Sample Essay Islamic Bank Approach to Knowledge Management
Category : Banking Essay Samples, Islamic Banking
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Islamic Bank Approach to Knowledge Management
Knowledge management is important to a certain extent to Islamic Bank because of the wide array of benefits that the bank stands to experience in maintaining and further developing its knowledge management system. Existing literature provides that the proper implementation of knowledge management improve the competency of employees to come up with good and effective decisions (2002;2002) and the capability of the bank to develop strategies (2006) targeting the needs of consumers especially in a rapidly changing market. With heightened competition, knowledge management allows Islamic Bank to provide a greater quality of service. By knowing the bank’s capabilities and the exact needs of the market, the bank can improve its existing services and provide new services, by developing on its limitations and weaknesses, based on its in-depth knowledge of its target market (Davenport and 2001).
Responses of managers and employees show that Islamic Bank approached knowledge management with moderate importance. Although headquarters realised the importance of knowledge management to the bank, this was only to the extent of learning about new happenings in the industry and the market for purposes of top-down decision and policy-making without really considering the bigger role of knowledge management in the quality and efficiency of the performance of front line employees in the different bank branches. Moreover, the bank also approached knowledge management as comprised of hard aspects (2000) because the bank’s plans for developing knowledge management is the establishment of an Intranet system to link headquarters with the London and regional branches. During the data collection process, the managers and employees have not been apprised of any pending plans to develop the soft aspects of knowledge management.
Results of the data collected on Islamic Bank shows that even if Islamic Bank realised the need to establish a formal and organised system akin to knowledge management, it failed to provide solutions to a number of actual problems. First problem is determining the information needed by front line employees in dealing with customer needs and updating information to prepare front line employees to deal with new issues presented by customers. Second problem is establishing an efficient system of continuous information collection, analysis, sharing and updating of front line employees since there is no officer specifically taking charge of knowledge management. Third problem is opening and developing a two-way channel of communication, with one channel connecting front line employees with managers and the other line linking the bank through the front line employees with consumers.
Due to the need to address these problems to raise the quality of service and competitiveness, Islamic Bank recognised the importance of knowledge management only to the extent of the problem areas it recognised, the need for an information communication system addressed by the Intranet project. Islamic Bank understands knowledge management as the process of collecting, analysing and sharing information to support front line decision-making. The context-based conceptualisation of knowledge management is consistent with the lack of a commonly accepted definition of knowledge management in existing literature so that the studies focusing on this system primarily relied primarily on empirical data documenting the actual experiences of business firms that effectively applied knowledge management. This is perhaps the reason for the low uptake of knowledge management in many industries including the banking and finance industry even if this offers important benefits to any industry.
The extent of knowledge management applied by Islamic Bank showed that it was consistent with existing conceptualisation of this area of management. Islamic Bank recognises two aspects of knowledge management differentiated by(2000) as hard and soft systems. Islamic Bank considers hard systems as computers with Intranet and Internet linkages and soft systems as the environment, channels and attitudes geared towards open communications to make it easier to share information. However, Islamic Bank has yet to achieve the systematic and explicit management of knowledge that extends to the corporate culture of the company covering its policies, activities and practices mentioned by (2000). Islamic Bank has not establishes a team in charge of knowledge management or informed employees of this policy change.
The experiences of Islamic Bank with knowledge management implies the need to develop in-depth and organised learning on knowledge management on a general level through practice-based theories to provide ample support to business firms in applying these theories according to their specific contexts. In the finance services industry, there is need to look into the experiences of a number of banks in order to develop best practices on the means or effective processes of integrating knowledge management into the corporate culture and operations of the banks to achieve the goals of enhancing productivity, quality of service, and competitiveness.
Managing Knowledge at Islamic Bank
If the determinant of the importance of managing knowledge management to a business firm is the commitment to the establishment of the hard and soft systems necessary in knowledge management, then Islamic Bank accrues limited importance to knowledge management. Responses offered by employees of Islamic Bank showed that they perceive the bank as not applying knowledge management. This is because of the lack of a team or an officer specifically playing the role of knowledge manager as well as the lack of channels and tools for knowledge management. Due to the lack of observable expressions of knowledge management in Islamic Bank, the employees especially those engaged in front line services who greatly benefit from the information sharing perceive nil knowledge management in the Bank. Moreover, even if information sharing occurs across the different branches and from management to front line employees, the information shared and the channels of sharing information were considered by more respondents as inadequate. This means that Islamic Bank needs to develop a more organised and explicit knowledge management system.
Apart from the limited information shared and channels for information sharing, Islamic Bank does not optimise information. The company has implemented no incentives for information sharing so that employees take greater responsibility in generating knowledge that need to accomplish their work. Access to information by different branches is limited and not uniform and even with sufficient technological tools, these were not maximised in knowledge management. This means that even if the bank has sufficient relevant and updated information, it is not able to effective use the information to support decision-making for front line services in the difference branches. Islamic Bank needs to optimise the use of available information and communication technology for knowledge creation and sharing, shift organisational culture towards knowledge valuation, and provide greater support to employees in accepting and utilising knowledge management channels and systems.
Islamic Bank applies a knowledge management system intended to support the strategy of the organisation to improve the competency of its employees to support front line decision-making that in turn increases the quality of service. With a higher service quality, Islamic Bank expects to enhance its market competitiveness. Although the bank has achieved this goal, it has not achieved maximum results because of the limited use of information in creating and sharing knowledge that reaches the front employees and extends across the different branches. This means that even if Islamic Bank recognises knowledge management as an important factor in achieving high levels of competitiveness from quality service linked to optimum employee performance and productivity, it has not taken advantage of available tools and information to manage organisation-wide knowledge. This coincides with the failures of banks to achieve optimum benefits from managing knowledge because of the application of strategies not appropriate or not exactly meeting the specific context of the bank (Cross, 2001). Islamic Bank could have enhanced the performance and productivity of its front line employees by learning new market demands together with developing best practices on service provision techniques. It could have achieved greater customer satisfaction necessary to create a client base that could have supported the competitiveness of the bank relative to its closest competitors and other industry players.
Based on the four processes of knowledge conversion (Sarabia, 2007), the extent of application of knowledge management in Islamic Bank only extended to knowledge conversion on a branch and not an organisational level. Respondents provide that at the branch level, they are encouraged to share innovative ideas and learning but this is not the case at headquarters. On the organisational level, socialisation does not happen because headquarters is not strongly linked with the branches in terms of knowledge sharing, Due to this weakness in a core process of knowledge conversion, the other processes of externalisation, combination and internalisation do not materialise as a firm value.
In considering the generic model of knowledge management (Collison and Parcell, 2001) consisting of three aspects of people, technology and processes, Islamic Bank primary focused on technology and secondarily on people and processes. The secondary consideration of people as an element of knowledge management is expressed in the activity of headquarters of commissioning information from external sources without conducting internal information gathering based on the feedback of front line employees. The secondary priority for processes as a core aspect of knowledge management is expressed in the non-inclusion of change in corporate culture to enhance open communication channels for top-down and bottom-up feedback exchanges. The aspects of people and processes constitute areas for improvement in Islamic Bank.
Due to the moderately effective use of knowledge in the operation of Islamic Bank, it has not been able to experience the benefits of knowledge management. Storey and (1999) provide that knowledge management allow firms to create, share, source, map and measure various aspects of its operations as well as relative competitive position for purposes of strategy formulation ( 2006) and effective application of strategies by employees through knowledge conversion (2007). Technology cannot singly support knowledge management because of the need to focus on people applying technology in processes to achieve productivity and competitive goals.
Organization Environment of Islamic Bank
Islamic Bank’s organisational culture is in a way helping the application of knowledge management of the bank and in another way hinders effective knowledge management. On the branch level, communications is open since employees replied that they could discuss results of failed projects with their managers and with team members. Moreover, employees of London and regional branches also reported that they receive encouragement to derive innovative ideas that are important in knowledge management. However, at headquarters, lower number employees agree that the company encourages employees to become innovative. This means that even with open communications and incentives for innovativeness at the London and regional branches, headquarters is not so keen in developing open communications and innovativeness of the organisation. Without sufficient support from headquarters, Islamic Bank cannot develop an effective and comprehensive knowledge management system. Through a bottom-up initiative, top management at headquarters should change their perspectives and prioritisation of knowledge management by realising the importance of this system at the branch level.
Based on the responses of Islamic Bank employees, the bank has the basic technological infrastructures to support knowledge management except only for the need to network or link branches, which the bank is addressing through its Intranet project. However, Islamic Bank has a weak organisational infrastructure to support knowledge management because of the poor linkages or channels of communication between headquarters and branches.
Scarbrough (1999) provides that the commitment of senior or top management is important in the process of implementing knowledge management and change management to facilitate changes in corporate culture and structure to support the achievement of goals. Although Islamic Bank’s corporate behaviour shows its realisation of the importance of managing knowledge in competitive business firms because it commissions information gathering, it has not been aggressive or committed enough to implement knowledge management across the organisation. Even if headquarters is planning the establishment of an Intranet system, this only constitutes one hard aspect of knowledge management. Without greater effort from the top management to facilitate the application of knowledge management, the span of benefits would not be realised.
The banking sector, including Islamic Bank, should recognise knowledge management as an important tool for competitiveness. In line with this recognition is the need to develop competencies to support knowledge management. First competency is in organisational communication that covers open and trusting communication attitudes together with multi-media communication channels. Second competency covers change management to facilitate the systematic integration of the value of knowledge and knowledge creation and sharing roles among the members of the organisation. Third competency involves leadership and people management for the leaders to commit to their roles in knowledge management and for the employees to become motivated to engage in innovative activities to support continues information gathering and learning of the organisation. Continuous learning from the experiences of banks, such as Islamic Bank, with knowledge management then becomes the basis of best practices for the sector, a research gap based on existing literature that needs to be filled.
Based on the consideration of the experiences of Islamic Bank of Britain with knowledge management relative to existing theoretical and empirical knowledge, a number of themes constituting the areas for improvement of Islamic Bank and areas of best practices of the financial services sector emerge.
First theme is the conceptualisation of knowledge management to support a commonly accepted definition or understanding of the concept for purposes of application. Existing literature do not provide a commonly accepted understanding of knowledge management especially in the financial services sector. This resulted to the differentiated perception of banks towards knowledge management such as the technological perspective of Islamic Bank of knowledge management different from the fusion of people, technology and processes or the complementary linkage of hard and soft systems. A common understanding of knowledge management in the financial services sector would clearly set out what this concept means to the firm. As an area of best practices, this means the need to develop an encompassing definition and general principles of knowledge management for the financial services sector that banks can use as guide in managing knowledge. One principle is the holistic approach of knowledge management that involves the fusion of hard and soft systems or people, technology and processes. Another principle is the competency and resource-based approaches that look into the effective development and utilisation of competencies and resources to support the creation, sharing and conversion of information into practical knowledge helpful in improving employee performance in providing quality service that enhances the competitiveness of the firm.
Second theme covers the role of knowledge management to industries such as the financial services sector. Previous studies on knowledge management in banks have identified the lack of uniformity in the perception of the importance of knowledge management by individual firms. Islamic bank accrues moderate importance to knowledge management expressed through its minimal use of information derived primarily from external sources. A similar degree of importance has been accorded to knowledge management by other banks by not considering the value of information when converted into practical knowledge. Due to the varying perceptions of the importance of knowledge management in the financial services sector, this area of management has not been considered for inclusion in industry efforts to develop standards based on best practices. Apart from the basic international standards on information and communication technology in the financial services sector, limited standards exist covering knowledge conversion in banks. As an area of best practices, this means that need for the financial services sector to develop a common recognition of the importance of knowledge management based on the failures and issues faced by banks, such as Islamic Bank of Britain, in their application of knowledge management in order to ensure that banks incorporate knowledge management in their strategies in order to ensure quality service for consumers but also to improve operational efficiency.
Third theme covers the benefits of knowledge management. Although existing literature cited the various benefits of knowledge management to business firm in general and to banks in particular, there are limited comprehensive or encompassing models linking various elements of knowledge management with particular benefits. Knowledge management is linked to the benefit of efficiency through feedback exchanges among employees so that this covers group dynamics. Knowledge management is also linked to the benefit of enhanced performance through innovativeness implying benefits on the individual level. Knowledge management is also linked to the benefits of productivity and quality service through decision and policy-making indicating benefits at the organisational level. The issue is the consideration of these benefits separately in existing literature. As an area of best practices, these benefits should be considered as simultaneously occurring with the application of knowledge management in the organisation. Recognition of simultaneous occurrence of benefits is important in enabling the bank to focus on this various levels of knowledge management and look at the management of knowledge on the individual, group and organisational levels to achieve results more efficiently and optimise results. There is need to develop a holistic model highlighting the multi-level benefits of knowledge management coinciding with the various parties and interests as well as competencies and resources involved in effectively managing knowledge to derive the intended outcomes.
Fourth theme covers the complexity and scope of knowledge management. Existing literature recognise knowledge as complex. However, there are limitations in the discussions of the nature and extent of the complexity and scope of knowledge management. This is expressed in the variances of the scope of knowledge management of different banks. In the case of Islamic Bank, it considers knowledge management as complex but recognise the limit of this management area as the technological aspects expected to facilitate the other aspects of knowledge management. As an area of best practices, there is need to recognise the scope of knowledge management as cutting across the different areas of management and operation including people management, change management, strategic management, and other relevant areas of management; multi-levels of the organisations including individuals, departments and the organisation as a whole as well as employees and management; and various competencies and resources including skills and experiences of employees, leadership capabilities of employees, and technological tools to support information collection and sharing as well as knowledge conversion.
Fifth theme involves the organisation of practice-based learning so that lessons from the experiences of banks should be translated into principles and general theories of knowledge management should also be translated into practical knowledge. Existing literature on knowledge management can be categorised into philosophical or theoretical and empirical studies. Theoretical studies looked into the concept of knowledge management and its relation to various business concepts while empirical studies focused on the specific experiences of particular business firms or sectors in implementing knowledge management. Although, these are able to provide important insights into the understanding of knowledge management, information is limited only to either theoretical or practical results. As an area of best practices, there is need to focus on the application of theories in actual business settings and the derivation of principles from the successes and failures of the business firms. The study on the experiences of knowledge management in Islamic Bank of Britain involves the application of theories and the determination of generalised best practices revolving around the need to develop a uniform and comprehensive understanding of knowledge management applicable in the financial services sector.
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