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4-1
4-2
Recognizing a Firm’s Intellectual Assets: Moving Beyond a Firm’s Tangible
Resources
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter four
Part 1: strategic analysis
4-3
Learning Objectives
After reading this chapter, you should have a good understanding of:
Why the management of knowledge professionals and knowledge itself are so critical in today’s organizations.
The importance of recognizing the interdependence of attracting, developing and retaining human capital.
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
4-4
Learning Objectives After reading this chapter, you should
have a good understanding of: The key role of social capital in
leveraging human capital within and across the firm.
Why teams are critical in combining and leveraging knowledge in organizations and how they can be made more effective.
The vital role of technology in leveraging knowledge and human capital.
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
4-5
Learning Objectives
After reading this chapter, you should have a good understanding of:
How technology can help to retain knowledge even when employees cannot be retained by the organization.
How leveraging human capital is critical to strategy formulation at the business, corporate, international, and Internet levels.
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
4-6
Ratio of Market Value to Book Value for Selected Companies
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Annual Market Book Ratio of Sales Value Value Market to
Company ($ billions) ($ billions) ($ billions) Book Value
Google 3.2 60.4 2.9 20.8
Genentech 3.9 75.0 6.8 11.0
Yahoo! 3.6 47.9 7.1 6.7
eBay 3.2 42.8 6.7 6.4
Southwest Airlines 6.5 11.7 5.5 2.1
Union Pacific (Railroad) 12.2 16.7 12.7 1.3
Note: The data on market valuations are as of May 1, 2005. All other financial data is based on the most recently available balance sheets and income statements.
Ford Motor Company 171.6 16.7 16.0 1.0
Exhibit 4.1 Ratio of Market Value to Book Value for Selected Companies
4-7
The Central Role of Knowledge in Today’s Economy
Creation of wealth in a knowledge economy
Effective management of knowledge workers
Intellectual capital Assets such as
Reputation Employee loyalty and commitment Customer relationships Company values Brand names Experience and skills of employees
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
4-8
The Central Role of Knowledge in Today’s Economy
How do companies create value in the knowledge-intensive 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)
Knowledge Explicit knowledge Tacit knowledgeMcGraw-Hill/Irwin
Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Intellectual capital = Market value of the firm – Book value of the firm
4-9
Human Capital: The Foundation of Intellectual Capital
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Exhibit 4.2 Human Capital: Three Interdependent Activities
4-10
Attracting Human Capital
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Hire for attitude, train for skillEmphasis on
General knowledge and experienceSocial skillsValuesBeliefsAttitudes
4-11
Attracting Human Capital
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Sound recruiting approachesScanning pools of available candidatesChallenge becomes having the right job candidates, not the greatest number of them
NetworkingCurrent employees may be best source of new onesIncentives for referrals
4-12
Developing Human Capital
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Train and develop at all levelsTraining is not the sole responsibility of the human resource department
Rapid changes in technologyEmployee skills become obsoleteTraining is cost effective
Monitor progress and track development
4-13
Developing Human Capital
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Evaluate human capitalEmployees must share knowledge and work together, collectively, to reach organizational goalsFirms often use 360-degree evaluation and feedback systemsManagers’ success cannot compromise the organization’s core values
4-14 360-Degree Leadership Assessment
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Has developed and communicated a clear, simple, customer-focused vision/direction for the organization.
Forward-thinking, stretches horizons, challenges imaginations.
Inspires and energizes others to commit to Vision. Captures minds. Leads by example.
As appropriate, updates Vision to reflect constant and accelerating change affecting the business
VisionCustomer/Quality FocusIntegrityAccountability/CommitmentCommunication/Influence
Shared Ownership/Boundary-lessTeam Builder/EmpowermentKnowledge/Expertise/IntellectInitiative/SpeedGlobal Mind-Set
Per
form
ance
Cri
teri
a o
f “V
isio
n”
Ten Characteristics of Leadership
Adapted from Exhibit 4.3 An Excerpt from General Electric’s 360-Degree Leadership Assessment ChartSource: Adapted from R. Slater, Get Better or Get Beaten (Burr Ridge, IL: Irwin Professional Publishing, 1994), pp. 152-155.
4-15
Retaining Human Capital
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Provide mechanisms that prevent the transfer of valuable and sensitive information outside the organization
Identify with organization’s mission and valuesStrong alliance to organization (strategic intents)
Challenging work and stimulating environment
4-16
Retaining Human Capital
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Financial and Nonfinancial Rewards and Incentives
Rewards are a vital organizational control mechanismHowever, money may not be the most important reason why people take or leave jobsExodus of employees can erode a firm’s competitive advantage
4-17
Enhancing Human Capital:How Diversity Benefits the Organization
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
1. Cost argument2. Resource acquisition argument3. Marketing argument4. Creativity argument5. Problem-solving argument6. System flexibility argument
4-18
The Vital Role of Social Capital
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Attraction, development and retention of talent is a necessary but not sufficient condition for creating competitive advantageKnowledge workers often are more loyal to their colleagues and profession than to their employer
4-19
How Social Capital Helps Attract and Retain Talent
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Hiring via personal (social) networksSome job candidates may bring other talent with themEmigration of talent from an organization to form start-up venturesCan provide mechanism for obtaining resources and information from outside the organization
4-20 Microsoft Employees Who Have Left the Company for Other Businesses
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Company What It Does Defectors from Microsoft
Crossgain Builds software around 23 of 60 employeesXMl computer language
ViAir Makes software for Company declines towireless providers specify
CheckSpace Builds online payment Company says “a good service for small businesses chunk” of its 30 employees
digiMine Sells data mining service About 15% of 62 employees inaddition to the 3 founders
Avogadro Builds wireless notification 8 of 25 employeessoftware
Tellme Networks Offers information like stock About 40 of 250 employees;quotes and scores over the another 40 from the formerphone Netscape
Exhibit 4.4 Microsoft Employees Who Have Left the Company for Other BusinessesSource: Reprinted by permission of the Wall Street Journal, Copyright ©2000 Dow Jones & Company, Inc. All Rights Reserved Worldwide. License number 397221136576.
4-21
The Potential Downside of Social Capital
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
GroupthinkCost of financial resourcesManagerial commitment
4-22
Using Technology to Leverage Human Capital and Knowledge
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Sharing knowledge and informationConserves resourcesDevelops products and servicesCreates new opportunities
Technology can leverage human capital and knowledge
Within the organizationWith customersWith suppliers
4-23
Using Technology to Leverage Human Capital and Knowledge
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Using networks to share information and develop products and services
E-mailElectronic or Virtual teams
Enhance speed and effectiveness with which products are developedCan be applied to new business ventures
Using NetworksUsing Networks
4-24
Using Technology to Leverage Human Capital and Knowledge
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Codifying knowledge for competitive advantage
Tacit knowledgePersonal experienceShared only with the consent and participation of the individual
Explicit (codified) knowledgeCan be documentedCan be widely distributedCan be easily replicatedCan be reused many times at low cost
Codifying Codifying KnowledgeKnowledge
Using NetworksUsing Networks
4-25Using Technology to Leverage Human Capital and Knowledge
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Retaining knowledge when employees leave
Information technology can save some tacit knowledgeNeed to create motivation for people to contribute their knowledge to the system
Retaining Retaining KnowledgeKnowledge
Codifying Codifying KnowledgeKnowledge
Using NetworksUsing Networks
4-26
Creating Value Through Human Capital, Social Capital, and Technology
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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?
Human Capital
Recruiting “Top-Notch” Human CapitalRecruiting “Top-Notch” Human Capital
Adapted from Exhibit 4.5 Issues to Consider in Creating Value through Human Capital, Social Capital, and TechnologySource: Adapted from G. G. Dess and J. C. Picken, Beyond Productivity (New York: AMACON, 1999), pp. 63-64.
4-27Creating Value Through Human Capital, Social Capital, and Technology
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Does the development and training process inculcate an “organizationwide” perspective?
Is there widespread involvement—including top executives—in 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
organization—especially 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 manager’s success does not
come at the cost of compromising the organization’s core values?
Human Capital
Enhancing Human Capital through Employee DevelopmentEnhancing Human Capital through Employee Development
Adapted from Exhibit 4.5 Issues to Consider in Creating Value through Human Capital, Social Capital, and TechnologySource: Adapted from G. G. Dess and J. C. Picken, Beyond Productivity (New York: AMACON, 1999), pp. 63-64.
4-28
Creating Value Through Human Capital, Social Capital, and Technology
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Are there appropriate financial rewards to motivate employees at all levels?
Do people throughout the organization strongly identify with the organization’s 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 organization’s mission, strategy, and how work is accomplished?
Is the organization continually devising strategies and mechanisms to retain top performers?
Human Capital
Retaining the Best EmployeesRetaining the Best Employees
Adapted from Exhibit 4.5 Issues to Consider in Creating Value through Human Capital, Social Capital, and TechnologySource: Adapted from G. G. Dess and J. C. Picken, Beyond Productivity (New York: AMACON, 1999), pp. 63-64.
4-29
Creating Value Through Human Capital, Social Capital, and Technology
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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 capital—such as excessive costs and “groupthink”?
Social Capital
Adapted from Exhibit 4.5 Issues to Consider in Creating Value through Human Capital, Social Capital, and TechnologySource: Adapted from G. G. Dess and J. C. Picken, Beyond Productivity (New York: AMACON, 1999), pp. 63-64.
4-30
Creating Value Through Human Capital, Social Capital, and Technology
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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?
Technology
Adapted from Exhibit 4.5 Issues to Consider in Creating Value through Human Capital, Social Capital, and TechnologySource: Adapted from G. G. Dess and J. C. Picken, Beyond Productivity (New York: AMACON, 1999), pp. 63-64.
4-31
The Central Role of Leveraging Human Capital in Strategy Formulation
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Leveraging human capital and business-level strategy (Chapter 5)
Sustainable over timeIntegrate primary and support activities in the firm’s value chain
Leveraging human capital and corporate-level strategy (Chapter 6)
Manage businesses to create synergyCreate more value by working together across business units
4-32
The Central Role of Leveraging Human Capital in Strategy Formulation
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Leveraging human capital and international-level strategy (Chapter 7)
Achieve economies of scaleAdapt to local market needsFacilitate the flow of information and knowledge between business units in different countries
4-33
The Central Role of Leveraging Human Capital in Strategy Formulation
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Leveraging human capital and internet strategies (Chapter 8)
Create competitive advantages through digital and Internet-based technologiesLower costsEnhance customer serviceImprove performance