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

Learning Objectives 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 in leveraging human capital within and across the firm. 4-2

Learning Objectives 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 firm’s dynamic capabilities. 4-3

The Central Role of Knowledge Consider… A company’s value is not derived solely from its physical assets. Rather it is based on knowledge, know-how, and intellectual assets – all embedded in people. 4-4

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. 4-5

Ratio of Market Value to Book Value 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. 4-6

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 4-7

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. 4-8

The Central Role of Knowledge  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. 4-9

Question?  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 s 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. 4-10

Human Capital Exhibit 4.2 Human Capital: Three Interdependent Activities 4-11

Attracting Human Capital  Hire for attitude, train for skill  Emphasis on: General knowledge & experience Social skills Values Beliefs Attitudes 4-12

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 4-13

Example: Creative Hiring Practices  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. 4-14

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 4-15

Developing Human Capital  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 person’s performance.  360-degree feedback systems complement teamwork, employee involvement, and organizational flattening. 4-16

Developing Human Capital Exhibit 4.3 An Excerpt from General Electric’s 360-Degree Leadership Assessment Chart Source: Adapted from Slater, R Get Better or Get Beaten: 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. 4-17

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 4-18

Enhancing Human Capital: The Role 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 4-19

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. 4-20

How Social Capital Helps Attract 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 4-21

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? 4-22

Social Network Analysis Exhibit 4.4 A Simplified Social Network 4-23

Social Network Analysis  The degree to which all members of the social network have relationships with other group members.  Relationships in a social network that connect otherwise disconnected people  Structural holes Closure Relationships Bridging Relationships 4-24

Overcoming Barriers to 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) 4-25

Overcoming Barriers to 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 4-26

Social Networks: Implications for 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 4-27

Social Capital: Limitations  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 4-28

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 4-29

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” 4-30

Question?  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. They’re less flexible in responding to unanticipated work challenges. 4-31

Codifying Knowledge For Competitive Advantage  Tacit knowledge Embedded in 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 very low cost Has the organization effectively used technology to codify knowledge for competitive advantage? 4-32

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. 4-33

Example: Dippin’ Dot’s 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 4-34

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. 4-35

Recognizing Intellectual Assets: Intangible Resources  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? 4-36