Recognizing

A Firms
Intellectual
Assets:
Moving
Beyond a
Firms
Tangible
Resources
chapter 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
todays organizations.

LO4.2 The importance of recognizing the

interdependence of attracting, developing, and
retaining human capital.

LO4.3 The key role of social capital in leveraging

human capital within and across the firm.

Learning Objectives
4-3

LO4.4 The importance of social networks in knowledge

management and in promoting career success.

LO4.5 The vital role of technology and leveraging

knowledge and human capital.

LO4.6 Why electronic or virtual teams are critical in

combining and leveraging knowledge in organizations
and how they can be made more effective.

LO4.7 the challenge of protecting intellectual property

and the importance of a firms dynamic capabilities.

4-4

The Central Role of

Knowledge
Consider
A companys value is not derived solely
from its physical assets. Rather it is based
on knowledge, know-how, and
intellectual assets all embedded in
people.

The Central Role of

Knowledge

4-5

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

4-6

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

4-7

Intellectual capital is a measure of the

value of a firms intangible assets the
difference between a firms 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

4-8

Human capital includes the individual

capabilities, knowledge, skills, and
experience of the companys employees
and managers.
Social capital includes the network of
relationships that individuals have
throughout the organization.

The Central Role of

Knowledge

4-9

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.

Question?
4-10

Mary Stinson was required to take over a project

after the entire team left the company. She was
able to reconstruct what the team had
accomplished through reading e-mails exchanged
by the previous teams members. This is an
example of
A. using explicit knowledge.
B. inefficient use of information management.
C. using tacit knowledge.
D. all of the above.

Human Capital
4-11

Exhibit 4.2 Human Capital: Three Interdependent Activities

Attracting Human Capital

4-12

Hire for attitude, train for skill

Emphasis on:

General knowledge & experience

Social skills
Values
Beliefs
Attitudes

Attracting Human Capital

4-13

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

Example: Creative Hiring

Practices
4-14

Online retailer Zappos had 55,000

applicants for 200 jobs in 2010, but
only hired a few people:

Only about one out of 100 applicants

passes a hiring process that is
weighted 50 percent on job skills
and 50 percent on the potential to
mesh with Zappos culture.

Developing Human Capital

4-15

Training and development must take

place at all levels of the organization
Requires the active involvement of
leaders at all levels
Includes mentoring & sponsoring lowerlevel employees
Monitoring progress & tracking
development
Evaluating human capital

Developing Human Capital

4-16

360-degree evaluation and feedback

systems address the limitations of the
traditional approach to performance
evaluation.
Superiors, direct reports, colleagues, and
even internal and external customers rate
a persons performance.
360-degree feedback systems complement
teamwork, employee involvement, and
organizational flattening.

Developing Human Capital

4-17

Exhibit 4.3 An Excerpt from General Electrics 360-Degree

Leadership Assessment Chart
Source: Adapted from Slater, R. 1994. Get Better or Get Beaten: 152-155. Burr Ridge, IL: Irwin Professional
Publishing
Note: This evaluation system consists of 10 characteristics - Vision, Customer/Quality Focus, Integrity, and so on. Each of these
characteristics has four performance criteria. For illustrative purposes, the four performance criteria of Vision are included.

Retaining Human Capital

4-18

Retention mechanisms must prevent

the transfer of valuable and sensitive
information outside the organization:

Help employees identify with an

organizations 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

4-19

Enhancing Human Capital: The

Role of Diversity

Sound management of diverse

workforces can improve an organizations
effectiveness & competitive advantages by
making the following arguments:

Cost
Resource acquisition
Marketing
Creativity
Problem solving
Organizational flexibility

Social Capital
4-20

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 and Retain Talent

4-21

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
4-22

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

4-23

Exhibit 4.4 A Simplified Social Network

Social Network Analysis

4-24

Closure
Relationships

The degree to
which all
members of the
social network
have relationships
with other group
members.

Bridging
Relationships

Relationships in a
social network
that connect
otherwise
disconnected
people
Structural holes

Overcoming Barriers to
Collaboration

4-25

Effective collaboration requires

overcoming barriers:

The not-invented-here or hoarding barrier

(people arent willing to provide help)
The search barrier (people are unable to
find what theyre looking for)
The transfer barrier (people are unable to
work with people they dont know well)

Overcoming Barriers to
Collaboration

4-26

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

4-27

Social Networks: Implications

for Career Success

Effective social networks provide

advantages for the firm AND for an
individuals 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

4-28

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

4-29

Using Technology to Leverage

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

4-30

Using Technology to Leverage

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

Question?
4-31

Which of the following is NOT an advantage of

electronic teams (e-teams)?
A. They can facilitate communication.
B. They have the potential to acquire a broader
range of human capital.
C. They can be effective in generating social
capital.
D. Theyre less flexible in responding to
unanticipated work challenges.

Codifying Knowledge For

Competitive Advantage
4-32

Tacit knowledge

Embedded in
personal
experience
Shared only with
the consent and
participation of
the individual

Has the organization

effectively used
technology to codify
knowledge for
competitive advantage?

Explicit (codified)
knowledge
Can

be documented
Can be widely
distributed
Can be easily
replicated
Can be reused
many times at very
low cost

Protecting Intellectual
Assets

4-33

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 Dots

4-34

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

4-35

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
4-36

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?