Does Knowledge Capital affect an Organizations Performance

Chapter 1

INTRODUCTIONOVERVIEW

Knowledge economy has advanced considerably, over the years, consequently forcing organizations to shift their focus from intangible assets to tangible assets, and specifically to human knowledge capital (Bontis, & Fitz-enz, 2002, pg. 231). Tangible assets, in this case, refer to those items that are normally found on a company’s balance sheet, such as machinery, property and plant, to name but a few tangible assets (Chen, Cheng, & Hwang, 2005, pg.163). Apart from people and their expertise, which is essentially what human knowledge capital encompasses, we also have business processes and reputation, customer loyalty, and other market assets, all of which have attracted the attention of today’s corporate managers (Ordónez de Pablos, 2002, pg. 294). Ordinarily, human knowledge capital, together with structural capital and relational capital make up intellectual capital, which is undoubtedly the main factor that is responsible for generating future growth and prosperity, the evidence of which can be found in the fact that it combines with brands, processes, systems, customers and databases to generate corporate competitive advantages for an organization. It is important for us to understand that we are at that point in time when the optimal combination of information, communication and, most importantly, knowledge, is the actual power behind corporate success. This means that the greater the organization’s know-how, the greater its success over its competitors. Moreover, it means that people are at the core of corporate success, thus aligning clearly with the literature on competitive advantage, which is all about people learning, people knowing and people communicating. Without doubt, it is “the decade of the people side” just as the management guru, Wayne Brockbank (2001), stated in one of his numerous past interviews.

Human knowledge capital is staff-dependent, which basically means that it depends almost entirely on: employees’ learning, education, experience, expertise, innovation, creativity, loyalty, and motivation, etc. Although it is recognized as a major constituent of intellectual capital, a distinctive feature of human knowledge capital is that it diminishes, the moment employees’ learning, education, coaching, creativity, innovation, experience programs cease (Bontis, 1999). Contrary to human knowledge capital, structural capital resides in the organization, whereby it comprises of organizational infrastructure, and innovative capital to name but a few essential internal assets. However, it is extremely important to note that these infrastructure and other physical assets are nothing, without the input of the employees, of the so-called human knowledge capital. Relational capital, on the other hand, is rooted in relationships that the organization has cultivated with employees, suppliers and customers, relationships that are embodied in features such as the shared paradigm that inculcates a common understanding of shared goals and appropriate ways of acting, in a social system involving others (Tsai & Ghoshal, 1998). Once again, an organization’s staff or its human knowledge capital is an important component in establishing the type or relationship with suppliers and customers that can guarantee an organization the requisite competitive advantage.

As is the case with relational capital, the theoretical impact of human knowledge capital on an organization’s performance is yet to be exhausted, or fully explored, in the literature. In fact, quantifying correctly this important element (human knowledge capital) is, in itself, a huge challenge for the majority of researchers, in this area. This is despite the importance that is placed on successfully fulfilling the strategic partner role that is thought to exist between the organization and its human knowledge capital. Evidence of this can be found in the findings of a study conducted by ISR, a consulting company involved in employee research and which showed that, although most organizations collect their metrics relating to their respective human knowledge capital, only a small number (less than half) actively evaluate the impact of their human knowledge capital on business performance. It is, however, important to note that a large amount of empirical research is still investigating this particular issue. The purpose of this research study, therefore, is to investigate the impact that an organization’s investment in its staff, namely in their education, learning, coaching, and their creativity, innovation, and associated experiences, all of which, collectively, determine the effect of an organization’s collective human knowledge capital, at any given time, on its overall performance.

Ordinarily, maintenance projects in labor intensive organizations do not provide a high professional knowledge and the corresponding, relevant high-end technologies; nor do managers of such projects, generally, possess the type of cutting-edge professional expertise that is normally found in knowledge-intensive organizations. This, however, is not the case with King Faisal Specialist Hospital and Research Center (KFSH & RC), which is actually very similar to other knowledge-intensive organizations that provide high level professional knowledge and corresponding technologies, together with a huge pool of professional managers with outstanding knowledge in its maintenance projects. Naturally, maintenance projects are knowledge-intensive undertakings for which the human knowledge capital of the staff is of paramount importance (Mayo, 2000, pg. 526). This is, essentially, because knowledge, in itself, is the greatest component in maintenance projects, which therefore requires equally high-caliber management to match the excellent human knowledge capital, especially where its impact on the operations and the overall management of the organization are concerned (Brown, et al., 2007, pg. 81).

1.2 KING FAISAL SPECIALIST HOSPITAL AND RESEARCH CENTRE

(KFSH & RC)Located in Saudi’s capital, Riyadh, KFSH & RC is a modern state-of-the-art medical facility, which is undoubtedly the largest in the entire Middle East. A national referral center for organ transplantation, oncology, cardiovascular diseases, genetic diseases and neurosciences, and a provider of a full range of primary, secondary, and tertiary health care services, KFSH & RC is recognized as a major referral center, both nationally and internationally. Among the services that KFSH & RC has pioneered, in the Middle East, are the procedures for marrow and kidney transplantation, cardiovascular and orthopedic surgery, IVF and oncology, etc. KFSH & RC perform a total of approximately 2,000 open-heart surgeries and 6,500 cardiac catheterizations, annually. KFSH & RC’s Research Center focuses on both translational and basic research in transplant immunology, genetics, cancer, cardiovascular conditions, proteomics, and molecular diagnostics. This Research Center has four departments, namely: Cyclotron and Radiopharmaceuticals, Biostatistics; Scientific Computing; and Biomedical Physics. All these services which are offered at KFSH & RC require a maintenance team that is not only highly qualified intellectually, but also up-to-dated on current developments and knowledgeable about the latest tools, equipment and leading technological aids needed to maintain such high-level services. This team comprises of a broad range of professionals of various different nationalities. In fact, a large part of this team is made up of expatriates, with a mere 20% being Saudis. The work of this team no doubt has a decisive impact on the overall performance of the organization. This is better demonstrated by the fact that any unresolved breakdown of vital machines or technological equipment is likely to have an adverse effect on the performance of the medical staff, in general, and therefore on the overall organization (Helen Ziegler and Associates, 2011).

1.3PROBLEM STATEMENT

To date, very little attention has been focused on the study of human knowledge capital in maintenance projects, in medical facilities, such as KFSH & RC (Hubert, 1996, pg. 11). This is despite the fact that KFSH & RC has been performing exceptionally well, as can be seen in its financial performance, over the years. Otherwise, how might one explain its exceptional performance, over the years, especially after the completion of the Cyclotron Section? Arguably, this shows that the financial markets and investors attach considerable value to the learning, education, experience, expertise, innovation, and creativity, and skills of CEOs and top management, in general (Bontis, 2001, pg. 45). According to a number of recent studies, knowledge and information are subject to increasing returns, which is different from the decreasing returns characteristic of more traditional resources (LeBlanc, et al., 2000, pg. 15). This, therefore, makes knowledge and information much more attractive to corporations, than previously (Combs & Skill, 2003, pg. 67).In this context, therefore, a survey will be conducted, with a view to obtaining a better understanding of the attainment and the status of human knowledge capital development relating to the maintenance project in KFSH & RC. This survey will also enable the author to examine the influence that exists between human knowledge capital and performance, in project management, in this facility.

The traditional metrics of human knowledge capital have, so far, proved incapable of measuring the extent to which human knowledge capital contributes to the economic performance of medical facilities (Chen, Cheng & Hwang, pg. 166). Even the frameworks that have been in use for identifying the major drivers of organizational overall performance are all based on a decade of research, without much modern input (Chen, Cheng & Hwang, pg. 169). They have also, hitherto, been unable to provide the answer as to whether investment in human knowledge capital has a positive or negative influence on the performance of medical facilities.

Although this research study is focused on a maintenance project in medical facilities and KFSH & RC, in particular, it is, however, imperative to note that maintenance projects, by their very nature, are very much knowledge-intensive. This means, therefore, that when conducting any research into maintenance projects, it is essential to understand, from the outset, the potential link that exists between human knowledge capital and the overall performance of an organization, regardless of the industry in question or of the specific maintenance project study being undertaken. Therefore, by exploring the effect that staff training, learning, coaching, and overall creativity, innovation and the experience of the members of staff involved in maintenance projects, it is possible to ascertain the extent of this positive effect on the organization’s overall performance.

1.4STUDY BACKGROUND A broad range of literature, drawn from various sources, on the impact of learning, education, experience, expertise, innovation, and creativity on an organization’s performance has been looked at, for the purpose of this study. Previous research into the relationship between an organization’s human knowledge capital and its performance have clearly demonstrated that the two are inter-related, with the organization’s performance being firmly based on its intangible assets, such as individual employees’ capabilities and goodwill. However, the existing research does not discuss this relationship, in any great depth. In this respect, previous research has only explored a few aspects of this complex relationship, including features such as commitment and trust, for example. This study aims, therefore, to obtain a deeper and more comprehensive understanding of this relationship, drawing on various studies of the human knowledge capital concept in project management. More specifically, the study will analyze the impact of the various dimensions (learning and education, experience and expertise, innovation and creativity) of human knowledge capital on an organization’s performance, before going on to summarize the findings and draw conclusions about the impact of knowledge capital on an organization’s overall performance.

Bontis (1996) pointed to the important role played by production equipment in an organization’s success, during the 20th century, as compared to that of the “knowledge worker” and their corresponding productivity, during the 21st century. Today, knowledge is undoubtedly one of the most essential constituents of modern-day production which therefore places efficient management of the internal dealings of the organization, at the core of business management. Nevertheless, as with any other knowledge-intensive enterprise, it is expected that the King Faisal Specialist Hospital and Research Center (KFSH & RC) maintenance project will still require a huge tranche of intangible assets that will not be mirrored in its financial statement. However, although it might prove difficult to analyze the management of KFSH & RC, in detail, the impact of the knowledge aspects in such projects, e.g. learning, education, experience, expertise, innovation, and creativity on its personnel is an issue of which KFSH & RC is very much aware. It is, therefore, extremely important for an organization’s managers to discuss how best to manage these knowledge aspects, so that they can improve their performance in project management, as well as the operational performance of the enterprise, in general.

1.4.1 LABOUR ECONOMICS

An ongoing debate in labor economics’ literature on the subject of whether organizations can profit from learning, education, experience, expertise, innovation, and the creativity of its staff has been raging, for many years. Prior to the introduction of Becker’s theory on the training and education within the organization, the majority of the economists thought of staff training, education, learning, creativity, and innovation as essentially an individual’s investment decision.

1.5 RESEARCH HYPOTHESES

Research Hypotheses for this project is as follow:There is a link between the training, coaching, learning and creativity, innovation and experience of the maintenance staff, who undertook the Cyclotron operation section upgrade project, in 2011. This applies to the overall performance of KFSH & RC. Training, coaching, learning and the experience, expertise, innovation, and creativity of the members of staff involved in this project refers to the human knowledge capital of KFSH & RC.

1.6 Research Objectives

To examine the link between the learning, education, experience, expertise, innovation, and creativity of the maintenance staff who undertook the Cyclotron operation section upgrade project, in 2011, and the overall performance of KFSH & RC.

To demonstrate that investment in learning, education, experience, expertise, innovation, and creativity for the KFSH & RC maintenance staff who undertook the Cyclotron operation section upgrade project, in 2011, had a positive effect on the overall performance of KFSH & RC.

To explore whether investment in human knowledge capital (learning, education, experience, expertise, innovation, and creativity) is appropriate to the value added to KFSH & RC.

1.7 RESEARCH QUESTIONSIs there is a link between the learning, education, experience, expertise, innovation, and creativity of the KFSH & RC staff who undertook the Cyclotron operation section upgrade project, in 2011, and the overall time performance in a maintenance project and its physical assets?

Did the KFSH & RC investment in the learning, education, experience, expertise, innovation, and creativity of its maintenance staff who were involved in the Cyclotron operation section upgrade project, in 2011, improve time performance in that particular project and the overall output of the medical facility, in general?

Is the learning, education, experience, expertise, innovation, and creativity of maintenance staff in the Cyclotron operation section upgrade project, in 2011, appropriate to the value addition for KFSH & RC, in general?

1.8 SCOPE OF THE STUDY

This research study will focus on the 2011Cyclotron operation section upgrade project, undertaken early last year, within KFSH & RC. It is anticipated that the research findings will contribute towards an explanation of the potential link between human knowledge capital, or investment in staff’s learning, education, experience, expertise, innovation, and creativity, and an organization’s overall performance, which is a general question that is asked, not only in the context of maintenance projects in the medical industry, but also in all other sectors of the economy. The almost total reliance on human resources or the so-called human knowledge capital in a project of this nature is the specific driving force behind this research study. This is because it brings into focus the suggested link between human knowledge capital and the overall performance of an organization.

1.9 STRUCTURE OF DISSERTATION

Chapter 2 (Literature Review) explores the context in which human knowledge capital is being examined, together with identifying the main elements of the concept (learning, education, experience, expertise, innovation, and creativity), and its relationship to other complementary types of capital, notably intellectual capital, organizational and social. It will also assess the case for human knowledge capital having an impact on performance, for which evidence is growing, increasingly, while examining mechanisms for measuring staff learning, education, experience, expertise, innovation, and creativity (Robinson & Kleiner, 1996, pg. 36). It is from the evidence of this examination that the implied relationship between staff learning, education, experience, expertise, innovation, and creativity and organizational performance will be better established.

Chapters 3 and 4 (Methodology: Results and Analysis) examine the third aim of the dissertation by exploring whether investment in staff learning, education, experience, expertise, innovation, and creativity has any effect on an organization’s performance.

Chapter 5 (Conclusions) looks, critically, at the research, analyzing the methodology, together with identifying areas for further research.

Chapter 2LITERATURE REVIEW2.1 INTRODUCTION

Today, information and knowledge are the main drivers of global, commercial enterprise, even more so than labor or capital, as was the case, in the past. What this means to managers is that the increased importance of knowledge not only adds an extra variable to the production process, but most importantly, this shift in emphasis has radically changed the rules and dynamic of the business arena, worldwide. This concept is perfectly captured in the opinion of Quinn (1992), where he acknowledged the importance of the manager’s ability to manage the knowledge-based-intellect in today’s business environment. It is also echoed by Savage (1990), when he claimed that the wealth-creating ability of a business will be determined, primarily, by the knowledge and capabilities of its employees. Furthermore, Drucker (1993), the management guru, recognized the emergence of a new economy which he referred to as the “knowledge society”, in reference to the increased significance of knowledge and expertise in today’s corporate environment. Moreover, Drucker argued that, in this so-called “knowledge society”, knowledge (learning, education, experience, expertise, innovation, and creativity) are not just another resource, alongside the traditional resources of labor, land, and capital, but the only resource that is meaningful, in this time and age.

The body of literature demonstrating the presence of a positive link between the development of knowledge capital or investment in staff learning, education, experience, expertise, innovation, and creativity and an organization’s overall performance is becoming more evident, with each passing day. The emphasis on human knowledge capital in an organization emanates from the view that market value depends more on intangible assets and especially on human resources, rather than on tangible resources (Stewart, pg. 16). This does not, however, render staff learning, education, experience, expertise, innovation, and creativity as the only driving force in an organization’s performance, but merely a portion of the equation.

2.2 MEDICAL INDUSTRY

Maintenance projects in medical facilities are knowledge-intensive, in nature, precisely because maintenance designs essentially depend on the creativity, learning, education, experience, expertise, innovation, creativity and ingenuity of the organization’s staff. This sector has, over the years, grown into a multi-disciplinary service provider that comprises a wide range of professionals, which is consistent with the ever-increasing complexity and demand for medical technology.

This application of knowledge, ingenuity, and expertise is a manifestation of the over-riding importance of human knowledge capital in any maintenance project, irrespective of the industry (Johnson, 1996, pg. 567). That being the case therefore, it is always important to mobilize and incorporate knowledge from a large pool of disciplines, in any maintenance project, if the desired efforts are to be realized, to full effect, by the respective organization, in any such maintenance project. Also, it is imperative that the outcome is consistent with the client’s requirements and that the end product is both multi-functional and capable of being applied, in different functions (Johnson, pg. 568). This is particularly important, in that it offers the contractor goodwill, which is important in this sector, particularly as contracts of this nature normally adhere to the principle of trading first, and production second. It is also important in maintaining standards, especially because the performance standards and acceptance checks are susceptible to variations in the interpretation of the various clauses (Buren, 1999, pg. 73), not to mention the fact that long-term operation of this type are prone to changes in economic fluctuations, government policies and other exogenous variables.

The above situation is very closely mirrored in the Cyclotron operation section upgrade project, in 2011, which forms the subject of this research. Installed in 1982 at KFSH & RC, the Cyclotron section, which first went into operation, in 1983, has been a major factor in the success of the entire radiopharmaceutical program.

A cyclotron works by producing the accelerated sub-atomic particles that can be used to produce radio-nuclides that can be used in the medical world. The neutron deficient radio-nuclides that are produced when the target is struck by these sub-atomic particles are the main source material used in preparing radiopharmaceuticals. Other than the target stations that are availed in seven beam lines, there is also an internal target system that is fitted with an isorabbit device for the remote transmission of the irradiated targets, to guard hot cells for remote production of radioactive materials. This section also builds up new targets and other enhancements to the technology, with the main aim of enhancing production and efficiency. Being the first connection in the radiopharmaceutical production chain, the cyclotron needs to be extremely reliable, at all times, despite its technological complexity. This requirement, coupled with its complexity, shows just how vital a competent and updated maintenance team is to the overall success of the organization.

From the above discussions, there is no doubt that a maintenance project of this nature requires the support of as large a collection of diverse and technical expertise as is practically possible. For instance, the Cyclotron operation section that was responsible for the Cyclotron operation section upgrade project, in 2011, and any other future improvement and maintenance included civil engineers, architects, nuclear scientists, and engineers specializing in the biomedical fields. The engineering group, in particular, had to have the necessary equipment, in place, as well the capacity to up-to-date training on designing, testing, and troubleshooting vacuum, electronic and electromagnetic systems. The department’s radiation safety system that was also being upgraded required a great deal of electronic expertise and computer-aided-design facilities.

Mobilizing a team that is intellectually equipped to undertake as complex a project as the one being discussed in this paper might not be an easy task. Therefore, ensuring that they are always abreast of the latest developments in the industry requires a program that ought to incorporate in-house training, education and learning on the latest developments. The challenges involved in handling such projects are such that the professionals undertaking these projects need to stay abreast of the latest developments in their respective fields, through learning, training and education if their collective efforts are to deliver the desired results that not only satisfy the client’s requirements, but also give the organization a good reputation and hence a competitive edge.

2.2 KNOWLEDGE CAPITAL IN THE CONTEXT: RESOURCE-BASED VIEW OF THE ORGANIZATIONThe issue of what exactly gives an organization a competitive advantage has seen a shift in emphasis away from external resources and the comparative balance of competitive forces, towards an acceptance that internal resources be viewed as essential to sustained effectiveness (Wright, et al., 2001, pg. 701). The origins of the resource based concept (RBV) can be traced back to the work of Penrose (1959), which was later re-iterated in subsequent studies, by the likes of Rumelt (1984), Dierickx & Cool (1989) and Barney (1991, 1996). One of the greatest inputs of the RBV, in this debate, is that it created the urgent need for an organization to mobilize a valuable set of resources and incorporate them into a specific and dynamic approach to consolidating the organization’s success (Boxall, 1996, pg. 63).

Traditionally, competitive advantage was dependent on the technologies, natural resources and economies of scale, bases that unfortunately have become increasingly easy to imitate. Today, it is only through using valuable, hard-to-imitate, rare resources that typically exist within most organizations, that it is possible to gain the necessary competitive advantage. In this respect, knowledge capital in the actual sense is an “invisible asset”, which is attainable through learning, education, experience, expertise, innovation, and creativity (Itami, 1987). The organization of the knowledge capital pool, or the collection of employee capability and its management through the human resource, therefore becomes evident. Snell, et al., (1996) argue that, if the type and level of knowledge are disproportionately distributed, in such a way that some organizations’ employees are able to acquire the skills that they require through learning, education, experience, expertise, innovation, and creativity, while others cannot, then, ceteris paribus, that kind of knowledge capital can become a major source of sustained competitive advantage.

Inimitability is another important virtue of human knowledge capital (Lepak & Snell, 1999, pg. 37). There are two main reasons that make human knowledge capital difficult to imitate, namely: path dependency and causal ambiguity (Berker & Gerhart, 1996, and Barney, 1991). Causal ambiguity, in this case, refers to difficulties that reside in any attempt at grasping the exact mechanism through which the interplay of human knowledge capital practice and policies create value. By being path dependent, these knowledge capital systems’ policies developed, over time, cannot simply be purchased in the market by other players in the market. If anything, they are perpetually changing (Berker & Gerhart, pg. 782). The interdependency between human knowledge capital practices and policies, combined with the distinctive context of specific companies, creates barriers to any form of imitation. To quote Boxall, human resources ought to be “latent with productive possibilities” (Boxall, 1996, pg. 67), which therefore means that human knowledge capital advantage depends not only on securing what is often referred to as “the best and the brightest”, but also on investing in staff learning, education, experience, expertise, innovation, and creativity.

This emphasis on human knowledge capital is also highlighted in the strategy research on the so-called “core competencies”, where economic rent is ascribed to what Hamel and Prahalad call “people-embodied skills” (Hamel & Prahalad, 1994, pg. 232). It is this increased importance of RBV that has driven the advancement of human capital management, in general, and human knowledge capital, in particular, over the years, not to mention the convergence between the various fields of HRM and the strategy that has been developed, over the same period (Wright, et al., 2001).

The resource-based view reinforces the common belief in strategic human resource management, where people are the greatest source of organizational success (Roberts, 1995, pg. 43). Although, Michael Hammer argues that the age-old statement “people are the greatest assets” is not necessarily played out, in contemporary American business, the rise of human resource management has been spectacular (Truss, 2001, pg. 24). This can be traced back to the 1980s, with the analysis of the concept of “Japanese miracle” which was emerging as a viable route to success in the commercial arena; an analysis that among others showed that success built on an idiosyncratic form of people management, and by the recommendations received from the excellence movement (Collins & Porras, 1994).

Looking at the Cyclotron operation section upgrade project, in 2011, in KFSH & RC, there is no doubt that any failure on the part of KFSH & RC to invest in learning, education, experience, expertise, innovation, and creativity for the employees engaged in the maintenance department dealing with cyclotron operation would result in the reduced overall effectiveness of the entire medical facility. This is primarily because of the pivotal importance of the cyclotron section to the rest of the departments in the hospital dealing with the patients’ treatment. A recent investigation that sought to establish the perspective of both the organization and the client on the differing requirements, as far as the maintenance project performance was concerned pointed out that the realization of the targets and objectives, compliance to the client’s requirements, identification of both the objective of project and requirements of the clients and compliance to government policies and legislative requirements were the main criteria that clients use in their evaluation of a project’s performance (Tyson, 1997, pg. 15). The investigation went further, highlighting the importance placed on the criteria applied in the design stages, vis-à-vis those used in other stages. Other significant findings have focused on the differing opinions and attitudes towards certain essential factors in the overall maintenance project. For instance, in the case of the “King Faisal Specialist Hospital and Research Center”, it was revealed that the project’s maintenance, cost, security, and timescale had been severely underestimated. It is, therefore, of th