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Business Policy and StrategyBusiness Policy and Strategy
University of Management and Technology1901 North Fort Myer Drive Suite 700
Arlington, VA 22209 USAPhone: (703) 516-0035
Fax: (703) 516-0985
Website: www.umtweb.edu
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Chapter 4Chapter 4 Recognizing a Firm’s Intellectual Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Assets: Moving beyond a Firm’s
Tangible ResourcesTangible Resources
Dess, G.G, Lumpkin, G.T., & Eisner, A.B., Strategic Management: Creating
Competitive Advantages (4th ed.) © 2008 McGraw-Hill. ISBN 978-0-07-338121-3
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Copyright WarningCopyright Warning
This presentation is the intellectual property of the textbook publisher McGraw-Hill 2008. Students are hereby advised that they may not copy or distribute this work to any third party
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Learning ObjectivesLearning 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.The key role of social capital in leveraging human capital within and across the firm.The importance of social networks in knowledge management and in promoting career success.Why teams are critical in combining and leveraging knowledge in organizations and how they can be made more effective.
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Learning ObjectivesLearning Objectives
After reading this chapter, you should have a good understanding of:
The vital role of technology in leveraging knowledge and human capital.
How technology can help to retain knowledge even when employees cannot be retained by the organization.
The challenge of protecting intellectual property and the importance of a firm’s dynamic capabilities.
How leveraging human capital is critical to strategy formulation at the business, corporate, international, and Internet levels.
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Ratio of Market Value to Book Ratio of Market Value to Book Value Value
for Selected Companiesfor Selected Companies
Exhibit 4.1 Ratio of Market Value to Book Value for Selected Companies
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The Central Role of Knowledge The Central Role of Knowledge in Today’s Economyin Today’s Economy
Creation of wealth in a knowledge economyEffective 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
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The Central Role of Knowledge The Central Role of Knowledge in Today’s Economyin 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 knowledge
Intellectual capital = Market value of the firm – Book value of the firm
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Human Capital: The Foundation Human Capital: The Foundation of Intellectual Capitalof Intellectual Capital
Exhibit 4.2 Human Capital: Three Interdependent Activities
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QuestionQuestion
Do you agree with this statement, “hire for attitude, train for skill”? Explain.
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Attracting Human CapitalAttracting Human Capital
Hire for attitude, train for skill
Emphasis onGeneral knowledge and experience
Social skills
Values
Beliefs
Attitudes
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Attracting Human CapitalAttracting Human Capital
Sound recruiting approachesScanning pools of available candidates
Challenge becomes having the right job candidates, not the greatest number of them
NetworkingCurrent employees may be best source of new ones
Incentives for referrals
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ExampleExample
The top 5 MBA Employers in 2007, according to Fortune Magazine
1. Google2. McKinsey & Company3. Goldman & Sachs4. Bain & Company5. Boston Consulting Group
Source: www.fortune.com
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Developing Human CapitalDeveloping Human Capital
Train and develop at all levelsTraining is not the sole responsibility of the human resource department
Encouraging widespread involvement
Transferring knowledge
Monitor progress and track development
Evaluate human capitalEmployees must share knowledge and work together, collectively, to reach organizational goals
Firms often use 360-degree evaluation and feedback systems
Managers’ success cannot compromise the organization’s core values
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360-Degree Leadership 360-Degree Leadership AssessmentAssessment
Per
form
ance
Cri
teri
a o
f “V
isio
n”
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
Ten Characteristics of LeadershipVisionCustomer/Quality FocusIntegrityAccountability/CommitmentCommunication/Influence
Shared Ownership/Boundary-lessTeam Builder/EmpowermentKnowledge/Expertise/IntellectInitiative/SpeedGlobal Mind-Set
Adapted from Exhibit 4.4 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.
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Retaining Human CapitalRetaining Human Capital
Provide mechanisms that prevent the transfer of valuable and sensitive information outside the organization
Identify with organization’s mission and values
Strong alliance to organization (strategic intents)
Challenging work and stimulating environment
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Retaining Human CapitalRetaining Human Capital
Financial and Nonfinancial Rewards and IncentivesRewards 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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Enhancing Human Capital:Enhancing Human Capital:How Diversity Benefits the How Diversity Benefits the
OrganizationOrganization
1. Cost argument
2. Resource acquisition argument
3. Marketing argument
4. Creativity argument
5. Problem-solving argument
6. System flexibility argument
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The Vital Role of Social CapitalThe 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 How Social Capital Helps Attract and Retain TalentAttract and Retain Talent
Hiring via personal (social) networksSome 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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Microsoft Employees Who Have Microsoft Employees Who Have Left the Company for Other Left the Company for Other
BusinessesBusinesses
Exhibit 4.6 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.
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Knowledge of Social Networks Knowledge of Social Networks
Implications that an understanding of social networks has on one’s career
Closure
Bridging relationships
From an individual’s perspective, social networks deliver three unique advantages
Private information
Access to diverse skill sets
Power
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The Potential Downside of Social The Potential Downside of Social CapitalCapital
Groupthink
Cost of financial resources
Managerial commitment
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ExampleExample
Debunking myths about groupthink in the Old truths for the new economy from Business Week
Teams don't have to constantly work together to be effective.
Teams should not attempt to avoid conflict.
Team members are encouraged to work independently to achieve team goals.
Conflict is essential to prevent groupthink.
Source: Business Week, Old Truths for the New Economy, November 17, 2000
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Using Technology to Leverage Using Technology to Leverage Human Capital and KnowledgeHuman Capital and Knowledge
Sharing knowledge and informationConserves 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 Using Technology to Leverage Human Capital and KnowledgeHuman Capital and Knowledge
Using networks to share information and develop products and services
Electronic or Virtual teams
Enhance speed and effectiveness with which products are developed
Can be applied to new business ventures
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Using Technology to Leverage Using Technology to Leverage Human Capital and KnowledgeHuman Capital and Knowledge
Codifying knowledge for competitive advantageTacit 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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QuestionQuestion
Which of the following is NOT an advantage of e-teams?A) 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 are less flexible in responding to unanticipated
work challenges.
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Creating Value Through Human Creating Value Through Human Capital, Social Capital, and Capital, Social Capital, and
TechnologyTechnology
Human Capital
Recruiting “Top-Notch” Human CapitalRecruiting “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?
Adapted from Exhibit 4.8 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.
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Creating Value Through Human Creating Value Through Human Capital, Social Capital, and Capital, Social Capital, and
TechnologyTechnology
Human Capital
Enhancing Human Capital through Employee DevelopmentEnhancing Human Capital through Employee Development
•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?
Adapted from Exhibit 4.8 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.
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Creating Value Through Human Creating Value Through Human Capital, Social Capital, and Capital, Social Capital, and
TechnologyTechnology
Human Capital
Retaining the Best EmployeesRetaining the Best Employees
•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?
Adapted from Exhibit 4.8 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.
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Creating Value Through Human Creating Value Through Human Capital, Social Capital, and Capital, Social Capital, and
TechnologyTechnology
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?•Do the social networks within the organization have the appropriate level of closure and bridging relationships?•Does the organization minimize the adverse effects of excessive social capital—such as excessive costs and “groupthink”?
Adapted from Exhibit 4.8 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.
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Creating Value Through Human Creating Value Through Human Capital, Social Capital, and Capital, Social Capital, and
TechnologyTechnology
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?
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The Central Role of Leveraging The Central Role of Leveraging Human Capital in Strategy Human Capital in Strategy
FormulationFormulation
Leveraging human capital and business-level strategy (Chapter 5)
Sustainable over time
Integrate primary and support activities in the firm’s 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 The Central Role of Leveraging Human Capital in Strategy Human Capital in Strategy
FormulationFormulation
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 The Central Role of Leveraging Human Capital in Strategy Human Capital in Strategy
FormulationFormulation
Leveraging human capital and entrepreneurial strategies (Chapter 8)
Create value through technology
Lower costs
Enhance customer service
Improve performance