MANAGING INTELLECTUAL CAPITAL AND DIGITAL TRANSFORMATION TO FOSTER INNOVATION PERFORMANCE

Abstract

Innovation has become a crucial driver of growth and competitiveness in modern economies, particularly in the knowledge economy era. Research and development (R&D) efforts are directed towards improving existing products and processes, as well as introducing new products to achieve a competitive advantage. Large firms invest significant resources in acquiring knowledge and innovation sources, with human capital being a vital component of their intellectual capital. Human capital encompasses attributes such as education, experience, skills, emotional and cognitive intelligence of employees. Firms also leverage social or relational capital to collaborate with external partners, and organizational or structural capital to enhance organizational learning, ultimately facilitating innovation. These three forms of capital collectively constitute intellectual capital, which influences innovation performance and absorption capacity.

Furthermore, firms are increasingly adopting Industry 4.0 technologies to enhance their processes and achieve digital transformation. Technologies such as blockchain, machine learning, big data, smart manufacturing, cyber-physical systems, internet of things, and 3D manufacturing improve process efficiency, production, and planning. However, despite the financial investments made in digital transformation, many firms struggle with its implementation and effective utilization. This is often attributed to a lack of technology-related absorptive capacity, hindering the realization of innovation performance. Understanding how firms can enhance their competence in managing digital transformation to improve innovation performance remains unclear.

To address this question, this empirical study focuses on the high-tech manufacturing sector in Malaysia, specifically the Electrical and Electronics firms. By examining this industry, we aim to explore the factors that contribute to improving firms' competence in managing digital transformation, leading to enhanced innovation performance. The findings of this study will provide valuable insights for practitioners and policymakers seeking to leverage digital technologies effectively and foster innovation in the high-tech manufacturing sector.