4 Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources McGraw-Hill/Irwin Strategic Management: Text and Cases, 4e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives After reading this chapter, you should have a good understanding of: Why the management of knowledge professionals and knowledge itself are so critical in today’s organizations. The importance of recognizing the interdependence of attracting, developing and retaining human capital. The key role of social capital in leveraging human capital within and across the firm. The importance of social networks in knowledge management and in promoting career success. Why teams are critical in combining and leveraging knowledge in organizations and how they can be made more effective.

Learning Objectives After reading this chapter, you should have a good understanding of: The vital role of technology in leveraging knowledge and human capital. How technology can help to retain knowledge even when employees cannot be retained by the organization. The challenge of protecting intellectual property and the importance of a firm’s dynamic capabilities. How leveraging human capital is critical to strategy formulation at the business, corporate, international, and Internet levels.

The Central Role of Knowledge in Today’s Economy Creation of wealth in a knowledge economy Effective management of knowledge workers Intellectual capital Assets such as Reputation Employee loyalty and commitment Customer relationships Company values Brand names Experience and skills of employees

The Central Role of Knowledge in Today’s Economy Intellectual capital = Market value of the firm – Book value of the firm How do companies create value in the knowledge-intensive 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) Knowledge Explicit knowledge Tacit knowledge

Human Capital: The Foundation of Intellectual Capital Exhibit 4.2 Human Capital: Three Interdependent Activities

Enhancing Human Capital: How Diversity Benefits the Organization Cost argument Resource acquisition argument Marketing argument Creativity argument Problem-solving argument System flexibility argument

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

The Potential Downside of Social Capital Groupthink Cost of financial resources Managerial commitment

Knowledge of Social Networks Implications that an understanding of social networks has on one’s career Closure Bridging relationships From an individual’s perspective, social networks deliver three unique advantages Private information Access to diverse skill sets Power

Using Technology to Leverage Human Capital and Knowledge Sharing knowledge and information Technology can leverage human capital and knowledge Using networks to share information and develop products and services Codifying knowledge for competitive advantage

The Central Role of Leveraging Human Capital in Strategy Formulation Leveraging human capital and business-level strategy (Chapter 5) Sustainable over time Integrate primary and support activities in the firm’s value chain Leveraging human capital and corporate-level strategy (Chapter 6) Manage businesses to create synergy Create more value by working together across business units

The Central Role of Leveraging Human Capital in Strategy Formulation Leveraging human capital and international-level strategy (Chapter 7) Achieve economies of scale Adapt to local market needs Facilitate the flow of information and knowledge between business units in different countries

The Central Role of Leveraging Human Capital in Strategy Formulation Leveraging human capital and entrepreneurial strategies (Chapter 8) Create value through technology Lower costs Enhance customer service Improve performance