Impact Of Intellectual Capital Value Addition On Financial Performance Of Banks In Australia

Literature review

Discuss about the Impact of Intellectual Capital Value Addition.

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The literature review would be done based on the four major articles related to the research topic. The EBSCO database was assessed with the purpose of gaining relevant data and information regarding the research topic presented in Assignment 1. It was found that intellectual capital posed a great performance in the financial institutions as well as provided an explanation about the various components of intellectual capital including the return on assets and return on equity that created an impact on the financial performance measures undertaken by the banks. The banking sector in Australia is very active and it has played a huge role by influencing the economic growth and development.

According to Pulic (1998), there had been huge changes in the material sources to knowledge perspective, because of which, the growth and expansion of business were dependent on the knowledge (Pulic 1998). It was necessary to embrace the transformation and enable value creation based on knowledge and information, furthermore ensure creation of wealth and management of costs to create values and benefits for the financial sector in Australia. The growth and success of business was based on the ways knowledge had been utilized. Pulic (1998) also stated that to meet the needs and requirements, the measuring system must establish proper goals and objectives to create value and provide relevant objective information into the ability of employees and even made the Australian banks understand about the significance of measuring knowledge (Pulic 1998).

According to Cahill et al. (2010), with the advancement in technology, science and communication, the human intellectual capabilities have driven innovation and creativity and even managed proper use of wealth and ensured creation of value for achieving long term benefits. The knowledge became important for management of knowledge and enable growth and prosperity in various fields. The financial firm obtained the main resources from the investors or shareholders, employees, suppliers and customers. This could contribute to the corporate performance enhancement as well as create good financial returns to the owners of the banks in Australia from the consumption of tangible resources gained by the organization. There were other stakeholders too such as the trade unions, suppliers, customers and Government bodies, which obtained benefits from the organization by managing the tangible and intangible assets properly (Cahill, Joshi & Sidhu 2010). This could not only integrate the management of assets with the expected financial outcomes, but could also result in improving the economy’s production capability in the extensive and new knowledge economy.

Intellectual capital and financial performance

According to Zou & Huan (2011), the intellectual capital was considered as the experiences achieved by the organization along with the various technologies, management of customer relationship and professional skills gained by the employees to remain competitive. There were different types of intangible assets including the intellectual property right, contract right intangible assets, relationship intangible assets and integrated intangible assets. All these components helped in enhancing the value added capital knowledge as well as reflected the organization’s ability to innovate and manage value creation too.

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According to El-Bannany (2008), the technological invests made improved the banking effectiveness as well as overcome he entrance barriers to bring strategic growth and development, furthermore enbale innvoation and creativity to adapt to the changes in the strategic environment. Based on the data and information in the article presented in the third article, the business functions needed higher level of skills, knowledge, competency, expertise and higher level of technological innovation along with better interaction between the customers and personnel to form competitive differentiation strategies. It was focused on improving the financial performance of the banks and it could even result in enhancing the brand image, identity and reputation as well (El-Bannany 2008). The themes do not differ much because all these four articles presented a view of measuring the intellectual capital performance and how it has contributed to the knowledge economy and enhanced performances at the Australian banking sectors.

There were challenges faced while measuring the performance of intellectual capital and so human, customer and structured capital were developed as performance indicators for analyzing the solutions to measure profit, revenue and numbers of employees.  The article stated that the organizational intellectual capital consisted of the revenues generated based on the business functions, investments made for entering new markets and costs incurred during training and education of individuals. Based on the responses of Pulic (1998), organizational intellectual capital is the multiplication of Intellectual Capital Coefficient of Efficiency (i) and intellectual capital absolute measure or C. According to Pulic (1998), the employees create value by using the organizational infrastructure and managing good relations with others within the working environment for making the organization sustain in the marketplace (Pulic 1998). From the analysis of data and information from the research article, it was also found that the value addition and potential of intellectual capital have good correlation.

Based on the responses of Cahill et al. (2010), the knowledge intensive companies had successfully managed flow and distribution of information and knowledge, which further allowed to focus on strategies required for managing the human capital through training and educational programs. The growth of knowledge economy increased the significance of intellectual capital and financial measures were undertaken for maintain an accurate balanced scorecard. From the article, the intellectual performance of Australian banks was assessed along with the relationship between the intellectual capital efficiency and size of the banks in respect of the total numbers of assets, employees and equity. According to Cahill et al. (2012), the IC efficiency brought huge improvements in designing the IC policies and practices and even enhanced the ability for value creation (Cahill, Joshi & Sidhu 2010).

Challenges in measuring intellectual capital performance

The intellectual capital constituted of human capital, relational and structural capital. In case, the human capital value including the skills, knowledge and proprietary information were not managed properly, then it could lead to complexities in business along with lack of ability to perform with ease and effectiveness. This could result in deteriorating the business performance and furthermore make the financial institution face loss in business, due to which there might not be value addition as well. It would even deteriorate the collective knowledge and there might be lack of skills to produce enough wealth, creation of outputs of physical assets and not being able to gain competitive advantage too. The relational capital was linked with the extrenal components such as customer satisfaction, providers of resirces and shareholders’ interests.

According to Zou & Huan (2011), the intellectual capital was measured in terms of Chinese banks through the assessment of capital employed efficiency, human capital efficiency and structural capital efficiency, all of which were combined together to determine the VAIC. The higher VAIC, the more will be the business performance through the management of intellectual capital (Zou & Huan 2011). The Chinese banks lacked proper implementation of researches, because of which, it was important to enhance the research activities and improve the efficiency of intellectual capital effects on the banking performance in China.

Based on the information provided by El-Bannany (2008), became important for the financial institutions to make investments for the development and growth of human capital, organizational processes and enhance the level of corporate knowledge for gaining sustainable competitive advantage in business. It could be seen that the banks in Australia had conducted a feasibility study and then predicted the benefits that could be provided by the client oriented organizational forms and through the implementation of new systems to enable managerial control over the workforce. To ensure success, the intellectual capital was used by the banks in Australia to manage knowledge, skills and core competencies for ensuring corporate growth and gaining competitive advantage in business as well. It had not only emphasized on the knowledge and skills of employees, but also managed to enable creativity, innovation, reluctant to change and finally added extensive value to the banks in Australia (El-Bannany 2008).

The Australian banks had developed relational capital for establishing positive brand image and loyalty, furthermore managed stratgic alliances and maintained strong relationships with both the suppliers and customers (Cahill, Joshi & Sidhu 2010). The structural capital helped in managing copyrights, patenrs, strategies and systems for ensuring successful busines sfunctioning and better employee enaggement throgh the formation of a positive culture. The growth in national and global knowledge economies resulted in growing interest in the business processes prioritized on the development of intellectual capital. Several components of intellectual capital were human capital, relational and structural capital that enabled growth in knowledge economy to measure the intellectual capital and at the same time, manage the tangible and intangible assets properly. El-Bannany (2008) stated that with the growth in economy, there were more chances of creating a dominant place in the commercial market, which favored the maintenance and creation of value and growth. There was strategic focus on the management of human capital too, which facilitated the understanding the various components included in the intellectual capital, furthermore enhanced the knowledge economy (El-Bannany 2008). The managers made sure to present both monetary and non-monetary benefits to the employees for managing proper communication and intangible assets management for the addition of value based on knowledge based economy to ensure customer satisfaction. The managers created scopes for the employees to take part in training sessions for carrying out the research and development activities, according to Zou & Huan (2011).

The limitations were mainly the lack of availability of authenticated data and information. The research articles and documents from which the information were obtained had not been relevant enough, which further might hinder the successful accomplishment of the research objectives. By analyzing the data and information, it would also create scopes for conducting researches in the future as well. With the data and information obtained from the various articles, it could also help in conducting research on the same topic in the future as well.

References

banks’ performance in China. African Journal of Business Management. 5(12): 5001-5009.

Cahill, D, Joshi, M. & Sidhu, J. (2010). Intellectual capital performance in the banking sector: An assessment of Australian owned banks. Journal of Human Resource Costing and Accounting. 14(2): 151-170.

El-Bannany, M. (2008). A study of determinants of intellectual capital performance in banks: The UK case. Journal of Intellectual Capital. 9(3): 487-498.

Pulic, A. (1998). Measuring the Performance of Intellectual Potential in Knowledge Economy. 2nd McMaster World Congress on Measuring and Managing Intellectual Capital. McMaster University: Hamilton, Canada.

Zou, X. & Huan, T.C. (2011). A study of the intellectual capital’s impact on listed.

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