Recognizing a Firm’s

Intellectual Assets:
Moving beyond a Firm’s Tangible
Resources

Chapter Four

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
 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.

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 The Central Role of Knowledge
in Today’s Economy
• Intellectual capital
 the difference between a firm’s market value
and book value
 a measure of the value of a firm’s intangible
assets

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 The Central Role of Knowledge
in Today’s Economy
• Intellectual capital (cont.)
 reputation, employee loyalty and
commitment, customer relationships,
company values, brand names, and the
experience and skills of employees

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Ratio of Market Value to Book Value for Selected
Companies

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 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

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 The Central Role of Knowledge
in Today’s Economy (cont.)
• Knowledge
 Explicit knowledge
 Tacit knowledge

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 Knowledge
• Explicit • Tacit knowledge
knowledge  knowledge that is
 knowledge that is in the minds of
codified, employees and is
documented, based on their
easily reproduced, experiences and
and widely backgrounds.
distributed.

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 QUESTION

Recently, a knowledge worker's loyalty to his or

her employing firm has __________ compared
to his or her loyalty to his profession and
colleagues.
A. Increased
B. Decreased
C. Remained the same
D. No correlation when

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Human Capital: The Foundation
of Intellectual Capital

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

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 Attracting Human Capital
• Sound recruiting approaches
 Scanning pools of available candidates
 Challenge becomes having the right job
candidates, not the greatest number of them

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 Attracting Human Capital
• Networking
 Current employees may
be best source of new
ones
 Incentives for referrals

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 Example
The top 5 MBA Employers in 2007, according to
Fortune Magazine
1. Google
2. McKinsey & Company
3. Goldman & Sachs
4. Bain & Company
5. Boston Consulting Group

Source: www.fortune.com
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 Developing Human Capital
• Train and develop at all levels
• Encouraging widespread involvement
• Transferring knowledge
• Monitor progress and track development
• Evaluate human capital

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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

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 How to Get Hired
• It helps to know someone
• Play up volunteer work on your resume
• Unleash your inner storyteller
• No lone rangers need apply
• Be open to learning new things

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 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.

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

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 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

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 How Diversity Benefits the Organization

• Cost
• Resource acquisition
• Marketing
• Creativity
• Problem-solving
• System flexibility

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 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

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 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

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 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
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A Simplified Social Network

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 Knowledge of Social Networks

• Closure • Bridging
 the degree to relationships
which all members  relationships in a
of a social network social network that
have relationships connect otherwise
with other group disconnected
members. people.
 Structural holes

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

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 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

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 Using Technology to Leverage
Human Capital and Knowledge
• Sharing knowledge and information
 Conserves resources
 Develops products and services
 Creates new opportunities

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

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Electronic Teams: Using Technology to Enhance
Collaboration
• Advantages of electronic teams
 have the potential to acquire a broader range
of “human capital”
 can be very effective in generating “social
capital”

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Electronic Teams: Using Technology to Enhance
Collaboration
• Challenges of electronic teams
 teams suffer processes loss because of low
cohesion, low trust among members, a lack
of appropriate norms or standard operating
procedures, or a lack of shared
understanding among team members about
their tasks.

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Electronic Teams: Using Technology to Enhance
Collaboration
• Challenges of electronic teams (cont.)
 members are more geographically dispersed,
and become more susceptible to the risk
factors that can create process loss

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 Codifying Knowledge for Competitive
Advantage
• Tacit knowledge • Explicit (codified)
 Personal knowledge
experience  Can be documented
 Shared only with  Can be widely
the consent and distributed
participation of the  Can be easily
replicated
individual
 Can be reused many
times at low cost

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 QUESTION
The use of information technology has increased
in recent years in many organizations. This has
helped to:
A. Communicate information efficiently
B. Make more effective use of time in every
situation
C. Restrict social network growth
D. Create smaller social networks

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 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.

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 Protecting the Intellectual Assets of the
Organization
• Dynamic capabilities
 a firm’s capacity to build and protect a
competitive advantage, which rests on
knowledge, assets, competencies,
complementary assets, and technologies.

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 Protecting the Intellectual Assets of the
Organization
• Dynamic capabilities include the ability to
sense and seize new opportunities,
generate new knowledge, and reconfigure
existing assets
and capabilities.

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