Learning ObjectivesAfter reading this chapter, you should have a good understanding of:LO4.1 Why the management of knowledge professionals and knowledge itself is so critical in todays organizations.LO4.2 The importance of recognizing the interdependence of attracting, developing, and retaining human capital.LO4.3 The key role of social capital in leveraging human capital within and across the firm.4-*

Learning ObjectivesLO4.4 The importance of social networks in knowledge management and in promoting career success.LO4.5 The vital role of technology and leveraging knowledge and human capital.LO4.6 Why electronic or virtual teams are critical in combining and leveraging knowledge in organizations and how they can be made more effective.LO4.7 the challenge of protecting intellectual property and the importance of a firms dynamic capabilities.4-*

The Central Role of KnowledgeConsiderA companys value is not derived solely from its physical assets. Rather it is based on knowledge, know-how, and intellectual assets all embedded in people.4-*

The Central Role of KnowledgeIn the knowledge economy, wealth is increasingly created by effective management of knowledge workers instead of by the efficient control of physical & financial assets.4-*

Ratio of Market Value to Book ValueExhibit 4.1 Ratio of Market Value to Book Value for Selected CompaniesSource: www.finance.yahoo.comNote: The data on market valuations are as of January 4, 2013. All other financial data are based on the most recently available balance sheets and income statements.4-*

The Central Role of KnowledgeIntellectual capital is a measure of the value of a firms intangible assets the difference between a firms market value & book value. It includes these assets:ReputationEmployee loyalty & commitmentCustomer relationshipsCompany valuesBrand namesExperience & skills of employees4-*

The Central Role of KnowledgeHuman capital includes the individual capabilities, knowledge, skills, and experience of the companys employees and managers.Social capital includes the network of relationships that individuals have throughout the organization.4-*

The Central Role of KnowledgeKnowledge 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.4-*

Question?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 ofusing explicit knowledge.inefficient use of information management.using tacit knowledge.all of the above.4-*

Human CapitalExhibit 4.2 Human Capital: Three Interdependent Activities4-*

Attracting Human CapitalHire for attitude, train for skillEmphasis on:General knowledge & experienceSocial skillsValuesBeliefsAttitudes4-*

Attracting Human CapitalSound recruiting approaches to attract human capital:Building a pool of qualified candidatesThe challenge becomes having the right job candidates, not the greatest number of themNetworkingCurrent employees may be the best source of new onesProvide incentives for referrals4-*

Example: Creative Hiring PracticesOnline retailer Zappos had 55,000 applicants for 200 jobs in 2010, but only hired a few people:

Only about one out of 100 applicants passes a hiring process that is weighted 50 percent on job skills and 50 percent on the potential to mesh with Zappos culture.4-*

Developing Human CapitalTraining and development must take place at all levels of the organizationRequires the active involvement of leaders at all levelsIncludes mentoring & sponsoring lower-level employeesMonitoring progress & tracking developmentEvaluating human capital4-*

Developing Human Capital360-degree evaluation and feedback systems address the limitations of the traditional approach to performance evaluation.Superiors, direct reports, colleagues, and even internal and external customers rate a persons performance.360-degree feedback systems complement teamwork, employee involvement, and organizational flattening.4-*

Developing Human CapitalExhibit 4.3 An Excerpt from General Electrics 360-Degree Leadership Assessment ChartSource: Adapted from Slater, R. 1994. Get Better or Get Beaten: 152-155. Burr Ridge, IL: Irwin Professional PublishingNote: This evaluation system consists of 10 characteristics - Vision, Customer/Quality Focus, Integrity, and so on. Each of these characteristics has four performance criteria. For illustrative purposes, the four performance criteria of Vision are included.4-*

Retaining Human CapitalRetention mechanisms must prevent the transfer of valuable and sensitive information outside the organization:Help employees identify with an organizations mission and valuesProvide challenging work and a stimulating environmentOffer financial and nonfinancial rewards & incentivesMoney is not the most important reason why people take or leave jobs4-*

Enhancing Human Capital: The Role of DiversitySound management of diverse workforces can improve an organizations effectiveness & competitive advantages by making the following arguments:CostResource acquisitionMarketingCreativityProblem solvingOrganizational flexibility4-*

Social CapitalSocial capital the friendships and working relationships among talented individuals helps tie knowledge workers to a given firm.Interaction, sharing, and collaboration will help develop firm-specific ties, with a higher probability of retaining key knowledge workers.4-*

How Social Capital Helps Attract and Retain TalentHiring via personal (social) networks:Some job candidates may bring other talent with them the Pied Piper effectTalent can emigrate from an organization to form startup venturesSocial networks can provide a mechanism for obtaining resources and information from outside the organization4-*

Social NetworksSocial network analysis depicts the pattern of interactions among individuals and helps to diagnose effective and ineffective patternsWho links to whom within the network or cluster?Who communicates to whom and how effective is this communication?4-*

Social Network AnalysisExhibit 4.4 A Simplified Social Network4-*

Social Network AnalysisThe degree to which all members of the social network have relationships with other group members.Relationships in a social network that connect otherwise disconnected peopleStructural holesClosure RelationshipsBridging Relationships4-*

Overcoming Barriers to CollaborationEffective collaboration requires overcoming barriers:The not-invented-here or hoarding barrier (people arent willing to provide help)The search barrier (people are unable to find what theyre looking for)The transfer barrier (people are unable to work with people they dont know well)4-*

Overcoming Barriers to CollaborationTo encourage collaboration, leaders can choose a mix of three levers:Unification levers create compelling common goals & articulate a strong value of cross- company teamworkPeople levers get the right people to collaborate on the right projects through T-shaped managementNetwork levers build nimble interpersonal networks across the company4-*

Social Networks: Implications for Career SuccessEffective social networks provide advantages for the firm AND for an individuals career advancement:Access to private information communicated in the context of personal relationshipsAccess to public information from sources such as the InternetAccess to diverse skill sets trading information or skills with people whose experiences differ from your ownAccess to power4-*

Social Capital: LimitationsSocial capital does have some potential downsides:Groupthink Dysfunctional human resource practicesExpensive socialization processes (orientation, training)Individuals may distort or selectively use information to favor their preferred courses of action4-*

Using Technology to Leverage Human Capital and KnowledgeSharing knowledge and information throughout the organizationConserves resourcesDevelops products and servicesCreates new opportunitiesTechnology can leverage human capital & knowledgeWithin the organizationWith customersWith suppliers4-*

Using Technology to Leverage Human Capital and KnowledgeUsing networks to share information and develop products and servicesThrough e-mailThrough an intra-company news feedThrough electronic teams or e-teamsAdvantages: few geographic constraints; access to multiple social contactsChallenges: failure to identify team members with the most appropriate knowledge and resources; low cohesion, low trust, lack of shared understanding creates process loss4-*

Question?Which of the following is NOT an advantage of electronic teams (e-teams)?They can facilitate communication.They have the potential to acquire a broader range of human capital.They can be effective in generating social capital.Theyre less flexible in responding to unanticipated work challenges.4-*

Codifying Knowledge For Competitive AdvantageTacit knowledgeEmbedded in personal experienceShared only with the consent and participation of the individualExplicit (codified) knowledgeCan be documentedCan be widely distributedCan be easily replicatedCan be reused many times at very low costHas the organization effectively used technology to codify knowledge for competitive advantage?4-*

Protecting Intellectual AssetsIntellectual property rights are more difficult to define and protect than property rights for physical assets.Unlike physical assets, intellectual property can be stolen.If intellectual property rights are not reliably protected by the state, there will be no incentive to develop new products and services.4-*

Example: Dippin Dots Patent ChallengeDippin' Dots are tiny beads of ice cream, yoghurt, sherbet and flavored ice, created by microbiologist and founder Curt Jones10 years after its founding, Dippin Dots lost the patent for its product, allowing its competition to copy the processThree years later, Dippin Dots filed for bankruptcy4-*

Protecting Intellectual AssetsDynamic capabilities involve the capacity to build and protect a competitive advantage.This requires knowledge, assets, competencies, and complementary assets & technologiesThis also requires the ability to sense & seize new opportunities, generate new knowledge, and reconfigure existing assets & capabilities.Dynamic capabilities include internal processes & routines that enable product development, strategic decision-making, alliances, or acquisitions.4-*

Recognizing Intellectual Assets: Intangible ResourcesHuman 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?4-*

Today, more than 50% of the gross domestic product (GDP) in developed economies is knowledge based; it is based on intellectual assets and intangible people skills. Human capital is the foundation of intellectual capital, but the attraction, development, and retention of human capital is a necessary but not sufficient condition for organizational success. Social capital, the appropriate use of technology, and protection of physical and intellectual property is also critical. *Knowledge economy = an economy where wealth is created through the effective management of knowledge workers instead of by the efficient control of physical and financial assets. Investing in a company is, in essence, buying a set of talents, capabilities, skills, and ideas intellectual capital not physical and financial resources. Example = Merck has been a most admired company in Fortunes annual survey not because it can manufacture pills, but because its scientists can discover new medicines.*Whats a company worth? Financial statements are useful for investors and can establish a companys market value, but this may not be the same as the value that accountants ascribe to it the book value of the firm. The gap between a firms market value and book value is far greater for knowledge intensive corporations than for firms with strategies based primarily on tangible assets. The market value of a firm is equal to the value of a share of its common stock times the number of shares outstanding. The book value of the firm is primarily a measure of the value of its tangible assets. It can be calculated by the formula: total assets minus total liabilities. Example = Apple, Google, Oracle, and Microsoft have very high market value to book value ratios because of their high investment in knowledge resources and technological expertise. Nucor and Southwest Airlines have relatively low market to book values because of their greater investments in physical resources and lower investment in knowledge resources. Intel has a market to book value ratio that falls between the above two groups of firms. This is because their high level of investment in knowledge resources is matched by a correspondingly huge investment in plant and equipment.*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. How do companies create value in the knowledgeintensive economy? The general answer is to attract and leverage human capital (intangible assets) effectively through mechanisms that create products and services of value over time. *Human capital = the individual capabilities, knowledge, skills, and experience of a companys employees and managers. This knowledge is relevant to the task at hand, and also includes the ability to add to this reservoir of knowledge, skills, and experience through learning. Social capital = the network of friendships and working relationships between talented people both inside and outside the organization. Relationships are critical in sharing and leveraging knowledge and in acquiring resources. Social capital can extend beyond the organizational boundaries to include relationships between the firm and its suppliers, customers, and alliance partners.*Explicit knowledge = knowledge that is codified, documented, easily reproduce, and widely distributed. Tacit knowledge = knowledge that is in the minds of employees and is based on their experiences and backgrounds. New knowledge is constantly created through the continual interaction of explicit and tacit knowledge. Another important issue is the role of socially complex processes, which include leadership, culture, and trust. These processes play a central role in the creation of knowledge. They represent the glue that holds the organization together and helps to create a working environment where individuals are more willing to share their ideas, work in teams, and, in the end, create products and services of value.*Answer: A. Explicit knowledge gained through reading the e-mails.*Hiring is only the first of three processes in which all successful organizations must engage to build and leverage their human capital. Firms must also develop employees to fill their full potential to maximize their joint contributions. Finally, the first two processes are for naught if firms cant provide the working environment and intrinsic and extrinsic rewards to retain their best and brightest.*The first step in building superior human capital is input control: attracting and selecting the right person. Some human resource professionals argue that firms can identify top performers by focusing on key employee mind-sets, attitudes, social skills, and general orientations. If they get these elements right, the task-specific skills can be learned quickly.*Companies that take hiring seriously must also take recruiting seriously. The challenge becomes having the right job candidates, not the greatest number of them.*Gallup estimates the cost of a disengaged worker to be more than $300 billion in lost productivity alone. (See Targeting soft skills yields hard returns for employers, by Lisa V. Gillespie, April 15, 2012, Employee Benefit News, http://ebn.benefitnews.com/news/zappos-hiring-practices-shrm-soft-skills-recruitment-2723282-1.html) Zappos Tony Hsieh points out how if you add up the cost of all the bad decisions bad hires have made over the course of Zappos history, it cost Zappos well over $100 million. Now Hsieh says dont just get warm bodies, and hire as fast as possible. Dont hire quickly and fire slowly, do it in reverse high slowly and fire quickly. (http://www.inc.com/allison-fass/tony-hsieh-hiring-mistakes-cost-zappos-100-million.html) See more: At Zappos, Culture Pays: The thriving Internet shoe retailer has made its name and a lot of money by being eccentric, by Dick Richards, strategy+business, 8/24/2010, http://www.strategy-business.com/article/10311?gko=c784e *Its not enough to hire top level talent and expect that the skills and capabilities of those employees remain current throughout the duration of their employment. Rather, training and development must take place at all levels of the organization. Mentoring is traditionally viewed as a program to transfer knowledge and experience from more senior managers to up-and-comers. Mentoring can help recruit qualified managers, decrease turnover, fill senior level positions with qualified professionals, enhance diversity initiatives with senior-level management, and facilitate organizational change efforts. A sponsor is someone in a senior position whos willing to advocate for and facilitate career moves, make introductions to the right people, translate and teach the secret language of success to their protg. Systems for monitoring progress and tracking development need to evaluate the softer dimensions of communications and social skills, values, beliefs, and attitudes. *Traditional top-down appraisal systems become insufficient as organizations continue to push responsibility downward. 360-degree evaluation and feedback systems = superiors, direct reports, colleagues, and even external and internal customers rate a persons performance. Employees must share knowledge and work together, collectively, to reach organizational goals. Evaluation systems must ensure that a managers success does not come at the cost of compromising the organizations core values.*Note: this evaluation system from General Electric consists of 10 characteristics vision, customer/quality focus, integrity, and so on. Each of these characteristics has four performance criteria. For illustrative purposes, the four performance criteria of Vision are included.*Leaders can either provide the work environment and incentives to keep productive employees and management from wanting to bail out, or they can use legal means such as employment contracts and noncompete clauses. Firms must prevent the transfer of valuable and sensitive information outside the organization. Failure to do so would be the neglect of the leaders fiduciary responsibility to shareholders. Exodus of employees can erode a firms competitive advantage. A cohesive culture, challenging work, and valued rewards are all vital organizational control mechanisms for retaining human capital. (See more about this in chapter 9.)*A combination of demographic trends and accelerating globalization of business has made the management of cultural differences a critical issue. Workforces, which reflect demographic changes in the overall population, will be increasingly heterogeneous along dimensions such as gender, race, ethnicity, and nationality. The effective management of diversity can enhance the social responsibility goals of an organization. Cost: firms effective in managing diversity will have a cost advantage over those that are not. Resource acquisition: firms with excellent reputations as prospective employers for women and ethnic minorities will have an advantage in the competition for top talent. Marketing: the insight and cultural sensitivity that members with roots in other countries bring to marketing efforts will be very useful. Creativity: less emphasis on conformity to norms of the past and diversity of perspectives will improve the level of creativity. Problem solving: heterogeneous groups typically produce better decisions because of the wider range of perspectives. Organizational flexibility: with effective programs to enhance workplace diversity, systems become less determinate, less standardized, and therefore more fluid. Such fluidity should lead to greater flexibility to react to environmental changes. See Strategy Spotlight 4.3.*Successful firms are well aware that the attraction, development, and retention of talent is a necessary but not sufficient condition for creating competitive advantages. In the knowledge economy, it is not the stock of human capital that is important, but the extent to which it is combined and leveraged. The development of social capital the friendships and working relationships among talented individuals helps tie knowledge workers to a given firm. Competitive advantages tend to be harder for competitors to copy if they are based on unique bundles of resources. So, if employees are working effectively in teams and sharing their knowledge and learning from each other, not only will they be more likely to add value to the firm, but they also will be less likely to leave the organization, because of the loyalties and social ties they develop over time.*See the example of the Pied Piper effect at Third Millennium Communications.*Social network analysis = analysis of the pattern of social interactions among individuals. Analysis of communication patterns is helpful because the configuration of group members social ties within and outside the group affects the extent to which members connect to individuals who: convey needed resources, have the opportunity to exchange information and support, have the motivation to treat each other in positive ways, and, have the time to develop trusting relationships that might improve the groups effectiveness. Developing social capital requires interdependence among group members. Social capital erodes when people in the network become independent. And increased interactions between members aid in the development and maintenance of mutual obligations in a social network.*In this diagram the links are used to depict informal relationships among individuals involving communication flows, personal support, and advice networks. There may be some individuals with literally no linkages, such as Fred. These individuals are typically labeled isolates. However, most people do have some linkages with others. There are two primary types of mechanisms through which social capital flows: closure relationships depicted by Bill, Frank, George, and Susan, where one member is central to the communication flows in a group; and bridging relationships, depicted by Mary, where one person bridges or brings together groups that would have otherwise been unconnected.

*Both closure and bridging relationships have important implications for the effective flow of information in organizations and for the management of knowledge. Closure = the degree to which all members of the social network have relationships or ties with other group members. Through closure, group members develop strong relationships with each other, high levels of trust, and greater solidarity. Bridging relationships = relationships in a social network that connect otherwise disconnected people. Employees who bridge disconnected people tend to receive timely, diverse information because of their access to a wide range of heterogeneous information flows. Structural holes = social gaps between groups in a social network where there are few relationships bridging the groups. Example = sales and engineering are two groups where members traditionally interact more with their peers than across group boundaries.*Social capital within a group or organization develops through repeated interactions among its members and the resulting collaboration. However, collaboration does not just happen. People dont collaborate for various reasons. Barriers need to be overcome before effective collaboration can take place. Different barriers require different solutions. Motivational barriers require leaders to pull levers that make people more willing to collaborate. Ability barriers mean that leaders need to pull levers that enable motivated people to collaborate throughout the organization.*Unification lever = method for making people more willing to collaborate by crafting compelling common goals, articulating a strong value of cross-company teamwork, and encouraging collaboration in order to send strong signals to lift peoples sites beyond their narrow interests toward a common goal. This is useful when motivation is a problem. People lever = method for making people more willing to collaborate by getting the right people to work on the right projects. This means cultivating what may be called T-shaped management = people who simultaneously focus on the performance of their unit (the vertical part of the T) and across boundaries (the horizontal part of the T). Network lever = method for making people more willing to collaborate by building nimble interpersonal networks across the company. However, there is a dark side to networks: when people spend more time networking than getting work done, collaboration can adversely affect results.*Private information = information that is not available from public sources, and is usually communicated in the context of personal relationships. Public information = information that is available from public sources such as the Internet. Success is also tied to the ability to transcend natural skill limitations through others. Training information or skills with people whose experiences differ from your own provides you with unique, exceptionally valuable resources. You can also gain power by being a network broker, or someone who bridges multiple networks. Network brokers can adapt to changes in the organization, develop clients, and synthesize opposing points of view. Brokers are especially powerful because they connect separate clusters, thus stimulating collaboration among otherwise independent specialists.*Groupthink = a tendency in an organization for individuals not to question shared beliefs. Groupthink may occur in networks with high levels of closure where there is little input from people outside of the network. If there are deep-rooted mindsets, there could be a tendency to develop dysfunctional human resource practices. The organization could continue to hire, reward, and promote like-minded people who tend to further intensify organizational inertia and erode innovation. Socialization processes such as orientation and training can be expensive in terms of both financial resources and managerial commitment. A cost-benefit analysis is encouraged. Individuals may also use the contacts they develop to pursue their own interests and agendas in ways that may be inconsistent with the organizations goals and objectives engaging in unethical or illegal acts. (Chapter 9 contains discussion of behavioral control mechanisms that reduce such dysfunctional behaviors and actions.)*Sharing knowledge and information throughout the organization can be a means of conserving resources, developing products and services, and creating new opportunities. Technology can be used to leverage human capital and knowledge within organizations as well as with customers and suppliers beyond their boundaries.*E-mail is an effective means of communicating a wide variety of information. It is quick, easy, and almost costless, however it can be excessive, and embarrassing if one is not careful. Electronic teams = a team of individuals that completes tasks primarily through e-mail communication. However, such teams require members who can identify those among them with the most appropriate knowledge and resources; and members need to know how to combine individual contributions in the most effective manner for a coordinated and appropriate response. Process losses prevent teams from reaching high levels of performance because of inefficient interaction dynamics among team members.*Answer: D. if e-team leaders and team members do not know how to combine individual contributions in the most effective manner they will not be able to create a coordinated appropriate response*One of the challenges of knowledge-intensive organizations is to capture and codify the knowledge and experience that, in effect, resides in the heads of its employees. *Firms can use technology, attract human capital, or tap into research and design networks to get access to information. However employees can become disgruntled and patents can expire. Where is the firms sustainable competitive advantage then? Intellectual property rights = intangible property owned by a firm in the forms of patents, copyrights, trademarks, or trade secrets. Protecting a firms intellectual property requires a concerted effort on the part of the company. Effective protection of intellectual property is necessary before any investor will finance such an intricate undertaking. Intellectual property is characterized by significant development costs and very low marginal costs. Once developed, though, the reproduction and distribution cost (or variable costs) may be almost zero. (See Case 19: Zynga, for a discussion of how one company has struggled with this.)*Dippin Dots was founded in 1987 by Curt Jones, a microbiologist who decided to apply his scientific know-how to ice cream. He pioneered the use of cryogenic encapsulation, a process that shaped ice cream into microbeads that melted on (and sometimes, stuck to) the tongue. The company faced a setback in 2007, when its patent for cryogenic encapsulation was invalidated by a federal court jury. Competitor Frosty Bites (Mini Melts) argued that Dippin Dots had been selling ice cream for more than a year before applying for a patent, a technicality that would invalidate its exclusive claim to the technology under a patent law provision. The jury sided with Frosty Bites. In November, 2011, Dippin Dots filed for Chapter 11 bankruptcy in federal court in Kentucky. In its filing, Dippin Dots listed $20.2 million in assets and $12 million in liabilities. In the filing, Dippin Dots said it planned to reorganize its debt and lift itself out of bankruptcy. But in preparation for the worst, its fans may want to begin exploring other exotic frozen confections (See Case 17: Dippin Dots. Other information from Dippin Dots, Ice Cream of the Future, Files for Bankruptcy, by Kevin Roose & Michael De La Merced, The New York Times, November 4, 2011, http://dealbook.nytimes.com/2011/11/04/dippin-dots-ice-cream-of-the-future-files-for-bankruptcy/)*Dynamic capabilities = a firms capacity to build and protect a competitive advantage, which rests on knowledge, assets, competencies, complementary assets, and technologies. Dynamic capabilities include the ability to sense and seize new opportunities, generate new knowledge, and reconfigure existing assets and capabilities. Dynamic capabilities may be one of the best ways that a firm can protect its intellectual property. Dynamic capabilities are related to the entrepreneurial side of the firm and are built within a firm through its environmental and technological sensing apparatus, its choices of organizational form, and its collective ability to strategize. Dynamic capabilities are about the ability of an organization to challenge the conventional wisdom within its industry and market, learn and innovate, adapt to the changing world, and continuously adopt new ways to serve the evolving needs of the market.*Intellectual assets or intangible resources are critical to organizational success. The growing importance of knowledge, coupled with the move by labor markets to reward knowledge work, tells us that investing in a company is, in essence, buying a set of talents, capabilities, skills, and ideas intellectual capital not physical and financial resources. Here are some questions organizations should ask.*