Proceedings of the 3rd European Conference on Intellectual Capital

The Relationship Between Intellectual Capital and Process
and Product Innovation in Banks: An Exploratory Study
Ahmed Elsetouhi and Ibrahim Elbeltagi
Plymouth University, School <strong>of</strong> Management, UK
ahmed.elsetouhi@plymouth.ac.uk
i.elbeltagi@plymouth.ac.uk
Abstract: Innovation becomes an important tool to deal with financial disasters and uncertainty environments.
Therefore, Banks look for <strong>the</strong> most important resources to support process and product Innovation. In <strong>the</strong> new
knowledge based economy, intellectual capital(IC) represents an essential resource and it is essential source <strong>of</strong>
wealth and development. Hence, this study aims to build a conceptual framework for <strong>the</strong> relationship between IC
namely, human capital (HC), structural capital (SC), customer capital (CC) and, product and process innovation.
This research depends on actor network <strong>the</strong>ory (ANT) to explain <strong>the</strong>se relationships. Based on a review <strong>of</strong> literature,
conceptual framework focuses on a series <strong>of</strong> stages which start with determining human actors like HC and
CC, and non-human actors i.e. SC and finish by encouraging o<strong>the</strong>r actors like social capital to join to this network.
Finally, it is <strong>the</strong>oretically expected that relationships between IC and, process and product innovation are
mutual significant positive.
Keywords: Intellectual capital, product innovation, process innovation, actor network <strong>the</strong>ory
1. Introduction
Banks face financial disasters which cause bankruptcy in many banks. They must be able to adapt
and evolve if <strong>the</strong>y wish to survive. Innovation is <strong>the</strong> key stipulation for survival. If banks ignore innovation,
<strong>the</strong>y will pass away (e.g. Johnson 1999; Trott 2005). Resources (ei<strong>the</strong>r tangible or intangible)
considered as inputs to significantly support innovation in banks (Yang et al. 2009). In <strong>the</strong> era <strong>of</strong> <strong>the</strong>
knowledge economy, intellectual capital (IC) becomes important determinants <strong>of</strong> competitive advantages
and has capabilities to face uncertainty environment even though physical assets were key resources
in <strong>the</strong> past. With incessant investments in intangible assets, <strong>the</strong> traditional accounting system
can no longer accurately evaluate <strong>the</strong> real value <strong>of</strong> organization. The market value <strong>of</strong> a firm is equal to
its financial capital plus its intangible assets (Johnson 1999). However, in <strong>the</strong> new economy era, a
firm’s intellectual capital is always greater than its financial capital. The IC <strong>of</strong> an organization is "equal
three to four times over its book value" (Edvinsson and Malone 1997). In addition, in knowledge- intensive
industries, like banks, added value grows mainly from intangible assets and <strong>the</strong> difference
between market value and book value has been increasing continuously. This is due to <strong>the</strong> essential
role <strong>of</strong> IC as a key resource in supporting <strong>the</strong> added value (Stewart 1997).
Previous studies which examined <strong>the</strong> relationship between IC and innovation had characteristically
focused on two major streams. The first group focuses on <strong>the</strong> relationship between IC (i.e. human
capital, structural capital and relational capital) and innovation, specifically, incremental and radical
innovation in manufacturing sector (e.g. Subramaniam and Youndt 2005; Marqués et al. 2006).The
second group focuses on <strong>the</strong> effect <strong>of</strong> IC on innovation but <strong>the</strong>y ignored which kind <strong>of</strong> innovation is
affected by IC (Wu et al. 2008).
By analysing <strong>the</strong> literature review, this study found that many researchers individually examined <strong>the</strong>
relationship between <strong>the</strong> components <strong>of</strong> IC- without a holistic <strong>of</strong> <strong>the</strong> mutual effect <strong>of</strong> <strong>the</strong>se components
- and <strong>the</strong> types <strong>of</strong> innovation, namely, product and process innovation in manufacturing sector
(e.g. Pizarro et al. 2009; Carmona-Lavado et al. 2010; Lau et al. 2010; Rohrbeck et al. 2010). In <strong>the</strong>
same time, most researchers agreed that <strong>the</strong> intellectual capital consist <strong>of</strong>, at least, three components
(i.e. human capital, structural capital and relational capital) (e.g. Bontis 1998; Bollen et al. 2005; Torres
2006; Cohen and Kaimenakis 2007; Chen et al. 2009; Hsu and Fang 2009; Shih et al. 2010).
Hence, this research considers that <strong>the</strong>se studies did not examine <strong>the</strong> relationship between IC and
product innovation and process innovation in both manufacturing and service sector.
There a scarce <strong>of</strong> <strong>the</strong> studies that explored <strong>the</strong> mutual relationships between IC and product innovation
and process innovation. Therefore, <strong>the</strong> present study addresses this gap in <strong>the</strong> literature. So this
study aims to build a conceptual framework depending on actor network <strong>the</strong>ory to explain <strong>the</strong>se relationships
Moreover, Although most <strong>of</strong> previous studies using actor network <strong>the</strong>ory to explain <strong>the</strong>ir
variables have focused on translation stage as central point in this <strong>the</strong>ory, <strong>the</strong>y have ignored how can
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