Rosli (2013) highlighted human capital (the skills and knowledge of employees and employers) gained through training and interacted with innovation can significantly influence the performance of small and medium firms.
INTELLECTUAL CAPITAL, INNOVATION AND START-UP SUCCESS IN SMALL BUSINESS 1
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Consistent with the prerequisites of a higher level of education among Bumiputera entrepreneurs, a project was introduced on May 19, 2005 known as Tunas Mekar Program initiated under the Implementation Coordination Unit (ICU) of the Prime Minister's Office (PMO). The program’s purpose is to create more competitive and selfsustainable Bumiputera entrepreneurs. Tunas Mekar project entails substantial financial assistance from the government. Therefore, a thorough study should be conducted to assess the program's effectiveness in increasing the performance of small enterprise among Bumiputera.
Sakinah Mat Zin, 2Dr. Rosman Mahmood, 2 Dr. Najihah MarhaYaacob
Universiti Teknologi MARA (Kelantan), Malaysia 2
Universiti Teknologi MARA (Terengganu), Malaysia ABSTRACT
Despite the fact that start-up firms generate a significant economic impact on most economies, the failure rate appears to remain conspicuous over time. Few authors have studied the influence of intellectual capital on business performance, and yet the focus has been on large and mature companies. This study is to analyze the extent to which intellectual capital and innovation are associated with the performance of small business start-ups. Its outcomes propose that the human capital, organizational capital, and innovation are related positively to venture performance. Whereas, relational capital is not significantly associated to small firm performance at the initial stage.
This study analyzes the relationship between intellectual capital and innovation of new and small enterprises under Tunas Mekar at an early stage and entrepreneurial success. The management of intellectual capital and innovation in the early stages of the business are expected to help entrepreneurs overcome the early years of difficulties within their organizations.
2.0 LITERATURE REVIEW Maditinos et al. (2010) divides intellectual capital into four components: (i) Human capital, (ii) Customer Equity (iii) Capital Organization, and (iv) Innovation Capital. According to the researchers, if an organization invests in the above parameters, the chance of getting high competitiveness in business is huge.
Keywords Small Business, Intellectual Entrepreneurship, Start-ups, Innovation
Capital,
1.0 INTRODUCTION There is a growing awareness that intellectual capital can provide considerable added value to the establishment of entrepreneurial firms, in some cases, represent a fundamental value across the organization (Guthrie et al., 2001). Many organizations recognize that they need the intellectual capital assets to gain a competitive advantage that is sustainable and capable of creating added value in the long term (Johanson et al., 2001). Apart from that, an intellectual capital management approach can be very useful for other types of companies such as non-public companies, family businesses, and new ventures. Rosman &
2.1 Human Capital Human capital is the thought, experience, character, skills and education of a person (Moon & Kym, 2006). It refers to the knowledge of every person who is working in an organization (Kong, 2007). According to Resource Based Theory (RBT), human capital is considered as a source of competitive advantage because it is valuable, varied and not static (Zhuang & Lederer, 2006). Sharabati et al. (2010) clarifies that there is a positive and significant relationship between human capital and enterprise performance. The positive impact of 1
business founder on business performance was formalized by Van Praag & Cramer (2001). Human capital owned by entrepreneurs play an important role in improving organizational performance, especially in the early stages of business. A potential entrepreneur having a synergy in education and industry management experience is competent and able to realize excellent performance (Segalet al., 2010). Cooper et al. (1994), Taylor (1999), Pennings et al. (1998), Van Praag (1996, 1999, 2002) and Wit & van Winden (1989) have stated that higher levels of human capital are associated with stronger performance of business founders. Hence, entrepreneur's human capital asset is expected to have a positive effect on the performance and growth of the firm as Human Capital Theory states that economic performance and individual productivity depends on the level of investment that has been made. To clarify the relationship technically, this study highlights on the following hypothesis:
2.3 Relational Capital Relational capital refers to the capability of an organization to deal with various external stakeholders (such as; customers, suppliers, competitors, trade associations and industry) and the knowledge gained from the relationship (Bontis, 1998; Edvinsson& Malone, 1997, Sveiby, 1997). The Stakeholder Theory asserts that firms not only need to consider the shareholders, but also the stakeholders (Donaldson & Preston, 1995). Groups that have a "stake" in the firm include shareholders, employees, customers, suppliers, lenders, government and society. The impact of relational capital on an entrepreneur’s performance has been supported empirically by Blumberg & Pfann (1999), Brüderl & Preisendörfer (1998) and Pennings et al. (1998). In the early stages of the company, even before the commencement of the business, relationship established with stakeholders and entrepreneur’s tendency to get new customers and suppliers are said to be the firm’s value-added on the strategic information (Greve &Salaff, 2003; Jenssen & Greve, 2002; Markman & Baron, 2003). Therefore, the relationship with stakeholders is associated with the success of the organization. To examine the relationship between the two variables, the study puts forward the following hypothesis:
Hypothesis 1: Human capital has a positive relationship with the performance of small enterprises in the early stages of operation. 2.2 Organizational Capital Organizational capital is knowledge of all staff and will remain in the company even after they leave the firm. It comprises a database of an organization such as manual, routine, copyrights, patents, culture and publication, which has value to the organization (Bontis, et al, 2000). Martín-de-Castro et al. (2006) remark when the components of organizational capital involve specificity and complexity and complement each other, they can turn into assets hard to imitate and to transfer, allowing the company to maintain its competitive advantage. Organizational capital is the only component that can manipulate directly the performance of the enterprise without being influenced by industry (Bontis et al., 2000; Jardon & Martos, 2009). According to Maditinos et al. (2010), organizational capital is positively associated with business performance. To assess the relationship between these two variables, the study put forward the following hypothesis:
Hypothesis 3: Relational capital has a positive influence to the performance of small enterprises in the early stages of operation. 2.4 Innovation Innovation is defined as the ability to develop existing knowledge and enhance new knowledge. According to Tseng & Goo (2005), innovation includes the company's ability to develop novel products and any innovative ideas. Empirically an conceptually, some authors have added greatly to understanding of the relationship between innovation and small and medium business performance (for example; Goss, 1991, Storey, 1993, Storey, 1994, Oakey, 1990, Oakey, 1991b, Johnson, 1990, Rothwell, 1989, Rothwell & Dodgson, 1993, Monck et al., 1988 and Pratten, 1991.) Entrepreneurs are those who generate innovation, recognize and take opportunities, thereby converting these opportunities into ideas that can be implemented, adding value through time, money or skills, taking market risk to execute
Hypothesis 2: Organization capital has a positive relationship with the performance of small enterprises in the early stages of operation.
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the idea, and obtain the rewards from the efforts (Buerah, 2007).
what has been used by Moon & Kym (2006), Birley & Westhead (1990), and Sandberg & Hofer (1987). Measurements are based on a five-point Likert scale with frequency 1 == "very important" to 5 = "very important". Respondents are required to make an assessment of all seven items.
To foster competitiveness, innovation plays an important role (Chen et al., 2004). In particular, business organizations managed to face intense competition successfully are those which constantly innovate and find rejuvenation in technology, product and market (Amabile, 1988). Based on empirical evidence from previous studies, this study attempts to make a theoretical analysis of the relationship between innovation and the business performance. To assess the relationship, the following hypothesis derived:
Seven items listed in relational capital are professionals’ advises, relationships with customers, suppliers, employees, competitors, various government agencies and businesses continuing relationship with entrepreneurs and advisors (Program Tunas Mekar). Measurement of these items are also made based on a five-point Likert scale with frequency 1 = "very unimportant" to 5 = "very important". All seven items listed in the survey instrument should be evaluated by respondents. Innovation measurement is carried out using ten items; such as the use of technology in the organization, the level of literacy in information technology, market research, product quality, service quality, customer perception of the latest products, innovative products exceed competitors’, production follows the latest technology, support innovative production of products and creative problem solving. All items of this innovation measured by five-point Likert scale with frequency 1 = "very unimportant" to 5 = "very important".
Hypothesis 4 : Innovation has a positive relationship with the performance of small enterprises in the early stages of operation.
3.0 RESEARCH METHODOLOGY 3.1 Measures Business performance is the dependent variable of this research framework. Adapted from Kotey & Meredith (1997) and Gadenne (1998), the items used in the instrument are sales, profit, business stability, business growth, an increase in the number of employees, customer satisfaction, increase the value of the assets and business networking. The measurement of the performance is a subjective approach based on a 5-point Likert scale (frequency 1 = "very dissatisfied" to 5 = "very satisfied").
3.2 Sample Small business enterprises under Tunas Mekar program operating in the state of Terengganu and Kelantan are the population of this research. For the three cycles, the number of Tunas Mekar apprentices in the two states is 158 people; Terengganu (67) and Kelantan (91) correspondingly. From the results of the initial survey and feedback of the target group, 48 apprentices are not involving in business any more after getting jobs. Some active apprentices cannot be contacted. In Terengganu, data collection is mostly done via face-to-face interviews ande-mail. In Kelantan, respondents are contacted by telephone to inform about the study. Then, questionnaires are sent to them via e-mail. The respondents are required to send back the survey form to the researcher through e-mail. All in all, only 62 respondents (39.2%) responded to the survey; Terengganu (29) and Kelantan (33) respectively.
This study presents four independent variables; namely human capital, organizational capital, relational capital and innovation. There are a total of eight items of human capital used in the study i.e. the involvement of family members in the business, family support, business experience, level of education, entrepreneurship training, skills and knowledge in business management, counselling and research and continuous learning. Measurements of all items are based on 5-point Likert scale with frequency 1 = "very unimportant" to 5 = "very important". Seven items used to assess the organization's capital are adaptability in different market conditions, market potential, pricing strategies, the total initial investment, number of employees, age of business and financial resources. The measurement method is the same as
SPSS program is used to key in and clean the data. To verify and determine the reliability of the data, 3
some statistical analyses are conducted. Analysis of Cronbach's Alpha is carried out to assess the reliability of the instrument and to search for internal consistency or uniformity in questions (Alias, 1997). Table 1 shows the Cronbach's Alpha Coeffiecients of five variables which are very high and more than 0.7. This justifies that all of the items used in the variables are reliable, as indicated by Nunnaly (1978).
Table 3 presents the descriptive statistics describing the mean, standard deviation (SD) and the relationship among variables. There are two control variables (size of business and sales volume), the independent variables (human capital, organizational capital, relational capital and innovation) and the dependent variable (business performance). Refer to Table 3 in the appendix
Table 1: Reliability Test Constructs
Items
Human capital Organization al capital Relational capital Inovation
8
0.877
7
0.813
7
0.829
10
0.901
Business performance
8
0.942
Multiple regression analysis was conducted in stages involving three models. In Model 1, the control is performed on two variables, the size of business (number of full-time workers) and average monthly sales. The results of multiple regression analysis showed a qualifier for both the control variables involved is 20.5 percent (R2 = 0.205). The findings show business size has a significant negative relationship with business performance (β = -0221, ρ
