An Evaluation of the Process and Effects of Knowledge Management in the Financial Sector
Chapter 1
Introduction
Knowledge is a necessity; it is the increasingly scarce commodity that corporations cannot do without. Persistence therefore lies not in the amount of financial capital or the present assets of the company but in the stored value that is built up on human capital.
Knowledge remains to be the primary asset of companies- a leading indicator is the extent to which they invest on human capital development. Contemporary corporate management specifically, the financial sector had been increasingly aware of the future benefits of organizing ideas to in order to have a competitive advantage over others.
Effective knowledge management is a core competence that will present companies with a key advantage over their peers in the dynamic global economy of the 21st century. As companies emerge from re-structuring, downsizing and business process re-engineering programmes, many are realizing that they have neglected knowledge built-up over decades. At the same time they are becoming aware of the opportunities and threats presented by e-business, and are recognizing the need to share the new knowledge and skills of the digital economy. This is particularly relevant to the financial sector of United Kingdom; the evolution of ideas and innovativeness have been rapidly changing that financial institutions have to cultivate ideas that can meet the demands of the market. To meet these challenges and achieve a competitive edge, they must formulate and implement strategies based on innovation, technology and the development of intellectual capital.
Few companies, even those at the leading edge of knowledge management, have all the management processes, culture and tools in place to create and harness knowledge in a systematic way. Those starting out on the knowledge management path assume it is a simple extension of information management. In reality, effective knowledge management can involve major changes in process, culture, and technology.
This new trend is can deplete the resources of a financial institution because of the modification in the old system. However, the company will only suffer in the short run because the long term rewards would extend on to the overall growth and institutionalize the cultivation of human capital. This process would only mean one thing: the relatively stable growth of the company regardless of competition.
This proposed study will provide a theoretical framework, which shows the relationship between knowledge management and information management in order to provide the background on the understanding of how knowledge management is established within the financial sector. Moreover, a discussion on how knowledge management (KM) can be understood as a tool for information dissemination and learning within the sector, looking at effects and values would be tackled. Consequently, a comparative study of financial institutions’ degree of knowledge management application will be done to find out the need to establish this type of management and to effectively analyze the extent to which companies will be needing it in their operation.
Conceptual Framework
This study will utilize the model of competitive advantage to explore, explain and analyze the dynamics of the financial industries in relation to its need to reformat, establish or improve its present knowledge management. A cross-sectional study will be made on different banks to provide the data needed to compare, contrast and evaluate the effectivity/ineffectivity of management styles that banks use to keep up with the competition. This paradigm would serve as the guide in the breakdown of the strengths and weaknesses of knowledge management approach among banks. Consequently, the theoretical debate on the kind of strategies that would be most efficient and competitive in the market would be evaluated.
This paradigm was chosen for the study because of its dynamic approach on the topic of persistence and advantage among contenders for market supremacy. Competitive advantage discusses the condition which enables a company to operate in a more efficient or otherwise higher-quality manner than the companies it competes with, and which results in benefits accruing to that company. Primarily, it deals with the concept of change and how companies are able to cope up with it and get the bigger share of the market. Business commentators have all been talking about change as the key to success and survival for at least two decades. It is equally clear that the rate of change is getting faster. But there’s a subtle change to the game. It’s not change that matters – we all have to accept that as given – it’s the ability to change fast that matters.
This cross-sectional study will utilize the data available on these five prospective banks:
British Bankers Association – The BBA has been actively promoting the transparency, liquidity and stability of International and London money markets. For instance it has been instrumental in developing London market guidelines for the issuance of instruments such as Commercial Paper and Certificates of Deposit. It has instituted adoption and regulatory recognition of these agreements improves the liquidity of the interbank markets and reduces credit and systemic risk.
Royal Bank of Scotland – The bank is regulated by the Financial Services Authority and is a member of The Royal Bank of Scotland Marketing Group. The only packaged products (life policies, unit trusts and other collective investment schemes and stakeholder and other pensions) the Bank advises on and sells are those of the Marketing Group, whose other members are Royal Scottish Assurance and Royal Bank of Scotland Unit Trust Management Limited, both regulated by the Financial Services Authority.
The Yorkshire Building Society is the third largest building society in the UK. It has more than a million members and assets in excess of 2.5 billion. It is a mutual organization. This means we’re owned by, and run for, the benefit of our members and not outside shareholders. The Yorkshire was the first building society to commit itself to remaining a mutual at a time when some of our rivals decided to become banks. In this and many other ways, we have led the way in demonstrating that membership of a mutual building society brings a whole range of important benefits to investors and borrowers alike.
Britannia – Britannia is one of the largest building societies in the UK. It has over two million members, 3,300 staff and group assets of over £18 billion. Through the Members’ Loyalty Bonus Scheme, Britannia has found a unique and popular way of sharing its success with its members. Since its launch in 1995, more than £250 million in profits has been shared with members. Britannia has 1.8 million savers and 300,000 borrowers, with gross lending of nearly £2 billion per annum. Britannia began life in 1856 as the Leek and Moorlands Building Society. A series of agreed mergers created the Britannia we know today in 1975.
NatWest Bank – In 1968 National Provincial Bank (est.1833) and Westminster Bank (est.1836), merged as National Westminster Bank. Together these banks could trace their history back down the centuries through a lineage of prestigious constituents, dating back to the 1650′s. The new bank, with 3,600 branches, developed a wide range of new services, including the bank’s first credit card, Access, in 1972, and computer-linked cash dispensers, Servicetills, in 1976. Deregulation in the 1980s, culminating in ‘Big Bang’ in 1986, also encouraged National Westminster Bank to enter the securities business. County Bank, the Group merchant bank, acquired stockbroking and jobbing firms to create NatWest Investment Bank. Meanwhile, the International Banking Division looked to provide international banking services to large companies and to focus on expansion in the USA, the Far East and Europe.
Statement of the Problem:
This study will attempt to answer the following questions:
1. What are the knowledge management strategies of financial institutions particularly of banks in the United Kingdom?
2. How do banks cope up with the rapid change in the financial sector using knowledge management?
3. What are the effects of these knowledge management strategies on the goals, objectives and long-term plans on the banks and the financial sector in general?
4. How potent is knowledge management in the attainment of goals/objectives, keeping up with competition on other financial institutions and the in accomplishing long-term management and financial goals?
Hypothesis
This study attempt to prove the following null hypothesis:
1. The higher the level of knowledge management implementation, the greater the tendency of the bank’s success in terms of profitability
2. Conversely, the lesser the level of knowledge Implementation, the lower the tendency of the bank’s success in terms of profitability
3. The success of the financial sector is directly proportional to the execution of knowledge management
4. Conversely, knowledge management is inversely proportional to the failure of the financial sector
Scope and Delimitation
This study will tackle the relationship between knowledge management and information management and provide the background on the understanding of how knowledge management is established within the financial sector. A comparative study of financial institutions’ degree of knowledge management application will be done to find out the need to establish this type of management and to effectively analyze the extent to which companies will be needing it in their operation.
This study will be limited to the above-mentioned and data not relating to the specified banks in United Kingdom used in the study will not be covered. The review of literature will only cover data and studies from 1990 to the present with the exception of the theory of comparative advantage and illustrations of the traditional methods of managing knowledge. This study will only draw conclusions from the findings on United Kingdom’s banks and any attempt of generalization may/may not be applicable to other societies because of several factors.
Significance of the Study
This study is an attempt to illustrate the significance of knowledge management in general and the financial sector in particular. This will also be an informative guide for students, professors and finance enthusiasts on the basics of knowledge management on banks and how it is being utilized to meet goals and survive competition. Further, this analysis will be beneficial for the banks and those used for the study as a tool in improving or reforming their management systems.
Definition of Terms:
Knowledge management - caters to the critical issues of organizational adoption, survival and competence in face of increasingly discontinuous environmental change Competitive Advantage – Condition which enables a company to operate in a more efficient or otherwise higher-quality manner than the companies it competes with, and which results in benefits accruing to that company.
competitive advantage Sector – A distinct subset of a market, society, industry, or economy, whose components share similar characteristics. Bank- An organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects checks, drafts, and notes; certifies depositor’s checks; and issues drafts and cashier’s checks. Management – The group of individuals who make decisions about how a business is run.
Credit:ivythesis.typepad.com
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