JIC 11,1. Chia-Jung Chang FIOS R&D Centre, Performance Measurement Association, Taipei, Taiwan, and

The current issue and full text archive of this journal is available at www.emeraldinsight.com/1469-1930.htm JIC 11,1 74 Assessing knowledge creation and intellectual capital in banking industry Kuang-Hsun Shih Department of Banking and Finance, Chinese Culture University, Taipei, Taiwan Chia-Jung Chang FIOS R&D Centre, Performance Measurement Association, Taipei, Taiwan, and Binshan Lin College of Business Administration, Louisiana State University in Shreveport, Shreveport, Louisiana, USA Journal of Intellectual Capital Vol. 11 No. 1, 2010 pp. 74-89 q Emerald Group Publishing Limited 1469-1930 DOI 10.1108/14691931011013343 Abstract Purpose The purpose of this paper is to examine the empirical studies on knowledge creation and intellectual capital (IC) to generalize the important factors concerning knowledge creation and IC of banks. The major purpose is to explore the relationship between knowledge creation and IC through the construction of the correlation patterns between these two elements. Design/methodology/approach This paper adopts the knowledge management (KM) measurement to examine the formats of knowledge creation on evaluation of relationship between different elements in the IC of banks by structural equation modeling. Findings The performance of knowledge creation has significant influence on the accumulation of subsequent human capital. Cognitivists and connectivists are considered the main knowledge creators in the banking industry. The performance of human capital exhibits significant influence on structural capital and customer capital. The performance of customer capital reports significant influence on the formation of structural capital. Research limitations/implications The ability to create knowledge is highly relevant to IC in the banking industry. Companies should define their own robust mechanisms for knowledge creation to improve their ability in knowledge creation. creation in banks should focus on the exchange and sharing of information. It is suggested that the usual approach adopted by banks is brainstorming and workshops, and the connecting approach is team-oriented. Practical implications The managers in the banking industry should identify the ways to cultivate in-depth contents of IC and have comprehensive development on IC to create differentiated advantages and boost corporate competitiveness. Originality/value The importance of tangible assets is waning and has been gradually shifting to knowledge and IC, and thus, KM has become an important strategy in corporate competition. Organizations have been redefined as platforms that can create knowledge and accumulate intangible, IC. Keywords creation, Intellectual capital, Financial institutions, Financial services Paper type Research paper Introduction has become a powerful tool for corporate competition. Guthrie (2001) suggested that successful companies do not gain benefits with only tangible assets,

and they mainly rely on access to intangible information and knowledge creation as their major resources for success. The traditional concept of evaluating enterprise value and performances with tangible assets has gradually given way to a focus on intangible knowledge development and integration ability. Intangible knowledge development and integration ability is a set of thorough management skills that can develop and restructure human capital, structural capital, and customer capital of an organization. With systematic integration, internalization, and the advantage of knowledge benefits, companies are able to create core competitiveness. Wu (2002) indicated that for knowledge-type companies, creation, accumulation, sharing, and integration of knowledge are the momentum for the creation of corporate value and sustainable operations. Creation, management, measurement, and evaluation of core intellectual capital (IC) will be an important indicator of the value of corporate competitiveness in the future. Since the implementation of the Financial Holding Company Law in 2001, many financial holding companies have been established. These companies can be divided into three systems, securities and investments, banking, and insurance, as based on their operations. Different from the manufacturing industries, the financial service industry provides knowledge-based products or services. Although securities and investments, banking, and insurance sectors are all under the financial service industry, they have different industrial characteristics. The securities and investment industry focuses on professional services provided by personnel; the banking industry emphasizes on the flows of overall infrastructure; and the insurance industry centers on customer relationship management (CRM). Although they have differing focuses, the purpose is the same: the construction of IC for the company and enhancement of market value. The financial industry has begun integrating professionals and market needs long ago to realize profits from financial knowledge and risk management. The business model of banks is borrowing and lending capital from/to all other industries by risk-return tradeoff decisions. Owing to the characteristics of the banking industry, it has to stay abreast of the business cycles of all other industries. Meanwhile, the banking industry is highly regulated in its operations. Over recent years, under the influence of financial liberalization and internationalization, the banking industry has seen noticeable changes in their business environment. This, combined with fierce competition, has created tremendous pressures for banks. In an environment of high uncertainties and looming crises, banks should not only more efficiently integrate their work force, financial assets, and other tangible assets, but also improve their ability in the management of IC to achieve sustainable operations. For the banking industry, it is imperative as to how to use techniques in knowledge management (KM) to accumulate IC to cope with an increasingly changing environment. Most previous KM literatures addressing IC have focused on the correlation between IC and organizational performances (Chong and Lin, 2008; Ho, 2009). There are relatively few discussions on the relationship between knowledge creation and IC, and even fewer studies on such a relationship in the banking industry. The core competitiveness of the banking industry is highly reliant on the ability of management teams to systematically manage knowledge and experience. It also depends on whether they are able to create sophisticated skills catering to the IC of their organization to effectively manage risks and create profits. creation and IC 75

JIC 11,1 76 The accumulation of IC and knowledge creation is closely related (Rezgui, 2007; Lin et al., 2008). IC is generated via systematic integration of knowledge. It is particularly so for the banks, because the knowledge required for banking operations is more complex than in most industries. The elements of highly regulated, risky, volatile, and market sensitive are inherent in banking operations. Such knowledge is known for their diversity and abstractness. From the selection of the management team, the development of professional skills of employees, nurturing of the creativity of employees, accumulation of innovative and creative capabilities, screening of customer groups, management of customers loyalty, and the management of trademarks and brands to develop and manage strategic partners, all sources of enterprise value through the creation and management of corporate knowledge. This paper examines the empirical studies on knowledge creation and IC to generalize the important factors concerning knowledge creation and IC of banks. The major purpose is to explore the relationship between knowledge creation and IC through the construction of the correlation patterns between these two elements. In addition, this paper also aims to examine the relationships between human capital, structural capital, and customer capital. With the deployment of the correlation patterns between knowledge creation and IC, this paper hopes to provide practical suggestions for the reference of the management of domestic banks. Literature review Definition of intellectual capital IC was first proposed by Galbraith (1969), as a form of knowledge, intellect, and brainpower activity, which uses knowledge to create value. A company can create differentiated advantages with this capital. The importance of IC has been widely acknowledged by scholars. Stewart (1997) indicated that IC refers to the aggregation of all knowledge and competences of employees that can bring about competitive advantages for companies. Any intellectual materials that can create wealth, such as knowledge, information, techniques, intellectual properties, experience, learning ability of organizations, and customer relationships, can be the most valuable assets and most advantageous tools in competition. Shaikh (2004) and Phusavat and Kanchana (2007) suggested that any knowledge capabilities stemming from manpower, creativity and innovation, organizational structure or affiliated parties can be classified as IC, providing it can store and convert knowledge for value creation in the future or translate implicit knowledge of employees into explicit knowledge for organizational structurization. Schiuma and Lerro (2008) believe that human, relational, structural, and social capital as the four main knowledge-based categories building the knowledge-based capital of a region and find that policy makers for the definition of policies oriented towards the development of regional knowledge asset domains to develop regional innovation capacity. Walsh et al. (2008) indicated that the investments of companies in the enhancement of human capital, structural capital, and customer capital would increase their organizational values. Some scholars widely define IC as the knowledge owned and applicable by organizations. Dzinkowski (2000) regarded IC as the total inventor of capital or knowledge-based resources owned by an organization. Therefore, IC is the intellectual properties or intellectual assets transferred by knowledge. Al-Ali (2003) stated that IC is the knowledge, experience, and brainpower of employees, as well as the knowledge

resources stored in the database, systems, workflows, cultures, and management philosophy within an organization. Bontis (2004) proposed that IC is a stock of knowledge at a given time. Schiuma and Lerro (2008) argued that the most important activity in the management of IC is the improvement of organizational flows and management techniques to create knowledge assets. Other scholars proposed that IC is intangible assets within an organization. Mayo (2001) stated that IC is the synonym of knowledge, information, intellectual properties, experience, and other intangible assets. Mason (2006) indicated that IC is an intangible asset. It can be defined as the aggregation of the employees and internal structure of a company. IC includes three types: delivery and management system of company information; the abilities of employers and employees, and when the employees leave, the company loses the IC; and the relationship connectors with external organizations, such as relationship with customers, goodwill, and reputation. Other scholars define IC with different perspectives. Rastogi (2000) stated that IC is the ability owned by an organization as a whole to constantly face existing and potential challenges, and respond in a creative and effective manner. McElroy (2002) suggested that IC should include social and innovative capital that enhances the internal value of companies with mutual trust, mutual benefits, shared values, networks, and norms. Cuganesan (2005) investigates the inter-relationships between different components of IC and value creation in an Australian financial services firm. The actual inter-relationships between different IC elements and value creation were found to be pluralistic and temporally contingent. Petty et al. (2008) argued that IC is the link between personal knowledge within group of an organization, and it can serve as a basis for decision making. creation and IC 77 Constituents of intellectual capital The definitions and the elements used to measure IC can be somewhat different across industries, and therefore, the measurement methods can be different as well. Some scholars divide IC into two types. Petty and Guthrie (2000) defined IC as structural capital and human capital. Human capital refers to employees competences and human resources of external parties accessible by companies. Structural capital refers to elements, such as corporate flows, software systems, and supply chains. Joia (2000) also divided IC into human capital and structural capital. The difference is whether the capital can be bought. Human capital is not tradable and not owned by the organization, it is a result generated by professional knowledge and skills of employees. According to the positions within and outside the organization, structural capital can be classified as flow capital, innovation capital and relationship capital. Flow capital is the internal operational flows of an organization, and the external operational flows of the organization with other parties. Innovation capital refers to the ability to create new knowledge with existing resources and is the result of an organization s culture. Relationship capital is the interaction between the organization, customers, suppliers, contractors, and other affiliated parties. Dzinkowski (2000) originally divided IC into three types: human capital, structural (organizational) capital, and customer (relationship) capital. Human capital refers to employees knowledge, education, professional certificates and qualifications, work-related know-how, work assessment, mentality assessment, innovations, aggression, and the ability to respond and change. Organizational capital refers to

JIC 11,1 78 intellectual properties and infrastructure assets, such as patents, copyrights, design rights, trade secrets, trademark services, management philosophy, corporate cultures, management procedures, information systems, and network systems. Customer capital refers to customers, customers loyalty, distribution channels, corporate partners, good contracts, and licenses. Roos et al. (2001) divided IC into three types: human, relationship, and organizational. Human capital refers to employees capabilities, skills, and intelligence. Relationship capital refers to the relationships between all related parties and stakeholders. Organizational capital includes workflows, systems, structures, trademarks, intellectual properties, and other intangible assets owned by the companies, but cannot be shown in the balance sheets. Curado (2008) states KM and IC are identified as different concepts in the banking industry. This paper considers exploitation and exploration as KM strategies. Furthermore, it also illustrates three different IC components of banking industry: human capital, internal structures and external structures. Meanwhile, Shih (2008) measured IC with four dimensions, as based on the characteristics of IC in the financial service industry. These four dimensions are human capital, innovation capital (training and development), flow capital (IT system), and customer capital. The conclusion is that customer capital of the financial industry is dependent on employees training and product development. However, the correlation with the investment in IT systems (as flow capital) is relatively low. The enhancement of innovation capital is hinged on high-calibre human capital. This is how the creation flows work for the IC of the financial industry. creation For a country or a corporation, knowledge is a foundation required for survival and development. is the main input/output for companies. The absorption, digestion, and production of knowledge will become the main activities of companies. Therefore, knowledge will become the cornerstone of sustainable competitive advantages for companies. Banking is a typical knowledge-intensive industry, as it involves the activities of service (knowledge) exchange rather than product exchange. Hence, knowledge is the source of core competitiveness for the securities and investment industry. The first step of KM is the creation of new knowledge. The creation of new knowledge may come from within or without an organization. The process of knowledge creation within an organization may be through learning, research and development, experience accumulation, and learning by doing. The source of external knowledge can be absorbed and generalized via interactions with suppliers, customers, and competitors. Chang and Lee (2008) indicated that the capability to obtain knowledge can positively and significantly affect knowledge administrative and technical innovation. The research also shows that external environment and organizational culture have significant interaction effects with knowledge accumulation capability on organizational innovation. Nonaka and Takeuchi (1997) suggested that the creation of knowledge is gained via the interaction of implicit knowledge and explicit knowledge. The process of knowledge conversion is required to generate new knowledge. The conversion process includes four elements (Table I): socialization, externalization, combination, and internalization. Socialization refers to the process for implicit knowledge to become explicit. It is mainly through passing down and sharing personal experiences, and thus, there is no

From Implicit knowledge To Explicit knowledge creation and IC Implicit knowledge Explicit knowledge Collectivity: process of creating implicit knowledge via experience sharing (common knowledge) Internalization: knowledge passed down with words and stories or made into manuals and documents (operational knowledge) Source: Nonaka and Takeuchi (1997) Externalization: implicit knowledge expressed with metaphors, analogies, concepts, or assumptions through models (conceptual knowledge) Combination: the process of forming a knowledge system by making concepts systematic (systematic knowledge) 79 Table I. creation model need to go through written words. For example, knowledge passed down from a master to a disciple. However, socialization is a rather limited knowledge creation pattern. While the disciple can learn skills from the master, neither the disciple nor the master has a systematic understanding of the skills because their knowledge may not be converted into the explicit. It is impossible to allow the whole organization to easily use all knowledge. Externalization is the process for implicit knowledge to become explicit knowledge. The sharing of knowledge is mainly through metaphors and conceptual assumptions. For example, a chief financial officer (CFO) of a company does not actually produce a conventional financial report, but rather, he develops an innovative budgetary control method, which is based on implicit knowledge he has accumulated over years of experience. Combination is the process for implicit knowledge to become explicit knowledge, mainly through storage, combination, and classification to make the explicit knowledge systematic. For instance, a CFO of a company collates information throughout the organization to compile it into a financial report. The financial report is a new knowledge because it combines information of different sources. However, the combination does not really expand the current knowledge base of the company. Internalization is the process for explicit knowledge to become implicit knowledge, mainly via inspections and applications. The process socializes, externalizes, and combines the explicit languages, texts, pictures, or information, and then internalizes it into personal knowledge. In other words, when the whole organization is able to share the new explicit knowledge, other employees can start to expand, extend, and redefine their implicit knowledge. Marr et al. (2003) divided the sources of knowledge creation into three types: autopoetics, cognitivists, and connectivists, as shown in Figure 1. Autopoetics refers the development of personal knowledge amid difficulties in delivering information and knowledge because the sources of the knowledge are personal interpretations or translated data within an organization. The master and disciple system is an example. Cognitivist refers to authentication, collection, and dissemination of propaganda information as the main activities of knowledge development. An open organization develops more accurate and precise knowledge through the absorption of new information. development can be stored systematically within a system based on general principles. This type is mainly to construct a solution in order that the

JIC 11,1 80 created knowledge can be systematically shared. The common approach is to formulate a set of standardized operational procedures. Connectivists and cognitivists have a lot in common. The only difference is that in connectivists, there is no predefined solution. Rather, it is believed that the source of information stems from the connection of information. Therefore, knowledge creation should focus on the exchange and sharing of information. The usual approach adopted by companies is brainstorming and workshops, and the connecting approach is team-oriented. It is regarded that knowledge creation relies on the communication of internal information. The relationship between individuals is like independent networks within an organization, and knowledge exists in the interchanges of the networked information. creation is focused on the disseminated and delivered informational flows within an organization. Research method 1. Research structure This paper constructs its research structure, as shown in Figure 2, in accordance with the characteristics of the banking industry, and literature addressing types of knowledge creation and structure of IC. 2. Research question Al-Ali (2003) suggested that IC is employees knowledge, experiences, and brainpower, as well as the knowledge resources stored in the databases, systems, flows, cultures, and management philosophies, and is the aggregation of all these resources. Afiouni (2007) proposed that the management activities in human capital and KM help to improve operational performances of an organization. Meanwhile, Schiuma and Lerro (2008) indicated that the most important activity in the management of IC is to improve knowledge assets of organizational flows through diverse methods that improve Autopoetics Figure 1. Types of knowledge creation Cognitivists Source: Marr et al. (2003) Connectivists Structural capital Types of knowledge creation Human capital Figure 2. Research structure Customer capital

organizational performances. This paper first examines the relationship between knowledge creation and IC of the banking industry. creation uses employees as a medium. IC can only be created with resource investments and management in a systematic method within an organization. Therefore, this paper assumes that knowledge creation and human capital of the banking industry are correlated. As far as the contents of IC are concerned, Reed (2000) suggested that the contact between employees and customers enable employees to understand customers needs and provide better responses. From the customers end, they can determine the services that their organization should improve or increase. It facilitates the conversion of human capital into customer capital. Kaplan and Norton (1996) also indicated that the interactions between employees and customers may trigger absorption of information, and it can transform knowledge formats for the organization. They can be stored within the organization so that information can be shared with others. In other words, the better competences employees have, they more they are able to understand customers needs and develop customer relationship capital to boost customers satisfaction. Greiner et al. (2007) stated that an organization whose business strategy requires process efficiency (product/process innovation) should rely primarily on a codification strategy (a personalization strategy). In addition, both Sveiby (1998) and Chareonsuk and Chansa-ngavej (2008) indicated that the companies with abundant human capital could not only boost the operating efficiency, but also accumulate solid structural capital. High-caliber employees and leaders constantly provide services catering to the needs of different customers or partners, in order to establish, maintain, and develop customers relationships. This results in the accumulation of customer capital. To sum up the above literature review, this paper examines the correlation between knowledge creation and human capital of the banking industry, and analyzes the correlation between human capital, structural capital, and customer capital of the banking industry. creation and IC 81 Research method This paper adopts the KM measurement proposed by Bukowitz and Williams (1999), as a reference structure to examine the formats of knowledge creation. This measurement focuses on the evaluation of IC. It covers the day-to-day information gathering of organizational members, personal learning on the job, value creation for the re-utilization of knowledge, and the feedback of knowledge flow cycles to the KM system of companies. Meanwhile, this paper refers to Marr et al. (2003) as the major structure of the formats of knowledge creation to be examined. The measurement for human capital (as part of IC) is designed by modifying the five questions proposed by Youndt et al. (2004). The measurement for organizational capital is based on the four questions of Youndt et al. (2004), with an emphasis on storage in memory devices of an organization, established organizational knowledge, and systematically recorded experiences. Meanwhile, the measurement for customer relationship capital is developed by modifying the questions designed by Bontis (1997) to assess customer capital. In addition, this paper refers to the measurements and indicators proposed by Stewart (1997) and Dzinkowski (2000) for human capital, structural capital, and customer capital.

JIC 11,1 82 Empirical analysis Data collection The sample population includes six branches of privately owned commercial banks, three branches of state-owned banks, and one branch of a credit cooperative. There were 15-20 questionnaires issued to sales personnel and supervisors, with at least three years in service, at each branch. A total of 500 questionnaires were released, with 194 were recovered. Table II shows the basic data of the respondents of the effective questionnaires. Reliability and validity analyses All the dimensions of this study report Cronbach s a over 0.7, reaching high reliability standards, which indicate that the measurement design is highly credible. Table III shows Sample characteristics No. of samples % Accumulative (%) Table II. Sample characteristics Sex Male 63 32.5 32.5 Female 131 67.5 100 Age 20-29 114 58.8 58.8 30-39 67 34.5 93.3 40-49 11 5.7 99 50-59 1 0.5 99.5 Above 60 1 0.5 100 Marital status Single 144 74.2 74.2 Married 50 25.8 100 Tenure Below five years 131 67.5 67.5 6-10 years 42 21.6 89.1 11-15 years 14 7.2 96.3 16-20 years 2 1.1 97.4 Above 20 years 5 2.6 100 Position Clerk 121 62.4 62.4 Junior manager 61 31.4 93.8 Senior manager 7 3.6 97.4 Supervisor 5 2.6 100 Education College 46 23.7 27.3 University 115 59.3 83.0 Post graduate 33 17.0 100 Dimension No. of items Cronbach s a Table III. Summary of dimension reliability Autopoetics 7 0.842 Cognitivists 7 0.812 Connectivists 7 0.798 Human capital 9 0.922 Structural capital 10 0.897 Customer capital 8 0.904

the detailed data. Meanwhile, content validity refers to the fitness of the contents of the measurement tool. The verification of content validity in social sciences depends on the professional knowledge of researchers. It is also possible to identify appropriate and relevant measurements from literature or employ the assistance of experts to determine the fitness of the contents, to enhance content validity, and ensure questionnaire effectiveness. The development of measurement tools in this paper is based on generalization of literature reviews. All the sources are referenced in relevant empirical literature. The questions are modified after interviews with experts. Therefore, the questionnaire in this paper should carry a certain degree of content validity. creation and IC 83 Structural equation modeling Figure 3 shows the parameter estimates of the structural model of this paper. Afterwards, an inspection of the estimates of the model and assessment of the overall fit indicators and modification index can be made to evaluate model fit. Measurement results of observed variables and selection of estimation methods. Table IV shows the averages and standard deviations of observed variables. Meanwhile, according to the skewness and slopes of individual variables, Kline (1998) 0.12 0.09 0.10 Employees satisfaction Employees capabilities Employees training 0.18 0.07 Autopoetics Cognitivists 0.47 0.87 0.68 creation 0.74 0.90 0.85 0.86 Human capital 0.12 Connectivists 0.66 0.75 Structural capital 0.29 Customer capital 0.71 0.82 0.86 0.86 0.87 0.86 Treasury knowledge 0.28 Organizational culture 0.15 Innovation ability 0.09 Customers satisfaction Customers satisfaction Market shares 0.08 0.09 0.09 Figure 3. Standardized parameter estimates of path analysis

JIC 11,1 Potential constructs and observed variables Average Standard deviation Coefficient of skewness Coefficient of kurtosis 84 Table IV. Measurements of observed variables for path analysis creation Autopoetics 4.06 0.48 20.484 2.032 Cognitivists 3.60 0.55 0.117 0.063 Connectivists 3.79 0.48-0.063 0.224 Human capital Employees training 3.33 0.68 20.074 0.245 Employees capabilities 3.34 0.65 0.226 20.354 Employees satisfaction 3.41 0.63 20.028 20.310 Structural capital Treasury knowledge 3.23 0.75 20.102 20.080 Organizational culture 3.39 0.69 20.314 20.008 Innovation ability 3.52 0.60 0.087 20.121 Customer capital Customers satisfaction 3.57 0.57 0.312 0.090 Customers loyalty 3.39 0.61 0.327 20.066 Market shares 3.49 0.59 0.099 20.191 made the following comments on coefficients of skewness and coefficients of kurtosis. He suggested that when the absolute value of the coefficient of the skewness of the distribution of variables is greater than three, it could be regarded as extremely skewed. If the absolute value of the coefficient of kurtosis is greater than eight, it has reached a critical point. If the coefficient of kurtosis is greater than 20, it is seriously critical and can be regarded as an extreme case. If the coefficient of skewness or kurtosis has such an issue, it is necessary to consider the estimation methods not subject to the variable distribution. The coefficients of skewness for the observed variables, in this paper, range from 20.484 to 0.327, and the coefficients of kurtosis range from 20.354 to 2.032. The results show that an estimation method, with a normal distribution, does not seriously affect the robustness of the estimates. Therefore, this paper uses the maximum likelihood estimation method as its model. Validation and analysis of research issues. This paper uses a SEM for validation and analysis of the examination of reasonability of the research structure and the results of the research issues. Table V shows the validation results of the structural model. The standardized coefficients of knowledge creation and human capital are 0.74, and t-value is 7.18, p, 0.001, reaching statistical significance. The results indicate that knowledge creation has positive, and direct, influence on human capital. Meanwhile, cognitivists and connectivists are considered the main knowledge creators in the Research issue and path Standardized coefficient Standard error t-value p Table V. Validation results of structural model creation! human capital 0.74 0.19 7.18 ** Human capital! customer capital 0.75 0.07 9.70 ** Human capital! structural capital 0.66 0.10 6.47 ** Customer capital! structural capital 0.29 0.10 3.24 * Notes: Significance indicates * p, 0.01; ** p, 0.001

banking industry. The standardized coefficient between human capital and structural capital is 0.66, t-value is 6.47, and p is less than 0.001, also reaching statistical significance. These numbers suggest that human capital has positive and direct influence on structural capital. The standardized coefficient between human capital and customer capital is 0.75, t-value is 9.70, and p is less than 0.001, also reaching statistical significance. These numbers suggest that human capital has positive and direct influence on customer capital. The standardized coefficient between customer capital and structural capital is 0.29, t-value is 3.24, and p is less than 0.001, also reaching statistical significance. These numbers suggest that customer capital has positive and direct influence on structural capital. Analysis results show that, the methods of knowledge creation by employees in the banking industry have direct and significant influence on the formation of human capital. The direct impact of human capital on customer capital is significantly greater than that of human capital on structural capital. The direct impact of customer capital on structural capital is the smallest. In addition, the higher the model fit, the higher usability the model has, as far as the model fit assessment is concerned. That also means that parameter estimates are more meaningful. This paper refers to absolute fit indicators, incremental fit indicators, and goodness of fit index recommended by Hair et al. (1998) for the validation of overall fit. Table VI shows all the overall fit indicators. Among the absolute fit indicators, the goodness-of-fit index (GFI) value of this model is 0.932, root mean square residual (RMR) value is 0.016, and root mean square error of approximation (RMSEA) value is 0.066, all within an acceptable range, as suggested by past scholars. Huang (2004) suggested that if the RMSEA value is between 0.05 and 0.08, it implies a good fit. As far as incremental fit indicators are concerned, the adjusted goodness of fit index (AGFI) value of this model is 0.877, normed fit index (NFI) value is 0.948, comparative fit index (CFI) value is 0.977, and incremental fit index (IFI) value is 0.977. All the values reach the standards suggested in literature, with the exception of AGFI. However, the AGFI is fairly close to the standard. Meanwhile, among the goodness of fit index, the parsimonious normed fit index (PNFI) value of this model is 0.618 and parsimonious comparative fit index (PCFI) value is 0.636. They are both greater than 0.5, reaching the standards suggested by previous scholars. creation and IC 85 Fit indicator Criteria Validation value Result Absolute fit indicators p.0.05 0.004 Close GFI.0.9 0.932 Compliant RMR,0.05 0.016 Compliant RMSEA,0.05 0.066 Close Incremental fit indicators AGFI.0.9 0.877 Close NFI.0.9 0.948 Compliant CFI.0.9 0.977 Compliant IFI.0.9 0.977 Compliant Goodness of fit index PNFI.0.5 0.618 Compliant PCFI.0.5 0.636 Compliant Table VI. Overall model fit of path analysis

JIC 11,1 86 Conclusions and suggestions The purpose of this paper is to examine the correlation between knowledge creation and IC of the banking industry, as well as the correlation between human capital, structural capital, and customer capital, as the three types of IC. The research finds that knowledge creation in the banking industry has positive and direct influence on human capital. Cognitivists and connectivists are considered the main knowledge creators in the banking industry. Cognitivist refers to develop more accurate and precise knowledge through the absorption of new information, and to construct a solution in order that the created knowledge can be systematically shared. The only difference between connectivists and cognitivists is that connectivists believe there is no predefined solution. Rather, it is believed that the source of information stems from the connection of information. Therefore, knowledge creation in banks should focus on the exchange and sharing of information. It has suggested the usual approach adopted by banks is brainstorming and workshops, and the connecting approach is team-oriented. Furthermore, the smoother the information communication channels are for employees to create knowledge, the higher the human capital of the banks; as a result, there is positive influence on structural capital and customer capital of the banks. In other words, with comprehensive knowledge creation mechanisms, banks can effectively enhance their IC. This finding is consistent with that of Schiuma and Lerro (2008), that the most important activity in management of IC is the creation of knowledge variety. It can improve the flows of knowledge creation for an organization, and accumulate more knowledge assets. Meanwhile, as far as the sources of knowledge creation are concerned for employees in the banking industry, cognitivists are the most important and have the most significant influence on human capital, followed by connectivists. Autopoetics reports the least influence on human capital. IC consists of human capital, structural capital, and customer capital. This study finds that human capital in the banking industry reports positive, and direct, influence on structural capital and customer capital. Customer capital also exhibits positive and direct influence on structural capital. Namely, banks with rich human capital not only boost their operational efficiency, but also accumulate good structural capital. High-caliber employees develop customer relationships with their professional knowledge, experience, and capabilities and promote the accumulation of customer capital. Meanwhile, interactions between employees and customers trigger more digestion and absorption of information so that information can be shared within the organization, and thus, the accumulation of structural capital increases. This finding is consistent with Shih (2008), who suggested that human capital has the same positive influence on structural capital and customer capital in the financial service industry. However, it is in contrast with the statement that structural capital exhibits negative influence on customer capital. As far as the perception of the dimensions of IC by the employees in the banking industry is concerned, this paper finds that employees competences are the most important element of human capital, followed by employees satisfaction and employees training. When it comes to structural capital, innovation ability is the most important, followed by organizational culture and treasury value. In terms of customer capital, customers loyalty is the most important, followed by customers satisfaction and market shares. In other words, employees competences, satisfaction, and training

have positive influence on structural capital and customer capital. Customers loyalty, satisfaction, and market shares also exhibit positive influence on structural capital. The ability to create knowledge is highly relevant to IC in the banking industry. Companies should define their own robust mechanisms for knowledge creation to improve their ability in knowledge creation. The sources of knowledge creation should include autopoetics, cognitivists, and connectivists. For autopoetics, domestic banks should improve their mentoring systems in order to convert the implicit knowledge not able to be expressed with words or texts within the organization into explicit knowledge. For cognitivists, banks should establish and integrate a variety of IT systems to facilitate the exchange and sharing of knowledge. Examples are databases, work samples, and instruction manuals within the organization. It is also possible to invite highly seasoned professionals to give speeches and encourage employees to sit for examinations to obtain certificates and qualifications. As far as connectivists are concerned, banks should provide all kinds of formal, and informal, communication channels, such as job rotations, discussions, intranet forums, meeting rooms, and tea areas to enhance the ability of the organization to create knowledge. The managers in the banking industry should identify the ways to cultivate in-depth contents of IC. They should have comprehensive talent development programs for their human capital by providing complete training and education to expand the professional knowledge and skills of employees. They should encourage employees in a timely manner to enhance employees satisfaction. In terms of structural capital, the mangers should strive to improve the operational flows of their companies by enhancing the innovation capabilities and bettering the value of the knowledge treasury within their organizations. As far as customer capital is concerned, they should provide high value-added products and services, as well as a clean and comfortable environment to maintain a good long-lasting relationship with customers. Xu and Walton (2005) and Liew (2008) suggested the integration of KM and CRM is a strategic issue that has strong ramifications in the long-term competitiveness of organizations. This will increase customers satisfaction and loyalty, and hence, market shares. For domestic banks, the interaction and mutual influence of human capital, structural capital, and customer capital will benefit the accumulation of IC, create differentiated advantages, and boost corporate competitiveness. creation and IC 87 References Afiouni, F. (2007), Human resource management and knowledge management: a road map toward improving organizational performance, Journal of American Academy of Business, Vol. 11 No. 2, pp. 124-35. Al-Ali, N. (2003), Comprehensive Intellectual Capital Management, Wiley, Hoboken, NJ. Bontis, N. (1997), Intellectual Capital Questionnaire, Institute for Intellectual Capital, Hamilton. Bontis, N. (2004), National intellectual capital index: a United Nations initiative for the Arab region, Journal of Intellectual Capital, Vol. 5 No. 1, pp. 13-39. Bukowitz, R.W. and Williams, R.L. (1999), The Management Fieldbook, Prentice-Hall, London. Chang, S.C. and Lee, M.S. (2008), The linkage between knowledge accumulation capability and organizational innovation, Journal of Management, Vol. 12 No. 1, pp. 3-20.

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