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Recognizing A

Assets: Moving
Beyond a
chapter 4
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education .
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.
Learning Objectives

LO4.4 The importance of social networks in

knowledge management and in promoting career
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
LO4.7 the challenge of protecting intellectual
property and the importance of a firm’s dynamic
The Central Role of Knowledge

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.
The Central Role of Knowledge

 Inthe knowledge economy, wealth is

increasingly created by effective
management of knowledge workers
instead of by the efficient control of
physical & financial assets.
Ratio of Market Value to Book Value

Exhibit 4.1 Ratio of Market Value to Book Value for Selected Companies
Source: www.finance.yahoo.com
Note: The data on market valuations are as of January 4, 2013. All other financial data are based on the most
recently available balance sheets and income statements.
The Central Role of Knowledge

 Intellectualcapital 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
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.
The Central Role of Knowledge

 Knowledge management is critical to

organizational success. Knowledge
 Explicit knowledge – codified, documented,
easily reproduced, and widely distributed.
 Tacit knowledge – in the minds of
employees, based on their experiences and

 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 e-mails 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.
Human Capital

Exhibit 4.2 Human Capital: Three Interdependent Activities

Attracting Human Capital

 Hire
for attitude, train for skill
 Emphasis on:
 General knowledge & experience
 Social skills
 Values
 Beliefs
 Attitudes
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
Example: Creative Hiring Practices

 Onlineretailer Zappos had 55,000

applicants for 200 jobs in 2010, but
only hired a few people:

 Onlyabout 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.
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
 Evaluating human capital
Developing Human Capital

 360-degree evaluation and feedback

systems address the limitations of the
traditional approach to performance
 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.
Developing Human Capital

Exhibit 4.3 An Excerpt from General Electric’s 360-Degree Leadership

Assessment Chart
Source: Adapted from Slater, R. 1994. Get Better or Get Beaten: 152-155. 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.
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
 Offer financial and nonfinancial rewards &
 Money is not the most important reason why
people take or leave jobs
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
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
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
Social Networks

 Socialnetwork analysis depicts the pattern

of interactions among individuals and
helps to diagnose effective and ineffective
 Who links to whom within the network or
 Who communicates to whom and how
effective is this communication?
Social Network Analysis

Exhibit 4.4 A Simplified Social Network

Social Network Analysis

Closure Bridging
Relationships Relationships

 The degree to  Relationships in a

which all members social network
of the social that connect
network have otherwise
relationships with disconnected
other group people
members.  Structural holes
Overcoming Barriers to

 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)
Overcoming Barriers to
 Toencourage 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
Social Networks: Implications for
Career Success

 Effectivesocial networks provide advantages

for the firm AND for an individual’s career
 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
Social Capital: Limitations

 Social
capital does have some potential
 Groupthink
 Dysfunctional human resource practices
 Expensive socialization processes
(orientation, training)
 Individuals may distort or selectively use
information to favor their preferred courses
of action
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 &

 Within the organization
 With customers
 With suppliers
Using Technology to Leverage
Human Capital and Knowledge

 Usingnetworks to share information and

develop products and services
 Through e-mail
 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”

 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
D. They’re less flexible in responding to
unanticipated work challenges.
Codifying Knowledge For
Competitive Advantage

 Tacit knowledge  Explicit (codified)

 Embedded in knowledge
personal ▣ Can be
experience documented
 Shared only with ▣ Can be widely
the consent and distributed
participation of ▣ Can be easily
the individual replicated
Has the organization ▣ Can be reused
effectively used technology
many times at very
to codify knowledge for
competitive advantage? low cost
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.
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
 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
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
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
 Do the social networks within the organization have
the appropriate levels of closure and bridging
 Technology: does the organization effectively use
technology to transfer best practices across the
organization, codify knowledge, and develop
dynamic capabilities for competitive advantage?