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Chapter 4: Recognizing a Firm’s Intellectual Assets The CENTRAL ROLE OF KNOWLEDGE IN TODAY’S ECONOMY: 

Knowledge economy: an economy where wealth is created through the effective management of knowledge workers instead of by the efficient control physical and financial assets.

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Buying a set of talents, capabilities, skills, and ideas-intellectual capital-not physical and financial resources.

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Big three financial statements: income statement, balance sheet, and statement of cash flow.

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Intellectual capital: the difference between the market value of the firm and the book value of the firm, including assets such as reputation, employee loyalty and commitment, customer relationships, company values, brand names, and the experience and skills of employees. Intellectual capital=Market value of firm-Book value of firm

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Human capital: the individual capabilities, knowledge, skills, and experience of a company’s employees and manager.

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Social capital: the network of friendships and working relationships between talented people both inside and outside the organization.

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Two different forms of knowledge: 1. Explicit knowledge that is codified, documented, easily reproduced and widely distributed (engineering drawing, software code, patent) 2. Tacit knowledge: in the minds of employees and is based on their experiences and background. ( can be accessed only with the consent of the employees) Example(1): Two software engineers working together on a computer code share their tacit knowledge to create new Knowledge.

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Employers face many challenges when searching for talent: a. Cutting-edge skills are evolving faster than universities can train people. b. The willingness of talent to be mobile has declined. c. Young professionals in advanced technologies are limited.

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Recently, strategic management has moved from focusing on tangible resources to intangible resources.

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Intellectual capital is the difference between the market value and the book value of a firm. Intellectual capital can be increased by attracting and retaining knowledgeable workers.

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Today, the loyalty of a knowledge worker to his or her employing firm has decreased compared to his or her loyalty to his or her profession and colleagues.

Human Capital: The Foundation of Intellectual Capital: 

Attracting, recruiting and hiring the “best and the brightest” is a critical first step in the process of building intellectual capital.

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Hiring is only the first of three processes, then firms must also develop employees, finally to engage their best and brightest. (According to Gallup study, hiring, developing and engaging are important factors)

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The first step in the process of building superior human capital is: attracting and selecting the right person.

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Companies that want to attract top talent often receive thousands of applications each year. Today, technology; data analytics are used increasingly to improve talent selection.

(TB) Today, the loyalty of a knowledge worker to his or her employing firm has

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decreased compared to his or her loyalty to his or her profession and colleagues. 

(TB) Managing a knowledge intensive workforce is very challenging. The best way for a firm to manage its workforce is to balance efforts in attraction, selection, and retention of top talent.

How to attract talents:

1. Hire for Attitude, Train for Skill: Firms must compete for top talent. In attracting and selecting employees, firms must strive to select the best fit for both the employee and the firm. In an attempt to reduce wasted time and effort in interviewing too many candidates while assuring a good candidate pool, a firm should use a pre-interview quiz. 2. Recognizing the Geographic Preferences of Talent: Toyota Research Institute (TRI) wants to innovate in areas such as robotics and autonomous driving. They have locations in three locations because coveted candidates prefer to stay in their current location closer to their research universities. 3. Attracting Millennials: Employers must provide incentives to attract and retain young workers because otherwise they will be at a competitive disadvantage.

Developing Human Capital: 

Developing human capital is essential to maintaining a competitive advantage in the current knowledge economy. Efforts and initiatives to develop human capital should be directed throughout the firm at all levels.

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Mentoring: Training and development at all levels of the organization are necessary if employees are to remain current throughout the duration of their employment. Also, monitoring and tracking employee development are necessary.

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360-degree evaluation and feedback systems: superiors, direct reports, colleagues, and even external and internal customers rate a person’s performance.

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(TB) Boomerang employees, according to a study published in Personnel Psychology, are statistically more likely to leave a firm if they experienced a negative life event received a better alternate job offer.

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(TB) Maintaining a competitive workforce is very challenging in the current economy. The role of evaluating human capital, in recent years, has increased.

The most effective way to retain human capital is:

1. encourage employee identification with organizational mission and goals. 2. provide employees with a challenging and stimulating work environment. 3. provide employees with financial and nonfinancial rewards and incentives. 

(TB) If employees are committed to the core mission and values of the organization, they are less likely to leave for the competition.

Enhancing Human capital: Redefining Jobs: It is anticipated that the worldwide shortage of highly skilled, college-educated workers will increase significantly by 2020, according to research by McKinsey Global Institute. Some companies are going as far as to redefine the jobs of their experts and are transferring some of their tasks to lower-skilled people inside and outside of their companies. By redefining these high-value knowledge jobs, they address skill shortages and lower costs while enhancing job satisfaction.

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(TB) Data analytics add new information that helps predict who will leave and who will make the best employee according to Deloitte, the HR consulting company. A key advantage of the new analytics techniques over traditional approaches is that they are predictive rather than reactive.

Enhancing Human Capital: Managing Diversity: The effective management of diversity can enhance the social responsibility goals of an organization. Other areas where sound management of diverse workforces can improve the effectiveness of an organization and its competitive advantages include: o Cost o Resource acquisition o marketing o creativity o problem solving o organizational flexibility

The Vital Role of Social Capital: 

Human capital and social capital are vital for superior firm performance. If a firm has strong human capital, the firm may exploit this by building social capital. This can be accomplished by encouraging the sharing of ideas between employees in the firm.

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In an effort to capture key employees from competitors, firms may attract the symbolic leader of a group within a competing firm and hope others will follow. This has been termed the Pied Piper effect.

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Social capital is a source of strength to many firms. Firms leverage their social capital in an effort to create competitive advantages. The social capital of a firm is based on the relationships among the employees of the firm.

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Another example of social relationships causing human capital mobility is the emigration of talent from an organization to form start-up ventures.

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Professionals frequently leave Microsoft masse to form venture capital and technology start-ups, called Baby Bills, built around teams of software developers. This is an example of social relationships causing human capital mobility.

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According to the resource-based view of the firm, competitive advantages are harder for competitors to copy, if they are based on unique bundles of resources.

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Knowledge-based resources tend to be more tacit in nature and therefore they are more difficult to protect against loss (i.e., the individual quitting the organization) than other types of capital, such as equipment, machinery, and land.

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Knowledge workers often exhibit greater loyalties to their colleagues and their profession relative to their employing organization.

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The attraction; development; and retention of talent is a necessary but not sufficient condition for creating competitive advantages.

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Tying knowledge workers to a firm is part of the objective of the development of social capital.

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Social network analysis depicts the pattern of interactions among individuals and helps to diagnose effective and ineffective patterns. It is helpful because the configuration of the group member social ties within and outside the group affects the extent to which members connect to individuals who do all of the following: o Convey needed resources

o Have the opportunity to exchange information and support o Have the motivation to treat each other in positive ways o Have the time to develop trusting relationships that might improve the groups’ effectiveness.

Social Networks: Implications for Knowledge Management and Career Success: 

In social network analysis, the importance of ties connecting heterogeneous people that help to ensure a wide range of diversity in information and perspective is known as bridging relationships.

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In social network analysis, groups can become too insular and fail to share what they have learned with people outside the group. This is a result of closure.

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Closure: the degree to which all members of a social network have relationships (or ties) with other group members.

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Structural holes: Social gaps between groups in a social network where there are few relationships bridging the groups.

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Implications for Career Success: Advantages of effective social networks for career success include all the following: o access to private information o access to diverse skill sets. o greater power

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The power of a manager, traditionally, was embedded in the hierarchy of the firm. As organizational structures flatten, this power is repositioned in the broker of the network. These people are not necessarily at the top of the hierarchy or even experts in their fields.

The Potential Downside of Social Capital: 

Social capital has downsides: o High social capital may breed groupthink. o If there are deep-rooted mindsets, there would be a tendency to develop difunctional human resource practices.

o The socialization processes (orientation, training) can be expensive in terms of both financial resources and managerial commitment. o Individuals may use the contacts they develop to pursue their own interests and agendas. 

Group Think: people do not question shared beliefs.

Using Technology to Leverage Human Capital And Knowledge: 

The use of information technology (e.g., email) has increased in recent years in many organizations. This has helped to communicate information efficiently.

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Top executives can use email effectively for all of the following: o updates on company strategy. o executive perspectives on key issues. o overview of the executive work for the month

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The dangers of email include all of the following: o spreading of rumors o uncontrollable distribution o personal time waster

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Sharing knowledge and information throughout the organization can be a means of conserving resources, developing products and services, and creating new opportunities.

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Technology can be used to leverage human capital and knowledge within organizations as well as with customers and suppliers beyond their boundaries.

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The use of sophisticated information sharing platforms has increased in recent years in many organizations. This has helped to facilitate internal and external collaboration.

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The Cisco Integrated Workforce Experience (IWE) platform is a social business platform designed to facilitate internal and external collaboration and decentralize decision making.

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The Cisco Integrated Workforce Experience (IWE) platform makes recommendations based on all the following : o what you are doing. o the role you are in. o the choices of people like you.

Electronic Teams: Using Technology to Enhance Collaboration: 

Electronic teams: a team of individuals that completes tasks primarily through email communication.

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Following are characteristics of e-teams: 

E-team members either work in geographically separated workplaces or may work in the same space but at different times.

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E-teams may have members working in different spaces and time zones

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Most of the interactions among members of e-teams occur through electronic communication channels.

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There are multiple advantages of e-teams: o E-teams are less restricted by the geographic constraints that are placed on face-to-face teams. o E-teams can be more flexible in responding to unanticipated work challenges and opportunities. o E-teams can be effective in generating social capital.

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There are multiple challenges associated with making effective e-teams: o Process losses result from identification and combination activities. o The physically dispersed team is susceptible to the risk factors that can create process loss. o Some collective energy, time, and effort must be devoted to dealing with team inefficiencies.

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The potential for process losses tends to be more prevalent in e-teams than in traditional teams because the geographic dispersion of members increases the complexity of establishing effective interaction and exchanges.

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In general, teams suffer process 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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Access Health, a call-in medical center, uses technology to capture and share knowledge. When someone calls the center, a registered nurse uses the company clinical decision architecture to assess the caller symptoms, rule out possible conditions, and recommend a home remedy, doctor visit, or trip to the emergency room. This is an example of using a knowledge asset.

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SAP uses crowdsourcing to leverage the expertise and involvement of its users in developing new knowledge and then transmitting it to the entire SAP user community.

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Software algorithms are a form of knowledge asset that, once developed and paid for, can be reused many times at a very low cost.

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When a firm develops a knowledge asset, such as a process, pays for it and reuses it over and over at a very low cost, this adds a competitive advantage for the firm.

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The creation of knowledge assets is typically characterized by high upfront costs and low variable costs

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(TB) 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 emails exchanged by the members of the team. This is an example of using explicit knowledge.

Protecting the Intellectual Assets of the Organization: Intellectual Property and Dynamic Capabilities: Intellectual Property Rights: 

Protecting company intellectual property can be difficult because employees become disgruntled and patents expire

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Intellectual property rights are more difficult to define and protect than property rights for physical assets (e.g., plant, equipment, and land).

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IP is characterized by significant development costs and very low marginal costs.

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Unlike physical assets, intellectual property can be stolen by simply broadcasting it.

Dynamic Capabilities: Dynamic capabilities a firm’s capacity to build and protect a competitive advantage, which rests on knowledge, assets, competencies, complementary assets, and technologies. 

Dynamic capabilities include: o the ability to sense and seize new opportunities o generate new knowledge o reconfigure existing assets and capabilities.

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Dynamic capabilities include all of the following: o learning and innovating o the ability of an organization to challenge the conventional industry in its industry and market. o continuously adopting new ways of serving the evolving needs of the market.

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The best protection for intellectual property in the long run is likely to be the development of dynamic capabilities.

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The dynamic capabilities view maintains that success in volatile industries requires capabilities that enable companies to anticipate, shape, and adapt to shifting competitive landscapes.

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Dynamic capabilities, therefore, define the ability of the firm to innovate, adapt, and foster change that is favorable to customers and unfavorable to competitors.

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The following are primary activities included in dynamic capabilities: o sensing o transforming o seizing

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According to Herminia Ibarra, a leading scholar, the three tactics women can use to be more successfully engaged in networking activities include: o being a bridge across diverse circles in their network. o doing it your way by investing in extracurricular activities. o joining a professional network of women.

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Electronic Teams: Using Technology to Enhance Collaboration:

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