knowledge integration in support of the businesses process of islamic banks in indonesia

Quote this article like this: Nurdin, N & Letch, N. 2009. Knowledge Integration In

Support of The Business Process of Islamic Banks in Indonesia. IQTISAD, International

Journal of Islamic Economics, Vol. 10. No.1. pp. 77-100, UII Yogyakarta

77

KNOWLEDGE INTEGRATION IN SUPPORT OF THE BUSINESSES

PROCESS OF ISLAMIC BANKS IN INDONESIA

Nurdin Nurdin : Lecturer at STAIN Datokarama Palu1

Nicholas Letch: Lecturer at University of Western Australia2

Abstract This study focuses on knowledge in integration among employees in an Islamic bank in

Indonesia. The bank employees came from different educational institution cultures such as from

Islamic education institutions and general education institutions. This requires the bank to

integrate both different workers knowledge to enhance their business. The study was carried out

through a single case study in which the data collection were mainly through in-depth interview

with participants. The results show that the process of integration of knowledge and culture was

carried out through various mechanisms such as trainings, seminars, workshops, formal

education, praying together before start working, and weekly religious lectures. Some facilities,

such as internet, intranet, telephone, books, and brochures, were also used to facilitate the

integration of knowledge and culture. The result of the integration of this knowledge has not been

successful because the staffs of Islamic banks do not have good knowledge of Islamic banking. In

addition, business practices of the Islamic bank are not much different from the practices of

traditional banks, except the name of the product they offer. Bank employees believes,

particularly in the field of business knowledge, norms, and the Islamic banking operations have

not changed.

Tulisan ini merupakan hasil penelitian tentang kombinasi pengetahuan dan budaya yang

berbeda dari para pekerja pada sebuah bank syariah. Pegawai pada bank syariah

tersebut berasal dari institusi pendidikan yang berbeda sehingga diperlukan integrasi

pengetahuan dan budaya mereka agar selaras dengan paradigm bank syariah. Penelitian

ini menggunakan case study tunggal dengan pengumpulan data melalui wawancara

secara mendalam. Hasil penelitian ini menyimpulkan bahwa proses integrasi

pengetahuan dan budaya dilakukan melalui pelbagai mekanisme seperti pelatihan,

seminar, lokakarya, pendidikan formal, berdoa bersama dipagi hari sebelum bekerja ,

dan ceramah keagamaan. Sebagian fasilitas seperti internet, intranet, telpon, buku, dan

brosur, juga digunakan untuk mempermudah integrasi pengetahuan dan budaya. Hasil

dari integrasi pengetahuan ini belum berhasil baik karena staf bank- bank Islam belum

mempunyai pengetahuan yang baik tentang perbankan, sementara pegawai yang berasal

dari perguruan tinggi umum tidak memiliki pengetahun yang baaik tentang perbankan

1 Nurdin Nurdin is a PhD candidate at Swinburne University of Technology, Australia.

http://www.ict.swin.edu.au/ictstaff/nnurdin . Nurdin, N is also a Lecturer at State College for Islamic

Stides (STAIN) Datokarama Palu Central Sulawesi (e-mail: [email protected] ). 2 Assoc. Prof. Dr. Nick Letch; Lecturer at Faculty of Economics and Business University of Western

Australia (e-mail; [email protected]




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syariah. Praktik bisnis bank Islam kelihatannya tidak jauh berbeda dengan praktik bank-

bank konvensional, kecuali nama produk yang mereka tawarkan. Keyakinan para

pegawai bank, khususnya pengetahuan dibidang bisnis dan norma, terhadap

operasional perbankan Islam belum berubah

Keywords: knowledge integration, Knowledge management, Islamic banks, Indonesia

1. Introduction

Knowledge is important to an organization and it exists at all levels. Individuals create

the knowledge through the reflection and experience during their life that is always

located in individuals or group, or embedded in their daily routines (De Long and Fahey

2000). Individuals possess their own unique knowledge and bring it to an organization.

Therefore, an organization tends to possess a diversity of knowledge because workers

bring with their the previous education, experience, knowledge and expertise that then

adds value to the organization (Bogdanowicz and Bailey 2002)

This diversity of knowledge in an organization needs to be integrated to support the

organization’s business process. It is with the assumption that if knowledge is an

important input to the process of all production stage and if efficiency requires that the

knowledge is created and stored by individuals in specialized forms, then the primary role

of the organization is the integration of knowledge (Grant 1996). Grant adds that it is not

possible for an individual to learn the knowledge possessed by other specialists because

of cognitive limitation. Therefore, the organization needs to focus on the generation and

use of the knowledge because while knowledge is “owned” at an individual level, it is

important to integrate this knowledge to a group level which can be accessed by all.

(Okhuysen and Eisenhardt 2002). When the knowledge is integrated, it can increase the

organization capability in handling its business process.

Organizational capabilities are defined as a firm’s ability to perform repeatedly a

productive task which relates either directly or indirectly to a firm’s capacity for creating

value through effecting the transformation of inputs into outputs. It includes cross-

functional, functional, activity-related (operations related only), specialized and single-

task capabilities (Grant 1996). This capability might be achieved through the integration

of all knowledge that is embedded in all individuals and groups. The integration might

increase the competitiveness of an organization because the competitiveness depends on

the diversity and strategic value of specialized knowledge, as well as an organization’s

capacity to integrate the knowledge in an effective manner (Huang and Newell 2003).

The need for integration is not only because the diversity of individuals’ knowledge but

also because of the different culture, which consists of practices, norms, and values of




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individuals (De Long and Fahey 2000). Some employees are also transferred from other

organizations and bring in different knowledge, practices, norms, and values. For

example employees from conventional banks were transferred to Islamic banks. These

transferring workers bring in knowledge acquired from their previous employment,

including much that might be regarded as proprietary information by their previous

employers (Lee and Allen 1982). These individuals might have specialized knowledge

and culture that needs to be integrated in a new organization’s culture.

Islamic banks possess this diversity of knowledge and culture because they employ

human resources from different education backgrounds. Some human resources

graduated from Islamic education institutions and others graduated from conventional

education institutions. As a result, Islamic banks possess Islamic economic holders and

commercial economic knowledge holders who have different knowledge and culture.

Some human resources had also worked at some conventional banks for a long period

before they worked at Islamic banks. Islamic economic knowledge holders do not possess

good commercial economic knowledge, while commercial knowledge holders do not

possess Islamic economic knowledge (Karim 2005).

Therefore the focus of this research is human knowledge which involves what individuals

know or know how to do, social knowledge and structured knowledge (De Long and

Fahey 2003). Individual knowledge is related to individuals’ skill or expertise while

social knowledge is related to knowledge that exists in the relationship between

employees and groups that involves norms and values. Explicit knowledge which is

embedded in organizations’ systems, routines, process and tools is called structured

knowledge. All this knowledge and culture (practices, norms, and values) are critical

assets for Islamic banks that must be combined.

2. Theoretical Review

2.1 Knowledge and Integration Mechanism

Knowledge is one of the most important elements in knowledge management and

it is an important asset to an organization. It is difficult to define what knowledge is;

therefore scholars define knowledge in different way. Chatterjee (1939:9) says that

knowledge means awareness or apprehension of objects and Davis (1999:200) defines

knowledge as “information organized and processed to convey understanding,

experience, accumulated learning, and expertise as they apply to a problem or activity”.

In addition, Abell & Oxbrow (2001:73) define knowledge as the expertise, experience,

and capability of staff, integrated with processes and corporate memory. Furthermore,

Takeuchi & Nonaka (2000) give definition on knowledge broader than the two




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definitions above by saying knowledge is about beliefs, commitments, action, and

meaning which shows clear distinction with information.

Polanyi differentiates knowledge, as quoted by Gamble and Blackwell (2001:11)

into two types: “represented (explicit) and embodied (tacit) knowledge”. Tacit knowledge

is hard to define because “it consists of mental models, beliefs, and perspectives”

(Nonaka, 1998:28) and it is implicit in our patterns of action and in our head for the thing

with which we are dealing (Schon 1982). This characteristic makes tacit knowledge

difficult to communicate to other individuals. The owner of tacit knowledge will

therefore always “know more than they can say” and for this reason tacit knowledge can

never fully be in the possession of a firm (Boisot 1998:87). Even though tacit knowledge

is hard to articulate and communicate, tacit knowledge can be shared through

socialization and externalization.

Meanwhile, explicit knowledge is codified; it can easily communicated (Corno,

Reinmoeller & Nonaka 1999). Because it is codified, explicit knowledge can be

transferred and shared between individuals in an organization. It is also captured

artificially through manuals and standard operations, and then shared with others either

through courses or books for self-reading (Lee and Yang 2000). If tacit knowledge is

only stored in individuals, explicit knowledge can be stored in a variety of ways.

Organisations might prepare a numbers of storage bins to store their explicit knowledge

such as documentations (electronic or paper), procedures (electronic or paper), artifact,

and audio-visual ( Von Krogh, Ichijo & Nonaka 2000).

The variety of knowledge in an organization, then, should be integrated with

strategic mechanism because the integration process is a complex process especially tacit

knowledge. According to Grant (1996) there are two mechanisms for integrating

knowledge; direction and routines. In direction, knowledge is embodied in directives,

policies, and procedures. A firm makes certain manuals or other documents store

knowledge form a large number of specialists. The manuals or other to documents

consists of a variety of knowledge or a source of knowledge that can be shared and

transferred among individuals.

Integrating explicit knowledge will not be big problem because explicit

knowledge is codified. Explicit knowledge can be shared and transferred from one

employee to other employees by using documentation or training programs (Von Krogh,

Ichijo & Nonaka 2000). Furthermore, explicit knowledge can also be formalized and

distributed through manuals, procedure, and instruction at the collective and individuals

level (Nissen, Kamel & Sengupta 2000).




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Tacit knowledge is not possible to integrate through manuals or documentation

because it is embodied in individuals and it is more personal. Tacit knowledge is shared

through deep socialization which means that individual in the group not only understand

each other’s definition of certain situation but also agree on a common definition and

justified true belief about how to act in certain situations ( Von Krogh, Ichijo & Nonaka

2000). Therefore, one way to integrate tacit knowledge is through organization routines

where individuals can meet and interact each other frequently (Grant 1996). Through the

organizational routines individuals have chance to share tacit knowledge via interpersonal

and social relationship (Zack 1999). The forms of organizational routines are regular

formal education, formal and informal meetings, team working, discussion through e-

mail and intranet (Hislop 2003).

2.1 Knowledge, Culture and Mission in Islamic Banks

The success of Islamic banks depends very much on employees who understand the

operations of the banks based on sharia rules or business principles. The banks need

manpower who possess a variety of knowledge, skills, and orientation that is provided by

training institutions and universities ( Hasan 1999). The training institutions and

universities are not only Islamic institutions but also are public universities, institutes and

colleges that produce commercial knowledge holders. Because manpower comes from

different training institutions and universities, they have different knowledge, norms and

values that require adjustment to the need of Islamic banking business. Even though, the

people working in Islamic banks are diverse in knowledge and behaviour they should

have commitment for common cause.

The diversity of knowledge creates problems to Islamic banks because some of the

knowledge is not Islamic economic-based which needs to be integrated into the Islamic

economic framework. In addition, insufficient training of the personnel to understand

both Islamic techniques of banking and its business processes cause the little innovations

in terms of the banking services offered to their customers (Khan 1991) which also create

the high level of customer dissatisfaction (Jones 2003). To overcome these problems

Islamic banks must find solutions of integrating knowledge and culture of the employees

in order to meet consumers’ satisfaction and profitability. Consumers’ behavior in

Islamic society is mostly affected by Islamic moral, social, and cultural norms (Khan

1991). Therefore, employees must understand this Moslems behaviour when the

employees are dealing with the consumers. One way to do this is Islamization of

knowledge (Davies 1991) that means Islamic banks must adjust this knowledge to

Islamic culture to support its business process.

Employees who understand sharia law feel uncomfortable knowing that their

bank’s operations do not really conform to the prohibition of interest (Kuran, 1996).




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Meanwhile employees who posses commercial knowledge might not take serious that

issue because they are familiar with the charging of interest. Therefore, both groups of

employees have different views of Islamic bank business processes because they have

different knowledge, practices, norms and values.

To show the cultural distinction between islamic banks and conventional banks,

Islamic banks develop their culture from Islamic law or shariah (the way to the source of

life) which provides a set of duties and practices such “as prayer, worship, manners and

morals, marriage, inheritance, crime and economic transactions” (Lewis & Algaoud

2001:16). Therefore, Islamic banks run their businesses within an Islamic economic

framework without involving riba (interest) and speculations (gharar). This leads Islamic

countries to treat Islamic banks differently from conventional banks based on two factors

“a religious argument by considering that religious factors should be paramount and an

economic argument that Islamic operations are fundamentally different from

conventional bank” (Warde 2000:97).

To make sure that Islamic banks are operating in the framework of Islamic

culture, Islamic banks establish Sharia Advisory Boards that advise about the banks

operations and keep track of Islamic banks. In addition, Islamic banks also build certain

governance structures to ensure that the day-to-day policies and activities are relevant to

the sharia. This type of structure keeps the Islamic banks operating within an Islamic

culture.

Mission is an organisation’s character, identity and reason for existence which can

be separated into four parts: purpose, strategy, behaviour, standards and values (Campbell

& Yeung 1991, Bellenfant & Nelson 2002). The mission of Islamic banks is in

accordance with Koran and sharia principles. Koran and sharia, as sources of Islamic

law and the guidance of life, stress on the distribution of income, and the social

responsibilities of wealth holders such as through zakat (tax) (Wilson 1990). Therefore,

the banks not only focus on profit but also on falah in running their business as a form of

obeying sharia. Falah or well-being is a central issue of Islamic economics which aims

for the study of human falah achieved by organizing the resources of the earth on the

basis of cooperation and participation (Warde 2000). This means Islamic banks are not

only concerned about focusing on profit, but they also consider ethical and social

dimensions. Therefore, providing profit and loss sharing products is more appropriate to

Islamic banks rather than cost plus products because both Islamic banks and custumers

are responsible for both loss and profit in trading.

Mission provides a rational action for Islamic banks that are based on the

religious ideas that are integrated with ethical and moral values. Consequently, Islamic

banks cannot ignore their socio-moral commitment. This socio-moral commitment is

manifested in providing interest-free loans and establishes social funds that are derived




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from zakat (tax) (Kahf, Ahmad & Homud 1998). To support this socio-moral

commitment, the mission of Islamic banks must cover all elements of their mission that is

associated with a way of behaving. The way the Islamic banks behave and act, then, must

be relevant with sharia which involves Islamic norms and values.

Therefore, the organization culture, Mission and strategy which is based on

Islamic culture (sharia) can be used to influence the process of integration of knowledge,

practices, cultures, and norms of individuals inside organisations. Individuals, who

possess commercial knowledge, might see the operational practice of the Islamic banks

are not different from conventional banks, must change their perspective in accordance

with sharia rule. Meanwhile, individuals who possess Islamic economic knowledge also

must establish their views based on business perspective because the missions of Islamic

banks are not only concerned with falah but also profit because Islam recognizes capital

as a factor of production but it does not allow the factor to make a prior or pre-

determined claim on the productive surplus in the form of interest (Ariff 1988).

2.3 Business Process in Islamic Banks

Islamic banks run their business based on sharia principles by lending money

without interest because Islam prohibit riba (interest) (Loqman 1999). Some Islamic

leaders said that riba or usury, which is prohibited by Qur’an, means excessive interest,

while others said that it means any sum added to principal. Meanwhile, Islamic

economists define interest as any fixed or guaranteed money payment on cash in advance

or deposit (Sauer 1999). However, riba is not only about interest rates but riba also refers

to “any unlawful gain derived from the quantitative in equality of the counter values”

(Warde 2000:58). Making deals in advance is similar to speculation and Islam does not

tolerate speculation because it resembles gambling. For the above reasons, Islamic banks

runs their businesses based on the following characteristics: the abolition of interest

(riba) from all financial transactions; the avoidance of economic activities which involve

speculation (gharar); levying Islamic tax (zakat=purification) as a means of taking care

of the needy in society and as a form of income distribution; the banks do not sell

products and services that contradict the value pattern of Islamic (haram); and provide

the provision of Takaful (Islamic insurance) ( Lewis & Algaoud 2001:28).

Consequently, the intention to live without riba (interest) led to the opening of

Islamic banks in Islamic countries. Islamic banks launch their products based on profit

and loss sharing without involving fixed interest. However, in fact at least 70% of

banking transactions in Islamic countries have not been based on profit and loss sharing

but rather on financing that is similar to interest-bearing loans. Sometimes the banks

judge the exceeding monetary limits charges on the financing as service charge

(McCawley 2004). Warde (2000:133) also said that mark-up transactions account for 80

to 95 percent of all Islamic financial institutions. This phenomenon can be seen in




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products they launch to the community where the banks are more interested on the

margin (which resembles interest) under murabaha scheme, such as murabaha mark-up

and buy-back or ijarah agreement (Lewis & Algaoud 2001), while other products which

are purely based on profit and loss sharing are not popular with the banks. For example,

profit and loss sharing known as mudarabah which can avoid moral hazards is not so

common (Iqbal & LIewellyn 2002).

This reality might affect Islamic banks customers’ development because Muslim

comes to Islamic banks to fulfill their religious requirements (The Wall Street Journal

1996) with the assumptions no riba (interest) is involved. To overcome this problem, the

strategy of Islamic banks is to focus on the development of products that meet Islamic

law, norms, and values requirements such as by changing features of mark-up based

financing. Therefore, Islamic banks must adjust their business process with the

requirements of Islamic law. This can be done by changing the features of their products

that resembles to conventional banks’ products.

Figure 1. Theoretical Construct for Knowledge Integration Model

(adapted from & Badii and Sharif, 2003; De Long and Fahey, 2000.; Grant, 1996.; and

Hislop, 2003)




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3. Methodology

The case study with qualitative methodology was applied for this research. The case

study was selected because the case study is appropriate for exploratory analysis when

investigating contemporary phenomenon within its real-life context, and when the

boundaries between the phenomena and the contexts are not clear (Yin 1994).

Furthermore, Yin (1994) says that if the ultimate purpose of the research is exploratory,

then the case study approach is suitable strategy. Beside that, the case study also has

strengths in term of the ability to deal with many types of evidence such as documents,

artifacts, interviews and observations (Yin 1994, p.8). These evidences provide a wide

range of information to the case being researched.mThen, as suggested by Yin (1994), a

case study protocol was developed before the author visited the site. The case study

protocol was as an instrument and guideline for conducting the research.

Data for this case study was gathered from many sources such as documents,

interview, and observation as suggested by Creswell (1998). However, interviews were

used as a dominant data collection method using the case study protocol because it is

targeted and focuses directly on the case study topic and provides perceived causal

inferences (Yin 1994, p.80)

Documents were included annual reports, memoranda, agendas, announcements,

and administrative documents. From those docuements, some data was collected such as

islamic banks history, its products, business strategies, the bank’s police and operation.

While, interview was conducted with key informants of Bank Syariah Mandiri included

the Manager, Human Resource Manager, Marketing Manager, Market Risk and

Operational Manager, Information Technology Manager, plus Staff (Islamic Economic

Knowledge Holder), Staff (Commercial knowledge holder), and costumers. Interview

was conducted between 15 to 20 minutes and was recorded. Some field notes were also

made during site visited. Telephone and e-mail were aso used to complete the data

collection.

The data was analyzed based on theoretical proposition which reflect the set of

research questions. A cluster matrix display was developed to analyze data. This matrix

forms a sheet format that includes all respondents and responses to the research questions

(Miles & Huberman 1994). The data that entered in the matrix includes direct quotes,

extracts from written-up field notes, summaries, paraphrases, or abstracts, researchers’

explanations, and rating or summarized judgments (Miles & Huberman 1994).

4. Results and discussion

4.1 Results




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This section presents the results of the study. The results are presented according

the terms emerged during the interviews and supported by other data collection

procedures.

4.1.1 Knowledge and Culture Integration facilities and mechanisms at Islamic

Banks

a. Facilities

Bank Syariah Mandiri whose operations are based on Islamic rules employs these

two groups of workers. The bank integrated those two different groups of workers

knowledge to support their business processes. This integration process was done

through some means such as information technology that was used to promote

knowledge sharing and transfer among the employees.

“We have some information technologies that support the knowledge integration

such as internet, intranet, and telephone” (Manager of IT).

Intranet is a networking facility that was developed by Bank Syariah Mandiri since

1999 by using AS 400 software. This software has been used in intranet for 6 years and

now it has been upgraded three times from AS 400 to AS 710 and now AS 810, said the

manager of IT. Other IT instruments that are used to integrate knowledge include

telephone and internet.

We use telephone to discuss a variety issues related to our products with our

Sharia Advisory Board in central office in Jakarta. Sometimes we come across a

problem when we want to finance certain business and telephone is a good facility

to use because we can talk directly with the source. (Manager of IT)

Internet is another facility that is used to access web sites and to send e-mail to acquire

and share new knowledge. However, the use of Internet is not rampant because there is a

policy of the bank to limit the using of internet.

Books and brochures are sent by central office to all branches as printed medium

for knowledge integration among BSM staffs. The staffs can use the books and brochures

to possess certain knowledge related to their job.

“I read books, such as manual and guidance, and brochures sent by central office

to acquire Islamic knowledge” (Commercial Knowledge Holder staff)

Bank Syariah Mandiri stores the books, brochures and other printed document in a small

library. All staffs, then, can access this knowledge, anytime when they need it.

b. Mechanisms

The number of knowledge and culture integration mechanisms has been applied at

Bank Syariah Mandiri. One of those mechanisms is training program such as basic

Islamic banking training and advanced Islamic banking training. All new staff is required

to join a training program before they are fully employed. This training is aimed at




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providing them with the knowledge and skill related to their job at Bank Syariah Mandiri.

Consequently, Bank Syariah Mandiri established a BSM Training Centre in 2003.

The training programs are oriented at improving competence, skill, attitude,

motivation of employees both in term of hard skill and soft skill including

internalization and transformation of corporate culture (Annual report BSM,

2003).

According to Human Resources Manager of BSM the basic banking training for

new employees is held for 3 months and other training to improve staff quality is held

one month and two weeks such as Know Your Customers training.

In the annual report 2004 stated that to add more specific skills and employees

quality, a variety of practical education and training programs have been on the run

including service excellence, export/import, financing analysis, payment point, product

knowledge, risk management, syaria accounting, AS 400 operation skills, management

trainee, collateral taxation, leadership and stress management, financing problem solving.

Knowledge at BSM is also integrated through seminar and workshop. The seminar

and workshops are held regularly every year at central office and branches office.

“We often held seminar and workshop to transfer and share knowledge among

the staff” and the seminars and workshops are held on both national and local

scales (Manager of BSM).

Praying together in the morning, before the staffs start working, is another unique

instrument to integrate both groups of knowledge and the culture of individuals.

“We do routine praying in the morning before we start working. The objective of

this activity is to refresh our staff morality based on Islamic values and to

socialize Islamic knowledge”

This activity is done every morning for duration 10 to 15 minutes and on Friday morning

the activity is held longer because Friday is a holy day for Muslim.

“We pray every morning because it is the rule of management and after the

praying time we are requested to give argument related to our job”. (Islamic

knowledge holders)

Meanwhile, religious lectures are held every Wednesday afternoon and verse

recital every Friday morning. Islamic knowledge discussion is held on Saturday night by

inviting key a speaker from Islamic organizations said Manager of Marketing.

4.1.2 The Role of Information Communication Technology (ICT) Infrastructure

Information communication technologies such as internet, intranet, telephone, and

facsimile have become a familiar source of communication instruments at Bank Syariah

Mandiri. Transferring and sharing knowledge among the two groups of employees have

been done through the utilizing those ICT. However, the utilization of ICT for

knowledge integration process faces some problem such as limitation access to internet.




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Using Information Communication Technology to support knowledge integration

process is not only to help the sharing and transferring of knowledge among employees

inside Bank Syariah Mandiri Palu but it is also to share and transfer knowledge among

staff in a branch and between branches.

“We use ICT such as telephone to share knowledge between unit in our branch,

between our branch and other branches and between our branch and central

office in Jakarta”. (Manager of IT)

Manager of IT added that using ICT is very effective in knowledge integration

because staff have limited time to acquire knowledge from printed document such as

guidance books and brochures. They prefer to use intranet to share and transfer

knowledge among the staff because it is unlimited access and easy.

“Using the intranet for knowledge sharing and transfer is very easy because it

uses Indonesian language and we can use it any time” (Islamic economic

knowledge holder).

“I prefer using intranet and telephone to communicate with other staff because it

is very easy’ (commercial knowledge holder).

Any new job descriptions and new knowledge from central office are released

through the intranet to make it accessible for all employees.

“We can access variety of knowledge related to job guidance such as how the staff

do their job professionally” (Manager of Human Resources)

However, not all staff able to use information technology such as intranet and internet.

“We have problem that some of our staff can not use information technology

properly and maximally”. (Manager of IT)

According to the Manager of IT, Intranet also creates opportunity to staffs to be

involved in communication forums between all Bank Syariah Mandiri employees. This

forum is used as medium knowledge integration among staffs inside the branch, between

one and other branches, and between central office and branches. Meanwhile, internet

support staff to acquire knowledge from outside of Bank Syariah Mandiri such as

National Syariah Advisory Board. However, staffs can not access internet as free as

intranet because it needs permissions from higher level of management.

“All staff can access internet if they need important information but they should tell

authorized persons before they access the internet” (Manager of IT).

4.1.3 The Contribution of Culture, Mission and Strategy of Organization in the

Knowledge Integration Process




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The organization culture of Bank Syariah Mandiri is established on Islamic values

which are represented by five basic characters summarized as SIFAT, stated in the

corporate culture. SIFAT stands for siddiq (integrity), istiqamah (consistency), fathanah

(professionalism), amanah (responsibility), and tabligh (leadership).

Since the culture of Bank Syariah Mandiri has adopted the Islamic sharia

principle, the relationship between male and female employees are conducted based on

Islamic values. Male and female employees should maintain the necessary gap obliged by

Islamic values in work place relationships.

“Our rule is that women and men can not communicate with each other too

closely because it is not allowed by our religion. In our prayer activities women

and men sit separately” (Islamic Knowledge Holders).

All women employees also wear Muslim clothes such as scarf and long skirts to

protect their aurat (part of the body that is not allowed to be showed according to Islam

sharia, which is everything except the face and hands). Islamic values are also built

through the playing of religious music, through the displaying of some holy Koran verses

on the walls, and through daily morning prayer.

“Our organization’s culture requires staff to behave according to Islamic values,

for example female staff must wear Muslim clothes and male staff must wear caps.

We also have Islamic accessories such as qasidah (Arabic music) to create a

religious environment”. (Manager of BSM)

In efforts to uphold sharia identity and work ethic, Bank Syariah Mandiri has also

fostered cooperation with some Islamic economic institutions, such as Syariah Economy

Banking Institute (SEBI), Tazkia Institute, and Karim Business Consulting. Leadership

programs based on Islamic norms have also regularly been conducted in cooperation with

ESQ Leadership Center, which hopes to generate appreciation of leadership values

among the management members, so as not to put priority solely on worldly matters but

also on spiritual intelligence. This is to encourage one to be more self-introspective,

tough, effective, and having increased spirit for the struggle.

In terms of transferring and sharing knowledge, as a process of knowledge and

cultural integration, Bank Syariah Mandiri has established a culture of mutual teaching

among employees.

“Our company culture obliges senior staff to transfer knowledge to junior staff

and vice versa” (Islamic Knowledge Holder)

“We often have interesting discussions and interactions with other staff in my

work place and I often get support from the division manager” (Commercial

Knowledge Holder)

Bank Syariah Mandiri recruits professional staff who understand sharia banking

practices, who are employed at all the branches as stated in mission number three.




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Consequently, there is no policy to discriminate between staff that possess commercial

knowledge and staff that possess Islamic economic knowledge. All candidates get the

same opportunity in the recruitment process.

“When we recruit staff we do not consider recruiting a certain group of workers.

We give the same opportunity to all applicants as long as they are professional

and they have a bachelor degree such as economics, agriculture, engineering, or

Islamic knowledge holders from Islamic Institute and College, etc.” (Manager of

Human Resources).

On the recruitment process all candidates are tested with written tests and

interviews. Most of the Islamic knowledge holders were dropped after the written test

selection stage because only a few portions of test questions were related to Islamic

economic knowledge.

“In written tests we combine a variety of knowledge such as banking systems,

Islamic knowledge, economics, accounting, finance, and general issues” (

Manager of Human resources).

The lack of Islamic knowledge holders were also caused by individual biases toward

them. Commercial staff knowledge holders tend to see Islamic knowledge holders as

employees with a low work motivation. For example:

“We see that commercial knowledge holders have higher work motivation than

Islamic knowledge holders because their life concepts tend to prioritize on

activities on earth rather than the hereafter”. (Manager of BSM Palu)

As a result, only two Islamic knowledge holders out of 27 employees were employed

after 5 years of Bank Syariah Mandiri Palu operation.

There is no policy from the management to encourage staff to use information

technology for the transferring and sharing of knowledge. The use of information

technology for knowledge integration activities are based on the awareness of the staff

themselves.

“Management does not encourage staff to use IT for knowledge transfer and

sharing; we just let them increase their awareness of the importance of IT for the

knowledge transfer and sharing process” (Manager of IT)

This issue is supported by the strategy of information technology developments in

2003.

“The development of information technology in 2003 was directed at increasing

the customer service system, information technology carrying capacity expansion,

and increasing the MIS” (Annual Report, 2004).

This means that the development of information technology does not give attention to the

sharing and transferring of knowledge among employees.




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Knowledge Integration strategy through education and training concentrated more

on transferring commercial knowledge to the employees. A variety of education and

training programs have been on the run including: Service Excellent, Export/Import,

Financing Analysis, Payment Point, Product Knowledge, Risk Management, Syaria

Accounting, AS 400 operation Skill, Management Trainee, Collateral Taxation,

Leadership and Stress Management, and Financial Problem Solving. Meanwhile, the

strategy of Islamic knowledge and cultural integration were done through daily mass

prayer sessions, religious lectures every Wednesday afternoon, and Koran verse recitals

every Friday morning. (Annual Report 2004)

Organization strategy and policy in the knowledge integration process do not

make commercial knowledge holders posses a good knowledge about sharia banking.

“I do not understand whether the products of bank sharia have achieved the

requirement of Islamic rules. My knowledge about that is limited”. “I worked 20

years in BAPINDO ( a conventional bank) before I worked in this bank and I am

employed because I have good experience in collecting money from debtors. I do

not know much about sharia banking”. (Commercial knowledge holders)

4.1.4 The contribution of integration of knowledge and cultures to the Islamic

Banks’ Businesses process

Employing only two Islamic economic knowledge holders will not create negative

impacts on the business process of Bank Syariah Mandiri Palu. The staff of Bank Syariah

Mandiri believe that Islamic economic knowledge is not necessarily transferred from

Islamic knowledge holders to commercial knowledge holders, but also possibly

transferred from commercial knowledge holders to other staff.

“We don’t think that the lack of Islamic economic knowledge holders will hinder

our business process because we send professional commercial knowledge

holders to take part in Islamic banking training to acquire Islamic economic

knowledge” (Manager of Human resource)

Even though Bank Syariah Mandiri has been established on Islamic sharia

principles by positioning itself as a bank that sells Islamic sharia oriented products, the

bank also practices capitalist economics in their business.

“Capitalist economy which is commercialism oriented is also practiced in this

bank”. (Islamic Knowledge holder)

This commercial knowledge was possessed through a variety of knowledge integration

processes such as trainings and formal educations. Then, this commercial knowledge was

applied in the business process due to the want of profit orientation, rather than due to

religious reasons.




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The staff of the bank agree that the bank should only finance businesses that are

halal (not forbidden in Islam). In other words, any businesses that are considered not in

line with Islamic values will not be financed.

“We do not finance haram (forbidden) business such as gambling and alcohol

because Islam forbids those businesses”. (Manager of Products Risk and

Operational)

However, Bank Syariah Mandiri consistently focuses on financing a business that gives

definite profit, such cost-plus financing (murabahah).

The knowledge integration process shapes the staff of the bank to concentrate on

marketing certain products that give definite profit and are low risk, such as Cost Plus

Financing (Murabahah) products. Meanwhile another product, Profit Sharing / Trust

Financing (Muharabah), has not been marketed yet because this product is fully financed,

and one hundred percent representing the customer’s capital need to be extended by the

bank.

“We do not market Mudharabah product. I mean…we haven’t marketed it yet

because it would be fully financed from our bank to a customer and it is hard to

find a right customer. It is also hard to control a business that is financed under

this scheme” (Manager of Products Risk and Operational)

These beliefs and knowledge are supported by the corporate knowledge of Bank

Syariah Mandiri, that the real Islamic products are high business risks.

“Bank Syariah Mandiri is engaged with a variety of risks, especially financing and

investment risks, as well as those that normally happen with conventional banks

such as credit risk, market risk, liquidity risk and operational risk. In an effort to

fulfill compliance to the sharia law, the risks increase specifically due to the unique

characteristics in the assets and liabilities” (Annual Report 2004)

The processes of knowledge integration have created the perception among

employees that bank syariah is similar to conventional banks in its operation except in a

few businesses.

“The operation of Bank Syariah Mandiri is not different with other conventional

banks but we run our business based on Islamic rules by stating a clear boundary

between haram (forbidden) and halal (not forbidden) in financing certain

businesses” ( Manager of Operational).

This fact is also supported by the practicing marketing strategy in selling the

products. For example, the rule of financing a good under Murabahah scheme is that the

mark up price (margin) is acknowledged by both the bank and customers. However, this

rule is not practiced by the staff of the credit division in the financing process.

“I got a loan from this bank to buy goods for renovating my house, they asked me to

sign the documents and provide them with the certificate of the land and the house.




93

We did not negotiate on the interest… I mean the margin that is added to the

financing.” (Informal Interview with a customer on 28 June 2005)

Under Murabahah (cost plus financing) product, the bank can minimize the risk

of its business because the bank requires collateral transactions between the bank and

customers. Some of the bank customers during field visits said that if the bank leases

motorcycles to them, the ownership certificates are kept by the bank as collateral. This

rule is applied to make sure that customers comply with the repayment of loans.

Because Cost Plus Financing (Murabahah) is a potential lower risk product, Bank

Syariah Mandiri allocated 75.46% of financing to this scheme, and only 2.53% for

Mudharabah (trust financing) scheme, 13.10% for Musyarakah (participating financing)

scheme and 8.91% for other schemes as showed in the following chart:

4.2 Discussion

The discussion covers two main issues that were found in the data findings. The

issues are knowledge integration mechanisms and organization’s strategy and culture

toward knowledge integration process at Islamic banks in Indonesia.

4.2.1 Knowledge Integration Mechanism

Knowledge integration at Bank Syariah Mandir1 has done through two

mechanism; routines and directions as shown in the model of knowledge integration. The

knowledge and cultural integration through routines mechanisms has been set by bank

Syariah Mandiri (BSM) through a variety of activities such as formal education, e-mail,

telephone, informal and formal meeting, and intranet. Others routines mechanisms are

also used to integrate knowledge and culture such as mass daily praying, Wednesday

afternoon religious lecture, and Friday morning Koran recitation. These activities are

regularly held to combine the knowledge and cultural of both groups of employees

(Islamic knowledge holders and commercial knowledge holders) to be a common

knowledge and culture which are relevant to the corporate culture and missions of

Islamic banks.

Meanwhile, the integration of knowledge and cultural through direction

mechanisms such as manual, guidance books and brochures published by central office of

BSM are also use as medium, because employees can get knowledge from those

medium. According to Lee and Yang (2000) the knowledge is captured artificially

through manuals and standard operations, and then shared with others either through

courses or books for self reading. For example, commercial knowledge holders can

acquire knowledge about Islamic bank products from these manuals and, on the other

hands; Islamic knowledge holders posses the knowledge of commercial economics.

The findings showed that commercial knowledge holder staffs do not acquire

good knowledge on Islamic economics even though they have involved in variety




94

mechanisms of knowledge integration process. Other commercial knowledge holders

such as the manager, marketing manager, and operational manager have good knowledge

on Islamic economics. However, their knowledge is limited to explicit knowledge of

Islamic economics. They do not possess tacit knowledge of Islamic economic that

consists of mental, belief, and perspective as said by Nonaka (1998). Consequently, their

tacit knowledge is still dominated by commercial knowledge. In addition, their mental,

beliefs, and perspectives are also still engaged with commercial economics. The

implication is that the staff of BSM tends to believe that the business risks are increased

when fulfilling compliance to the sharia law.

The process of knowledge integration through the routine such as mass morning

praying or Wednesday afternoon religious lectures were not effective for knowledge

integration because the activity might focus very much on ritual activity rather than

knowledge transfer and sharing process. For example, Koran recitation every Friday

morning can be categorized as pure ritual activity because it is an activity to improve

understanding on Koran and a way to make individuals closer to their creator. This

activity might be effective for building culture and behavior of individual, such as moral

and manner, based on Islamic values because the regular frequency of engagements

between two groups of workers in religious activities as said by Lewis and Algaoud

(2001).

Other knowledge integration mechanism such as formal education (includes

regular training at BSM), email and telephone as stated by Hislop (2003) are also use to

integrate knowledge. However, trainings concentrate much on transferring commercial

knowledge the staffs of BSM. In addition, accessing Internet for sending and receiving

email is also limited. In fact, knowledge transformation within and between tacit and

explicit forms can be supported by the technologies including email and chats (Marwick

2001).

The emphasizing of integration commercial knowledge in some education and

training programs at BSM have led the staffs to possess lack knowledge on Islamic

economic concepts that result in the malpractice of the Islamic banks’ businesses. They

tend to believe that the operational of Islamic banks is similar to conventional banks

except Islamic banks cannot deal with alcohols and gambling business. Warde

(2000:197) says that in economic argument, Islamic banks’ operations are fundamentally

different from conventional banks. For example, the characteristics of Islamic banks’

products such as Murabahah, Mudharabah, and Musyarakah are different in practice.

Under Murabahah scheme both banks and customers are involved in determining margin

of a good purchased by a customer. Meanwhile, the risk of a business is entirely covered

by an Islamic bank under Mudharabah scheme. Under Musyarakah scheme both Islamic

banks and customers share their profit and loss of a business. These characteristics cannot

be found at any conventional banks products.

The malpractice of Bank Syariah Mandiri due to the lack of knowledge of the

staff on Islamic economic has occurred in the Murabahah product. Under this product

scheme, customers are not asked to acknowledge how much margin they should pay on

the products that they purchase. The bank calculated the margin without prior negotiation

with the customers as stated by some customers during field visit. According to Islamic




95

sharia , Islamic banks should negotiate the margin in a transaction process when the

banks finance the purchase of a good or asset by buying it on behalf of its client and

adding a mark-up before re-selling it to the client on a 'cost-plus' basis said Ariff (1988).

A member of National Sharia Advisory Board, Adiwarman Azwar Karim, admits

that this malpractice occur because of human resources. Most of Bank Syariah staff is

graduated from commercial economic and other non-Islamic education institutions. The

staff is then trained in short term periods on Islamic economic. Consequently, they only

understand to pronounce Islamic terms such as Murabahah and Mudharabah said Karim

(2005). In addition, another member of Syariah Advisory Board member, Kiai Sahal, said

“people who work at bank syariah do not understand fiqh (sharia) and people in National

Syariah Advisory Boards do not understand banking system” (Karim 2005). It can be said

that the knowledge integration process through education and training at Bank Syariah

Mandiri have not success yet in creating common knowledge which relevant to

organisations’ culture and missions.

4.2.2 Organization Strategy toward Knowledge and Culture Integration

Some Bank Syariah Mandiri strategies have been applied to support knowledge and

culture integration. The culture integration of both groups employee has been done

through religious lecture every Wednesday afternoon and verse recital every Friday

morning that is consistently monitored. However, the out comes of this culture

integration has not fully meet Islamic sharia requirements. There is also the different

perception on certain issue of corporate culture. For example, an Islamic economic

knowledge holder said that at women and men staffs at Bank Syariah Mandiri are not

allowed too close and they are also separated during mass prayer sessions and religious

lecture. In reality, during field visit it was found that women and men staff worked and

engaged together in one room similar to conventional banks’ work environment. The

only different is that they wear Muslim clothes and attributes. This means that Islamic

culture is understood only in symbols not in practices.

The finding also showed that the strategy of Information Technology development

at Bank Syariah Mandiri does not support the process of knowledge and culture

integration. On 2003 IT development strategy stated that the development of Information

technology was directed at increasing customers’ services system, information

technology carrying capacity expansion and increase in management information system.

In addition, the utilizing of information technology such as Internet is also limited where

the Manager of IT said that staff should get permission from management if they want to

use Internet. This also means that knowledge integration process was not fully supported

by Bank Syariah Mandiri management. This limitation of access to Information

technology might hinder the transfer of explicit and tacit knowledge and to facilitate the

knowledge conversion spiral as stated by Nonaka and Takeuchi (1995).

The strategy of BSM in recruiting human resources is another factor that influences

the knowledge and culture integration. The lack of Islamic knowledge holders at the bank

make the knowledge and culture at BSM are dominated by commercial knowledge

holders. Consequently, knowledge transfer and sharing process concentrated more on




96

commercial knowledge among employees in work place. Meanwhile, Islamic economic

knowledge transferring and sharing only occur during training sessions. As a result,

islamization of knowledge as stated by Davies (1991) was also not success in adjusting to

Islamic culture to support Islamic banking businesses process.

The establishing of Tabligh (leadership) culture at Bank Syariah Mandiri such as

mutual teaching among staff might not help much the knowledge and cultural integration

because the lack of Islamic knowledge holders. The finding shows that commercial

knowledge holders do not understand much about Islamic economic. Even though other

commercial knowledge holders through informal interview admitted that they understand

Islamic economic, their understanding is limited to Islam in ritual terms such as praying

and Koran recitation but not Islamic economic. This is proved by some malpractices in

Islamic banks businesses process as stated by Karim (2005).

However, the organization strategy to establish culture through religious activities

might support the culture integration at Bank Syariah Mandiri. Commercial knowledge

holders who are not familiar with Islamic culture at Bank Syariah Mandiri Palu might be

socialized through those activities. Corporate culture termed as “SIFAT” (siddiq,

istiqomah, fathanah, amanah and tabligh) can also be internalized and transformed

through these strategies. The cooperation with some other Islamic institutions such as

Syariah Economy Banking Institute (SEBI), Tazkia Institute and Karim Business

Consulting might also create chance for transforming and internalizing Islamic culture in

Bank Syariah Mandiri.

5. Conclusion

The findings show that the using of technology for knowledge integration such as

internet is limited by the management. The educations and trainings program to support

knowledge integration concentrated more on transferring commercial knowledge rather

than balancing both of commercial and Islamic knowledge. Religious activities for

integrating culture and knowledge of both groups employee concentrate more on ritual

activities rather than transferring Islamic economics knowledge. As a result commercial

knowledge is more dominant at Islamic banks. This affects the business process of

Islamic banks. As a result, Islamic banks businesses process resembles the businesses

process of conventional banks except in certain products and characteristics.

The knowledge integration and culture process at Islamic banks have been done

through some mechanisms (routines and directions) and facilities such as manual,

procedures, formal education, Intranet, internet, and e-mail as shown in the research

model. Some other mechanisms are also used to integrate both the knowledge and culture

of both groups employee such as daily mass prayer, religious lectures and Koran

recitation. These mechanisms of integration have become a part of organisatios’

knowledge and culture integration strategy.

However, the mechanisms of knowledge integration at Bank Syariah Mandiri

(BSM) Palu have not given successful outcome of knowledge and cultural integration of

both group staff in the bank. The commercial knowledge holders still do not possess good

knowledge on Islamic economic. Their beliefs toward Islamic banks operation are not

different with their beliefs towards conventional banks. Consequently, the business




97

practices of Bank Syariah Mandiri also resembles to the business of conventional banks.

For example, the practice of cost-plus financing (Murabahah) is likely similar to interest

related products at conventional banks because the added price of a good (margin)

purchased by a costumer is not negotiated with the customer. In other words, the result of

knowledge and culture integration has not really supported the business process of

Islamic banks because Islamic banks have not fully adopted Islamic economics systems.

On the other hands, products that more legitimate to Islamic sharia such as

Mudharabah (trust financing) is not launched yet by BSM Palu. The Manager of

Operation and Products Risks said that they do not market Mudharabah product because

it is a total financing product from their bank to a customer and it is hard find a right

customer. It is also hard to control the business that is financed under this scheme. This

statement shows that Islamic Bank does not know what to do and how to launch this type

of product. In other words, staff of Islamic bank does not have good knowledge on how

to launch an Islamic banks’ products.

Event though Mudharabah and Musyarakah products have been launched at other

Bank Syariah Mandiri branches, the distribution percentage on Mudharabah is still about

2.53 % and 8.91% for Musharakah scheme compared to more than 75 5 for Murabahah

(cost-plus financing) scheme. The bank concentrate more on financing business under

Murabahah scheme because the practice of the products is similar to conventional leasing

that is practiced by other financial institutions especially when the jointly

acknowledgement procurement price plus profit margin for the bank is not practiced as

obliged by Islamic sharia.

The strategy and culture of Bank Syariah Mandiri do not also support the

integration of knowledge of the both groups employee. Education and training programs

are designed to transfer more commercial knowledge to the employees such as know

your customers (KYC), auditing, service excellent, export/import, and financing analysis

and some on Islamic economic such as sharia accounting. In addition, the trainings are

often held in short term such as three months basic training for the new staff, 1 month and

1 week for advanced training. As a result, commercial knowledge holders do not possess

good Islamic economic knowledge. Their knowledge on Islamic banks’ products might

be limited on the name of the products only as stated by Karim (2005).

The limitation policy to access internet also hinder the staffs to involve in

knowledge transformation within and between tacit and explicit forms. They are limited

from sending and receiving email through internet as medium to transfer and share

knowledge. This policy shows that the bank does not consider Information Technology as

important medium for knowledge integration. Similar to the development strategy of

Information Technology at Bank Syariah Mandiri was not directed to support knowledge

integration. It was directed to support business process of BSM such as customers’

service.

The outcomes of Islamic culture transformation into corporate culture through

mass morning prayer, Wednesday afternoon religious lectures and Friday morning Koran

recitation strategy have not significantly contribute yet to the staffs culture. They still

view Islamic banks similar in its operational except in certain aspects such as halal and

haram (forbidden) business. In term of relationship between women and men staffs in

work place, they still practice a work relationship as in conventional banks work place




98

because they work together in one room. The only different is that they wear Islamic

symbols such as clothes and caps.

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