Recognizing a Firms Intellectual Assets

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Chapter 4

• Recognizing a Firms Intellectual Assets

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Topics

• Why should we care about knowledge management?
• Attracting, developing and retaining human
  capital.
• Social capital
• Using technology to leverage human capital

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Ratio of Market Value to Book Value for Selected
Companies
Annual Market Book Ratio of Sales Value
Value Market to Company ( billions) (
billions) ( billions) Book Value
eBay 1.2 30.8 3.9 7.9
Microsoft 28.4 254.1 58.3 4.4
Intel 26.8 142.1 35.4 4.0
General Motors Corp. 182.1 20.0 9.4 2.1
Nucor (Steel) 4.8 3.9 2.3 1.7
J. C. Penney 32.3 5.0 6.4 .78
Note The data on market valuations are as of
June 16, 2003. All other financial data is based
on the most recently available balance sheets and
income statements.
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Definitions

• Intellectual capital Market value of the firm
  Book
• value of the firm

• Human capital (individual capabilities,
  knowledge, skills, and experience of the
  companys employees and managers)
• Social capital (the network of relationships that
  individuals have throughout the organization)
• Knowledge
• Explicit knowledge
• Tacit knowledge

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The Central Role of Leveraging Human Capital in
Strategy Formulation

• Leveraging human capital and business-level
  strategy (Chapter 5)
• Sustainable over time
• Integrate primary and support activities in the
  firms value chain
• Leveraging human capital and corporate-level
  strategy (Chapter 6)
• Manage businesses to create synergy
• Create more value by working together across
  business units

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The Central Role of Leveraging Human Capital in
Strategy Formulation

• Leveraging human capital and international-level
  strategy (Chapter 7)
• Achieve economies of scale
• Adapt to local market needs
• Facilitate the flow of information and knowledge
  between business units in different countries

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The Central Role of Leveraging Human Capital in
Strategy Formulation

• Leveraging human capital and internet strategies
  (Chapter 8)
• Create competitive advantages through digital and
  Internet-based technologies
• Lower costs
• Enhance customer service
• Improve performance

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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

• Challenge is finding the right job candidates,
  not the greatest number of them
• Networking
• Current employees may be best source of new ones
• Incentives for referrals

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Attracting Human Capital Checklist
Human Capital
Recruiting Top-Notch Human Capital

• Does the organization assess attitude and
  general make-up instead of focusing primarily
  on skills and background in selecting employees
  at all levels?
• How important is creativity and problem solving
  ability? Are they properly considered in hiring
  decisions?
• Do people throughout the organization engage in
  effective networking activities to obtain a broad
  pool of worthy potential employees? Is the
  organization creative in such endeavors?

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Developing Human Capital

• Encourage widespread involvement in training and
  development
• Training is not the sole responsibility of the
  human resource department
• Rapid changes in technology
• Employee skills become obsolete
• Training is cost effective
• Monitor progress and track development

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Developing Human Capital

• Evaluate human capital
• Employees must share knowledge and work together,
  collectively, to reach organizational goals

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Developing Human Capital Checklist
Human Capital
Enhancing Human Capital through Employee
Development

• Does the development and training process
  inculcate an organizationwide perspective?
• Is there widespread involvementincluding top
  executivesin the preparation and delivery of
  training and development programs?
• Is the development of human capital effectively
  tracked and monitored?
• Are there effective programs for succession at
  all levels of the organizationespecially the
  top-most levels?
• Does the firm effectively evaluate its human
  capital? Is a 360-degree evaluation used? Why?
  Why not?
• Are mechanisms in place to assure that a
  managers success does not come at the cost of
  compromising the organizations core values?

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Retaining Human Capital

• Provide mechanisms that prevent the transfer of
  valuable and sensitive information outside the
  organization
• Identify with organizations mission and values
• Strong alliance to organization (strategic
  intents)
• Challenging work and stimulating environment

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Retaining Human Capital

• Financial and Nonfinancial 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 firms
  competitive advantage

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Retaining Human Capital Checklist
Human Capital
Retaining the Best Employees

• Are there appropriate financial rewards to
  motivate employees at all levels?
• Do people throughout the organization strongly
  identify with the organizations mission?
• Are employees provided a stimulating and
  challenging work environment that fosters
  professional growth?
• Are valued amenities provided (e.g., flextime,
  child-care facilities, telecommuting) that are
  appropriate given the organizations mission,
  strategy, and how work is accomplished?
• Is the organization continually devising
  strategies and mechanisms to retain top
  performers?

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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
• It is not the stock of resources owned, but the
  extent to which human capital is combined and
  leveraged

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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
• Can provide mechanism for obtaining resources and
  information from outside the organization

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Creating Value Through Human Capital, Social
Capital, and Technology
Social Capital

• Are there positive personal and professional
  relationships among employees?
• Is the organization benefiting (or being
  penalized) by hiring (or by voluntary turnover)
  en masse?
• Does an environment of caring and encouragement
  rather than competition enhance team performance?
• Does the organization minimize the adverse
  effects of excessive social capitalsuch as
  excessive costs and groupthink?

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The Potential Downside of Social Capital

• Groupthink
• Costly to develop

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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
• Technology can leverage human capital and
  knowledge
• Within the organization
• With customers
• With suppliers

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Using Technology to Leverage Human Capital and
Knowledge

• Using networks to share information and develop
  products and services
• E-mail
• Virtual teams
• Enhance speed and effectiveness with which
  products are developed

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Using Technology to Leverage Human Capital and
Knowledge

• Codifying knowledge for competitive advantage
• Tacit knowledge
• 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 low cost

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Using Technology to Leverage Human Capital and
Knowledge

• Retaining knowledge when employees leave
• Information technology can save some tacit
  knowledge
• Need to create motivation for people to
  contribute their knowledge to the system

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Use of Technology Checklist
Technology

• Does the organization effectively use technology
  to transfer best practices across the
  organization?
• Does the organization use technology to leverage
  both human capital and knowledge both within the
  boundaries of the organization as well as among
  its suppliers and customers?
• Has the organization used technologies such as
  e-mail and networks to develop products and
  services?
• Has the organization effectively used technology
  to codify knowledge for competitive advantage?
• Does the organization try to retain some of the
  knowledge of employees when they decide to leave
  the firm?