Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources Chapter Four McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives After reading this chapter, you should have a good understanding of: LO1 Why the management of knowledge professionals and knowledge itself are so critical in today’s organizations. LO2 The importance of recognizing the interdependence of attracting, developing and retaining human capital. LO3 The key role of social capital in leveraging human capital within and across the firm. LO4 The importance of social networks in knowledge management and in promoting career success. 4-2

Learning Objectives (cont.) LO5 The vital role of technology in leveraging knowledge and human capital. LO6 Why “electronic” or “virtual” teams are critical in combining and leveraging knowledge in organizations and how they can be made more effective. LO7 The challenge of protecting intellectual property and the importance of a firm’s dynamic capabilities. 4-3

The Central Role of Knowledge in Today’s Economy Knowledge economy wealth is increasingly created by effective management of knowledge workers instead of by the efficient control of physical and financial assets. 4-4

The Central Role of Knowledge in Today’s Economy Intellectual capital the difference between a firm’s market value and book value a measure of the value of a firm’s intangible assets 4-5

The Central Role of Knowledge in Today’s Economy Intellectual capital (cont.) reputation, employee loyalty and commitment, customer relationships, company values, brand names, and the experience and skills of employees 4-6

Ratio of Market Value to Book Value for Selected Companies 4-7

The Central Role of Knowledge in Today’s Economy Human capital individual capabilities, knowledge, skills, and experience of the company’s employees and managers Social capital the network of relationships that individuals have throughout the organization 4-8

The Central Role of Knowledge in Today’s Economy (cont.) Explicit knowledge Tacit knowledge 4-9

Knowledge Explicit knowledge Tacit knowledge knowledge that is codified, documented, easily reproduced, and widely distributed. Tacit knowledge knowledge that is in the minds of employees and is based on their experiences and backgrounds. 4-10

QUESTION Recently, a knowledge worker's loyalty to his or her employing firm has __________ compared to his or her loyalty to his profession and colleagues.  A. Increased B. Decreased C. Remained the same D. No correlation when B - decreased 4-11 11

Human Capital: The Foundation of Intellectual Capital 4-12

Attracting Human Capital Hire for attitude, train for skill Emphasis on General knowledge and experience Social skills Values Beliefs Attitudes 4-13

Attracting Human Capital Sound recruiting approaches Scanning pools of available candidates Challenge becomes having the right job candidates, not the greatest number of them 4-14

Attracting Human Capital Networking Current employees may be best source of new ones Incentives for referrals 4-15

Example The top 5 MBA Employers in 2007, according to Fortune Magazine Google McKinsey & Company Goldman & Sachs Bain & Company Boston Consulting Group Source: www.fortune.com 4-16 16

Developing Human Capital Train and develop at all levels Encouraging widespread involvement Transferring knowledge Monitor progress and track development Evaluate human capital Train and develop at all levels Training is not the sole responsibility of the human resource department Encouraging widespread involvement Transferring knowledge Monitor progress and track development Evaluate human capital Employees must share knowledge and work together, collectively, to reach organizational goals Firms often use 360-degree evaluation and feedback systems Managers’ success cannot compromise the organization’s core values 4-17 17

Best Practices to Recruit and Retain Young Talent Don’t fudge the sales pitch Let them have a life No time clocks, please Give them responsibility Feedback and more feedback Giving back matters 4-18

How to Get Hired It helps to know someone Play up volunteer work on your resume Unleash your inner storyteller No lone rangers need apply Be open to learning new things 4-19

Retaining Human Capital Identify with organization’s mission and values People who identify with and are more committed to the core mission and values of the organization are less likely to stray or bolt to the competition. 4-20

Retaining Human Capital Challenging work and a stimulating environment opportunities that lower barriers to an employee’s mobility within a company 4-21

Retaining Human Capital Financial and Non-financial Rewards and Incentives Rewards are a vital organizational control mechanism However, money may not be the most important reason why people take or leave jobs Exodus of employees can erode a firm’s competitive advantage 4-22

How Diversity Benefits the Organization Cost Resource acquisition Marketing Creativity Problem-solving System flexibility • Cost Argument. As organizations become more diverse, firms effective in managing diversity will have a cost advantage over those that are not. • Resource Acquisition Argument. Firms with excellent reputations as prospective employers for women and ethnic minorities will have an advantage in the competition for top talent. As labor pools shrink and change in composition, such advantages will become even more important. • Marketing Argument. For multinational firms, the insight and cultural sensitivity that members with roots in other countries bring to marketing efforts will be very useful. A similar rationale applies to subpopulations within domestic operations. • Creativity Argument. Less emphasis on conformity to norms of the past and a diversity of perspectives will improve the level of creativity. • Problem-Solving Argument. Heterogeniety in decision-making and problem-solving groups typically produces better decisions because of a wider range of perspectives as well as more thorough analysis. Jim Schiro, CEO of PriceWaterhouseCoopers, explains, “When you make a genuine commitment to diversity, you bring a greater diversity of ideas, approaches, and experiences and abilities that can be applied to client problems. After all, six people with different perspectives have a better shot at solving complex problems than sixty people who all think alike.” 60 • Organizational Flexibility Argument . With effective programs to enhance workplace diversity, systems become less determinant, less standardized, and therefore more fluid. Such fluidity should lead to greater flexibility to react to environmental changes. Reactions should be faster and less costly. 4-23 23

The Vital Role of Social Capital Attraction, development and retention of talent is a necessary but not sufficient condition for creating competitive advantage Knowledge workers often are more loyal to their colleagues and profession than to their employer 4-24

How Social Capital Helps Attract and Retain Talent Hiring via personal (social) networks Some job candidates may bring other talent with them Emigration of talent from an organization to form start-up ventures Can provide mechanism for obtaining resources and information from outside the organization 4-25

Social Networks: Implications Social network analysis depicts the pattern of interactions among individuals and helps to diagnose effective and ineffective patterns helps identify groups or clusters of individuals that comprise the network, individuals who link the clusters, and other network members. helps diagnose communication patterns and communication effectiveness 4-26

A Simplified Social Network 4-27

Knowledge of Social Networks Closure the degree to which all members of a social network have relationships with other group members. Bridging relationships relationships in a social network that connect otherwise disconnected people. Structural holes structural holes social gaps between groups in a social network where there are few relationships bridging the groups. 4-28 28

Knowledge of Social Networks Social networks deliver three unique advantages: Private information Access to diverse skill sets Power 4-29

The Potential Downside of Social Capital Groupthink a tendency not to question shared beliefs Tendency to develop dysfunctional human resource practices. Can be expensive in terms of financial resources and managerial commitment 4-30

Using Technology to Leverage Human Capital and Knowledge Sharing knowledge and information Conserves resources Develops products and services Creates new opportunities Technology can leverage human capital and knowledge Within the organization With customers With suppliers 4-31 31

Electronic Teams: Using Technology to Enhance Collaboration team of individuals that completes tasks primarily through e-mail communication. Challenges However, there are challenges associated with making e-teams effective. Successful action by both traditional teams and e-teams requires that: • Members identify who among them can provide the most appropriate knowledge and resources, and, • E-team leaders and key members know how to combine individual contributions in the most effective manner for a coordinated and appropriate response. 4-32 32

Electronic Teams: Using Technology to Enhance Collaboration Advantages of electronic teams have the potential to acquire a broader range of “human capital” can be very effective in generating “social capital” Challenges However, there are challenges associated with making e-teams effective. Successful action by both traditional teams and e-teams requires that: • Members identify who among them can provide the most appropriate knowledge and resources, and, • E-team leaders and key members know how to combine individual contributions in the most effective manner for a coordinated and appropriate response. 4-33 33

Electronic Teams: Using Technology to Enhance Collaboration Challenges of electronic teams teams suffer processes loss because of low cohesion, low trust among members, a lack of appropriate norms or standard operating procedures, or a lack of shared understanding among team members about their tasks. 4-34

Electronic Teams: Using Technology to Enhance Collaboration Challenges of electronic teams (cont.) members are more geographically dispersed, and become more susceptible to the risk factors that can create process loss 4-35

Codifying Knowledge for Competitive Advantage Tacit knowledge Personal experience Shared only with the consent and participation of the individual Explicit (codified) knowledge Can be documented Can be widely distributed Can be easily replicated Can be reused many times at low cost 4-36

QUESTION The use of information technology has increased in recent years in many organizations. This has helped to:  A. Communicate information efficiently B. Make more effective use of time in every situation C. Restrict social network growth D. Create smaller social networks Answer: A - communicate information efficiently 4-37 37

Protecting the Intellectual Assets of the Organization Intellectual property rights are more difficult to define and protect than property rights for physical assets If intellectual property rights are not reliably protected by the state, there will be no incentive to develop new products and services. 4-38

Protecting the Intellectual Assets of the Organization Dynamic capabilities a firm’s capacity to build and protect a competitive advantage, which rests on knowledge, assets, competencies, complementary assets, and technologies. 4-39

Protecting the Intellectual Assets of the Organization Dynamic capabilities include the ability to sense and seize new opportunities, generate new knowledge, and reconfigure existing assets and capabilities. 4-40