ADMS 4900 Lecture Notes - Lecture 4: Tacit Knowledge, Intellectual Capital, Peter Drucker
26 Apr 2018
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Chapter 4 Assessing the Intellectual Assets of the Firm
THE CENTRAL ROLE OF INTELLECTUAL CAPITAL IN TODAY’S ECONOMY
- All firms must critically assess their intellectual assets (i.e. brand, technology, knowledge, human
capital) to see ho the’e itall connected to their value creation activities
- Itelletual & ifoatio poesses eate ost of the seie fis’ alue
- Book value vs. market value (market-to-ook atio diegig; gap etee a fi’s aket & ook
value is greater in knowledge-intensive corporations than for firms with strategies based on tangible
assets
The Knowledge Economy
- Pete Duke: Koledge oke ad the koledge the possess ae the eoo’s pia
esoue; it’s more valuable than material or financial resources
- “ilio Valle fis fid talet tappig ito eistig eploees’ soial otats; elatioship
networks facilitate recruitment since individuals have more loyalty to their peers than they with their
current employer
- In the machine age, people were ailla ut o i the ifoatio age, koledge is etal → ith
the knowledge economy, wealth is created through effective management of intellectual assets
knowledge workers (instead of the efficient control of physical & financial assets)
Intellectual Capital
- Companies can create value in a knowledge-intensive economy by managing their intellectual assets,
attract & leverage human capital to create products of value
- Intellectual capital: Intangible assets (i.e. human capital, social capital, intellectual property, brand,
trademarks) hih otiute to a fi’s ailit to eate alue though e koledge ad its
applications
- Managing intellectual capital is the only source of sustainable competitive advantage
- Entails the whole life cycle of creation, codification, valuation, protection, and leveraging of these
assets
- Intellectual capital = Market value of firm – Book value of the firm
- Human capital: Consists of individual eploees/aages K“As ad epeiee → oes
knowledge that is relevant to task at hand and the capacity to add to the reservoir of KSAs through
learning
Social Capital
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- Social capital: Network of relationships that individuals have throughout the organization
- Critical in sharing & leveraging knowledge and in acquiring resource
- Extends beyond organizational boundaries to include relationships between the firm and its suppliers,
customers, alliance partners, and other stakeholders
Knowledge
- Concept of knowledge comes in 2 forms:
Explicit/codified knowledge: Documented, easily reproduced, widely distributed (i.e. codes, patents)
Tacit knowledge: Experiences & backgrounds situated in the minds of employees and can only be
shared ith the idiidual’s oset ad patiipatio
- New knowledge is constantly created in firms; involves continual interaction of explicit & tacit
knowledge (i.e. 2 software engineer create a code (explicit knowledge) but by sharing ideas their tacit
knowledge makes modifications to the existing code)
- Socially-complex processes (leadership, culture) is an inimitable competitive advantage that creates
knowledge
Intellectual Property
- Intellectual property: Ideas, innovations and creations that contribute to competitive advantage if the
firm can protect it exclusive right to extract value
HUMAN CAPITAL: THE FOUNDATION OF INTELLECTUAL CAPITAL
- Rise in prominence of the knowledge worker as a vital source of competitive advantage has changed
the power balance in firms today; knowledge workers place professional development & personal
enrichment (financial or otherwise) above company loyalty
- 3 critical interrelated processes firms must engage to build & leverage their human capital in order to
build
Intellectual capital:
Attracting Human Capital (Hiring/Recruiting)
- Doside of lok & ke etalit fidig a jo adidate that fits ito the jo → this athig
approach only places emphasis on task-specific skills and puts less emphasis on broader aspects such as
general knowledge & experience, social skills, values, etc.
- Some believe that if firms identify top performers by focusing on mindsets, social skills, etc., task-
specific skills a e leaed i shot ode → hie fo attitude, tai fo skill
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- The single best predictor of future behaviour is past behaviour; people’s pesoalit stas the sae
thoughout thei life → ou a teah a peso alost athig ut ou a’t teah the ho to e ie
- Cuet eploees’ efeals ae a good soue fo e oes sie the’ll ol eoed soeoe
the’e ofidet i
Developing Human Capital
- It’s ipotat to tai eploees at all leels so the fulfill thei potetial & aiize thei
contributions
- Fiaial etus o taiig a e diffiult to alulate ut it’s still essetial to podutiit gais
- Effective development of human capital throughout the organization involves:
o Encouraging Widespread Involvement – Active involvement from all leaders, not just HR
o Monitoring Progress & Tracking Development – Helps companies figure out how the employee is
doing, what skills they need to work on, and where else in the company they might thrive
o Continuous Evaluation & Feedback - Firms have begun to use 360-degree evaluation & feedback
systems where superiors, direct reports, colleagues, and even customers rate a peso’s skill based on
iteia → esults a see as a pesoal ehaks o to esue aage’s suess is’t oig fo
opoisig the ogaizatio’s oe alues
Retaining Human Capital
- Leaders can provide good a working environment, incentives, or use legal means to retain its talent:
o Identifying with an Organization’s Mission & Values – People who identify with/are committed to a
fi’s oe issio & alues ae less likel to sta sie the feel loal to the opa
o Challenging Work & Stimulating Environment – Intrinsic motivation is important in keeping employees
excited about challenges & opportunities available
o Financial & Non-financial Rewards and Incentives – Money is important for security, recognition, etc.
different incentives may be valued more since the workforce is diverse; non-financial incentives (i.e. on-
site amenities, better work-life balance) might be more valued to others
THE VITAL ROLE OF SOCIAL CAPITAL
- Talent attraction/development/retention is necessary but is’t sufficient for creating competitive
advantage; developing social capital (i.e. friendships, working relationships) has become more important
than human capital since knowledge workers are more loyal to their colleagues & professions than the
firm
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
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