Recognizing A

Firm’s
Intellectual
Assets: Moving
Beyond a
Firm’s
Tangible
Resources
Module 4
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill

Education .
 Learning Objectives
4-2

After reading this chapter, you should have a

good understanding of:
LO4.1 Why the management of knowledge
professionals and knowledge itself is so critical in
today’s organizations.
LO4.2 The importance of recognizing the
interdependence of attracting, developing, and
retaining human capital.
LO4.3 The key role of social capital and technology in
leveraging human capital within and across the firm.
 The Central Role of Knowledge
4-3

 In the knowledge economy, wealth is

increasingly created by effective
management of knowledge workers
instead of by the efficient control of
physical & financial assets.
Ratio of Market Value to Book Value
4-4

Exhibit 4.1 Ratio of Market Value to Book Value for Selected Companies
Source: www.finance.yahoo.com
Note: The data on market valuations are as of January 4, 2013. All other financial data are based on the most
recently available balance sheets and income statements.
 The Central Role of Knowledge
4-5

 Intellectual capital is a measure of the

value of a firm’s intangible assets – the
difference between a firm’s market value
& book value. It includes these assets:
 Reputation
 Employee loyalty & commitment
 Customer relationships
 Company values
 Brand names
 Experience & skills of employees
 The Central Role of Knowledge
4-6

 Human capital includes the individual

capabilities, knowledge, skills, and
experience of the company’s employees
and managers.
 Social capital includes the network of
relationships that individuals have
throughout the organization.
 The Central Role of Knowledge
4-7

 Knowledge management is critical to

organizational success. Knowledge
includes:
 Explicit knowledge – codified, documented,
easily reproduced, and widely distributed.
 Tacit knowledge – in the minds of
employees, based on their experiences and
backgrounds.
 Human Capital
4-8

Exhibit 4.2 Human Capital: Three Interdependent Activities

 Attracting Human Capital
4-9

 Hire for attitude, train for skill

 Emphasis on:
 General knowledge & experience
 Social skills
 Values
 Beliefs
 Attitudes
 Attracting Human Capital
4-10

 Sound recruiting approaches to attract

human capital:
 Building a pool of qualified candidates
 The challenge becomes having the right job
candidates, not the greatest number of them
 Networking
 Current employees may be the best source of
new ones
 Provide incentives for referrals
 Developing Human Capital
4-11

 Training and development must take

place at all levels of the organization
 Requires the active involvement of leaders
at all levels
 Includes mentoring & sponsoring lower-
level employees
 Monitoring progress & tracking
development
 Evaluating human capital
 Retaining Human Capital
4-12

 Retention mechanisms must prevent the

transfer of valuable and sensitive
information outside the organization:
 Help employees identify with an organization’s
mission and values
 Provide challenging work and a stimulating
environment
 Offer financial and nonfinancial rewards &
incentives
 Money is not the most important reason why
people take or leave jobs
 Enhancing Human Capital: The Role
4-13
of Diversity
 Sound management of diverse workforces
can improve an organization’s
effectiveness & competitive advantages by
making the following arguments:
 Cost
 Resource acquisition
 Marketing
 Creativity
 Problem solving
 Organizational flexibility
 Social Capital
4-14

 Social capital – the friendships and working

relationships among talented individuals –
helps tie knowledge workers to a given firm.
 Interaction, sharing, and collaboration will
help develop firm-specific ties, with a higher
probability of retaining key knowledge
workers.
 How Social Capital Helps Attract
4-15
and Retain Talent
 Hiring via personal (social) networks:
 Some job candidates may bring other talent
with them – the Pied Piper effect
 Talent can emigrate from an organization to
form startup ventures
 Social networks can provide a mechanism for
obtaining resources and information from
outside the organization
 Social Networks
4-16

 Social network analysis depicts the pattern

of interactions among individuals and
helps to diagnose effective and ineffective
patterns
 Who links to whom within the network or
cluster?
 Who communicates to whom and how
effective is this communication?
 Social Network Analysis
4-17

Exhibit 4.4 A Simplified Social Network

 Social Network Analysis
4-18

Closure Relationships Bridging Relationships

 The degree to  Relationships in a

which all members social network
of the social that connect
network have otherwise
relationships with disconnected
other group people
members.  Structural holes
 Overcoming Barriers to
4-19
Collaboration

 Effective collaboration requires

overcoming barriers:
 The not-invented-here or hoarding barrier
(people aren’t willing to provide help)
 The search barrier (people are unable to find
what they’re looking for)
 The transfer barrier (people are unable to
work with people they don’t know well)
 Overcoming Barriers to
4-20
Collaboration
 To encourage collaboration, leaders can
choose a mix of three levers:
 Unification levers create compelling common
goals & articulate a strong value of cross-
company teamwork
 People levers get the right people to
collaborate on the right projects through
T-shaped management
 Network levers build nimble interpersonal
networks across the company
 Social Networks: Implications for
4-21
Career Success
 Effective social networks provide advantages
for the firm AND for an individual’s career
advancement:
 Access to private information communicated in
the context of personal relationships
 Access to public information from sources such
as the Internet
 Access to diverse skill sets – trading
information or skills with people whose
experiences differ from your own
 Access to power
 Social Capital: Limitations
4-22

 Social capital does have some potential

downsides:
 Groupthink
 Dysfunctional human resource practices
 Expensive socialization processes
(orientation, training)
 Individuals may distort or selectively use
information to favor their preferred courses
of action
 Using Technology to Leverage
4-23
Human Capital and Knowledge
 Sharing knowledge and information
throughout the organization
 Conserves resources
 Develops products and services
 Creates new opportunities
 Technology can leverage human capital &
knowledge
 Within the organization
 With customers
 With suppliers
 Using Technology to Leverage
4-24
Human Capital and Knowledge
 Using networks to share information and
develop products and services
 Through e-mail
 Through an intra-company news feed
 Through electronic teams or e-teams
 Advantages: few geographic constraints; access
to multiple social contacts
 Challenges: failure to identify team members
with the most appropriate knowledge and
resources; low cohesion, low trust, lack of shared
understanding creates “process loss”
 Codifying Knowledge For
4-25
Competitive Advantage
 Tacit knowledge  Explicit (codified)
Embedded in knowledge
personal ▣ Can be
experience documented
 Shared only with ▣ Can be widely
the consent and distributed
participation of the ▣ Can be easily
individual replicated
Has the organization ▣ Can be reused
effectively used technology many times at very
to codify knowledge for low cost
competitive advantage?
 Protecting Intellectual Assets
4-26

 Intellectual property rights are more

difficult to define and protect than
property rights for physical assets.
 Unlike physical assets, intellectual
property can be stolen.
 If intellectual property rights are not
reliably protected by the state, there will
be no incentive to develop new products
and services.
 Example: Dippin’ Dot’s
4-27
Patent Challenge
 Dippin' Dots are tiny beads of
ice cream, yoghurt, sherbet and
flavored ice, created by
microbiologist and founder Curt
Jones
 10 years after its founding,
Dippin’ Dots lost the patent for
its product, allowing its
competition to copy the process
 Three years later, Dippin’ Dots
filed for bankruptcy
 Protecting Intellectual Assets
4-28

 Dynamic capabilities involve the capacity to

build and protect a competitive advantage.
 This requires knowledge, assets, competencies,
and complementary assets & technologies
 This also requires the ability to sense & seize
new opportunities, generate new knowledge,
and reconfigure existing assets & capabilities.
 Dynamic capabilities include internal processes
& routines that enable product development,
strategic decision-making, alliances, or
acquisitions.
 Recognizing Intellectual Assets:
Intangible Resources
4-29

 Human capital: does the organization effectively

attract, develop, and retain talent? Does the
organization value diversity?
 Social capital: does the organization have positive
personal and professional relationships among
employees?
 Do the social networks within the organization have
the appropriate levels of closure and bridging
relationships?
 Technology: does the organization effectively use
technology to transfer best practices across the
organization, codify knowledge, and develop
dynamic capabilities for competitive advantage?