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Muhammad Khalique*
MUST Business School,
Mirpur University of Science and Technology,
Mirpur, Azad Jammu and Kashmir, Pakistan
Email: drmkhalique@gmail.com
*Corresponding author
Nick Bontis
DeGroote School of Business,
McMaster University, Hamilton, ON,
Canada
Email: nbontis@mcmaster.ca
Rohana Ngah
Faculty of Business and Management,
Universiti Teknologi MARA, Selangor,
Malaysia
Email: rohanangah@salam.uitm.edu.my
Abstract: This study was designed to test and validate the integrated
intellectual capital model by examining the relationship between intellectual
capital and organisational performance of small and medium enterprises
(SMEs) operating in the electrical and electronics manufacturing sectors in
Malaysia. Data was collected through a validated survey instrument
administered on a sample of 237 respondents from targeted SMEs. Cronbach’s
alpha and confirmatory factor analysis were used to examine the reliability and
validity of the research instrument. Structural equation modelling was used to
test the proposed research hypotheses. The results demonstrate that human
capital, customer capital, structural capital, social capital, technological capital
and spiritual capital are crucial components of intellectual capital and all link to
organisational performance. Although there are limitations to measuring
intellectual capital quantitatively, this study provides further insight into the
relationship between intellectual capital and organisational performance within
a developing nation. The limitations of the study include a limited scope of
generalisability.
Reference to this paper should be made as follows: Khalique, M., Bontis, N.,
Abdul Nassir bin Shaari, J., Yaacob, M.R. and Ngah, R. (2018) ‘Intellectual
capital and organisational performance in Malaysian knowledge-intensive
SMEs’, Int. J. Learning and Intellectual Capital, Vol. 15, No. 1,
pp.20–36.
Jamal Abdul Nassir bin Shaari received PhD from Reitaku University, Japan
and MBA (TQM) from Marquette, USA. He is also a Professional Speaker,
Researcher and Consultant. His activities are oriented towards the field of total
quality management, marketing, intellectual capital and knowledge
management. His research publications appeared in various academic journals.
1 Introduction
Due to the overwhelming acknowledgment of the positive role intellectual capital plays
in the developed world, a burgeoning track of research has started to explore the concept
of intellectual capital in small and medium enterprises (SMEs) operating in developing
and under-developed economies (Khalique et al., 2015). Several academic researchers
(Bontis et al., 2000; Bueno et al., 2006; Daud and Yusoff, 2011; Dumay and Roslender,
2013; Kamukama et al., 2010; Khalique et al., 2011b) affirm that proactive management
of intellectual capital is a vital element for the success of organisations. In addition,
intellectual capital is equally important for small and medium-sized enterprises SMEs.
SMEs play a vital role in the development of national economies by providing significant
employment, social infrastructure and a growing contribution in GDP for the export
sector (Bruque and Moyano, 2007; Erkena and Gilsing, 2005; Zeng et al., 2010;
Khalique, 2012). Moreover, SMEs are considered critical for the development of
entrepreneurial skills and the advancement of innovation and as such offer a fruitful
setting for the further study of intellectual capital (Chang and Hsieh, 2011; Daud and
Yusoff, 2010; de Castro and Sáez, 2008; de Pablos, 2002; Hsu and Wang, 2012;
Khalique, 2012; Khalique et al., 2013b; Ordonez de Pablos, 2004).
Malaysia is a Southeast Asian country known for its beaches, rainforests and mix of
Malay, Chinese, Indian and European influences. The International Monetary Fund (see
www.imf.org) reports that with a population of thirty million inhabitants and GDP per
capita of $25,833 USD, Malaysia’s economy benefits from bugeoning growth and higher
aspiratons of development. Unfortunately, the focus on intellectual capital research in
Malaysia has been sparse and inconsistent (Haji and Ghazali, 2012). The purpose of this
study is to fill the void in the extant literature by examining intellectual capital within
SMEs in a developing nation setting.
Intellectual capital and organisational performance 23
2 Literature review
It is clear from nearly 20 years of academic research that intellectual capital is one of the
key factors responsible for the success of knowledge-intensive organisations (Serenko
et al., 2009). According to Feiwal (1975) and Ding (2010), the term ‘intellectual capital’
was first introduced by John Kenneth Galbraith in 1969. He argued that intellectual
capital represents more than just ‘intellect as pure intellect’ but also includes a degree of
‘intellectual action’. According to this argument, intellectual capital is not only a fixed
intangible asset but represents the accumulation of the sum of all an organisation’s
intangible assets. These assets should be used to create value-added products and
services.
There have been several comprehensive reviews of the field of intellectual capital and
therefore it is not necessary to regurgitate it here (Bontis, 1999; Serenko and Bontis,
2013). Nevertheless, a highlight review of the literature is warranted. Stewart (1997)
proposed a model based on three components: human capital, customer capital and
structural capital. Bontis et al. (2000) tested this model in the Malaysian context and
generally found positive results in both service and non-service sectors but respondents
were part-time MBA students. Ismail (2005) conducted a study in Malaysia that extended
the model of intellectual capital with the addition of spiritual capital. Notwithstanding,
Bueno et al. (2006) proposed an Intellectus Model which comprised of five components:
human capital, technological capital, business capital, social capital and organisational
capital. Khalique et al. (2011a) extended this further by developing the integrated
intellectual capital model (IICM) which was comprised of six components as follows:
human capital, customer capital, structural capital, social capital, technological capital
and spiritual capital. A brief review of these six components is as follows.
There is general agreement among researchers that human capital is based on
competencies (i.e. education, professional skills, know-how and experimental
knowledge), attitudes (i.e. motivation, leadership, behavioural patterns) and intellectual
agility (i.e. innovation, creativity, flexibility, adaptability) (Bontis, 1998; Bontis et al.,
1999; Bontis et al., 2002; Tovstiga and Tulugurova, 2007). Customer capital refers to the
knowledge embedded in the relationships with customers based on brand value, a strong
network of customers, customer loyalty and customer satisfaction (Bontis, 1998; Bontis
et al., 1999; Ismail, 2005; Tovstiga and Tulugurova, 2007). Structural capital includes all
the non-human storehouses of knowledge like systems, procedures, databases, networks,
process manuals and routines (Bontis, 1998; Khalique et al., 2011a). Social capital refers
to an organisation’s transparency, corporate social responsibility, honesty and ethics
(Bueno et al., 2006; de Castro and Sáez, 2008; Khalique et al., 2011a; McElroy, 2002;
Nahapiet and Ghoshal, 1998; Subramaniam and Youndt, 2005). Technological capital
can be described as information system knowledge and technological R&D (Bueno et al.,
2006; García-Muiña and Pelechano-Barahona, 2008; Khalique et al., 2014; Khalique
et al., 2011a). Spiritual capital includes the religious and ethical values of the individuals
in an organisation (Ismail, 2005; Khalique et al., 2014; Khalique et al., 2011a; Malloch,
2010).
24 M. Khalique et al.
Many researchers agree that intellectual capital is the most important strategic asset for
the success of an organisation (Chang and Hsieh, 2011; de Pablos, 2004; Díez et al.,
2010; Hormiga et al., 2011; Hsu and Fang, 2009; Khalique et al., 2013a). There is also
general agreement that this positive relationship exists within the SME context (Abdullah
and Sofian, 2012; Bontis et al., 2000; Chen et al., 2006; Daud and Yusoff, 2010; de
Castro and Sáez, 2008; de Pablos, 2003; Ismail, 2005; Khalique et al., 2011b). However,
what is not clear is whether this positive result holds true within a developing nation such
as Malaysia. Nevertheless, Malaysian researchers in particular argue that, in their own
specific context, “knowledge is a necessity and can be used as a strategic tool against
competitors” (Naquiyuddin and Heong, 1992, p.72).
The conceptual framework of this study is based on the IICM (for a comprehensive
review see Khalique et al., 2011a) as reflected in Figure 1.
4 Methodology
The proposed model was empirically tested through a structured questionnaire carried out
in SMEs operating in electrical and electronics manufacturing sector in Malaysia. Six
predictor variables namely, human capital, customer capital, structural capital, social
capital, technological capital and spiritual capital and one predicted variable namely,
organisational performance of SMEs were employed. The variables were tested by using
previously validated multi-item Likert-type scales. The final survey for this study
included 90 items in total as follows:
Intellectual capital and organisational performance 25
• Human Capital: 13 items were used based on the measures proposed by Bontis
(1998), Tovstiga and Tulugurora (2007), Youndt (1998) and Ismail (2005).
• Customer Capital: 10 items were used based on the measures proposed by Bontis
(1998), Tovstiga and Tulugurora (2007), Youndt (1998) and Ismail (2005).
• Structural Capital: 13 items were used based on the measures proposed by Bontis
(1998), Tovstiga and Tulugurora (2007), Young et al. (2007), Youndt (1998) and
Ismail (2005).
• Social Capital: 12 items were used based on the measures proposed by de Castro and
Sáez (2008), Subramaniam and Youndt (2005), Bontis (1999), Ismail (2005) and
Chua Alton (2002).
• Technological Capital: 12 items were used based on the measures proposed by
García-Muiña, and Pelechano-Barahona (2008) and Bueno et al. (2006).
• Spiritual Capital: 11 items were used based on the measures proposed by Ismail
(2005) and Youndt (1998).
• Organisational Performance: 19 items were used based on the measures proposed by
Bontis (1999), Ismail (2005), Tovstiga and Tulugurora (2007) and Youndt (1998).
The population of this study was based on all of the 150 SMEs operating in the electrical
and electronics manufacturing sector in Penang and Selangor Malaysia derived from the
directories of Electrical and Electronics Association of Malaysia (TEEAM, 2009) and
Federation of Malaysian Manufacturers (FMM, 2010). SMEs in this study were defined
to have between five and 150 employees. Targeted survey respondents included the Chief
Executive Officer, Managing Director, General Managers, Owner, Managers or Assistant
Manager. A total of 550 questionnaires were distributed through surface postal mail. This
endeavour yielded a final sample size of 237 respondents from 77 SMEs and a resultant
individual response rate of 43% representing 51% of all SMEs which is sufficient
(Krejcie and Morgan, 1970).
5 Results
The data was normally distributed and the corresponding constructs and measures
showed appropriate levels of reliability as tested through Cronbach’s alpha. The
reliabilities for each of the six constructs and organisational performance were greater
than 0.81, which exceeds the criterion of 0.7, considered well for exploratory research
(Nunnally, 1978) (Table 1).
Byrne (2001) argues that confirmatory factor analysis (CFA) is more appropriate for
applications when the researcher has some knowledge of the underlying latent variable
structure, based on knowledge of theory, empirical research or both. In this study, a
structural equation modelling technique using AMOS 20 with maximum likelihood
estimation was used to test the construct validity of the instrument. CFA was used to test
the validity of the measurement model and the structural model (De Run et al., 2008;
Hair et al., 1998; Meyers et al., 2006; Sing, 2008). Meyers et al. (2006) points out that the
best supported system of categorising model fit indices is their classification into three
categories namely absolute, relative and parsimonious. A brief description of absolute,
relative and parsimonious fit measures is shown in Table 2.
The results of fit for each measurement are acceptable. The CMIN/df ranges from 1.89 to
3.27 all are less than the recommended threshold of 5.0; (De Run et al., 2008; Meyers
et al., 2006; Sing, 2008). The root mean square error of approximation values (from
0.051 to 0.098) are below the recommended cut-off points of 0.1 (De Run et al., 2008;
Meyers et al., 2006; Sing, 2008). The values of goodness of fit (from 0.948 to 0.988),
adjusted goodness of fit (from 0.948 to 0.988), comparative fit index (from 0.072 to
0.996) and TLI (from 0.961 to 0.991) are all above the recommended threshold of 0.90
(Meyers et al., 2006). Similarly, the values of parsimony normed fit index (from 0.67 to
0.78) and parsimony comparative fit index (from 0.51 to 0.83) are near the threshold of
0.5 and above (Meyers et al., 2006). Therefore, the amalgamation of these findings
demonstrates that the established measurement model fits the data well (Figure 2).
On the basis of the findings with reference to reliability, validity and overall model fit,
the resultant tests for hypotheses are summarised in Table 4.
Standardised
Hypotheses coefficient t-value P value Result
Human capital Æ intellectual capital 0.913 7.695 0.00 Supported
Customer capital Æ intellectual capital 0.980 7.652 0.00 Supported
Structural capital Æ intellectual capital 0.903 7.905 0.00 Supported
Social capital Æ intellectual capital 0.900 8.427 0.00 Supported
Technological capital Æ intellectual 0.814 7.695 0.00 Supported
capital
Spiritual capital Æ intellectual capital 0.809 8.392 0.00 Supported
Intellectual capital Æ organisational 0.871 8.355 0.00 Supported
performance
Intellectual capital and organisational performance 29
6 Conclusion
The objective of this study was twofold. On one hand to design and test the integrated
intellectual capital model (IICM). The findings of this study support the claim that human
capital, customer capital, structural capital, social capital, technological capital and
spiritual capital are vital components of intellectual capital. These findings corroborate
the studies (Bontis, 1998; Bueno et al., 2006; Edvinsson and Malone, 1997; García-
Muiña and Pelechano-Barahona, 2008; Ismail, 2005; Khalique et al., 2011a; Stewart,
1997; Sveiby, 1997; Tovstiga and Tulugurova, 2007; Youndt and Snell, 2004; Youndt
et al., 2004) but extend them by including the spiritual capital.
The other implication refers to the context of knowledge-intensive Malaysian SMEs.
The findings show that intellectual capital has a significant impact on the performance of
SMEs operating in Malaysia. The present results seem to be consistent with other studies
(Bontis et al., 2000; Cohen and Kaimenakis, 2007; de Castro and Sáez, 2008; Hormiga
et al., 2011; Ismail, 2005; Khalique et al., 2013a; Khalique et al., 2011a; Ngah and
Ibrahim, 2009) but in this case extend the generalisability of results within a developing
Asian nation.
The positive and significant impact of intellectual capital on the organisational
performance of SMEs may help entrepreneurs, policy makers and managers to better
understand the importance of capitalising intangible assets in order to create competitive
edge in the market. SMEs generally face financial constrains due to minimal access to
large capital pools. Therefore, SMEs can refocus their efforts on the management of
intellectual capital assets in order to mitigate those constraints.
This study provides a potential roadmap for the use of the IICM in other research
settings that are currently absent in the literature. For example, there are many developing
regions in the world in which intellectual capital research is not available. These research
opportunities might include the study of intellectual capital in regions such as Africa and
Central America. Given the results of this present study, there is a high level of
confidence that generalisability within all developing nations is highly probably.
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