CRITICAL REVIEW OF THE ARTICLE

TITLE: INTELLECTUAL CAPITAL AND BUSINESS PERFORMANCE IN THE

PORTUGUESE BANKING INDUSTRY

AUTHOR: Maria do Rosário Cabrita, Nick Bontis (2008).

INTRODUCTION

This article theme is to find the intellectual capital effect of business performance in

Portuguese banking industry. The purpose of this research is to examine the inter-

relationships and interactions among intellectual capital components and business

performance in the Portuguese banking industry.

A past research shows that component of value creation have also changed. Inventory

cannot help in value creation until it is utilize in an effective manner. Similarly knowledge

is not important until it is used with other financial and non financial resources in a

productive way. It is also mentioned that harmonization of different types of resources

and interaction among them provide a higher intellectual.

Intellectual capital defines as the knowledge that can be transforms into value creation.

Another research shows that intellectual capital is important driver of value creation. So

in this research we focus on intellectual capital effect on business performance and

effect of intellectual capital component on value generation.Previous research shows a

positive relationship between intellectual capital and business performance.

PURPOSE OF RESEARCH

The purpose of our study is:

Examine interrelationships among intellectual capital components and business performance

Test interaction effects among intellectual capital components and business performance.

CONCEPTUALIZING INTELLECTUAL CAPITAL

Three elements of intellectual capital drag out from the literature that are its intangibility,

the fact that it creates value and the growth effect of collective practice.

In this article author used the work of Bontis (1999) as a base paper and utilize the

dimensions of Bontis to measure intellectual capital and its component for performance

of business.

In this article three dimension of intellectual capital is used which are:

Human capital

Structural capital

Relational capital

And two drivers:

trust

culture

HUMAN CAPITAL

Human capital is defined as a source of sustainable competitive advantage, investment

in human beings improves markedly the quality of work. It is also act as a driver of

national economic activity.

Previous research shows that increased training of employees may lead to higher

productivity and enhanced creativity, resulting in satisfied and loyal clients. Team work

is believed to increase innovation, productivity and speed-to-market.

Human capital is based on four elements:

Genetic inheritances

Education

Experience

Attitudes about life and business

STRUCTURAL CAPITAL

Structural capital is defines as a valuable strategic asset, which is comprised of non-

human assets such as information systems, routines, procedures and databases.

The most advanced banking institutions already employ sophisticated systems to

assess risk management. A research shows that information quality is more related to

improvements in work environment.

RELATIONAL CAPITAL

Relational capital is the knowledge embedded in relationships with customers,

suppliers, industry associations or any other stakeholder. Relational capital can be

measured as a function of longevity.

Relational capital also includes market orientation. Previous research shows a positive

relationship between market orientation and business performance, new product

performance, innovation or learning organization.

The concept of relational capital was extended to include ‘stakeholder orientation’ items.

Another research demonstrate that market orientation is a necessary condition to

knowledge management orientation. Competitive intelligence is a market orientation

dimension.Researchers generally agree that the rejuvenation of intellectual capital

inside the firm, requires a sense of alignment with relational to protect the organization

from market consequences.

Culture is the glue that holds together the firm. It evolves over time, from the deep

knowledge of the organization’s internal capabilities, vision, traditions and values. Trust

is a fundamental construct to organizational life.

HYPOTHESES

H1. Human capital is positively associated with structural capital.

H2. Human capital is positively associated with relational capital.

H3. Structural capital is positively associated with relational capital.

H4. Structural capital is positively associated with business performance.

H5. Relational capital is positively associated with business performance.

H6. Relational capital positively moderates the relationship between the human capital

and business performance.

H7. Structural capital positively moderates the relationship between the human capital

and business performance.

H8. Relational capital positively moderates the relationship between the structural

capital and business performance.

DATA COLLECTION AND ANALYSIS

This research uses quantitative method of research and is an exploratory form of

research. Data is collected through questionnaire. Total sample size is 53 banks of

Portuguese and data is collected from atleast managers or directors within the

organization.

Spss statistical software is used for data analysis and regression, Kolmogorov-Smirnov

test for normality; and Cronbach’s alpha test for reliability is used.

First the survey instrument is tested by using PLS (Partial least square) and pilot test

shows that the survey instrument is reliable and valid. The value of Cronbach’s alpha

greater than 0.93 which shows that the instrument is reliable and acceptable.

In this research each component of questionnaire is tested by using varimax technique

which shows that all the elements of questionnaire are reliable and valid because the

value is greater than 0.40.

Finally the test applied on hypothesis shows that H1 to H5 are acceptable and

supported and H6 to H8 are not supported.

CONCLUSION

The result shows that human capital is positively related with the structural capital,

human capital is also positively related with relational capital. Human Capital (HC) has

important effects on both structural capital (0.755) and relational capital (0.391). Human

capital influences relational capital not only directly (0.391) but also indirectly through

the structural capital.

Structural capital is positively related with relational capital. Structural capital and

relational capital is positively associated with business performance.

Relational capital is not positively moderates relationship between the human capital

and business performance. Structural capital is also not positively moderate relationship

between the human capital and business performance. In last relational capital is not

positively moderates relationship between the structural capital and business

performance.

The explanatory power (R2) of model 45.4%, some indication that intellectual capital

components interact to influence business performance.

STRENGTH

Another important conclusion in this study is that the results of the Portuguese

study confirm similar results found by Bontis in Canada and Bontis et al. in

Malaysia.

Market orientation concept into the intellectual capital phenomenon may also

provide a better understanding of the market orientation.

Contribution of this study relates to human resource management.

WEAKNESS

FUTURE IMPLICATION

This research is only done on one country Portuguese.

This research is only focus on one industry

banking industry of country.

In this research only three

dimension of intellectual

capital is used.

There is an immense

opportunity for

interdisciplinary and cross-

functional learning.

We suggest that defining

human capital as

part of intellectual

capital helps organizations understand

how employees

create value.

It is recommend

ed that senior

bankers utilize an

intellectual capital

framework when

evaluating the assets of a potential

target.

It is argue that a

thorough understandi

ng of the strategic

importance of

intellectual capital may

also encourage banks to

financially support the growth of

Portuguese knowledge intensive.

Further research is needed to investigate

whether these

findings generalize to

other countries and other industries.

A longitudinal study should

be undertaken

to determine if

the associations identified in this paper hold over

time.