Recognizing a Firm’s Intellectual Assets: Moving beyond Tangible Resources Recognizing a Firm’s Intellectual Assets: Moving beyond Tangible Resources

Analysis

Overview I.Knowledge Economy (Intellectual Capital) II.Human Capital III.Social Capital IV.Role of Technology in leveraging human capital V.Intellectual property

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.

The Central Role of Knowledge in Today’s Economy Intellectual capital –the difference between a firm’s market value and book value OR –a measure of the value of a firm’s intangible assets reputation, employee loyalty and commitment, customer relationships, company values, brand names, and the experience and skills of employees

Ratio of Market Value to Book Value for Selected Companies

Intellectual Capital Knowledge Social Capital Human Capital

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

The Central Role of Knowledge in Today’s Economy (cont.) Knowledge –Explicit 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.

Codifying Knowledge for Competitive Advantage Tacit knowledge Personal experience Shared only with the consent and participation of the individual Explicit knowledge Documented Widely distributed Easily replicated Reused many times at low cost

I.Knowledge Economy (Intellectual Capital) II.Human Capital III.Social Capital IV.Role of Technology in leveraging human capital V.Intellectual property

Human Capital: The Foundation of Intellectual Capital

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

Attracting Human Capital Sound recruiting approaches –Scanning pools of available candidates –Challenge becomes having the right job candidates, not the greatest number of them Networking –Current employees may be best source of new ones –Incentives for referrals

Developing Human Capital Train and develop at all levels –Training is not the sole responsibility of the human resource department Encouraging widespread involvement Transferring knowledge

Developing Human Capital (cont.) 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

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

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.

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

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

How Diversity Benefits the Organization As organizations become more diverse, firms effective in managing diversity will have a cost advantage over those that are not. Cost Argument Firms with excellent reputations as prospective employers for women and ethnic minorities will have an advantage in the competition for top talent. Resource Acquisition Argument Insight and cultural sensitivity Marketing Argument

How Diversity Benefits the Organization Less emphasis on conformity to norms of the past and a diversity of perspectives will improve the level of creativity. Creativity Argument Wider range of perspectives More thorough analysis. Problem- Solving Argument Systems become more fluid; leading to greater flexibility to react to environment; reactions should be faster, less costly Organizational Flexibility Argument

I.Knowledge Economy (Intellectual Capital) II.Human Capital III.Social Capital IV.Role of Technology in leveraging human capital V.Intellectual property

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

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

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

A Simplified Social Network

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 social gaps between groups in a social network where there are few relationships bridging the groups.

Developing Social Capital: Overcoming Barriers to Collaboration Four Barriers to overcome: 1.Not-invented-here barrier 2.Hoarding barrier 3.Search barrier 4.Transfer barrier Unification lever -- Common goals, company teams People lever -- Right people, right projects – T-shaped management Unit performance, across boundaries Network lever -- Build interpersonal networks

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

Network Traps Wrong Structure – Formalist – Overloaded manager Wrong Relationships – Disconnected expert – Biased leader Wrong Behavior – Superficial networker – Chameleon

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 Personal Interests/Agendas –Subgroups

I.Knowledge Economy (Intellectual Capital) II.Human Capital III.Social Capital IV.Role of Technology in leveraging human capital V.Intellectual property

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

Electronic Teams: Using Technology to Enhance Collaboration Electronic teams: team of individuals that completes tasks primarily through e- mail communication.

Electronic Teams: Using Technology to Enhance Collaboration Advantages –potential to acquire broader range of human capital –can be very effective in generating social capital Challenges –More susceptible to the risk factors that can create process loss (because more geographically dispersed) low cohesion low trust lack of appropriate norms, standard operating procedures lack of shared understanding about their tasks

I.Knowledge Economy (Intellectual Capital) II.Human Capital III.Social Capital IV.Role of Technology in leveraging human capital V.Intellectual property

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. –(Internationally)

Protecting the Intellectual Assets of the Organization Dynamic capabilities –entail a firm’s capacity to build and protect a competitive advantage, which rests on knowledge, assets, competencies, complementary assets, and technologies. –include the ability to sense and seize new opportunities, generate new knowledge, and reconfigure existing assets and capabilities. –VRIN / VRIO