Organizational innovation based on intellectual capital and transfer tacit knowledge

Today, with the growth of technology, all types of business are required to expand. This encouraged the business owners to innovate, especially the mid-scale enterprises, in order to compete with large-scale competitors. To overcome various obstacles, the owners of SMEs must be able to innovate to raise competitiveness. The innovation process cannot be separated from the human factor in the organization. The process of innovation in organizations requires new knowledge that takes a knowledge transfer between individuals within the organization. The preferred type of knowledge transfer in the innovation process is the transfer of tacit knowledge because it cannot be learned through guidance, but solely through the experiences of each individual. The transfer of tacit knowledge for each individual within an organization must not be separated from intellectual capital, which when be found and leveraged, will give a new resource to compete and win. This is what triggers the need for the transfer of tacit knowledge towards intellectual capital in the innovation process. The object of this research is SME Batik Tulis Kebon Indah, Yogyakarta. The reason for this particular selection is due to its fairly high competition in regards with economic growth. To face such level of competition, SME Batik Tulis Kebon Indah must be able to innovate yet still maintaining its trademark in order to compete with other similar SME. Data processing method used in this research is Structural Equation Modeling (SEM) with the Partial Least Square (PLS). Result from this research shows that there is effect of the tacit knowledge transfer among individuals within the SME towards intellectual capital in innovation process.