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

The Central Role of Knowledge  In the knowledge economy, wealth is increasingly created by effective management of knowledge workers instead of by the efficient control of physical & financial assets. 4-2

Ratio of Market Value to Book Value 4-3 Exhibit 4.1 Ratio of Market Value to Book Value for Selected Companies Source: Note: The data on market valuations are as of January 4, All other financial data are based on the most recently available balance sheets and income statements.

The Central Role of Knowledge  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 4-4

The Central Role of Knowledge  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. 4-5

Human Capital 4-6 Exhibit 4.2 Human Capital: Three Interdependent Activities

Attracting Human Capital  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 4-7

Developing Human Capital  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 4-8

Retaining Human Capital  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 4-9

Social Capital  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. 4-10

Social Networks  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? 4-11

Social Network Analysis 4-12 Exhibit 4.4 A Simplified Social Network

Using Technology to Leverage Human Capital and Knowledge  Using networks to share information and develop products and services Through 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” 4-13

Protecting Intellectual Assets  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. 4-14

Protecting Intellectual Assets  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. 4-15