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CHAPTER 4
Recognizing a Firm’s
Intellectual Assets: Moving
beyond a Firm’s Tangible
Resources

© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
 Learning Objectives
After reading this chapter, you should be able to:
1. Explain why the management of knowledge professionals and
knowledge itself are so critical in today’s organizations.
2. Understand the importance of recognizing the interdependence of
attracting, developing, and retaining human capital.
3. Describe the key role of social capital in leveraging human capital
within and across the firm.
4. Explain the importance of social networks in knowledge
management and in promoting career success.
5. Describe the vital role of technology in leveraging knowledge and
human capital.
6. Explain why “electronic” or “virtual” teams are critical in combining
and leveraging knowledge in organizations and how they can be
made more effective.
7. Identify the challenge of protecting intellectual property and the
importance of a firm’s dynamic capabilities.

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 Looking Ahead

The Central Role of Knowledge in Today’s

Economy.
Human Capital: The Foundation of Intellectual
Capital.
The Vital Role of Social Capital.
Using Technology to Leverage Human Capital and
Knowledge.
Protecting the Intellectual Assets of the
Organization: Intellectual Property and Dynamic
Capabilities.

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 The Important of Intellectual Assets

Consider …
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.
In the knowledge economy, wealth is
increasingly created by effective management
of knowledge workers instead of by the
control of physical and financial assets.

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 The Central Role of Knowledge 1

Intellectual capital is a measure of the value of

a firm’s intangible assets. It is the difference
between a firm’s market value and book value.
It includes these assets:
• Reputation.
• Employee loyalty and commitment.
• Customer relationships.
• Company values.
• Brand names
• Experience and skills of employees.

© McGraw Hill
 The Central Role of Knowledge 2

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.
Knowledge management is critical to organizational
success. Knowledge includes:
• Explicit knowledge.
• Codified, documented, easily reproduced, and widely distributed.

• Tacit knowledge.
• In the minds of employees, based on their experiences and backgrounds.

© McGraw Hill
 Question 1

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 these are correct.

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 Human Capital

Exhibit 4.2 Human Capital: Three Interdependent

Activities.
© McGraw Hill
 Attracting Human Capital
Hire for attitude, train for skill with an emphasis on:
• General knowledge and experience.
• Social skills, values, beliefs, attitudes.

Recognize the geographical preferences of talent:

• Supply not matching demand for technology-trained talent.
• Hard to lure talent away from current position or city.
• Best to locate work near schools to maintain connections.
Attract millennials:
• Tech-savviness, ability to innovate.
• Racially diverse.
• Want challenging opportunities, flexible work options.

© McGraw Hill
 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 and sponsoring lower-level
employees.
• Emphasizes the need to monitor progress and track
development so knowledge can be shared.

Consider evaluating human capital to assess the “soft”

skills.
• Use 360-degree evaluation and feedback systems.

© McGraw Hill
 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
environment.
• Offer financial and nonfinancial rewards and incentives.
• Money is not the most important reason why people take
or leave jobs.
• Consider accommodating working families with children.

© McGraw Hill
 Enhancing Human Capital: Redefining
Jobs and Managing Diversity
Redefining jobs, such as breaking high-end knowledge
work into specialized pieces, helps address skill shortages.
Sound management of diverse workforces can improve an
organization’s effectiveness and competitive advantages
through
• Lower cost.
• Better reputation, leading to resource acquisition.
• Marketing sensitivity to client cultures.
• Creativity through diversity of perspectives.
• Better problem solving.
• Greater organizational flexibility.

© McGraw Hill
 Social Capital

Social capital.
• Are the friendships and working relationships
among talented individuals.
• It helps to tie knowledge workers to a given
firm.
• Interaction, sharing, and collaboration will
help develop firm specificities, with a higher
probability of retaining key knowledge
workers.

© McGraw Hill
 How Social Capital Helps Attract and
Retain Talent

Hiring via personal (social) networks:

• Some job candidates may bring other talent with
them.
• 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.

© McGraw Hill
 Social Networks
Social network analysis depicts the pattern of
interactions among individuals and helps to diagnose
effective and ineffective patterns.
• Who links to whom within the network or cluster?

• Who communicates to whom and how effective is this

communication?
Social ties can link individuals so they can
• Convey needed resources.

• Exchange information and support.

• Treat each other in positive ways.

• Develop trusting relationships to improve the groups’

effectiveness.
© McGraw Hill
 Example: Social Network Analysis

Exhibit 4.4 A Simplified

Social Network

Access the text alternative for slide images.

© McGraw Hill
 Social Network Analysis

Closure Relationships Bridging Relationships

The degree to which all Relationships in a social

members of the social network that connect
network have otherwise disconnected
relationships with other people.
group members.

© McGraw Hill
 Social Networks: Implications for Career
Success

Effective social networks provide advantages for

the firm AND for an individual’s career
advancement.
• Access to private information communicated in
the context of personal relationships.
• Access to diverse skill sets:
• Trading information or skills with people whose
experiences differ from your own.

• Access to power.

© McGraw Hill
 Social Capital: Potential Downside

Social capital does have some potential

downsides.
• Groupthink.
• Dysfunctional human resource practices.
• Expensive socialization processes (orientation,
training).
• Distortion or selective use of information to favor
preferred courses of action.

© McGraw Hill
 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 and
knowledge.
• Within the organization.
• With customers.
• With suppliers.
© McGraw Hill
 Networks and Electronic Teams: Share
Information and Enhance Collaboration
Using networks to share information and develop
products and services
• Through e-mail.
• Through an intra-company news feed.

Using electronic teams or e-teams to accelerate

product development
• 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.”
© McGraw Hill
 Question 2

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
capital.
D. They’re less flexible in responding to
unanticipated work challenges.

© McGraw Hill
 Codifying Knowledge for Competitive
Advantage
Explicit (codified)
Tacit knowledge knowledge
• Embedded in personal • Can be documented.
experience. • Can be widely
• Shared only with the distributed.
consent and participation • Can be easily replicated.
of the individual. • Can be reused many
• Has the organization times at very low cost.
effectively used technology
to codify knowledge for
competitive advantage?

© McGraw Hill
 Protecting Intellectual Assets

Intellectual property rights are more difficult

to define and protect than property rights for
physical assets.
Intellectual property can be easily stolen.
If intellectual property rights are not reliably
protected by the state, there will be no incentive
to develop new products and services.
Intellectual property has significant development
costs but very low marginal costs.
Effective protection is necessary before any
investor will provide financing.

© McGraw Hill
 Protecting Intellectual Assets Through
Dynamic Capabilities
Dynamic capabilities involve the capacity to
anticipate, shape, and adapt to a shifting
competitive landscape.
• Identifying, developing, and assessing
technological opportunities that relate to customer
needs.
• Mobilizing resources to capture value.
• Continuing the process of transforming,
revolutionizing industries and economies.

© McGraw Hill
 Summary: Creating Value Through
Intellectual Assets
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
employees?
• Do the social networks within the organization have the
appropriate levels of closure and bridging relationships?
Technology: Does the organization effectively use
technology to transfer best practices across the
organization, codify knowledge, and develop dynamic
capabilities for competitive advantage?
© McGraw Hill
 End of Main Content

Because learning changes

everything. ®

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© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.