and Guthrie, 2004).  The substantial growth in the awareness of intellectual capital issues together with the importance of knowledge is the major inspiration behind the hotel industry.  Apart from its tangible assets, the main driving force of its values comes from intellectual capital which customers are now willing to pay (Rudez and Mihalic, 2007).  Thus, our study focuses on the knowledge management practices in exploiting intellectual capital in hotel industry particularly in Malaysia.  This paper answers the questions such as: how Malaysia hotels can exploit their intellectual capital using different knowledge management practices?; which of the intellectual capital categories have impact on knowledge management practices?; and how to maximize the potential of  intellectual capital using different management practices? The findings from this research will contribute to the body of knowledge of intellectual capital from the management perspectives.

LITERATURE REVIEW

There is a multi-faceted description of intellectual capital as proposed by intellectual capital theorists. According to Stewart (2002), the term ‘intellectual capital’ seemed to have first appeared in 1958 when two financial analysts reported that the intellectual capital of several small science-based companies is perhaps the most important element in the organizations’ financial statements. The analysts termed the high stock valuations as an intellectual premium (Stewart, 2002), but, for a quarter of century, the idea remains unchallenged. In the 1980s, discussion and debate on resource-based theory had nurtured the ideas of intellectual capital. In 1987, a study by Sveiby produced the nature of intellectual capital.  He proposed that knowledge-based assets could be found in three places; the competencies of organization members, its internal structure—patents, models, computer and administrative assets, and its external structure—brands, reputation, relationships with customers (Sveiby, 1997). Meanwhile, Edvisson (1997) a leading thinker in intellectual capital from Skandia Insurance classifies intellectual capital into three dimensions: human capital (including employees’ collective competence, capabilities and brain power), organizational capital (such as a firm’s policy and procedures, customized software applications, research and development programs, training courses, patent and the like), and customer capital (comprising of relationship with customers, suppliers, industry associations and market channel).

In conclusion, most of the definitions and frameworks of intellectual capital includes human, customers, suppliers, and organizations as factors of intellectual capital (e.g. Roos and Roos, 1997; Saint-Onge, 1996). In order to remain forefront and maintain competitive edge, organizations must have the capability to retain, develop, organize and utilize their intellectual capital (Kalling, 2002; Wiig, 2000). Organizations must also be able to consolidate their intellectual capital faster than their competitors. Furthermore, most of the literature in intellectual capital proposes that the value of an organization is largely based on the management and utilization of intellectual capital (Ukkola et al., 1999; Chris and Emma, 1999; Beveran, 2002). Accordingly, intellectual capital must be explicitly managed and the competitive advantage will emerge from the way a specific knowledge is applied to production factors (Aranda and Molina-Feraz, 2002). To explicitly manage the intellectual capital, an understanding of how knowledge is formed and how people and organizations learn to use knowledge is essential.

There are two levels of knowledge within intellectual capital: explicit knowledge and tacit knowledge (Hall and Adriani, 2002; Kamiki and Mphahlele, 2002). Explicit knowledge is articulated knowledge and it can be embodied in the form of documents, standard operating procedures, and blueprints. Meanwhile, tacit knowledge includes the intuition, perspectives, beliefs, and values that people form as the result of their interactions and experiences (Hall and Adriani, 2002; Kamiki and Mphahlele, 2002). In an organization, tacit knowledge is made up of the collective mindsets of everyone in the organization. Tacit knowledge shapes the way a leader of an organization perceives his industry and his organization place within it. Tacit knowledge determines how an organization makes decisions and shapes the collective behavior of its members (Saint-Onge, 1996). It is acquired by experience, by learning and by doing. It is not codified and may not be communicated in the form of language. Haldin-Herrgard (2000), highlights that these tacit and explicit knowledge must be managed differently. Much of existing literature discusses more on philosophy and concepts of intellectual capital and less attention has been given on the value creation aspect of intellectual capital. Intellectual capital theorists argue that intellectual capital can only generate value when it is accessible and utilized. Intellectual capital management is applied to access and utilize intellectual capital of an organization.

Intellectual capital AND KNOWLEDGE management

Edvinsson and Sullivan (1996), Graham and Pisso (1998) and Chen and Lin (2004) have argued that managing intellectual capital is about managing, leveraging and harnessing knowledge embedded in those assets. Intellectual capital can only create value to organizations when knowledge embedded in the intellectual capital is exploited. The three types of intellectual capital: human capital, organizational capital and relational capital can be exploited through intellectual capital management. According to Volpel (2002), the three critical elements in managing intellectual capital are: the strategic imagination and the construction of the intellectual capital; the sharing of meaning emerging from intellectual capital; and the transforming of identifying through the assimilation of the intellectual capital. However, different styles of intellectual capital management can be applied by organizations to effective manage their pool of intellectual capital. The choice depends on organizations’ priorities and capabilities.

Liebowitz (2002), Davenport and Prusak (2000) and Sveiby (1997) have pointed out that the application of knowledge management is crucial in making organizations more effective. Therefore, as argued by Davenport and Prusak (2000), in order to make knowledge-based assets more visible, organizations should encourage and aggregate behaviors and build knowledge management infrastructures. They also argue that knowledge management infrastructures both indirectly and explicitly show the role of knowledge-based assets in an organization. Furthermore, appropriate infrastructure will support employees’ ability to think critically and creatively that will facilitate and foster employee effectiveness and behavior. In other words, organizations provide safe environment for employees to do their work, permit them to innovate, impose and ‘stretch’ organization policies and practices, and motivate the employees to act intelligently in doing the right things (Wiig, 1999).

Generally there are five activities involved in knowledge management activities: knowledge acquisition, knowledge innovation, knowledge storage, knowledge dissemination, and knowledge application.   Knowledge acquisition involves the acquisition activities and can either be created by the organization itself or acquired from various internal and external sources. Meanwhile, knowledge innovation is created through the interaction amongst individuals or between individuals and their environment. Consequently, there are four different modes of knowledge innovation: socialization, internalization, externalization, and combination (Nonaka and Takeuchi, 1995). Knowledge storage refers to the process of choosing a repository of knowledge once it is acquired and created. Knowledge repositories can be in the form of knowledge embedded in hard copy and electronic media which are made available to everyone in the organization (Bennet and Gabriel, 1999). Knowledge dissemination is concerned with knowledge sharing where knowledge is shared formally through meetings, seminars and databases or through informal discussion. Knowledge application is the process where knowledge is translated into actionable knowledge (Lee and Yang, 2002). This can be in the form of adjustments to organizational routines, the creation of new products or services or an improvement in the understanding of the environment.

Besides that, organizations must also be positioned to anticipate the needs of customers and respond to this need through additional innovative products and services. They must look inward and develop new products, processes and services constantly and also provide customers with high functionality and preference for products and services (Johannesson, Oldisen and Olsei, 1999). It is said that competition in today market focuses on competencies, relationships and new ideas. Therefore, organizations must undertake specific programs, activities, provide supporting infrastructure, capabilities and create incentives to motivate employees, department and business units. The transformation of intellectual capital requires transformation of common understanding in the organization and this will lead to attribution and sharing of real expectation.

Malaysian hospitality industry

The Asian Region is considered to be one of the fastest growing regions in the world in terms of travel, hospitality and tourism. In Malaysia, the hospitality industry has grown tremendously in line with the rapid development of travel and tourism in this country. The tourism sector in Malaysia has risen to the challenges and has emerged as the second largest contributor in terms of foreign earnings towards national income. With a flurry of international events being hosted in Malaysia and the ASEAN region, it is imperative and crucial for investment in human resource as a key factor for growth, sustainability, productivity and profitability in the Malaysian hospitality industry. In line with that, the importance of intellectual capital in hotel industry cannot be disputed.

To maintain an image of Malaysia as a family-oriented holiday destination, it is pertinent to ensure good hotel service and facilities. Thus, the Government has imposed tighter criteria for hotel ratings in a move to ensure better quality hotel service and facilities.  The star rating is based on the guidelines set by the United Nations World Tourism Organization, and adjusted to local cultures (Ministry of Tourism, Culture and Heritage, 2006). All hotels will be rated based on their qualitative and aesthetic requirements, common areas, bedroom requirements, services, safety and hygiene standards, and staff.  As in December 2007, there were 624 star rated hotels in addition to more than 2,200 tourist accommodation premises nationwide (Malaysian Associations of Hotels, 2008).

DISCUSSION

The evidence indicates that for the knowledge acquisition activity, the five and four-star hotels use environmental scanning to extract new knowledge. According to Pitts and Lei (2000), environmental scanning refers to the obtaining and gathering of information about a company’s environment. These hotels sent their employees to conferences and workshops to gain new knowledge. They also use feedback received from customers and related agencies to enhance the quality of their services. Acquired knowledge does not have to be newly created but only new to the company (Davenport and Prusak, 2000). Meanwhile, for the three and two star hotels, the acquisition activity is more internally focus. These hotels gain new knowledge from employees’ experiences, meeting reports, and internal documents. As argued by Jordan and Jones (1997), internal sources include co-workers, company’s database and internal documents. Reports from meetings are normally used as the main reference in problem-solving and decision making.

Although the management acknowledges the importance of knowledge in gaining competitive advantage, there was a lack of willingness seen in hotel rating 2 and 3 to invest in intellectual capital development specifically human capital.  This is similar to the findings from a study by SubbaNarasimha (2002).  It can be posited that this practice is due to management beliefs that once the employees gain such exposure, it is likely for them to move to other hotels.  Similar to Abeysekera’s (2007) findings, this study also found that hotel use structural capital to complement the knowledge management practices such as acquisition and dissemination activities.

Consistent to Abeysekera (2007), the findings of this study found that 3 and 4 star hotels consider employees as a cost to be minimized.  Therefore, they rely more on the contract workers especially during peak seasons.  This study perceived hotels which hire contract workers put less emphasis on human capital.

For knowledge storage activity, all hotels focus on development of customer database. But the knowledge storage activities for the five star hotels emphasize more on developing individual knowledge. Employees are encouraged to apply their creativity in order to enhance the quality of the services provided and to satisfy customers’ needs. On the other hand, for the three and two star hotels the knowledge storage activities put more emphasis on documenting organizational knowledge. All procedures, policies and standards are well documented and are strictly followed. There is no room for flexibility.

For knowledge dissemination activity, the evidence obtained indicates that in five and four star hotels, they encourage interactive interactions for sharing tacit knowledge. In these hotels, employees are given the opportunity to give suggestions and voice out their opinions especially matters that are related to their tasks informally. Nevertheless, for the three and two star hotels, the knowledge dissemination activity occurs formally and this knowledge is transformed into explicit knowledge in the form of documents.   However, the documents can only be accessed by the management level. Furthermore, the meetings that are conducted focus on daily operation to monitor their task and performance.

For knowledge application activity, the evidence from this study indicates that for five and four star hotels the focus is more to increase the quality of their services. New knowledge is applied to enhance their quality. However, for the three and two star hotels, this study found that the knowledge application activity is more towards increasing the effectiveness of their operations.

IMPLICATION TO THEORY AND PRACTICE

The study shows that the development of intellectual capital in Malaysian hotel industry must correspond to the rating achieved by the hotel. Since the rating of the hotels was based on the facilities and the services provided, intellectual capital would enhance their positions in that category.  The requirement of the rating can be met by any hotel as long as they have the financial capabilities.  However, what makes the hotel different from one another in the same rating depends on the intellectual capital that is manifested into the services provided.  The evidence from this study indicates that structural capital and human capital are significant in managing knowledge in Malaysian hotel industry.  Furthermore, these findings also revealed that these two capitals are necessary to initiate relational capital in the organizations.

The study suggests two important issues in managing intellectual capital.   First, it stresses that hotels need to continually upgrade their human capital by providing trainings consistently, encourage their employees to acquire new knowledge by related conferences and workshop, provide cross exposure by sending employees to other branches.  Secondly, hotels need to improve their structural capital by having frequent formal and informal meetings, encourage and acknowledge their participations and contributions to enhance the quality of its services and products.

CONCLUSION

The findings of this study largely support the theoretical arguments which suggest that organizations’ intellectual capital management reflect the resources that they have. Different organizations apply different types of intellectual capital management practice in order to exploit their intellectual capitals. This study is consistent with Hamzah and Ismail’s (2007) findings which indicates that the management of organizations intellectual capital is depends on the intellectual capital being developed by the organizations.

Although we believe this study has made a number of contributions to the body of knowledge, it inevitably subject to a number of limitations. Therefore, the findings of this study must be considered in light of: first, lack of generalization – as a case study research is typically based on a number of case, it is not qualified for statistical analysis and interpretation. But, generalization in case study research is achieved through the analytical generalization (Yin, 1994). Second, due to the difficulty to gain access to these organizations, the interviews were conducted with the top management only to get overall information of the organizations.   However, this study also used other method such as observations, and documentations to aid triangulation for multiple interpretations.

Research on intellectual capital can be considered as being at a growing stage. Therefore, there are many opportunities for conducting research in this field. This research can be held out as an attempt to delve into this area by suggesting directions for future research. This research concentrates on the intellectual capital management being practiced by focusing on hotel industry. The evidence gathered reveal that the intellectual capital management practiced vary in accordance with the resources that the organizations have. Future research could reconfirm these findings and generalize them over population by using large sample. This could be done by employing quantitative research and statistical test. Future research could also examine the intellectual capital management practiced on a longitudinal basis.  Furthermore, future studies could be undertaken involving various industries.

By Rosmah Mat Isa rosmah and Nor Liza Abdullah iza