Relationship between Knowledge Management Activities and Intellectual Capital of Companies in the Palm Oil Industry in Thailand

Relationship between Knowledge Management Activities and Intellectual Capital of Companies in the Palm Oil Industry in Thailand Natee Boonkaew Sirinya Wiroonrath Zait Pattanamas Banpot Wiroonrath Chalinee Plukphonngam Graduate School of Commerce Burapha University Abstract The research aimed at studying factors influencing the relationship between knowledge management activities and intellectual capital of companies in the Palm Oil Industry in Thailand. The study was conducted with400 employees of the palm oil industry. Results show that factors of knowledge management in the industry were positively correlated with intellectual capital. In fact, knowledge management process capability which was one of the knowledge management factors could influence intellectual capital rather than the knowledge infrastructure capability itself. From the causal relationship of building Intellectual capital and human capital lements. The results show that the employees capability and the employees commitment factor highly influenced or were correlated with human capital. This could be seen from both high values of coefficient path in this study. Keywords: Intellectual Capital, Human Capital, Structural Capital, Knowledge Management, Process Management Capability, Knowledge Management Infrastructure Capability 16 P a g e

Introduction In the world economy which is entering the 21 st century, the companies running business have to implement innovation which plays an important role in business. Many of the organizations try to change the pattern of their organization to be innovative for sustainable competitive advantage. Being an innovative organization consists of many important factors. One of these factors is knowledge management to build intellectual capital, and it is interesting topic for the world community. Intellectual capital enables the ability for competitive advantage. From World Electronic Forum: WEF, it publicized the Global Competitiveness Report 2014-2015, the top ten countries that had global competitiveness are shown in the below table. Country 2014-2015 Overall Index Basic Requirement Sub Index Efficiency Enhancers Innovation and Sophistication Factors Rank Score Score Score Score Switzerland 1 5.7 6.17 5.49 5.74 Singapore 2 5.65 6.34 5.68 5.13 United 3 5.54 5.15 5.71 5.54 States Finland 4 5.5 5.97 5.27 5.57 Germany 5 5.49 5.91 5.28 5.56 Japan 6 5.47 5.47 5.35 5.68 Hong Kong 7 5.46 6.19 5.58 4.75 SAR Netherlands 8 5.45 5.95 5.28 5.41 United 9 5.41 5.49 5.51 5.21 Kingdom Sweden 10 5.41 5.86 5.25 5.38 Table 1-1 Top ten countries that have global competiveness in the year 2014-2015 (World Electronic Forum, 2014) 17 P a g e

Thailand ranked the 31 st and this was 6 ranks better than that of the year 2013-2014 which was the 37 th. However, among Asian countries, Thailand came 3 rd rank because Thailand (31 st ) comes after Singapore (2 nd ) and Malaysia (20 th ) Country 2014-2015 Overall Index Basic Requirement Sub Index Efficiency Enhancers Innovation and Sophistication Factors Rank Score Score Score Score Singapore 2 5.65 6.34 5.68 5.13 Malaysia 20 5.16 5.53 4.95 4.95 Thailand 31 4.66 5.01 4.53 3.84 Indonesia 34 4.57 4.91 4.38 4.20 Philippines 52 4.40 4.63 4.27 3.90 Vietnam 68 4.23 4.44 3.99 3.35 Lao PDR 93 3.91 4.13 3.58 3.51 Cambodia 95 3.89 4.09 3.65 3.15 Myanmar 134 3.24 3.36 3.11 2.62 Table 1-2 The Rank of Countries Competitive Ability in Asia (exclusion Brunei Darussalam) in the year 2014-2015 (World Economic Forum, 2014) From table 1.2 and figure 1.1 it was found that for the item of innovation and sophistication factors, Thailand ranked the fifth among the nine countries in ASEAN countries which were in the evaluation list of the World Economic Forum. This indicated that Thailand s weakness was the knowledge management which was a tool to build intellectual capital for completive advantage. If there was good knowledge management, the organization would have more intellectual capital (Wijarn Panich, 2006 cited by Preeyanuch Chaikongkiat, 2011). In the age of knowledge-based society, in order to maintain the competitive ability, the organization had to operate and manage intangible asset, especially intellectual capital which differed from others capital because the more the intellectual capital was used, the more it would grow. As a 18 P a g e

result, the organization administrators should have awareness and be ready for implementing knowledge or intellectual capital for competition. Figure 1-1 The Rank of Countries Competitive Ability in ASEAN (exclusion Brunei Darussalam) in the year 2014-2015 (World Economic Forum, 2014) The organization should employ the hidden knowledge from their staff s brain through the establishment of a team to manage knowledge. This is because knowledge management is the process to create and build the intellectual capital which will be applied in a tailored approach for the business organization to move forward in the future. This was consistent with Senge who explained that learning organization was an organization that focused on stimulating, urging and motivating all the members to be eager to learn and improve themselves all the time to expand their own capabilities and for the organization (Wutthiwong,2014). A learning organization was an essential strategy for managing and organizing new company which was involved in the development of human resources. The new company should be knowledge-based and should have intellectual capital to develop its products or services (Wutthiwong, 2014). Organizations were required to build their own organizations to become learning organizations to support lifelong learning in order to gain a sustainable competitive advantage (Wutthiwong, 2014). Another important point was that the intellectual capital could be measured or assessed, so that knowledge would be managed effectively. As a result, the researchers were interested in studying how to measure or evaluate intellectual capital to raise suitable potential for the organization to run the business. 19 P a g e

Research Rationale At the present time, Thailand turns to focus on the things that will make the country more competitive, especially in the field of knowledge management in the organization and management of intellectual capital. It can be seen from the preparation of the National Economic and Social Development Plan No. 11 (2012-2016) which indicates the current focus of significant changes both within and outside the country. The changes are dramatic and more sophisticated, especially the obligation to enter into an ASEAN Community in 2015. In addition, changes in the production structure are characterized by the shift from labor-intensive to a knowledge-based and technology. This is to support the aging society, with the steady increasing rates of senior citizens. Therefore, for the development, we must focus on building knowledge, skills and expertise that can be in the form of intellectual capital of the organization. This is the continuation of the plan, the National Economic and Social Development No. 9 (2002-2006) and No. 10 (2007-2011) focused on the development paradigm of an integrated and holistic approach to a people-centered development. Palm Oil Industry is one of the important industries that require the ability to focus on the competition when entering the ASEAN economies. Figure 1.2 demonstrates the proportion of Crude palm oil in the world in the year 2012 (Source: Bank of Thailand Accessed from http://www.ksmecare.com on August 15, August, 2014) Oil palms are plants which are important for the country, in terms of helping stabilize the food and economy and in terms of the production process. However, the production mostly 20 P a g e

comes from farmers and small entrepreneurs. As a result, the management costs are also higher than those of the major manufacturers from Malaysia and Indonesia. This is a major weakness that affects the level of competitiveness for the palm oil production in Thailand. Although the current government has implemented measures to help prevent the import of palm oil from abroad, especially from Indonesia and Malaysia which are the first and the second largest palm oil producers in the world. Too much palm oil import affects both manufacturers and operators in the Palm Oil Industry in Thailand. However, after entering the ASEAN Community, the government has to reduce some measures or restrictions. Therefore, it is necessary for Thai entrepreneurs of Palm Oil Industry to invest or put an emphasis on human development. In order to make the organization developed with the intelligence or wisdom, there is the need to focus on all-round knowledge and to encourage the staff to love learning and have network to exchange their knowledge and existing wisdom. In addition, the new knowledge must be spread or conveyed widely and continuously to achieve creativity, innovation, or new knowledge that leads to the learning organization or society. This is like the immune system to make the organization s personnel knowledgeable and ready to face both internal and external changes. This also leads to the organization s performance and poses a competitive advantage in the marketplace. Free trade and investment put pressure on the adaptability of Thailand. Meanwhile, one problem is that most business administrators have too much information, but they cannot use it thoroughly. In other words, there is the lack of data management such as classifying the data into topics and storing them until they become wisdom and then intellectual capital. Thus, knowledge should be managed continuously and ceaselessly to obtain the most appropriate knowledge to be applied for the most benefits to the organization. Knowledge management leads to the increase of intellectual capital. In fact, it is in the pattern or the process to bring the knowledge to be applied in practical situations, and this helps develop the both the work and the organizations. It is obviously concluded that making progress toward the intellectual capital requires the process to develop people and knowledge structure. These are the processes or patterns that support each other. Consequently, the research team is interested in studying the factors that are related with or influence the intellectual capital through infrastructure capital and human capital by using organizational knowledge management activities. 21 P a g e

Knowledge management Infrastructure ability Knowledge management background Organizational structure Organizational culture Information technology Intellectual capital Human capital Ability limit Organizational commitment The ability of the knowledge management process The acquisition of knowledge Knowledge conversion Knowledge application Knowledge prevention Figure 1.3 The study framework Infrastructure capital technology elements elements of performance management systems Literature Review In the study of factors influencing the relations of activity of knowledge management and intellectual capital of companies in the Palm Oil Industry in Thailand, the study team collected concepts and theories related to the study of such topics as guidelines in the study. The details are as follows: Intellectual capital The scholars have given a wide variety of meanings or definitions of intellectual capital. For example, intellectual capital refers to thinking and analyzing ability leading to the creation of added value. However, it doesn t mean that every person who has human capital must always have intellectual capital. People with less education can have intellectual capital if they know how to build or acquire knowledge continuously and add value to their experience (Honladarom, 2013). Intellectual capital can be presented in the form of knowledge archive existing in the organization at different times (Rudes, 2004). Intellectual capital is considered as elements of organizational excellence and sub-structure of intellectual capital is related to the structure of the organization with excellence. The relationships developed will make that organization have more competitive advantage (Balouei and Ghasemian, 2014). Defining elements of intellectual capital, a scholar classifies intellectual capital into two main elements consisting of human capital and Structural Capital. These elements are vital to the sustainability and development of future capabilities of the organization. Human capital refers to the experience and technical working skills that make people a valuable and indispensable 22 P a g e

asset to the organization (Chaikongkiat. 2007). The structural capital is the circulating knowledge in the daily operations of the organization. It includes technology and capacity to manage the work system (Bontis, 2000 cited by Chaikongkiat, 2008). Capital structure would consist of cultural structure and organizational technology (Gold, 2001 cited by Chaikongkiat, 2008). The organization should focus on the development or raising the level of human capital through organization infrastructural capital. If the organization doesn t have strong infrastructural capital, it cannot develop or add value to human capital. However, the intellectual capital of each organization has different intellectual capital. The obvious examples of intellectual capital consist of experiences, abilities, information technology, intellectual property including the staff s organizational commitment (Hsu, 2006). Knowledge Management Process It refers to the process that the organization can use as a tool for developing, upgrading, or creating the new things for the organization to improve and create innovation that is useful and valuable for the development of the organization. The process also helps the organization to expand its growth effectively, and helps the organization to have a sustainable and competitive advantage or ability. In modern times, the knowledge management has become the most important issue in the world economy for running a multinational business (Pandey and Dutta, 2013). Knowledge management consists of two core components based on Gold (2001 cited by Pandey and Dutta, 2013). The first component is Knowledge Infrastructure Capability consisting of cultural capability, infrastructure capability and technological capability. All of these are important for the performance of the organization. The second component is Knowledge Process Capability. Based on Hsu (2008 cited by Chaikongkiat, 2008), knowledge management consists of four stages which are Acquisition, Conversion, Application and Protection. Knowledge management is something that can be pushed or driven over the time to bring out the appropriate knowledge to apply for the appropriate circumstances. This leads to intellectual capital, and it is the management to bring the knowledge for a real practice which will contribute to the development of both people and knowledge in a complementary way. Pandey and Dutta (2013) studied the role of infrastructure capability to handle the knowledge. It was concluded that knowledge management was important for the organization s 23 P a g e

success or failure. The role of the infrastructure capability influenced the organization to be a learning organization which would lead to intellectual capital. Johndan (2012) also studied intellectual capital which led to competitive advantage in Latin American markets. He concluded that intellectual capital was based on knowledge that was the relationship created in the organization and was transferred to the outside of the organization. Both human capital and infrastructural capital led to intellectual capital. In fact, the process of intellectual capital originated from human capital through training and development based on the policy of the organization. Nigh and Ibrahim (2011) studied the influence of intellectual capital factors on knowledge exchange of SMEs in Malaysia, and he found that the knowledge exchanges both in and outside the organization was important to the organization in order to create innovation. In fact, both human and infrastructure capital which were internal organization resources should also be emphasized. An organization should be encouraged to have learning culture to support intellectual capital in creating innovation for the organization. Hsu (2006) studied knowledge management and intellectual capital and concluded that both human and infrastructure capital influenced the organization performance through knowledge management and knowledge management positively influenced organization performance and in turn organization performance influenced the organization s competitive advantage. Fallahi (2014) studied the impact of the management of human resources and intellectual capital and concluded that the management of human resources significantly influenced intellectual capital, and intellectual capital also significantly influenced organization performance. In fact, the management of human resources was an extraneous variable between intellectual capital and organization performance. Golds (2001) studied the knowledge management in the aspect of the organization capabilities. It was concluded that the project of the knowledge management consisted of technologies and organizational structure and culture. The design of knowledge process consisted of knowledge acquisition, knowledge conversion, knowledge application and knowledge prevention. All of these were particularly necessary to the organization performance. 24 P a g e

Methodology In this study, there were 40 observed variables. Due to the nature of Structural Equation Model, SEM was used for data analysis calculated by AMOS Program, the sample size could be considered by observed variables. This meant that the sample size should be 10-20 times of the observed variables (Kanlaya Vanichbuncha, 2014).. Therefore, the size of the sample should be 400.The instrument was invented from the study of literature review and relevant documents. The instrument was questionnaires divided into two parts. The first part was the questionnaire asking about 6 personal factors, namely gender, age, education level, position at work, length of employment, and the number of times they were trained since they started working. The second part was the questionnaire for evaluating the things that affected the intellectual capital consisting of knowledge management, knowledge infrastructure capability (KNIFC) and knowledge process capability (KNPRC). In addition, the intellectual capital consisted of human capital (HUMCA) and structure capital (STRCA). There were 40 questions in the questionnaire and the questions were the 1-5 rating scale type which indicated the operation level of the operation of the companies in Oil Palm Industry. The data were collected from the operational-level employees who were respondents giving information in the 1-5 rating scale questionnaire. The data were analyzed using Structural Equation Model (SEM) with AMOS program. Five indicators were used to assess the consistency or harmony of the model Fit namely 1. Normal Chi Square (CMIN/DF), 2.Normed Fit index (NFI), 3.Comparative Fit Index (CFI), 4.Root Mean Square Error of Approximation (RMSEA), and 5.Root Mean Residual (RMR).Coefficient Alpha was used for checking the credibility or the reliability of the questionnaire. It was found that KNIFC coefficient alpha was 0.899. KNPRC coefficient alpha was 0.957. Human Capital (HUMCA) coefficient alpha was 0.875. STRCA coefficient alpha was 0.890. The total coefficient alpha was 0.975. 25 P a g e

Results In this section, the results of a statistical analysis of the samples were presented. In addition, the analysis of structural equation modeling with AMOS program was processed using SPSS for descriptive statistics. The presentation is divided into three parts Part 1: General statistical data analysis is presented The results from the data analysis of the sample group are shown in table 1. Personal Factors Number(person) Percentage 1.Gender 2.Age Male 226 56.5 Female 174 43.5 Lower than 22 years old 12 3.0 22 34 years 268 67.0 35 49 years old 104 26.0 Over 50 years old 16 4.0 3.Education Lower than a bachelor s degree 17 43.0 a bachelor s degree 212 53.0 a master degree 16 4.0 4.work position Production Department 178 44.5 Department supporting production (Accounting, 159 39.8 Administrative Support office, others) Department of Transportation and storage 34 8.5 Sales and marketing 29 7.3 5.Length of employment Less than 1 year 122 30.5 1 3 years 155 38.8 3-5 years 57 14.3 Over 5 years 66 16.5 6. Number of trainings since the employee started working. 26 P a g e

Never 81 20.3 1 2 times 174 43.5 3-5 times 72 18.0 over 5 times 73 18.3 Table 1 Number and percentage of the informants classified into personal factors (n = 400) The results in the table above revealed that male and female respondents were in a similar proportion that was 56.5 % and 43.5 % respectively. Most of the informants or 67 % were in the age range of 22 to 34 years. Most of the informants had a bachelor s degree or lower than a bachelor s degree in other words 53.0 % had a bachelor s degree and 43.0 % had lower education level than a bachelor s degree. Most of the informants or 44.5 % were in the Production Department. Next, 39.8 % were in the Department supporting the Production. Most of the sample or 38.8 % had the employment length in the range of 1 to 3 years and 30.5 % had less than 1 year length of employment. This was consistent with the number of training times which was one time or two times that most employees or 43.5 % of the samples had been trained since they started working with the company. The second part: the opinion on the factors affecting intellectual capital and they consisted of knowledge infrastructure capability (KNIFC) and knowledge process capability (KNPRC). In addition, the intellectual capital consisted of human capital (HUMCA) and structure capital (STRCA). 1. The level of opinion on knowledge infrastructure capability (KNIFC) which consisted of the following components. 1.1 Organizational structure (ORST) analysis found that the determination of the organizational structure encouraged the discovery of new knowledge (OS11) had the highest mean of4.110. 1.2 Organizational culture (ORCU) analysis found that loyalty, mutual trust, and organizational commitment to operate successfully (OC23) had the highest mean of 4.090. 27 P a g e

1.3 Information Technology (INTE) analysis found that it was used to help manage production, coordination and administration more efficiently (IT31), and it had the highest mean of 4.090. 2. The level of opinions of the factors related to the knowledge process capability (KNPRC) 2.1 Knowledge acquisition capability analysis found that the channel or form of knowledge acquisition that was relevant to the customer (KMA61) had the highest mean of 3.980. 2.2 Knowledge conversion (KNCO) analysis found that the form of transfer or transfer of knowledge from the organization to the employees (KMC67) had the highest mean of 3.860. 2.3 Knowledge Application (KNAP) analysis found that new knowledge was brought to develop products and services (KMAC611) and it had the highest mean of 4.100. 2.4 Knowledge Prevention (KNPR) analysis found that the forms and policies to protect trade secrets (KMP615) had the highest mean of 4.040. 3. The level of opinion of the factors concerning human capital (HUMCA) 3.1 Organizational Commitment Analysis found that opportunity for employee to manage or create excitement in their work (HC41) had the highest mean of 3.750. 3.2 Competency capability (COMP) analysis found that the project, training activities or development programs for employees such as rotations and practical learning (HC44) had the highest mean of 3.920. 4. The level of opinions of the factors on the structure capital (STRCA) 4.1 Technology Component Analysis found that the right of access to their own company data (SC51) had the highest mean of 3.970. 4.2 Elements of the Performance Management System (ARCH) analysis found that assisting employees in developing new ideas (SC54) had the highest mean of 3.860. 28 P a g e

The analysis of factors influencing the relations of activity of knowledge management and intellectual capital of companies in the palm oil industry in Thailand was done by the model tested the hypothesis with empirical data to confirm the elements (Confirmatory Factor Analysis: CFA) to assess the consistency of the model with empirical data and to test models based on empirical data and analysis, structural equation model (Structural Equation Model Analysis: SEM). The results of monitoring whether the model was consistent using different index values were shown in Table 2. Table 2 Model checking statistics Index criteria The statistical value from the analysis χ 2 P > 0.05 0.000 CMIN/DF < 2 1.995 GFI 0.90 0.867 AGFI 0.90 0.831 NFI 0.90 0.908 CFI 0.90 0.952 RMSEA 0.05 0.08 0.05 RMR < 0.05 0.031 HOELTER 0.5 > 200 219 From the results, it could be concluded that the models met the criteria and were consistent with the empirical data and the Chi Square value (χ 2 ) was at the significance level (χ 2 = 0.000 ). This could be explained that the model was consistent with the empirical data. However, χ 2 had to depend on the sample size. If the sample size was big, the χ 2 would be higher. This would lead to incorrect conclusion. Therefore, the method of Ulman (2001, cited by Kanlaya Vanichbuncha,2013) was used for correcting and CMIN/DF index was used as the criteria to consider the consistency of the model of the empirical data. In fact, the value of the analyzed data should be less than 2.0. Consequently, it was concluded that the model passed the set criterion. In addition, NFI value was higher than the set criterion ( 0.908 > 0.90). The CFI value was higher than the set criterion ( 0.952 > 0.90), and RMSEA value was in the set criterion (0.05) In addition, value of HOELTER 0.5 was 219 which was more than 200. This meant the sample size was reasonable. The value of Standardized Regression Weights, standard form of regression, was put on the arrows in the model, as shown in Figure 1.3. 29 P a g e

Figure 3 shows the model of confirmatory factor analysis Conclusions and Discussion From the study of factors influencing the relationship between knowledge management activities and intellectual capital of the companies of Palm Oil Industry in Thailand, it was concluded that the factors concerning knowledge management were positively correlated with intellectual capital factors. Knowledge Process Capability (KNPRC), a knowledge management factors, had more influence on intellectual capital than Knowledge Infrastructure Capability (KNIFC). This was considered by coefficient value of Knowledge Process Capability influencing human capital which was 0.664 and coefficient value of Knowledge Process Capability on structural capital which was 0.660, and this was higher than the coefficient value of Knowledge Infrastructure Capability influencing human capital which was 30 P a g e

0.312. In addition, the coefficient value of knowledge infrastructure influencing structural capital which was 0.362. The relationship between the knowledge management process and intellectual capital influenced intellectual capital caused by the management of human capital and structural capital. This was consistent with the study of Rudes (2004) who found that the intellectual capital was something presented in the knowledge archive which was in the form of both internal and external knowledge management and then could be utilized and it was consistent with the conclusion that knowledge management would back up intellectual capital. In addition, knowledge management was significantly correlated with the organization effectiveness at the relationship level with the intellectual capital (Piri, 2013).Knowledge management positively influenced intellectual capital through human capital and structural capital. This was consistent with the step leading to innovation. Both human capital and structural capital were organization s internal resources that should be emphasized as well. In fact, the organization should encourage learning culture to contribute to the intellectual capital in order to create new things or innovation (Nagh and Ibrahim, 2011). In fact, both human capital and structural capital led to intellectual capital. The process of intellectual capital actually originated from human capital through training and development according to the policy of the organization. (Johndan, 2012). From the causal relationship between building intellectual capital and human capital elements, it was found that the employees capability factors and commitment factor highly influenced human capital. This was considered by the two highest coefficient path values which were 0.977 and 0.852 respectively. This was consistent with human resource management which significantly influenced intellectual capital. Intellectual capital also significantly influenced the organizational effectiveness (Fallahi, 2014). In fact, the management of employees capability and commitment factors were one of the management of human resources. 31 P a g e

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