First of all,the main purpose of this particular research is to explore how the combination of knowledge management and governance mechanism affect the frim's financial intelligence. Therefore, some variables has been choosen and to be test in this research. Lastly, the results from this research will improve reader's financial view and know the importance of financial intelligence and financial literacy in a firm.
1.1 Research Background
As the changing and improve in information system and technology, knowledge has become an improtant element in business environment to gain competitive advantage. So, a knowledge-based gorvernance system will be a new type of governance system to manage the knowledge in a firm in order to meet their goals. AnnaÂ Grandori (as cited in Nicolai & Joseph, 2010) defined that "Knowledge governance considers how deployment of governance mechanisms influences knowledge processes: sharing, retaining, and creating knowledge".
Mariussen & Asheim (2003) state that goal setting is the main function of governance and the process of governance is decision of goal and goal maintenance. Commonly, the main goal of a company is profit maximization; it is because the reason for every supplier of finance or investor invests in a business is to gain profit. But, in field of finance, profit maximization is not a reasonable goal, because it fails for three reasons, which is timing of returns, cash flows available to stockholders, and risk (Lawrence, 2009, pg. 14). Therefore, according to Lawrence (2009) goal of all managers and employees of the firm, is to maximize shareholders' wealth. However, the level of firm's financial intelligence in our country is stil low; it is because most of the employees do not attach importance to financial. Besides that, some of the managers and firm's holder might cannot understand the financial statement, it is a serious problem in manage a company.
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As the financial knowledge is increasingly important for every employees in a firm. According to Karen, Joe, and John (2010) the financial understanding of employees in how the business worked has positive relationship with company's financial performance and these financial understanding is Financial Intelligence. Other than the understanding, these knowledge can be use as ability and skills to improve effectiveness of financial management. Lawrence (2009, pg. 162) states that today's is more valueable than money in future because the money can be invested to gain profit;and inflation may decrease the value of money in future.
Besides, today's financial markets are continuously offer variety of products and services to meet their customers needs. These financial products and services might be a opportunity to a company to expand their business. But, to identify and choose the best financial products that suit their needs is not easy, because financial information and and document is complex and hard to understand (Gao, 2010). So, improve in firm's Financial Intelligence may has better understanding to these information and documents; and improve the capability of a firm to control the formulation and implementation of financial strategy.
Through knowledge management and governance mechanism, the effectiveness of knowledge sharing, retaining, and creating between employees and managers within a company might be increase. Moreover, to lets every employee understand the importance of financial knowledge and how it impact the company's performance.
1.2 Statement of Research Problems
Financial management is important to a company, because it decide how a company use their funds. Fund is the most important thing that to run business and it is the main factor that affect a company's health; funds are needed to start, maintain and expand a business. So that, we can see many corporation issue shares, bonds or other financial instruments to collect raise their funds for future investment. However, these financial instruments are a double side edge; because it can also hurt a company. Somehow, some of the entreprenuers who are taking the financial risk does not has sufficient financial knowledge to manage their fund and use the financial insturment wisely, especially the entreprenuers in small and medium industry. So, through sharing and learning within a company, financial intelligence might be improve and increase the effectiveness of financial management of a company.
In Mr. Shukor class (lecture, August 03, 2010), he said that "Profit is a return to those who are willing to undertake risk". Financial risks are include market risk, credit risk, liquidity risk, operational risk, investment risk, and the others. So, a company or an individual who has better understand to these risk might has better profit in the future. However, to understand these risks is not easy, so learning will be the most important step to improve the understanding of risks.
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From this research, we are able to understand and identify the responses of financial education and governance mechanism that drive employees learning and sharing financial knowledge within company to raise firm's financial intelligence. The experiences in financial crisis had showed the needs of understanding and abilities in financial management to improve company performance. Therefore, people with low understanding of financial produsts and services should aware that their understanding is not sufficients in this high competition environment. So, work place might be one of the best place to improve their understanding on financial needs, products and services that can benefits company and themselves.
However, according to Donald (2005), there are some traits may affect the effectiveness of financial education programs, which is behavior and willingness of study. Schermerhorn, Hunt, and Osborn (2008, pg. 396) had defined that "control is the set of mechanisms used to keep action or output within predetermined limits". So, control is important in improve the effectiveness of financial education programs; and governance mechanisms likes job design, organization culture, codes of ethics, and rewards systems are the mechanisms that use to control the financial intellegence programs. As what Karen, et al. had says in year 2006, to improve firm's financial intellegence, we have to figure out a strategy first. According to Wim, Steven and Erik (2004), coporate governance is a system that can provide strategic plans to direct and control a business. So, knowledge governance might be the most suitable governance system to improve firm's financial intellegence.
1.3 Research Gap
The previous studies on knowledge governance had shown that researchers had only done on factors likes governance sturcture and governance mechanism affecting the knowledge governance;or how knowledge governance become a useful governance system in future to help a company gain competitive advantage. The importance of the influence of knowledge governance in affecting employees in knowledge sharing and learning has led to many researchers done on this subject matter in different areas. However, no research has yet been done specifically on the financial education to see how it affects employees' financial understanding in their work place.
1.4 Research questions
How the governance mechanism (job design, organization culture, code of ethics, reward systems) affect the effectiveness of financial intellegence programs?
How the relationship between governance mechanism and level of financial intellegence in a company?
How the affect of knowledge governance on improve financial intelligence?
1.5 Research Objective
The purpose of this research "Knowledge Governance: Raise the Firm's Financial Intellegence" is to find out the influences factors of governance mechanism to the employees. The researcher would like to know how some factors like personal behavior, organization culture, motivation and working environment affects employees' views on learning and sharing; and how it determine their financial intellegence level.
Improve the effectiveness of financial intellegence programs through the gorvernance mechanism.
Different people has different think of way to learn and share. It is because people has different culture, so they will have different view. Besides, a study environment will also affect the effectiveness of study, people will lose focus when they feel boring in the study program. So, I believe that guide and motivate are needed in these learning programs. People need to guide to do the right thing; and to be motivate to improve their effeciency in work.
Improve firm's financial intellegence through the Knowledge Governance.
To be succeed in certain task, we must need a successful system first. Knowledge Governance is a governance system that control and manage knowledge winthin a company to improve company's competitive advantage;so it will be the system that we needed to guide and control the process of financial intellegence programs.
1.6 Significance of Research
The study of this research will clearly explain how the knowledge governance affect firm's financial intellegence. The need of this study is to improve people's understanding about the importance of financial management. The major areas of contributions from this research is the private sectors. The results from this research will allow a company improve their financial performance through improve their employees' financial intellegence. By influence learning and sharing behavior, we can successfully applying high effectiveness of financial education. Besides that, better financial performance may allow a company make more valuable investment to increase their competitive advantage to capture more market share.
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Secondly, this research can benefit the individual who involve in the financial intellegence programs. According to some previous research and news, we can see that the level of financial literacy in our country is still low. It means people in Malaysia do not manage their money wisely. Gao (2009) had says that, financial literacy is the ability to manage money. Trough the financial intellegence program, people might know the importance of money management. In addition, Karen et al. (2006) says the financial literacy is needed to be a part of organization cultule. So, the financial intellegence program may also increase level of financial literacy in our country indirectly.
Moreover, after increase firm's financial intellegence, individuals or firms will have better skill to manage their financial risk. So, they will save more or make more investment to increase their profit to avoid the harm from economy crisis in the future. Increase in savings and investing will bring positive grow in economy growth. When economy having a positive growth, the unemployment rate will decrease; spending power will also increase. It will be a good trend in national development. So, this research might benefit the public sector also, because a "healthy economy" can attract more foreign investor invest in our country. Besides, production level of private sector increase and export goods to other country can bring more income to the government.
As a result, improve financial intellegence is an important research, because the portential areas of contributions from this research is wide.
1.7 Scope of study
In view of the topic of this research, we have to identify and understanding the the enhancing in financial knowledge transfer program that drive firm's financial intellegence. This research will be conducted at Small and Medium Enterprises (SMEs) in Melaka. Perhaps, this might allow us to narrow down our area of study by just focusing on SMEs in Melaka to understanding their response on governance mechanism and financial education towards employees' financial intellegence. We assume that these companies can provide us the exactly information that we needed in conducting this research. By viewing this report, the SME might found it useful and apply the knowledge in building better financial management as well as for the purpose to obtain more market share.
1.8 Definition of Terms
"Knowledge governance considers how deployment of governance mechanisms influences knowledge processes: sharing, retaining, and creating knowledge"
AnnaÂ Grandori (as cited in Nicolai &Joseph, 2010)
"everyone in a company does better when they understand how financial success is measured and how they have impact on the company's performance"
Karen, Joe, and John (2010)
"process by which financial consumers/investors improve their understanding of financial products and concepts and, through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, â€¦ to improve their financial well-being"
SourceOECD: Finance and Investment (2005)
"the process of defining job tasks bad the work arrangement to accomplishthem"
Schermerhorn, Hunt, and Osborn (2008, Pg.130)
"system of shared actions, values, and beliefs that develops within organization and guide the behavior of its members"
Schermerhorn, Hunt, and Osborn (2008 ,Pg.364)
"Procedures, rules, and standardsHYPERLINK "http://www.businessdictionary.com/definition/associated.html"associatedwith allocationof benefitsand compensation to employees"
Code of Ethics
"Standard of conduct or moral judgement that apply in persons engaged in commerce"
Lawrence(2009, Pg. 17)
1.9 Organisation of the Research
The next chapter is literature reniews. This chapter will justify the theoritical model and highlight the discussion from previous studies that related to this study. Besides, the dependent and independent variables will further discuss in this chapter to get a clearer view for this research.
Chapter 3 will describes ths methodology of this research. After the discussion of variables in chapter 2, the hypothesis will br develop in tis chapter to formulating a testable statement. Besides, the research object and technique will be decide in this chapter.
After the data has been collected, the data will be analyze in chapter 4. SPSS will be the program that use to analyze the collected data; and some analysis methods will be use to test the hypothesis.
Lastly, in chapter 5 will discuss the result in the hypothesis test first. Next will be the discussion for the managerial implication and research objective. After that, the limitation of this study will be list out and some suggestions will be given for future studies.
In this chapter is about the initial steps for this research. The board area of problems and the current issues has been discussed in this chapter. Besides, it also come out the question that to be answer in the final of this research. Moreover, the significant of this study has clearly explain the portential areas of contribution in this research. As a conclusion, the out come of this research might benefit the readers and become an important information for future studies.
Karen, Joe, & John. (2006). Financial Intelligence: A Manager's Guide to Knowing
What the Numbers Really Mean. United States of America: Business Literacy Institute, Inc. Retrieved July 16, 2010, from http://books.google.com.my/books?id=zEILNC8aMMwC&printsec=frontcover&dq=Financial+Intelligence&hl=en&ei=uMg_TOqBN4HSuwPSqfzgCA&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCwQ6AEwAA#v=onepage&q&f=false
Gao. (2010). Consumer Finance: Factors Affecting the Financial Literacy of
Individuals with Limited English Proficiency. GAO-10-518. Washington, D.C.: May 21, 2010.
Nicolai J. Foss, Joseph T. Mahoney. (2010). Exploring Knowledge Governance. SMG
Working Paper No.4/2010.
Lawrence J. Gitman. (2009). Principles of Managerial Finance, 12th Edition, Pearson
- Addison Wesley, Boston, USA.
Mariussen, Å. & Asheim, B.T. (2003). New Forms of Knowledge Governance:
Basic outline of a social system approach to innovation policy. Paper presented at the DRUID Summer Conference 2003, June 1214.
Donald J. Johnston. (2005). Importance of Financial Literacy in the Global Economy.
Secretary-General of the OECD to the Financial Education Summit, Kuala Lumpur, 12 December 2005.
Schermerhorn, J. R., Hunt, J. G., and Osborn, R. N. (2008). Organisational Behaviour
(10th ed.). New Jersey: John Wiley & Son, Inc.
Wim Van Grembergen, Steven De Haes , and Erik Guldentops. (2004). Structures,
Processes and Relational Mechanisms for IT Governance. United States of America: Idea Group Inc.
SourceOECD: Financce and Investment. (2005). Improving Financial Literacy:
Analysis of Issues and Policies [Electronic version]. France: Organisation for Economic Co-operation and development. Retrieved July 26, 2010, from http://books.google.com.my/books?HYPERLINK "#v=onepage&q=financial%20education&f=true"id=HwRcmpXH_RICHYPERLINK "#v=onepage&q=financial%20education&f=true"&HYPERLINK "#v=onepage&q=financial%20education&f=true"printsec=frontcoverHYPERLINK "#v=onepage&q=financial%20education&f=true"&HYPERLINK "#v=onepage&q=financial%20education&f=true"dq=financial+educationHYPERLINK "#v=onepage&q=financial%20education&f=true"&HYPERLINK "#v=onepage&q=financial%20education&f=true"hl=enHYPERLINK "#v=onepage&q=financial%20education&f=true"&HYPERLINK "#v=onepage&q=financial%20education&f=true"ei=-M9ZTO63H8GXccayiPQIHYPERLINK "#v=onepage&q=financial%20education&f=true"&HYPERLINK "#v=onepage&q=financial%20education&f=true"sa=XHYPERLINK "#v=onepage&q=financial%20education&f=true"&HYPERLINK "#v=onepage&q=financial%20education&f=true"oi=book_resultHYPERLINK "#v=onepage&q=financial%20education&f=true"&HYPERLINK "#v=onepage&q=financial%20education&f=true"ct=resultHYPERLINK "#v=onepage&q=financial%20education&f=true"&HYPERLINK "#v=onepage&q=financial%20education&f=true"resnum=1HYPERLINK "#v=onepage&q=financial%20education&f=true"&HYPERLINK "#v=onepage&q=financial%20education&f=true"ved=0CC0Q6AEwAA#v=onepageHYPERLINK "#v=onepage&q=financial%20education&f=true"&HYPERLINK "#v=onepage&q=financial%20education&f=true"q=financial%20educationHYPERLINK "#v=onepage&q=financial%20education&f=true"&HYPERLINK "#v=onepage&q=financial%20education&f=true"f=true