2010 International Conference on E-Business and E-Government

Knowledge Management in Banks

Liang Ping
School of Finance and Public Management of Hubei University of Economics Wuhan, Hubei430205, China shuifa2007@sina.com
AbstractIn modern times, more and more banks are operating with knowledge. So, this paper first discusses the definitions of knowledge and knowledge management, and then analyzes the necessities and feasibilities for knowledge management in banks. At the end of the paper, it studies ways for banks to manage knowledge, which include incentive mechanism , knowledge capital management and three levels of knowledge management. With the application of knowledge management in banks, both banks and customers will acquire more returns. Keywords-knowledge; knowledge management; incentive

Wu

Kebao

Economics and Management School of Wuhan University Wuhan, Hubei, 430072, China wkb01@163.com Many dissertations have studied knowledge management applications in some special fields. Aybbe Aurum (2004) [3] analyzes knowledge management in software engineering and Suzanne Zyngier Judy McKay (2006) [4] study knowledge management strategies in application. Wu Kebao (2007) studies knowledge management in education and Jayasundara Chaminda Chiran (2008)
[5]

information-based
[6]

review the prevailing literature on knowledge management in banking industries. Liang Ping and Wu Kebao(2009)[7] study knowledge management in banking. But few scholars research on the incentive mechanism of knowledge management in banks. So this paper will discuss knowledge management and the incentive mechanism of knowledge management in banks. This paper is organized as follows: Section introduction. Section feasibilities for knowledge management in banks. concludes. II. THE NECESSITIES AND FEASIBILITIES FOR KNOWLEDGE
MANAGEMENT IN BANKS

mechanism ; knowledge capital; three levels of knowledge

I.

INTRODUCTION

Nowadays, more and more banks are operating in a knowledge society. So, what is knowledge? Allee(1997)[1] thinks knowledge is professional intellect, such as know-what, know-how, know-why, and self-motivated creativity, or experience, concepts, values, beliefs and ways of working that can be shared and communicated. When more and more people are paying attention to knowledge, scholars are turning to studying the critical issue, which is knowledge management. So, what is knowledge management (KM)? Malhothra (2001)
[2]

is

analyzes the necessities and Section

studies ways for banks to manage knowledge. Section

A. The necessites for knowledge management in banks Modern banks all over the world have two aspects: a financial service and a manufacturer of financial products. As a financial service, banks provide financial information and consulting to their customers. As a manufacturer, banks invent and produce financial products. In the process of providing financial service or products, banks have to develop and maintain an information system and an e-commerce system, because operations in banking are highly dependent on information technology. With the two aspects, banks are constantly seeking sources of profits and it is well known that
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think knowledge management caters to

the critical issues of organizational adaptation, survival and competence with increasingly discontinuous environmental change. Essentially, it embodies organizational processes that seek synergistic combination of data and information processing capacity of information technologies and the creative and innovative capacity of human beings. Through the processes of creating, sustaining, applying, sharing and renewing knowledge, we can enhance organizational performance and create values.
978-0-7695-3997-3/10 $26.00 2010 IEEE DOI 10.1109/ICEE.2010.460

there are large amounts of individual assets that have not been captured by banks. In order to sustain profitability, banks need to focus on customer relationships and manage them carefully, which we called as customer relationship management(CRM). If banks wish to offer appropriate products and services to customers, they need to collect and analyze information and knowledge from customers, which will enable sale staffs to conduct their business on the basis of the information and relevant analyses. At the same time, as financial products become more and more complex, it is difficult for each staff in banking to be completely familiar with every financial product. So banks need to train their sale staffs to master the knowledge of the products to offer the proper products to customers. In all, modern banks have the necessities to manage knowledge to acquire more profits and sustain profits. B. The feasibilities for knowledge management in banks We all know that, there are more and more information technology products, such as automatic teller machines (ATM), computers , internet and e-finance, are used in banks in the 1990s, which are hardware for banks to manage knowledge. As the interactions between banks and customers are automated through the use of the latest information technology techniques, banks need to collect and analyze information to obtain the useful knowledge of customers. The staffs in banks are required to master necessary knowledge to satisfy the needs of working and customers. The staffs in banks have mastered the necessary skills to manage knowledge, which is the software for banks to execute knowledge management. With the knowledge circumstances, banks have to manage knowledge to control risks, manage marketing, and manage customer relationship to gain benefit for the stakeholders and themselves. From the above discussion, we can see that banks need knowledgeable staffs to manage knowledge of customers sand develop innovations to acquire more profits and sustain profits. So there are needs and necessities for banks to manage knowledge.

III.

COUNTERMEASURES FOR BANKS TO MANAGE

KNOWLEDGE

There are tacit knowledge and explicit knowledge in banks. Tacit knowledge can be sensed by insight, including know-how and ideas of experts; explicit knowledge refers to knowledge which can be expressed by formulas and can be applied to manage risks and customer relationship. There are three blocks for banks to manage knowledge, which are making out development strategies, managing knowledge capital and managing knowledge. We can show them in Figure 1:

Ways of Knowledge Management

Making strategies

out

Managing knowledge capital

development

Managing knowledge

Figure1.

The blocks of knowledge mangement

A. Making out knowledge development strategies Modern banks are designing development strategies to develop, communicate and employ knowledge, to develop ways to spread knowledge quickly and to make all staffs share and own knowledge. With development strategies, banks can build up a creative environment and respect the employees knowledge to encourage the employees to work creatively. So the banks have to design an incentive mechanism to encourage the staffs. The incentive mechanism includes simulative and punitive measures. They are indicated in Figure 2:

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Step1:Designing staffs

mechanism

to

measure the

knowledge contributions of

Step2:Measuring contributions

knowledge

Step3:

Designing

Stimulating/punishing

mechanism

Step4:Executing measures:

punitive

Step4:Executing stimulative measures: Material rewards Spiritual rewards Promotion

Yellow-card warning Red-card warning Dismissing unqualified staffs the

Figure 2.

The incentive mechanism of knowledge management in banks

1)The punitive incentive measures: The goals of punitive incentive measures are to urge the staffs, who have little knowledge and lag behind the times, to learn new knowledge to satisfy the needs of the working in banks, for the financial knowledge is changing rapidly day by day. The cores of the measures are to examine the knowledge which the staffs master. For example, we can test the staffs whether they have mastered the new accounting postulates, the new knowledge about the computer. If not, these staffs should be trained again and be given yellow-card warning or red-card warning[8]. If they do not master the necessary knowledge for their job after training again, they should be dismissed or laid-off. With the punitive measures, the employees in financial industry will work harder and learn more in the knowledge society. 2)The stimulative incentive measures: The knowledgeable staffs in banks are working with computers and taking out products with more knowledge and values. In the procession, the knowledge and the intelligence of the employees determine the probabilities of producing and the quality of

the products. The knowledgeable capabilities of the employees are acquired by learning and working for many years , attaining experience from practice. We call the knowledgeable capabilities of the employees as human capitals, which are playing important roles in producing with other material capitals. So the staffs who own the human capital should also get the equal rewards with other material capitals. They should acquire the rewards, such as bonus, dividend, stocks and stock options, which are material incentive. For them, they should not only acquire material incentive, but also they should acquire spiritual incentive. The spiritual incentive is more important than material incentive, which includes accepting the intellectual rights of one employees and giving more opportunities to staffs for training or advanced studying. B. Managing knowledge capital Knowledge capital is the core contributive factor for banks to create values. Banks use knowledge capital to create new

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financial products to satisfy the needs of the customers. Knowledge capital contains three constituents: intellect capital, client capital and structure capital [9]. Intellect capital connects the intellect of the banking staffs with the passion of the staffs and we can use an equation to show intellect capital:

IV.

CONCLUSION

In this paper, firstly, we discuss what knowledge is and what knowledge management is. Then we analyze the needs to execute knowledge management in banks. Finally, we take out countermeasures for banks to manage knowledge. By studying, we find that banks should design development strategies, which include stimulative and punitive incentive measures, to guide the staffs to develop, communicate and employ knowledge. At the same time, banks should focus on managing knowledge capital and managing three levels of knowledge. With the incentive mechanism and management of knowledge, banks can make out new financial products to satisfy the needs of customers to gain sustainable profits. ACKNOWLEDGMENT

Intellect capital=Intellect passion

(1)

Client capital requires banks identify needs of clients and innovate for them, so there are many financial innovative products for customers every year. We can use an equation to show client capital:

Clientcapital=Client oriented+client innovation (2)

Structure capital includes values of banks culture and social identity and we can use an equation to show structure capital as:

It is financed by the humanities and social sciences project of the Ministry of Education of China (NO. 06JC790032).

Structurecapital=Leadership+values of banks +social identity

(3)
[1]

REFERENCES
Allee, V. The knowledge evolution: expanding organizational intelligence. Butterworth-Heinemann. 1997, pp. 63-65. [2] Malhothra, Yogesh, Knowledge Management for the New World of Business, New York BRINT Institute, 2001, http://www.brint.comlkm/whatis.htm. [3] Aybbe Aurum, Knowledge management in software engineering education, Proceedings of the IEEE International Conference on Advanced Learning Technologies, 2004, pp.370-374. [4] Suzanne Zyngier Judy McKay (2006), The role of knowledge management governance in the implementation of strategy, Proceedings of the 39th Hawaii International Conference on System Sciences, 2006, pp.1-10. [5] Wu Kebao, Knowledge management in education, The 1st International Symposium on Knowledge Acquisition and Modeling (KAM 2008), pp.93-97. [6] Jayasundara Chaminda Chiran, Knowledge Management in Banking Industries: Uses and Opportunities, Journal of the University Librarians Association of Sri Lanka, 2008, Vol.12, pp.68-84. [7] Liang Ping, Wu Kebao, Knowledge Management in Banking, The Conference on Engineering and Business Mangement, 2010 (in press). [8] Fan Heming, A study on the knowledge management incentive mechanism in real estate enterprises, Construction Economy, 2009, Vol. 320, No. 6, pp.9-27(in Chinese). [9] Wu Qing, Xu Xusong, Research on Modes of Knowledge Management and methods for Implementing of Knowledge Management, International Conference on Wireless Communications, Networking and Mobile Computing, 2007, pp.5348-5351. [10] Jian Gong, Kebao Wu, The Incentive Mechanism of Knowledge Management in Financial Industry, The 2nd International Symposium on Knowledge Acquisition and Modeling (KAM 2009), pp.265-268.

Values of one banks culture depend on the culture and spirits of the bank. Social identity refers to the brand of the bank. These two factors make people recognize the values and band of a bank and make people enjoy the service provided by the bank. Structure capital can help banks acquire profits [10]. C. Managing knowledge Banks knowledge is on three levels: feeling, process and method. Feeling is tacit knowledge, such as know-how, ideas of experts, which can be sensed by insight. Process and method are explicit knowledge, which can be used to control management and be expressed by formulas. From the levels of knowledge, we can see that knowledgeable staffs are necessary for banks to manage knowledge. In all, knowledge management is to organize knowledge to take out new products and communicate with others, and then apply the new products to serve the customers to gain sustainable profits. And knowledgeable staffs are necessary for banks to manage knowledge in knowledge society.

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