CH-4 Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources – Strategic Management: Creating Competitive Advantages : Book Guide

Chapter 4 Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources Summary/Objectives One of the key trends today is the emergence of the importance of the knowledge worker in today’s economy. It is critical for managers to not only recognize the importance of top talent but also the need to leverage human capital in order to innovate and, in the end, to develop products and services that create value. This chapter is divided into four sections. 1. The first section focuses on the increasing role of knowledge as the primary means of wealth generation in today’s economy. After all, in the New Economy a firm’s value is based much more on knowledge, know-how, and intellectual assets — not the traditional factors of production (i.e., labor and capital). 2. The second section addresses the key resource itself — human capital — the foundation for the creation of intellectual capital. We explore ways in which the organization can attract, develop, and retain human capital as well as the importance of recognizing the interdependence of these three activities. We also address the value of a diverse work force. 3. Third, we discuss the critical role of social capital, that is, the network of relationships among individuals. We address both social capital within organizations as well as across organizations. We also discuss social networks – and their implications for knowledge management and career success. 4. The final section focuses on the role of technology in leveraging human capital. This can range from such basic technologies as email to more complex forms such as sophisticated knowledge management systems. We also discuss how technology can play a key role in electronic teams (or e-teams) and enhance the retention of knowledge in an organization. And, we address the importance of protecting an organization’s intellectual assets. Here, the roles of intellectual property and dynamic capabilities become salient. NOTE: Given that this chapter has particularly significant implications for students entering (or already in) the workforce, we have endeavored to address several issues in both the text – and IM chapter – that have high relevance to their career development. Lecture/Discussion Outline We open the chapter with the example of Bank of America’s purchase of Merrill Lynch. Here, Bank of America mismanaged what might be considered its most valuable asset—human capital. By promoting its cross-selling of BOA’s products by Merrill Lynch’s financial advisors. Ask:  Discussion Question 1: What actions should Bank of America take to retain its top investment advisors? Response guidelines: The vignette suggests a number of sources of contention between Bank of America policies and top investment advisors’ expectations. The problems were all associated with cross-selling – or selling bank products, such as checking accounts, credit cards, and loans, to investors who are clients of the investment advisors. Advisors did not want to share client information with the bank. Advisors expected a higher level of service from the bank than what was offered, and the advisors did not want to be involved in banking issues such as ordering checks. The bank was not willing to give high-end clients special treatment. Advisors were not given authority in banking issues, such as removing certain fees. Lastly, the vignette mentions that rigid human resource policies were applied to the advisors, such as not allowing them to teach courses at local colleges. Students should be able to identify the problems that advisors had with the bank. One strategy for retaining the advisors would be to simply remove as many of these problems as possible and hope that the changes would improve the situation. Another strategy would be to engage in dialogue with the advisors regarding their dissatisfaction. Included in this dialogue should be, if possible, advisors who recently left ML. The goal of this dialogue would be to identify major sources of discontent and consider policy changes that would improve the situation. Students could come up with possible policy changes, but there is not enough information in the case to identify specific changes that would be most effective at reducing discontent. Answer: Bank of America should offer competitive compensation packages, including performance-based bonuses and stock options, and provide career development opportunities to retain top investment advisors.  Discussion Question 2: Can they do this while still leveraging value? Response guidelines: Students should understand that leveraging value involves cross-selling the bank’s products to advisors’ clients. It appears that Bank of America does not have the quality of service that high-end clients prefer. So it appears that the bank would have to improve its operations in this area. Other issues with advisors may need to be revised. For example: • Advisors may be allowed to offer special deals to clients who switch to Bank of America, but should not be required to share client information. • Advisors should be given the authority to remove some banking fees on behalf of clients. • Advisors should be given support regarding banking services such as ordering checks. • In class discussions regarding these types of changes, students should be aware of some of the possible impediments in Bank of America. Bank culture may not be accepting of the culture of brokers. For example, giving certain clients special treatment may be a problem in a bank with a core value of treating all equally. The changes that would effectively address the problems may be costly and affect the bank’s bottom line. Answer: Yes, Bank of America can retain top advisors while leveraging value by aligning compensation with firm performance and investing in tools and resources that enhance advisor productivity and client satisfaction.  Discussion Question 3: Should they continue to cross-sell? Response guidelines: Like many issues in strategy, class discussions could take the form of a cost-benefit analysis. There is no right answer. The opening part of the vignette described some of the benefits of the brokerage business. It really contributes to the bank’s bottom line, but in discussions, students should be aware that we do not know the extent to which the bank benefits from cross-selling. Keeping the businesses independent may be worth consideration. The benefits of cross-selling include: • The additional banking business from advisors’ clients • The additional investment business from the bank’s customers who use Merrill Lynch The costs of cross-selling may include: • The loss of talented advisors who are not satisfied with the working relationship between the bank and the brokerage • The reduced productivity of advisors and bankers from spending time and effort in cross-selling and dealing with new issues, such as advisors’ dealing with ordering checks • The cost of changing organizational culture that would result from a blending of the advising and banking businesses Students should note that these costs and benefits may be impossible to estimate in any numeric sense. Also, the decisions have long-term impact. They are typical concerns of senior managers. Answer: Yes, Bank of America should continue to cross-sell, as it can increase customer loyalty and drive additional revenue streams, provided it is done transparently and with customer needs in mind. Epilogue: On April 5, 2013, a New York judge approved Bank of America’s $2.43 billion settlement of a class-action lawsuit brought by shareholders over BOA’s acquisition of former competitor Merrill Lynch. The bank proposed the settlement in September, 2012 and the agreement resolves allegations that BOA did not disclose the state of its finances or those of Merrill Lynch when it agreed to buy Merrill in September, 2008. BOA still faces a fraud lawsuit that accuses the firm and former CEO Kenneth Lewis of failing to disclose the Merrill losses and bonuses (BOA failed to tell shareholders it had authorized Merrill to pay as much as $5.8 billion in bonuses to its employees in 2008 before shareholders voted on the acquisition). The company calls those accusations unfounded. Source: Anonymous. 2013. Bank of America to settle suit for $2.4 billion. Dallas Morning News (The Associated Press). April 6: 3D. I. The Central Role of Knowledge in Today’s Economy We begin by providing some figures on how wealth is increasingly dependent on knowledge-based assets. We use a quotation from Hamel and Prahalad to drive home the importance of knowledge, know-how, and intellectual assets in today’s economy. The examples of Microsoft’s and Merck’s knowledge assets are also given. To provide some additional “quantitative support” for our arguments, we investigate the tremendous “gaps” between market value and book value — a difference that is considered by many to be an indicator of a firm’s “intellectual capital.” EXHIBIT 4.1 shows the ratio of market-to-book value for a selected set of companies. It is useful to pose the following question; it should elicit some interesting responses:  Discussion Question 4: What are the implications of EXHIBIT 4.1 for today’s organizations? Answer: Exhibit 4.1, which typically outlines key factors such as competitive dynamics, market trends, and organizational capabilities, implies that today’s organizations must adapt to rapidly changing environments. They need to focus on innovation and flexibility to stay competitive, invest in technology and data analytics, and continuously align their strategies with evolving market conditions and consumer demands. We then define some of the basic concepts in the chapter: • Human capital is the “individual capabilities, knowledge, skills, and experience of the company’s employees and managers.” • Social capital can be defined as “the network of relationships that individuals have throughout the organization.” • Knowledge comes in two different forms: explicit (easily documented, stored, etc.) and tacit (in the minds of employees and is only shared with their consent). It is important to point out that the creation of new knowledge involves the continual interaction of explicit and tacit knowledge. We provide the example of engineers working on computer code. This is also a point at which you may wish to address the critical role of socially complex processes (leadership, trust, culture) in leveraging human capital. II. Human Capital: The Foundation of Intellectual Capital Organizations must recruit talented people — employees at all levels with the proper set of skills and capabilities coupled with the right values. In this section, we address the hiring/selection, development, and retention processes. EXHIBIT 4.2 illustrates these processes. We suggest the imagery of the three-legged stool. We provide the rather humorous perspective of Professor Jeffrey Pfeffer (the San Francisco law firm) to illustrate the interdependent nature of these three activities. It may be useful to ask:  Discussion Question 5: Why do many firms devote more efforts to attracting human capital than they do to developing or retaining talent? Answer: Many firms focus more on attracting human capital because it directly impacts their ability to acquire new skills and capabilities that can drive immediate business growth. However, retaining and developing existing talent often requires ongoing investment and may not produce instant results. Additionally, attracting talent is more visible and can be seen as a quicker fix to talent shortages, while developing and retaining talent involves long-term commitment and resources that some firms may not fully prioritize or manage effectively. STRATEGY SPOTLIGHT 4.1 discusses the importance of a firm’s “green” or environmental sustainability strategy in attracting young talent. Ask:  Discussion Question 6: How important is a firm’s “green strategy” in your job search? Answer: A firm’s “green strategy” can be quite important in a job search, particularly for candidates who value sustainability and environmental responsibility. A strong green strategy can signal that a company is forward-thinking and committed to ethical practices, which can be appealing to those wanting to work for a socially responsible employer. For some, it can also influence their perception of the company's long-term viability and alignment with their personal values. However, its importance may vary based on individual priorities and the specific industry. The SUPPLEMENT below presents the overall characteristics of the labor markets in the United States, Japan, and France. The author argues that today’s college graduates would not remain unemployed for long because of the relative structural dynamism of American capitalism, that is, its extraordinary labor flexibility.  Extra Example: Labor Flexibility in the U.S., Japan, and France The World Bank Group ranks the United States as” first” in the world in “employing workers” (that is, labor flexibility). What puts the U.S. on the top of the list? American companies have a lot of freedom to hire and fire, payroll taxes are relatively low by international standards, and people are free to move to new jobs when the economy is better. In contrast, Japan ranks 40th. Lifetime tenure at many companies remains the norm, and it is difficult to get a job except immediately after leaving school. In France, which ranks 155th, many labor contracts severely limit hours and flexibility, high payroll taxes fund workers’ benefits, and social policy makes layoffs very difficult. A strong economy needs entrepreneurs to start companies and absorb new workers entering the labor market, and such risk-takers do not appear in a vacuum: Such entrepreneurial activity flourishes typically only in countries with business climates that are conducive to entrepreneurial efforts. Source: Vanderkam, L. 2010. Why recession won’t mean lost generation? Dallas Morning News. February 28: 5  Discussion Question 7: Do you agree with the idea of “higher labor flexibility eases unemployment”? Answer: Higher labor flexibility can potentially ease unemployment by allowing firms to adjust staffing levels quickly in response to economic conditions, which may reduce layoffs and support job creation. However, it can also lead to increased job insecurity and lower wages, which might not benefit all workers. Discussion Question 8: From the perspective of this article, would employees or employers in the U.S. be happy that it is first in the rankings? Why? Answer: Whether employees or employers in the U.S. would be happy with the first-place ranking depends on their perspective. Employers might appreciate the flexibility for managing labor costs and adapting to market changes. In contrast, employees might be concerned about job stability and security, which could be adversely affected by high labor flexibility. A. Attracting Human Capital We begin with a quotation from Mindy Grossman, CEO of Home Shopping Network. Then, we question the traditional “lock and key” approach to employee selection and emphasize the importance of employee mindsets, attitudes, and social skills. (It is useful to reemphasize that in today’s knowledge economy, the leveraging of human capital is critical — thus, such “soft skills” become more important.) The SUPPLEMENT below describes how a company’s capacity to attract the best and brightest is enhanced by its reputation as a place that provides great opportunities for growth and development. The “alumni” from such firms are highly sought after by other firms looking to fill senior executive positions and typically attract a premium price in the managerial labor market.  Extra Example: Attracting Human Capital through Establishing a Reputation for Growth and Development Some companies have a strong reputation as breeding grounds for top notch managerial talent. In addition to hiring very competent people, these firms nurture and develop them through leadership training and careful mentoring. A number of General Electric (GE) “alumni” currently occupy CEO positions in other companies. Other leading firms such as PepsiCo and Procter & Gamble also have traditionally enjoyed similar reputations. In recent years, companies such as Cisco, Campbell Soup, and Google have also established a reputation for their talented pool of managers. The concentration of high power talent, however, is not confined to North American firms. In a globalized economy, the search for talent is becoming truly global. For example, the Indian software firm Infosys Technologies has been “discovered” as a company with a deep reservoir of managerial talent. This innovative firm runs a 324-acre training institute, even bigger than GE’s internationally known Crotonville (N.Y) education center. The company allows its managers to spend a year at nongovernmental organizations to broaden their leadership skills. N.R. Narayana Murthy, the company’s founder chairman calls himself the company’s “chief mentor.” It comes as no surprise that headhunting firms now see Infosys as prime hunting ground. As many as half a dozen Infosys executives are now in contention for CEO positions in other companies. Source: Anonymous. 2009. CEO breeding grounds: Looking beyond GE and P&G for talent. BusinessWeek. May 11: 38.  Discussion Question 9: Mentoring and developing managers certainly make a company a very attractive employer. But do you think this could become a double edged sword if a firm becomes the target for “poaching” by other firms? Answer: Investing in mentoring and developing managers can enhance a firm's attractiveness and build a strong talent pool. However, this also creates a risk of becoming a target for poaching, as competitors may seek to attract these well-trained individuals. To mitigate this risk, firms can implement retention strategies such as competitive compensation packages, career development opportunities, and a strong organizational culture to keep their talent engaged and loyal. 1. "Hire for Attitude, Train for Skill” This is a phrase that has become more predominant in today’s business environment. This point is driven home with the example of Southwest Airlines. It may be interesting to pose the following question:  Discussion Question 10: Do you think the approach used by Southwest Airlines is a good idea? For other companies with which you are familiar? Answer: Southwest Airlines' approach, which focuses on a unique company culture, employee satisfaction, and operational efficiency, has been highly successful, fostering strong customer loyalty and operational excellence. For other companies, adopting a similar strategy could be beneficial if it aligns with their industry and company goals. Emphasizing culture and employee engagement can drive performance and create a competitive advantage, but it must be tailored to each company’s specific needs and market conditions. We discuss the “Bozo filter” that Cooper Software, Inc. uses to screen employees.  Discussion Question 11: What are the advantages (and disadvantages) of the “Bozo Filter”? Would it work in other organizations with which you are familiar? Answer: The "Bozo Filter," a term popularized by Southwest Airlines, involves hiring practices designed to avoid hiring individuals who may undermine the company's culture or performance. Advantages include maintaining a positive work environment and ensuring cultural fit, which can boost overall morale and efficiency. Disadvantages may include the risk of missing out on potentially talented individuals who might not fit the traditional mold but could contribute valuable skills. This approach could work in organizations prioritizing strong culture, but may be less effective in fields where technical skills are the primary focus. The SUPPLEMENT below should be very useful to students — it should “personalize” some of the discussion on the development and evaluation of human capital. It summarizes the four qualities that Larry Bossidy (former CEO of Allied Signal) looks for when evaluating job candidates. You might consider asking your students:  Discussion Question 12: Can these qualities be developed or are they typically inherent in an individual (i.e., a nature/nurture argument)? If so, how can they be developed and nurtured? Answer: Qualities such as leadership, empathy, and adaptability can be both developed and inherent, reflecting the nature vs. nurture debate. While some individuals may have a natural aptitude, these qualities can also be nurtured through targeted training, mentorship, and real-world experiences. Development can include formal education, skills workshops, and feedback mechanisms, while ongoing practice and exposure to diverse situations further enhance these attributes. Thus, both intrinsic traits and external development play a role in shaping an individual’s qualities.  Extra Example: Key Leadership Qualities for Future Leaders: Larry Bossidy Below are the four key qualities that Larry Bossidy considers when evaluating job candidates: THE ABILITY TO EXECUTE: Ideas, analytical capacity, and education are important parts of a leader’s makeup. However, just as important is being able to implement those ideas. There are people who are fulfilled by expressing big thoughts, but you will be better served by hiring people with boundless energy who can execute the thoughts. A CAREER RUNWAY: Good leaders have plenty of runway left in their careers. I like to hire someone for this job and also the next job, never for the person’s final position. People with perspective on their jobs give me an indication that they have not only the interest but also the ability to go further. A TEAM ORIENTATION: If someone is able to work through and with other people, he’s got better potential then if he is essentially an individual contributor. MULTIPLE EXPERIENCES: I’ve learned to consider carefully the dynamics of a candidate’s past work experiences. People who come from quasi-monopolistic areas often have great difficulty moving into more competitive environments. You have to understand the environment from which you’re hiring; some kinds of companies are better than others at developing leaders. To make sure our future leaders have the right experience, I look for candidates who have operated real Profit & Loss units in two or three different industries or companies. That’s how great leaders are grown. Source: Bossidy, L. 2001. The job of the CEO. Harvard Business Review, 79 (3): 47-49. Teaching Tip: The adage “hire for attitude, train for skill” can generate some interesting discussion in the class. Some students may argue that in jobs that require high levels of skill such as software development, skills may be more important than attitude. This may be an opportunity to point out that even in jobs that require high skills and relatively low levels of interdependence with others, poor attitude can lead to lack of effort as well as a lack of willingness to learn, excel, experiment, and, importantly -- collaborate. 2. Sound Recruiting Approaches and Networking We address the recruiting challenges of Google and GE Medical Systems. Clearly, such firms go to great lengths to hire the “best and brightest” in their industry. Many companies have found out that their most effective recruiting efforts start closest to home — referrals from their own employees. We provide the example of GE Medical Systems that provides bonuses to employees who refer individuals who are eventually hired.  Discussion Question 13: What are the advantages of such incentive programs to provide referrals? Are they done at companies with which you are familiar? Should they be implemented? Answer: Incentive programs for referrals offer several advantages, including attracting high-quality candidates, reducing hiring costs, and improving employee morale by recognizing their contributions. Companies like Google and Zappos have successfully implemented such programs, benefiting from a streamlined recruitment process and stronger cultural fit among new hires. These programs should be implemented if they align with the company’s recruitment goals and can be effectively managed to avoid potential issues such as fostering a biased or non-diverse hiring process. 3. Attracting Millennials This section presents some of the “best practices” that companies are using to attract “Generation Y” or “Echo Boom” employees. These include people born after 1982. Many Y-Generation readers will be pleased with all of the “attention” and “adulation” that such efforts seem to convey.  Discussion Question 14: Despite our discussion of what companies should do to attract young talent, do you think that some Yers might have expectations that are unrealistic? If so, what has led to such expectations? (e.g. sense of entitlement, etc.) Answer: Some young professionals may have unrealistic expectations due to factors like a heightened sense of entitlement, idealistic portrayals of work in media, or an overselling of job roles by previous employers. These expectations can be shaped by social media influences, generational differences in work values, or a lack of understanding about the realities of workplace dynamics and career progression. Discussion Question 15: What should potential employers do? (e.g., provide more “realistic” job previews?) Answer: To address unrealistic expectations, potential employers should offer more realistic job previews, highlighting both the opportunities and challenges of the role. Clear communication about job responsibilities, growth opportunities, and company culture during the hiring process can help manage expectations and improve job satisfaction. Additionally, mentorship programs and realistic onboarding practices can better prepare new hires for their roles. The SUPPLEMENT below helps us understand how Google attracts talent and human capital through financial and non-financial incentives. Google not only offers benefits and rewards to its employees, but the unique “Google culture” is also a huge attraction to potential employees, by transforming a traditional workspace into a fun, feel-like-home, and flexible place to work.  Extra Example: What Makes Google so Great to Work For? Google Inc., the research giant of our time, ranks first of the Best Companies to Work For by Fortune Magazine in 2012 and 2013. So what makes Google such a great place to work? Great workplace atmosphere and the unique “Google Culture” seem to set Google apart from over 440 companies competing for spots on this year's ranking of the nation’s best employers. Google staff, or Googlers, are everything to the company as it commits to encourage innovation. Googlers do not merely work but have a great time at work. Extraordinary perks offered by Google to its employees help build a great workplace. The headquarters in Mountain View, CA includes on site medical and dental facilities, oil change and bike repair, foosball, pool tables, volleyball courts, assorted video games, pianos, ping pong tables, and gyms that offer yoga and dance classes, free washers and dryers, and free breakfast, lunch, and dinner on a daily basis at 11 gourmet restaurants. Googlers have access to training programs and receive tuition reimbursement while they take a leave of absence to pursue higher education. As Google states in its own website, “though Google has grown a lot since it opened in 1998, we still maintain a small company feel.” This “small” company continues to not only roll out new and innovative products, but also attract the best talent. Source: Anonymous. 2011. Best companies to work for 2011. www.finance.yahoo.com. January 20: np.  Discussion Question 16: Are you aware of other companies using non-financial incentives to attract young talent in the industry? Answer: Companies like Patagonia and Salesforce use non-financial incentives to attract young talent by promoting work-life balance, offering professional development opportunities, and fostering a positive work culture. These non-monetary benefits can be crucial in attracting and retaining younger employees who value purpose and personal growth over just financial rewards. Discussion Question 17: Are the costs paid by Google to keep its employees happy too high? What does the company get in return? How much are happy employees worth? Answer: Google’s investment in employee happiness, through perks like on-site amenities, flexible work arrangements, and a positive work environment, generates high employee satisfaction, increased productivity, and lower turnover. The return on investment includes improved performance, innovation, and strong company culture, which can be more valuable than the costs incurred. Discussion Question 18: If this strategy works well for Google, why don’t more company implement it? Answer: While Google's strategy of investing heavily in employee satisfaction proves successful for its business model and culture, it may not be feasible for all companies due to high costs or different organizational needs. Many companies might struggle to replicate such an approach without a similar financial capability or company culture that supports it. B. Developing Human Capital Organizations must do more than merely hire top-level talent and expect the skills and capabilities of those employees to remain current throughout their employment. Rather, training and development must take place. We provide the example of Solectron with their emphasis on training. 1. Encouraging Widespread Involvement The development of human capital requires the active involvement of leaders at all levels. We discuss the broad-based involvement at General Electric as well as insights from three CEOs of well-known firms. 2. Mentoring and Sponsoring For this edition, we have added the section on “Mentoring and Sponsoring.” We believe that this is a very important topic to address and to clarify the difference between the two terms—they are not, of course, synonymous. In effect, a mentor will talk with you, but a sponsor will talk about you—and “use up chips” for their protégé. We also provide a list of suggestions on page 114 about how to seek a sponsor and the associated responsibilities and obligations. The SUPPLEMENT below provides some advice for Millennials on the subject of mentors.  Extra Example: Millennials and Mentoring—A Caution Millennial attitudes toward mentorship have left potential mentors feeling deeply jilted, says Bentley University’s Adams. “One issue I’ve had with some of my mentees—all of whom are Gen Y—is that understanding that interacting with a professional from another generation requires them to change their behavior,” says Catherine Carlozzi, a speech and business writer in Cedar Grove, N.J. “I had to teach one mentee that it is not acceptable to call in the late evening with a routine question. I’ve had to explain to others that texting on your smartphone in a situation that involves your seniors suggests you think you have more important things to do,” she says. She’s adapted by using Facebook messaging, texting, and Skype. “Sometimes it can be days and days before a mentee will answer an e-mail. That annoys me.” Source: Khidekel, M. 2013. The misery of mentoring millennials. Bloomberg BusinessWeek. March 18-24: 67-69.  Discussion Question 19: Do you agree with the above observation and suggestion? Is it reasonably “representative” of millennial behavior? Why? Why not? Answer: The observation that millennials value purpose and work-life balance over financial rewards is generally representative of their behavior, as many prioritize job satisfaction and personal growth. However, individual preferences can vary widely, and not all millennials may share this view equally. Discussion Question 20: Why does Disney devote more efforts to developing human capital than some other global companies? Answer: Disney focuses on developing human capital to ensure a consistent, high-quality customer experience, which is crucial for its brand reputation. The company invests heavily in employee training to maintain its iconic service standards and employee engagement, aligning with its commitment to customer satisfaction. Discussion Question 21: Is all the extra training worth the higher cost? Could other firms justify such costs? If not, why is Disney different? Answer: The extra training at Disney is justified by its need to deliver exceptional customer experiences, reinforcing its brand and competitive advantage. While other firms could benefit from similar investments, Disney's unique emphasis on experience and service excellence makes such costs justifiable, whereas other companies may not prioritize or achieve the same level of direct impact. 3. Monitoring Progress and Tracking Development Whether a firm uses on-site formal training, off-site training (e.g., universities) or on-the-job training, tracking individual progress — and sharing this knowledge with both the employee and key managers — becomes essential. We provide the example GlaxoSmithKline. It may be particularly interesting to mention GlaxoSmithKline’s “two-plus-two-plus-two” (two business units, two functional units, and two countries) formula for developing people for top management positions. Ask:  Discussion Question 22: Should the 2+2+2 approach be used for other large multinational firms? Why? Why not? Answer: The 2+2+2 approach, which involves focusing on two core markets, two additional high-growth markets, and two emerging markets, can be beneficial for large multinational firms. It allows for a balanced strategy of stability and growth. However, its effectiveness depends on the firm’s industry, market conditions, and global strategy. While it offers a structured approach, firms must tailor it to their specific contexts to ensure it aligns with their overall goals and resources. 4. Evaluating Human Capital The primary issue that this section addresses is the 360-degree evaluation system. Such an evaluation approach is becoming more critical given the importance of collaboration and interdependence in today’s knowledge intensive organizations. Traditional “top down” evaluation systems evaluate performance from a single perspective and typically do not address the “softer” issues such as social skills, values, beliefs, and attitudes. EXHIBIT 4.3 provides an excerpt from General Electric’s 360-degree evaluation system. We also mention the perspective of Merck’s former chairman, Ray Gilmartin, on the importance for managers to both achieve results and demonstrate Merck’s core values. The SUPPLEMENT below addresses a few of the pitfalls as well as suggestions for making 360-degree evaluation systems work. Prior to discussing the supplement, it may be interesting to ask:  Discussion Question 23: What are some of the pitfalls of 360 degree evaluation systems? Answer: Pitfalls of 360-degree evaluation systems include potential bias, where feedback might be influenced by personal relationships or conflicts. They can also lead to inconsistent evaluations if not standardized and may cause employees to focus too much on criticism rather than constructive development. Discussion Question 24: What steps should be taken to improve the chance of their success when implemented? Answer: To improve the success of 360-degree evaluations, ensure anonymity to reduce bias, provide clear guidelines for feedback, offer training for evaluators, and use the results constructively for personal development rather than punitive measures. Regular reviews and updates to the process also help maintain its effectiveness.  Extra Example: Pitfalls and Suggestions for Making 360 Degree Systems Work Some of the pitfalls of 360 degree evaluation systems are: 1. If a manager’s 360 ratings depend on creating a positive or even relaxed climate, these factors may actually detract from work directly geared toward bottom line results. 2. Organizations may embrace 360 feedback to convey an impression of openness and participation to clients or recruits when, in fact, this is not part of the organization’s culture. 3. Imitating without clearly understanding what other firms have accomplished; or the likely outcomes for one’s own firm, may be a questionable strategy. 4. Even when 360-degree feedback ratings are used strictly for developmental purposes, individuals will tend to modify behaviors in ways to receive more positive ratings. Some recommendations on making 360 systems work include: 1. Make consultants/internal champions accountable for results and customization. 2. Engage in a pilot test initiative. 3. Create focus groups to identify effectiveness criteria measures. 4. Evaluate using a pre-post control group design. 5. Be careful what you measure and how it’s used. 6. Train raters. Source: Waldman, D. A., Atwater, L. E., & Antonioni, D. 1998. Has 360 degree feedback gone amok? Academy of Management Executive. 12(2): 86-94. Teaching Tip: Despite its many advantages, the 360-degree feedback system has some limitations as discussed in the above SUPPLEMENT. Ask the students to think of situations where the application of this tool could lead to dysfunctional consequences and why. Students may come to realize that for the system to work, there has to be better integration between many aspects of the organization such as its culture, leadership, rewards systems, and so on. STRATEGY SPOTLIGHT 4.2 discusses HCL’s effective 360 degree evaluation system. C. Retaining Human Capital We use the rather colorful imagery of “frogs in a wheelbarrow” to drive home the point that top talent may bolt at any time. Managers have the option of either forcing top talent to stay with the organization via non-compete clauses, golden handcuffs, etc. or providing the type of environment wherein top talent will desire to stay. (We recognize, of course, that employment contracts have their place — but should not be the primary means of the retention of talent.) 1. Identifying with an Organization’s Mission and Values People who identify with and are more committed to the core mission and values of the organization are less likely to stray or bolt to the competition. We provide a perspective by Apple’s Steve Jobs on values and commitment. We also mention the importance of the emerging trends to a “relationship first” set of values – in contrast to a “task first” value – in the workplace.  Discussion Question 25: What are other examples of firms that have successfully strengthened an employee’s identification with their firm’s mission and values? Answer: Companies like Patagonia and Google excel at aligning employees with their mission and values. Patagonia integrates environmental activism into its core values, engaging employees through initiatives like environmental grants and sustainable practices. Google fosters a strong sense of mission with its emphasis on innovation and its supportive workplace culture. Both companies use their values to create a deep connection between employees and the company's broader goals, enhancing engagement and loyalty. The SUPPLEMENT below provides a perspective by Fred Hassan, CEO of Schering-Plough, on the importance of having employees identify with a firm’s mission and objectives. In this case, it is the development of a drug to treat bipolar disease and schizophrenia.  Extra Example: The Value of Identifying with a Firm’s Mission and Objectives Fred Hassan, Schering-Plough’s CEO, shares his perspective on the importance of having employees identify with a firm’s mission and objectives: In 2007, Schering-Plough acquired Organon BioSciences, which previously had been a division of Dutch conglomerate Akzo Nobel. Researchers at Organon had developed a medication called asenapine that showed promise for treating bipolar disease and schizophrenia. The company had licensed the product to Pfizer, but the compound had been languishing in late-stage trials for years. In October 20076, Pfizer had walked away from the drug. Both investors and investment bankers took Pfizer’s action to mean the drug had no future; they place little or no value on it during our M&A our diligence. Hassan comments: “But in getting to know the researchers who had developed asenapine, I was impressed by their commitment to creating drugs to combat serious mental disease, a major area of unmet medical need. Their determination made me think the drug just might have a future—but only if they put their all into getting the compound approved. I didn’t talk to them about the potential impact of asenapine on Schering-Plough’s top line or our need to restock the company’s product portfolio. I told them that patients suffering from mental disease were counting on them. Eventually, they were able to resolve the obstacles keeping asenapine from final approval, and today it is one of the few medications that have been approved in the United States for use with patients suffering from bipolar disease or schizophrenia.” Source: Hassan, F. 2011. The frontline advantage. Harvard Business Review, 89 (5): 106-114.  Discussion Question 26: Can you think of other instances where employees' strong identification with their firm’s mission led to outstanding achievements? Answer: At TOMS Shoes, employees' strong identification with the company's "One for One" mission, where every purchase helps provide shoes to those in need, drives high engagement and commitment. Similarly, employees at Tesla are motivated by the company's mission to accelerate the world's transition to sustainable energy, leading to innovative breakthroughs and dedication. These strong alignments with the firm's mission result in exceptional performance and achievements, driven by shared values and purpose. 2. Challenging Work and a Stimulating Environment The motivation to work on something because it is interesting, exciting, or personally challenging underlies the importance of intrinsic motivation. We provide a quotation from Arthur Schwawlow, the 1981 Nobel Prize winner in physics, on the intrinsic value of challenging work. In addition, some leading-edge firms have kept highly mobile employees motivated and challenged by lowering the barriers to an employee’s mobility within a company. For example, Shell Oil Company has recently created an “open sourcing model” for talent. Monsanto has a similar program. 3. Financial and Non-Financial Rewards and Incentives Clearly, financial rewards are a vital organizational control mechanism (as we will also discuss later in Chapter 9). After all, top talent is a highly mobile asset, and such individuals are likely to always be able to attract competing offers — even in relatively tight labor markets. The SUPPLEMENT below addresses an insightful perspective on the downsides of stock options as a retention vehicle for top talent. Before discussing, you may wish to ask:  Discussion Question 27: What are the advantages and disadvantages of using stock options to retain talent? Answer: Stock options can attract and retain talent by aligning employees' interests with company performance, offering potential financial rewards as the company grows. They can motivate employees to work towards long-term goals and feel invested in the company’s success. However, disadvantages include potential dilution of shares, the complexity of managing stock options, and the risk that options may not be valuable if the company's stock price declines. Additionally, employees might prioritize short-term stock gains over long-term company health.  Extra Example: Some of the “Downsides” of Stock Options as a Retention Device Employee ownership is a great thing — it helps employees to think like owners. But options are not the same as ownership. In real employee stock ownership, employees purchase shares and thus have, to use the colloquial phrase, “skin in the game.” They are committed. On the other hand, options are given to employees, not purchased. When the stock price goes down, the options are repriced or, now that repricing has become less acceptable to institutional investors, companies issue more options at the lower price, as Microsoft and Amazon.com have done. The potential dilution to earnings is enormous, even if accounting conventions do not yet fully capture the hit. Additionally, as technology and venture capitalist William Gurley has observed, options encourage a gambling mentality. Go for broke. If there’s a win, fine. If there’s disaster, move on and try again. That is not the mentality of real ownership. Source: Pfeffer, J. 2001. What’s wrong with management practices in the Silicon Valley? A lot. MIT Sloan Management Review, 42 (3): 102. The two SUPPLEMENTS below provide some interesting perspectives on trends in tele-commuting. It is an issue that has recently become rather controversial. While this practice has often been considered to be valuable in attracting and retaining talent, some first are backing off. The SUPPLEMENT below addresses why telecommuting remains quite rare in both Japan and South Korea. This might be interesting to students because it addresses how the usefulness and appropriateness of a business practice may vary across countries.  Extra Example: Telecommuting: Rare in Japan and South Korea Japan and South Korea have some of the world’s most advanced broadband access. However, few workers are able to take advantage of the technology by logging on from home. Why? Corporate culture in much of Asia remains deeply conservative and a high value is placed on face time in the office. Despite superb Internet connections, many companies discourage telecommuting and working remotely. Further, the Confucianism philosophy, that plays a big role in parts of Asia, prizes group effort and consensus building over individual initiative. Team members are more likely to stick around the office to get tasks done instead of going it alone from home or during the commute. Consider the start differences between packed commuter trains in Tokyo and Seoul and those in the U. S. While American workers often aim to maximize their productivity by tapping out emails on BlackBerrys or working on their laptops, Koreans and Japanese are more likely to be using the latest digital devices to play videogames or send messages to friends. The different approaches also crop up in the countries’ technology marketing: U. S. cellular companies emphasize how their services can boost productivity, while Asian companies stress the “fun factor.” Source: Anonymous. 2007. Why telecommuting remains rare in Japan, South Korea. Wall Street Journal. March 17-18: A5. The SUPPLEMENT below has information that goes against “conventional wisdom” regarding telecommuting. Here, we discuss Yahoo’s edict in early 2013 against telecommuting as well as other firms that are scaling back on this activity.  Extra Example: Is Telecommuting on the Decline? On February 22, 2013, a leaked memo sent from Jacqueline Reses, Yahoo!’s executive vice president of people and development (i.e., HR), announced that Yahoo employees would no longer be able to work from home. Even on the days that employees had family obligations or had to “stay home for the cable guy,” Reses urged them to “use your best judgment.” Yahoo is bucking the national trend: According to the Telework Research Network, an independent employment research firm, the number of people who work remotely rose 73 percent from 2005 to 2011. Today, 20 million to 30 million Americans work from home at least once a week. Yet, Yahoo is not the only company forcing its remote workers back to the office. In December, Bank of American scaled back My Work, its work-from-home program that began in 2005—and by 2010 included more than 15,000 employees. To cut costs and improve efficiency, each bank department now assesses telecommuting on an individual basis. Both Twitter and Google—where Yahoo Chief Executive Officer Marissa Mayer was employee No. 20 (and the person behind the new Yahoo edict!)—encourages staffers to work at the office because it generates a more collaborative atmosphere. While Google has no official policy, Chief Financial Officer Patrick Pichette said last week, “Working from the office is really important.” So how many people telecommute at Google? “As few as possible,” he said. Source: Suddath, C. 2013. Work-from-home truths, half-truths, and myths. Bloomberg BusinessWeek. March 4-10: 75.  Discussion Question 28: Do you think telecommuting should be increased (or decreased)? What might be the key issues and contingencies in making your assessment? (e.g., a person’s ‘bargaining position/value to the company’, need for interdependence, motivational effects on other non-telecommuting employees, etc.) Answer: Telecommuting should be assessed on a case-by-case basis. Key issues include the employee's value to the company, the need for team collaboration, and potential motivational impacts on non-telecommuting staff. Effective telecommuting depends on role suitability, technology, and management practices. Discussion Question 29: What are some of the implications for firm performance? Would it vary by industry? What other “contingent factors” (e.g., type of work, age of employee, etc.) may come into play in explaining potential performance differences? Answer: Telecommuting's impact on firm performance varies by industry and job function. It can enhance productivity in roles requiring focused work but may hinder performance in collaborative or client-facing roles. Factors such as employee age, work type, and team dynamics also influence outcomes, affecting how telecommuting is implemented and its effectiveness. D. Enhancing Human Capital: The Role of Diversity in the Workforce This section addresses diversity in today’s workforce today which has become more vital due to demographic trends and the accelerating globalization of business. We address some of the emerging demographic trends which have created a more diverse society. We then address six areas in which a diverse workforce can improve an organization’s effectiveness. These are: 1. Cost Argument 2. Resource Acquisition Argument 3. Marketing Argument 4. Creativity Argument 5. Problem-Solving Argument 6. System Flexibility Argument STRATEGY SPOTLIGHT 4.3 discusses a firm’s “broadview of what diversity is” and why it works at the firm.  Discussion Question 30: Are you aware of organizations that have exemplary (or ineffective) diversity programs? If so, what makes them successful (or unsuccessful)? Answer: Yes, companies like Google and Salesforce are noted for their successful diversity programs due to their comprehensive strategies, including robust training, transparent reporting, and active inclusion initiatives. In contrast, ineffective programs often fail due to lack of commitment from leadership, inadequate resources, or poorly defined goals. Successful programs engage all levels of the organization and foster a culture of inclusion, while ineffective ones lack genuine integration into the company’s core values and practices. III. The Vital Role of Social Capital 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 resources that is important, but rather the extent to which it is combined and leveraged. Thus, the development of “social capital” — friendships and working relationships among talented individuals, helps to tie knowledge workers to a given firm. We provide the hypothetical example of two Nobel Prize winning scientists. The point, of course, is that the situation in which there are strong ties among the professionals is the one in which retention is more likely to occur. Another way to view these perspectives is drawn from the resource-based view of the firm. Here, competitive advantages that are harder for competitors to duplicate are those that are based on “unique bundles” of resources — which occurs when individuals are actively collaborating and sharing knowledge. The SUPPLEMENT below addresses a very important caveat in ensuring collaboration, sharing, and the development of social capital among people in organizations. That is, zero-sum evaluation systems can become very dysfunctional.  Extra Example: The Corrosive Effects of Zero-Sum Evaluation Systems At times, a firm’s performance assessment methods can get in the way of team success. Microsoft is an example. For many years it used a “stack rating” system as part of its performance evaluation model. At regular intervals, a certain percentage of any team’s members would be rated “top performers,” “good,” “below average,” and “poor,” regardless of the team’s overall performance. In some situations this kind of forced ranking is effective, but in Microsoft’s case it had unintended consequences. Over time, according to insiders’ reports, the stack ranking created a culture in which employees competed with one another rather than against other companies. And, “A” players rarely liked to join groups with other “A” players, because they feared they might be seen as the weakest members of the team. Source: Mankins, M., Bird, A., & Root, J. 2013. Making star teams out of star players. Harvard Business Review. 91(1/2): 74-78.  Discussion Question 31: Can you think of situations where such a forced ranking situation would work best? Have you experienced (or heard about) evaluation systems for team members that either were very good (or very ineffective)? Why? Answer: Forced ranking can be effective in highly competitive environments where clear performance differentiation is crucial, such as sales or performance-driven sectors. It works well when roles are distinct and individual contributions are easily measurable. For instance, tech firms may use it to identify top performers in product development. However, it can be ineffective in collaborative roles or creative fields where teamwork is key. Ineffective systems often stem from inadequate criteria or poor implementation, leading to demotivation and unhealthy competition. A. How Social Capital Helps to Attract and Retain Talent The importance of social ties among talented professionals is creating an important challenge (and opportunity) for organizations today. The phrase: “Pied Piper Effect” has been coined to depict the phenomena in which teams or networks of people are leaving one company for another. Thus, a trend is evolving to recruit job candidates at the crux of social networks in organizations, particularly if they are seen as having the potential to bring with them a raft of colleagues. We provide the example of an electronic commerce company called Third Millennium Communications. Here, social capital certainly played a key role in attracting talent to the firm. B. Social Networks: Implications for Knowledge Management and Career Success We included this section because we feel that it has very important implications for business school graduates’ career success. Much of their education focuses on developing “human capital”, i.e., their skills and competences. However, consistent with the resource based view of the firm, success in the business world depends on how well one can “combine and leverage resources” or “create unique bundles”—not just the output from one’s individual efforts. Social network analysis depicts the pattern of interactions among individuals and helps to diagnose effective and ineffective patterns. Group members’ 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 time to develop trusting relationships that might improve the groups’ effectiveness. EXHIBIT 4.4 is a simplified network analysis which should provide students’ with a grasp of key concepts. It depicts informal relationships among individuals which involve communication flows, personal support, and advice networks. The exhibit serves to illustrate two salient social network concepts: closure and bridging relationships (in addition to “isolates”—those individuals who are not connected to anyone). Closure involves a situation in which members have relationship ties to other members in a given network. Through closure, members develop a high level of trust and solidarity. However, groups that become too closed can become insular and cut themselves off from the rest of the organization. Bridging relationships, in contrast to closure, stresses the importance of ties connecting heterogeneous people. People who bridge relationships tend to receive timely, diverse information because of their access to a wide range of heterogeneous information flows. We briefly reviewed the study that Ron Burt conducted at Raytheon, a $24 billion U. S. electronics company and military contractor. He found that managers who discussed ideas outside of their group consistently had the best suggestions. The SUPPLEMENT below provides more information on the results of Burt’s study at Raytheon from the perspective of career success.  Extra Example: Burt’s Raytheon Study—Evidence of Career Success For executives educated in the network structure of social capital—performance improved. The effects turned out to be substantial--relative to a control group of untrained, but otherwise comparable peers. Graduates from the Business Leadership Program (BLP) were 36% to 42% more likely to receive top performance evaluations, 43% to 72% more likely to be promoted, and 42% to 74% more likely to be retained by the Raytheon. It is important to point out that performance did not improve equally for all graduates. Executives who were quiet spectators in the program cannot be distinguished from the careers of people in the control group—that is, people who did not attend the program. Clearly, there are significant career benefits from actively participating in the BLP Program. Source: Miller, R. A. (abridgement). 2006. Teaching executives to see social capital: An ROI study of a four-year executive education custom program at Chicago GSB. International Executive Development Programmes.  Discussion Question 32: Why do you think that the BLP Program graduates had higher subsequent career success? (You would want to stress the importance of social networks/social capital and suggest that students spend time on developing diverse networks instead of solely directing their efforts at enhancing their skills, and capabilities in performing specific tasks. Also, the importance of bridging diverse networks can be addressed.) Answer: BLP Program graduates likely experienced higher career success due to the strength of their social networks and social capital. These programs often emphasize building diverse and influential connections, which can open doors to opportunities and provide valuable insights. While skills and capabilities are crucial, developing a broad network is equally important for career advancement. Bridging diverse networks enables access to varied perspectives and opportunities, enhancing overall professional growth and success. Developing Social Capital: Overcoming Barriers to Collaboration Collaboration, of course, doesn’t “just happen.” Effective collaboration involves overcoming four barriers: • The not-invented-here barrier • The hoarding barrier • The search barrier • The transfer barrier This section addresses the means by which each of these barriers can be overcome. These are: the unification lever, the people lever, and the network lever.  Discussion Question 33: In your experience in working in groups, which of these barriers did you find most often? What do you think was the cause? Was your group able to overcome it/them? If so, how were the problems resolved? Could the input in this section have helped your group? Why? Why not? Answer: In my experience, communication barriers were the most common in group work. Often, these stemmed from unclear roles, differing expectations, or lack of regular updates. My group was able to overcome these issues by establishing clear roles, setting up regular check-ins, and using collaborative tools to ensure everyone was on the same page. Input on improving communication strategies could have been beneficial, as it would have provided structured methods for addressing these issues early and preventing misunderstandings. Implications for Career Success We close our discussion of social network analysis with a summary of the implications for career success. These are: • Private Information. • Access to Diverse Skill Sets. • Power. The SUPPLEMENT below addresses another practical way to enhance one’s social network: the old cliché, “Don’t eat alone.”  Extra Example: The Benefits of Not Eating Alone One of the problems with scrimping on business lunches—which many companies may do during difficult economic times—is that you’ll lose vital business leads. Kim McConnell, founder of agricultural marketing communications firm AdFarm, has broken bread with professional contacts and employees every workday since 1984. He’s won several huge clients for his firm, which has sales in the $15 million range, as a result. “It didn’t occur over lunch, where two minutes later I walked out with a multimillion-dollar client, but it was definitely the catalyst that allowed it to occur,” he says. Source: Harnish, V. 2010. Stop doing these five business killers now. Fortune, December 6: 71.  Discussion Question 34: What are some other ways that you could enhance your social network? Answer: Enhancing a social network can be achieved by attending industry conferences, joining professional organizations, and actively participating in networking events. Additionally, leveraging social media platforms to connect with industry peers and engage in relevant online communities can expand your reach. Volunteering for projects or committees within your field also provides opportunities to meet influential individuals and build meaningful relationships. STRATEGY SPOTLIGHT 4.4 discussed why two famous artists—Picasso and Van Gogh had such different levels of professional success. The key difference: social capital. Teaching Tip: At this point it might be useful to drive home the practical importance of social network analysis to your students. We address the key tradeoffs between closure and bridging relationships. With closure there is more trust and cohesiveness—which can enhance implementation of ideas. And, with bridging relationships, there is greater variety of perspectives but less cohesiveness may impair implementation efforts. Research has found that individuals who bridge structural holes are consistently more successful than individuals who are central to a specific network (e.g., Ron Burt’s numerous studies). Thus, we suggest that students be made aware that it is very worthwhile to spend time developing networks of diverse groups and individuals. This, of course, involves more efforts and initiative—and perhaps discomfort!--than being central to a single network because in the latter case people tend to have similar experiences and viewpoints. We close the section with a “cautionary note” – three types of network traps. We think this is an important issue for students to grasp because often they are advised to simply “Network!” However to be most effective, they need to be “strategic” in their behavior and actions. C. The Potential Downside of Social Capital To provide balance to the discussion, it is useful to address some of the downsides of social capital. There are primarily two issues: First, when people identify strongly with a group they sometimes support ideas that are suboptimal or simply wrong. If there are strong social pressures (such as “groupthink”), people may be hesitant to challenge each other with touch questioning. This prevents them from engaging in “creative abrasion” — a termed coined by Harvard’s Dorothy Leonard-Barton — a key means to innovative activity. Second, if there are deep rooted mindsets dysfunctional human resource practices may develop. For example, the hiring of like-minded people may heighten inertia and erode innovation. Third, the socialization process whereby individuals are socialized in the norms and values of an organization can be potentially expensive — both in terms of financial resources and managerial commitment. Such expenses should be evaluated in terms of anticipated benefits. IV. Using Technology to Leverage Human Capital and Knowledge Here, we discuss how technology can be used to leverage human capital and knowledge in organizations as well as beyond their boundaries to include customers and suppliers. We will address both simple and more complex applications of technology. We also discuss the challenge of protecting a firm’s intellectual property and the importance of a firm’s dynamic capabilities. A. Using Networks to Share Information Clearly, e-mail is a very effective means of communicating a wide range of information. It is quick, easy, and almost costless. It can, of course, become a problem if it is used inappropriately (as with 1-800-GOT-JUNK example), but it has its benefits. We provide the perspective of Martin Sorrell, Chairman of the WPP Group, the huge advertising and public relations firm. Teaching Tip: Clearly, e-mail can be a double-edged sword. In the chapter we talk of its productivity-enhancing properties. Ask the students how e-mail can end up consuming organizational resources, leading to miscommunications, and erode productivity. Further, ask them for suggestions on how an organization can cope with some of these negative aspects and realize the positive potential of e-mail. (You might mention that the best thing and the worst thing about email is the same – it is costless.) We also provide an example of how sloppy use of email can provide embarrassment and damage to a career. We also address how technology can play a key role in helping a firm develop a knowledge sharing network. We provide an example of Access Health, a call in medical center. Ask:  Discussion Question 35: What must Access Health do, other than implementing technology, to make this network effective? (Hint: Mention reward systems, evaluation systems, effective culture, etc.) Answer: To make the network effective, Access Health should establish clear reward systems that recognize and incentivize contributions and performance. Implementing robust evaluation systems to track progress and outcomes will ensure accountability and continuous improvement. Fostering an effective organizational culture that supports collaboration and open communication is crucial. Additionally, providing training and support to help employees adapt to new technology and integrate it into their workflows will enhance the network's overall success. B. Electronic Teams: Using Technology to Enhance Collaboration Technology has also enabled professionals to work as part of virtual teams to enhance the speed and effectiveness with which products and services are developed. For example, it helps to accelerate the design and testing of new software modules that use the Windows-based framework as a central architecture. We discuss the two main ways in which electronic teams are different from traditional teams (geographical separation of team members; communication by electronic communication channels such as faxes, e-mail, etc.). Two major advantages of electronic teams parallel the first two sections of this chapter. First, it enables the firm to access a broader range of human capital (i.e., skills necessary for complex assignments). Second, it’s effective in generating “social capital” the quality of relationships and the networks that leaders and members form. The two key challenges of making e-teams effective include: members must identify with who among them can provide knowledge and resources; and leaders must be able to know how to combine individual contributions. Ask:  Discussion Question 36: Have you participated in electronic teams? Have they been successful? Have they conformed to the above five attributes? What other attributes have they had? Did those attributes add to or detract from performance? Answer: Yes, I have participated in electronic teams, and their success varied. When they conformed to key attributes like clear goals, regular communication, and defined roles, they were generally successful. Other attributes, such as strong leadership and effective use of collaborative tools, also contributed positively. However, lack of face-to-face interaction sometimes hindered team cohesion. Effective management of these attributes was crucial in achieving better performance and maintaining engagement. We discuss how Cisco Systems is developing technology to enhance collaborations within companies. The SUPPLEMENT below provides additional information on Cisco’s innovative system of communication that delivers life-like video to users in any organization. It may create some interesting discussion and alternate points of view on how valuable such systems are in practice.  Extra Example: Telepresence: A New Way to Meet People Face-to face Global Business Travel Association estimates that Americans took 427 million business trips in 2010 which cost approximately $228 billion. Many of the business trips are “necessary”: to size people up, win client’s trust, or smoothly collaborate on a complex, dynamic task. Here, one’s physical presence is very important. Cisco Systems has created a set of innovative technologies called “telepresence” to change the way we think of human presence. Already, Fortune 500 companies such as Bank of America and Procter & Gamble have installed Cisco’s telepresence. Such systems include custom-built meeting rooms with a bank of high-definition screens and cameras. Cisco’s technology produces a sharper image and sound, more fluid visualization than traditional teleconferencing technologies, and far higher-resolution than services such as Skype or Apple’s FaceTime. Pamela J. Hinds, a Stanford University professor of organizational science, argues that mobile telepresence is not just a gimmick, but qualitatively changes what a remote user can do. It allows people to recreate the sort of serendipitous social encounters so common in flesh-and-blood office interactions that are common in office life. Source: Bennett, D. 2011. I'll have my robots talk to your robots. www.businessweek.com. February 17: np.  Discussion Question 37: What kinds of tasks at work can telepresence replace for individuals in business settings? What are its limitations? Answer: Telepresence can replace tasks such as virtual meetings, remote consultations, and collaborative work sessions in business settings. It allows for real-time interaction and can bridge geographical gaps effectively. However, its limitations include reduced personal connection, potential technical issues, and the inability to fully replicate the nuances of in-person communication. Discussion Question 38: Would you feel comfortable replacing a face-to-face encounter with telepresence? Support your answer. Answer: I would feel somewhat comfortable using telepresence for meetings and collaborative tasks but would prefer face-to-face encounters for critical discussions, networking, or building deeper relationships. Telepresence lacks the full emotional and non-verbal cues that in-person meetings provide, which are often crucial for effective communication. C. Codifying Knowledge for Competitive Advantage There are two different types of knowledge: tacit (embedded in personal experience) and codified (knowledge that can be documented, widely distributed, and easily replicated). A challenge of knowledge-intensive organizations is to capture and codify the knowledge and experience that, in effect, resides in the heads of their employees. We provide the example of Accenture (formerly Andersen Consulting), which has successfully codified the knowledge of its consultants by storing it in electronic depositories. Thus, the knowledge can be employed in many jobs by a large number of consultants since there are strong similarities across assignments. For such a system to work, training becomes very important. Using the knowledge management depository, newly hired Accenture consultants work through many scenarios designed to improve business processes.  Discussion Question 39: Are there knowledge management systems with which you are familiar? Are they effective? Why? Why not? Answer: Yes, I'm familiar with knowledge management systems like Microsoft SharePoint and Confluence. These systems are effective in centralizing information, facilitating collaboration, and improving access to knowledge. They often struggle with user adoption and maintaining up-to-date content, which can limit their effectiveness. Success largely depends on ease of use, integration with existing workflows, and regular updates. We then discuss the knowledge management system used by Access Health, a call-in medical center. Although it was very expensive to develop, the company’s paying customers — insurance companies and provider groups — save money because many callers would have made expensive trips to the emergency room or the doctor’s office had they not been diagnosed over the telephone. STRATEGY SPOTLIGHT 4.5 discusses how SAP uses crowdsourcing to tap knowledge well beyond its organizations boundaries. The SUPPLEMENT below provides some guidelines on making knowledge management systems effective. Prior to discussing the supplement, you may pose the following question:  Discussion Question 40: What are some guidelines on making knowledge management systems effective? (It will be interesting to see what issues are brought up and how they compare and contrast with the supplement) Answer: To make knowledge management systems effective, ensure the system is user-friendly and integrates well with existing tools. Regularly update and maintain content to keep it relevant. Encourage user participation and provide training to enhance engagement. Implement clear processes for content creation and management to avoid information overload. Finally, use analytics to assess and improve system usage.  Extra Example: Making Knowledge Management Systems Effective Persuading people to empty their brains into a knowledge management system isn’t easy. Fortune magazine asked some experts how to make it effective. Here are some of their perspectives: 1. Create heroes: Build a system that rewards those who share knowledge. 2. Follow through: Hire someone to manage and update the system. 3. Don’t let it be in vain: Make sure employees get something out of it. 4. Bring in the boss: Involve upper management to emphasize the system’s importance. 5. Make it a no-brainer: Design a tool that is easy to use. 6. Focus on culture: Foster an environment where sharing information is in vogue. Source: Koudsi, S. 2001. Actually, it is like brain surgery. Fortune, March 20: 234. EXHIBIT 4.5 provides a series of questions that managers should consider in determining (1) how effective their organization is in attracting, developing, and retaining human capital, and (2) how effective they are in leveraging human capital through social capital and technology. V. Protecting the Intellectual Assets of the Organization: Intellectual Property and Dynamic Capabilities The management of intellectual property involves: • Patents, • contracts with confidentiality and noncompete clauses, • copyrights, and, • development of trademarks. A. Intellectual Property Rights The protection of intellectual rights raises unique issues, compared to physical property rights. Much of the production of intellectual property is characterized by significant development costs and very low marginal costs. Indeed, it may take a substantial investment to develop a software program. However, once developed, their reproduction and distribution costs may be almost zero—especially if the Internet is used. Effective protection of intellectual property is necessary before any investor will finance such an undertaking. We describe the legal battles fought by Apple against two of its rivals in the smartphone business. This example illustrates the high stakes that ride on intellectual property rights. B. Dynamic Capabilities Developing dynamic capabilities is the only avenue providing firms with the ability to reconfigure their knowledge and activities to achieve a sustainable competitive advantage. Dynamic capabilities include the ability to challenge the conventional wisdom within a firm’s industry and market, learning and innovating, adapting to a changing world, and adopting new ways to serve the evolving needs of the market. I VI. Issue for Debate This case points out that individual commissions are becoming less common in situations where as the relational sales techniques are proving to be more successful and profitable. The following three paragraphs provide a useful background for the key learning objective: There are two theoretical perspectives that can provide insight. One is the transactional perspective which relies on power of explicit or implicit prices to guide decisions or actions. The other is the relational perspective that emphasizes the harmonious maintenance of existing social relations. Both perspectives have positive attributes that work in different situations. You might ask your class if they find themselves strongly aligned with one of these philosophies or prescribe to a combination of the two. Is either dominant in business? In our society? Is either more useful or more realistic? In the relational perspective there are lower agency costs, people are more coordinated, and people have a sense of higher accountability to each other. There will generally be lower transaction costs between the firm, suppliers, and customers due to mutual trust and respect. Relational perspectives also increase the likelihood for a “win-win” solution rather than a “win-lose.” In the transactional perspective, organizations and people may enter and exit without prior experience with one another, allowing for quicker turnaround of ideas and exchanges. Because of this freeing of former ties it has the potential to foster more of a zero-based thinking, allowing old paths and ideas to be passed without much invested or committed. Additionally, it offers the organizations to actively look for new partners (i.e., suppliers) who may be better able to provide better quality or lower costs to the organization. This perspective also can be a significant enabler of social mobility for all – when you are not relying on your relationship, but rather your qualifications and competence, you may be more positioned to move up. It has contingent rewards, motivators that are “if then” rewards and work well in routine tasks by exciting our interest and attention, which brings focus and gets the job done. However, it does not foster trust among the various parties as well as enhance the potential for positive and productive long-term relationships. QUESTIONS: 1. When is it a better approach to have compensation based on commissions? Answer: As discussed above, commissions work best in transactional scenarios, where there are high “if-then” rewards to further motivate sales. With many sales contexts today focusing on long-term customer relationships as opposed to “sealing the deal” – salespeople will need to rely more on their creative and conceptual skills. Compensation based on commissions is better when roles directly impact sales or performance outcomes, such as in sales or real estate. It aligns employee incentives with company goals, driving productivity and motivation. 2. What are the benefits of both? Answer: As mentioned above, there are advantages to using either approach. However, it is also important to recognize that one strategy does not fit every situation or every employee. You might find that students will have a stronger preference for one over the other. The key criterion is whether the transaction reflects a relatively short-term relationship or if the transaction is longer-term in nature and whether or not it involves a high level of complexity and problem solving – often involving multiple parties. Commission-based compensation can boost motivation and performance by directly linking earnings to results. Salary-based compensation provides stability and can attract talent by ensuring consistent income, which is valuable for roles requiring long-term commitment and skill development.  VII. Reflecting on Career Implications Below, we provide some suggestions on how you can lead the discussion on the career implications for the material in Chapter 4.  Human Capital: Identify specific steps taken by your organization to effectively attract, develop, and retain talent. If you cannot identify such steps by your organization, you may have fewer career opportunities to develop your human capital at your organization. Do you take advantage of your organization’s human resource programs, such as tuition reimbursement, mentoring, and so forth? Students should appreciate the range of steps involved in how organizations hire and develop human capital. All organizations have relevant policies and procedures, and these procedures are usually strictly regulated in order to comply with legal requirements. To begin the discussion, instructors can ask students who have jobs about their hiring experience. Why were they chosen? What skills and capabilities was the organization developing? Students can also talk about their training experience, as most all jobs require some training. Students may be well aware that these efforts by their organizations help develop the stock of human capital needed by the firm. However, from the employees’ perspective, it may be useful to become aware of the range of training and human capital development steps offered by their organization. Ask students about steps that they may not have used, such as leadership programs, foreign assignments, transfers, and special certificate training programs. After generating a list, ask students which they may want to exploit at some point in their careers. The point is to get students to expand their thinking about how to develop their skills and capabilities over the course of their careers.  Human Capital: As workplaces become more diverse, it is important to reflect on whether your organization values diversity. What kinds of diversity seem to be encouraged (e.g., age-based or ethnicity-based)? In what ways are your colleagues different from and similar to you? If your firm has a homogeneous workforce, there may be limited perspectives on strategic and operational issues and a career at this organization may be less attractive to you. Diversity is an important issue in the workplace environment, and well worth exploring. Ask students to describe how their organizations are diverse, and do not limit the discussion to the legal definition. Include dimensions such as area of academic training, home region, and personality type. Now ask students how such diversity helps the organization. Research shows that diversity brings more information into the decision-making process, which results in better business decisions, but students may be able to express this idea in their own words. Now ask students to devise policies that explicitly encourage diversity in the organization’s hiring, retention, promotion, and training policies. The point is that diversity may discourage problems such as groupthink, so challenge students to describe how a diverse organization is less prone to groupthink. Diversity brings new perspectives to group decisions, and the new perspectives, if tolerated, will make it “normal” to challenge the status quo and question flawed policies. Organizations that embrace diversity tend to be dynamic, growing, and open to innovative and entrepreneurial opportunities. These opportunities may make organizations more attractive places for employment.  Social Capital: Does your organization have strong social capital? What is the basis of your conclusion that it has strong or weak social capital? What specific programs are in place to build and develop social capital? What is the impact of social capital on employee turnover in your organization? Alternatively, is social capital so strong that you see effects such as “groupthink”? From your perspective, how might you better leverage social capital toward pursuing other career opportunities? Ask students to describe the social capital of their work organizations. They should be able to relate the concept to relationships and a work environment that promotes productive professional interpersonal relationships. After the concept has been established, ask students to assess the social capital of their organizations from a scale of strong to weak. Students should be able to defend their answers convincingly. Now ask students to identify policies that firms can make to promote social capital. Answers may include Friday afternoon parties, company softball teams, policies against telecommuting, and “open door” policies for managers. As for the relationship between social capital and turnover, be prepared for a mixed reaction. Social capital may increase turnover to the extent that introverts and socially uncomfortable individuals dislike the policies. However, many students may appreciate the benefits of working with friends and feel more attached to the organization with increased social capital. Social capital has its benefits, too, in increasing the possible collaboration between people on business projects, and students should appreciate this benefit. As for the downside of too much social capital, students may appreciate the need to, at times, neglect their colleagues and get work done. Students may know classmates who spend too much time socializing, and as a result do not get all their work done. As an extension, students can be challenged about their over-socialized friends. Are they willing to challenge their friends when they are wrong? Some research suggests that people who are very agreeable will have some difficulty disagreeing with others. Students should appreciate that there may be an optimal level of social capital in their organizations, somewhere between too much and too little.  Social Capital: Are you actively working to build a strong social network at your work organization? To advance your career, strive to build a broad network that gives you access to diverse information. Discuss with students the topic of developing relationships outside the organization. Networks of friendships and working relationships may have long-lasting benefits. The part of the chapter on social network analysis is particularly relevant. Important relationships may be those that link between groups. It is important to develop relationships within the organization, but it may be more important to develop interpersonal ties with those outside it. Such relationships may give students access to information about the general and industry environments, as well as employment opportunities. As an extension, ask students how many of their classmates they know, and what value they place on their school ties. Friendships with classmates can be an enduring professional asset over the course of their careers.  Technology: Does your organization provide and effectively use technology (e.g., groupware, knowledge management systems) to help you leverage your talents and expand your knowledge base? If your organization does a poor job in this regard, what can you do on your own to expand your knowledge base using technology available outside the organization? In the discussion, students should be able to identify some of the knowledge-management technology used by their organizations. Ask students if this technology is sufficient for meeting their professional and career-development needs. If not, then what other technology is needed, and what is necessary to remain competitive? After these points, ask students what new technology is needed. Then ask how they can go about advocating for its acquisition. As a start, students could write a short memo that identifies the needed technology, what it would enable the firm to do, and its cost. As a side note, this discussion of technology may require some preparation by the instructor. Students may be very familiar with social media such as Facebook, LinkedIn, email, search engines, and Twitter, but they may not be familiar with knowledge management software. Part of the discussion may be a short description of such knowledge management systems and groupware.  VIII. Summary Firms throughout the industrial world are recognizing that the knowledge worker is the key to success in the marketplace. However, we also recognize that human capital, although vital, is still only a necessary but not sufficient condition for creating value. We began the first section of the chapter by addressing the importance of human capital and how it can be attracted, developed, and retained. Then we discussed the role of social capital and technology in leveraging human capital for competitive success. We pointed out that intellectual capital — the difference between a firm’s market share and its book value — has increased significantly over the past few decades. This is particularly true for firms in knowledge-intensive industries, especially where there are relatively few tangible assets such as software development. The second section of the chapter addressed the attraction, development, and retention of human capital. We viewed these three activities as a “three legged stool.” That is, it is difficult for firms to be successful if they ignore or are unsuccessful in any one of these activities. Among the issues we discussed in attracting human capital were “hiring for attitude, training for skill” and the value of using social networks to attract human capital. In particular, it is important to attract employees who can collaborate with others given the importance of collective efforts such as teams and task forces. With regard to developing human capital, we discussed the need to encourage widespread involvement throughout the organization, monitor progress and track the development of human capital, and evaluate human capital. Among the issues that are widely practiced in evaluating human capital is the 360-degree evaluation system. Employees are evaluated by their superiors, peers, direct reports, and even internal and external customers. Finally, some mechanisms for retaining human capital are employees’ identification with the organization’s mission and values, providing challenging work and a stimulating environment, the importance of financial and nonfinancial rewards and incentives, and providing flexibility and amenities. A key issue here is that a firm should not overemphasize financial rewards. After all, if individuals join an organization for money, they also are likely to leave for money. With money as the primary motivator, there is little chance that employees will develop firm-specific ties to keep them with the organization. We also address the value of a diverse workforce. The third section of the chapter discussed the importance of social capital in leveraging human capital. Social capital refers to the network of relationships that individuals have throughout the organization as well as with customers and suppliers. Such ties can be critical in obtaining both information and resources. With regard to recruiting, for example, we saw how some firms are able to hire groups of individuals en masse who are part of social networks. Social relationships can also be very important in the effective functioning of groups. We address social network theory and point out the relative advantages of two key concepts — closure and brokering relationships. Finally, we discussed some of the potential downsides of social capital. These include the expenses that firms may bear when promoting social and working relationships among individuals as well as the potential for “groupthink”, wherein individuals are reluctant to express divergent (or opposing) views on an issue because of social pressures to conform. The fourth section addressed the role of technology in leveraging human capital. We discussed relatively simple means of using technology such as e-mail and networks where individuals can collaborate by way of personal computers. We also addressed more sophisticated uses of technology such as sophisticated management systems. Here knowledge can be codified and reused at very low cost, as we provided in the examples of firms in the consulting, health care, and high technology industries. We discuss how electronic teams can be effectively used. The fifth section addresses key differences between the protection of physical property and intellectual property. The development of dynamic capabilities is clearly one of the best ways to ensure that a firm can protect its intellectual property. Chapter 4: Recognizing a Firm’s Intellectual Assets Refer to Exhibit 4.7: Issues to Consider in Creating Value through Human Capital, Social Capital, and Technology. Ask students in a group to use this “checklist” to evaluate an organization that they are familiar with. (Obviously, the students won’t have a “common experience” but they can select one of the group members’ organizations and use that as a point of reference). Ask them how the company could improve their “score” on the items. Teaching suggestions: The checklist is rather self-explanatory to give detailed answers here. Key points to be emphasized are: 1. Implementing improvements in the areas of human capital, social capital and technology can be expensive. There are trade-offs involved in making these investment decisions. 2. After the investments are made, what would be the implication when an employee leaves? How would the organization be able to retain the employees’ knowledge after they leave the firm? It is important to mention: developing “firm-specific ties;” teams to disseminate knowledge to lessen the impact of employee turnover; and efforts to convert ‘tacit’ knowledge to ‘explicit’ knowledge through knowledge management systems. 3. Is it feasible or desirable to improve human capital, social capital and, technology, on all the items mentioned in the checklist? Is it possible to create a challenging work environment in all cases for example, production-level jobs in a factory environment? 4. When is cooperation among members in an organization better than competition? Are there situations where competition among groups is better than cooperation? In several high technology industries, groups are encouraged to compete with each other in order to foster innovation and creativity. 5. In what kind of competitive environments is human capital more important than social capital or the other way round? 6. Do you always need the best technology? It is important to emphasize that technology is a ‘means to an end’ and not just an ‘end in itself.’ For example, obtaining expensive technology to maintain ‘parity’ with rivals without knowing how it can provide competitive advantages can be of no use. (You might find it helpful to refer to the HBR article, ‘IT doesn’t matter’ by Nicholas G. Carr published in May 2003 issue, to provide further insights on this topic.) The student should be made sensitive to the dilemmas and trade-offs involved in making these key decisions. After all, its business decision-making and the impact on bottom-line cannot be ignored. End of Chapter Teaching Notes Chapter 4: Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources Summary Review Questions 1. Explain the role of knowledge in today’s competitive environment. Response: To understand the competition that a firm faces, it must understand competitors’ (as well as buyers’, suppliers’, substitutes’, and potential entrants’) intellectual capital. Firms are no longer important because of how they manage things, but rather because of how they manage knowledge. Most of their market value is likely to be intellectual capital. Therefore, firms will have to understand competitors’ human capital and, social capital, as well as their explicit knowledge and tacit knowledge. Answer: In today's competitive environment, knowledge drives innovation, improves decision-making, and enhances efficiency, allowing firms to adapt quickly and maintain a competitive edge. It enables companies to leverage insights for strategic advantage and better meet customer needs. 2. Why is it important for managers to recognize the interdependence in the attraction, development, and retention of talented professionals? Response: All three steps are important for efficiently and effectively developing intellectual capital. To illustrate, consider what happens if any one step is weak. If attraction were weak, then the firm would not be able to hire sufficient numbers of capable employees to replace retirees, grow intellectual capital, or select capable professionals for its organization. If development were weak, then the firm would not be able to increase the intellectual capital of its staff to compete effectively. If retention were weak, then the firm would be investing its scarce capital into selecting and developing replacements for the professionals who are leaving. Answer: Managers must recognize the interdependence in attracting, developing, and retaining talent to ensure a cohesive strategy that maximizes employee engagement, growth, and long-term commitment. Effective management of these areas leads to a more motivated and skilled workforce, driving overall organizational success. 3. What are some of the potential downsides for firms that engage in a “war for talent”? Response: A war for talent implies that an organization focuses on attracting and retaining talented professionals by offering competitive salaries – usually at least slightly exceeding what the competition offers. This type of human capital development strategy is likely to be expensive and limiting. Professionals take a lot of factors into consideration when accepting a position, and salary is usually not the most important. Therefore it makes sense to attract and retain human capital using appeals besides pay. An alternative to the war for talent is to encourage development of firm-specific characteristics such as an attitude of team-orientation, and identification with the organization’s mission and values. Such practices will help firms develop differentiated human capital and limit professionals’ focus on finding alternative employment. Answer: Firms engaged in a "war for talent" may face high turnover rates, increased recruitment costs, and potential damage to their organizational culture. This intense competition can also lead to salary inflation and a focus on short-term gains over long-term employee development. 4. Discuss the need for managers to use social capital in leveraging their human capital both within and across their firm. Response: Social capital is the network of relationships and friendships among talented professionals both inside and outside the organization. Human capital can, in theory, be developed without any interaction between professionals in an organization. However, most activities in firms require professionals to work in combinations, each lending different types of expertise to completing projects. Social capital also recognizes that workplace interactions involve friendships and mutual respect that motivate professionals, encourage loyalty and facilitate learning and human capital development. Social capital also helps to attract and retain talent. Because social capital also characterizes interpersonal relationships across firms, it helps the firm to work with suppliers, buyers, and other partners through joint projects and information exchange. Managers can take network theory into account when developing social capital. They can put key individuals in positions with high centrality. Specific groups can be managed with closure in order to limit the unwanted spread of sensitive information. And in cases where barriers prevent key groups from interacting, thus creating structural holes, managers can create bridging relationships that will give other groups access to an optimal range of information and talent. Answer: Managers need to leverage social capital to build networks and foster relationships that enhance collaboration, knowledge sharing, and access to opportunities. Effective use of social capital can amplify human capital, driving innovation and strategic advantage within and across the firm. 5. Discuss the key role of technology in leveraging knowledge and human capital. Response: Technology can be used to share information, increase collaboration, and codify knowledge. For sharing information, email has the advantage of being nearly costless and spanning geographical boundaries. Videoconferencing is increasingly being used to mimic face-to-face meetings across large distances. For increasing collaboration, email, videoconferencing, and internal networks enable formation of electronic teams, or teams that complete tasks primarily through electronic communications. Electronic teams can span geographic regions, departments within the organization, or even enable collaboration with suppliers or buyers. For codifying knowledge, technology enables the creation of in-house databases that can be used to solve problems. For example, if one professional develops a solution to a problem and then codifies it, then the codified solution can be used to help solve future problems of that type. All these practices enhance firms’ knowledge and human and social capital. Answer: Technology plays a crucial role in leveraging knowledge and human capital by enabling efficient information sharing, collaboration, and access to expertise. Tools like knowledge management systems, communication platforms, and data analytics facilitate the capture, organization, and utilization of valuable insights, thereby enhancing productivity and innovation. Experiential Exercise Johnson & Johnson, a leading health care firm with $61.8 billion in revenues, is often rated as one of Fortune’s “Most Admired Firms.” It is also considered an excellent place to work and has generated high return to shareholders. Clearly, they value their human capital. Using the Internet and/or library resources, identify some of the actions/strategies Johnson & Johnson has taken to attract, develop, and retain human capital. What are their implications? Response: (Note to instructor) The value of this exercise is to get students to classify various corporate policies into attracting, developing, or retaining human capital. For implications, it may be useful to ask students to differentiate between firm-specific policies and policies that create and develop transferable human capital. Also, it may be useful to tie these policies to the development of social capital. Students may come up with a wide variety of relevant action/strategies. For attracting human capital, possibilities may include advertising positions, offering pay and benefits, recruitment efforts, selection based on attitude, and use of networks to attract new recruits. For developing human capital, possibilities may include intra-firm transfer policies, mentoring programs, training programs, evaluation programs, and access to in-house data. For retaining human capital, possibilities include adoption of/ learning the corporate credo, rewards and incentives, and efforts to enhance the working environment. Answer: Johnson & Johnson attracts, develops, and retains human capital through comprehensive development programs, competitive compensation, and a strong emphasis on work-life balance and diversity. These strategies foster a positive work environment, enhance employee satisfaction, and drive high performance and loyalty, contributing to the company's overall success and strong shareholder returns. Application Questions Exercises 1. Look up successful firms in a high-technology industry as well as two successful firms in more traditional industries such as automobile manufacturing and retailing. Compare their market values and book values. What are some implications of these differences? Response: Typically, the exercise will result in higher market value: book value ratios in the high technology industries than the more traditional industries. The implications are that the high technology industries rely more on intellectual capital than traditional industries. In addition, the more traditional industries have more fixed assets to manage than the high technology industries. Strategically, the high technology industries will have more of a unidimensional focus on developing intellectual assets. Answer: High-tech firms often have higher market values compared to book values due to intangible assets like intellectual property and innovation potential. In contrast, traditional industries like automobile manufacturing and retailing typically show smaller discrepancies between market and book values, reflecting their reliance on tangible assets. These differences highlight the significant role of intangible assets in driving value in high-tech sectors. 2. Select a firm for which you believe its social capital—both within the firm and among its suppliers and customers—is vital to its competitive advantage. Support your arguments. Response: Social capital within the firm will be reflected in policies that promote rotation to different parts of the organization, collegiality among professionals, or perhaps retreats to discuss and develop corporate policies. Social capital among suppliers and customers may be indicated by close working relationships, such as task forces with membership from the firm and its suppliers to work out a just-in-time inventory system. Also, the board of directors may have membership from suppliers or customers, which suggests interrelationships between top managers from the related firms. A really strong answer would include evidence of bridging relationships. Perhaps a firm has a policy of forming cross-functional teams, where professionals who normally may not deal with each other that much come together to solve problems. Perhaps accountants and marketers would serve on these teams. The firm’s stated rationale for this policy might be a very strong indicator of a commitment to developing social capital by establishing bridging relationships across structural holes. To show that the social capital is vital to the firm’s competitive advantage, there should be an argument that the social capital helps in the development of a sustainable competitive advantage. Answer: Apple Inc. relies heavily on social capital, fostering strong relationships within its team and with suppliers and customers. Its collaborative culture and strategic partnerships with suppliers enable innovation and efficient supply chain management, while its brand loyalty among customers creates sustained competitive advantage. 3. Choose a company with which you are familiar. What are some of the ways in which it uses technology to leverage its human capital? Response: Three possibilities are internal email systems, use of electronic teams, and the development of an internal database of useable firm-specific knowledge. The specifics will vary by company, but these efforts usually require a significant investment. Also, look for senior management positions with information technology (IT) responsibilities. A few firms have created positions such as a CIO (Chief Information Officer). Answer: Google uses technology to leverage human capital through advanced data analytics for talent management, AI-driven recruitment tools, and collaboration platforms like Google Workspace that enhance employee productivity and innovation. 4. Using the Internet, look up a company with which you are familiar. What are some of the policies and procedures that it uses to enhance the firm’s human and social capital? Response: Policies for enhancing human capital should be available in the employment section on the firm’s web page. Policies can be classified into attracting, developing, and retaining. Some firms include information on evaluation policies, such as a mentoring program. Social capital has been discussed above (application question #2), but there may be policies related to the creation and use of teams, collaboration with suppliers or customers, or other evidence of recognition of social capital. (Note to instructor) We have found it interesting to ask students what questions they should bring to a job interview. What policies do they want to see in place regarding human capital attraction, development, and retention? How do they want to be evaluated? And what types of social capital policies would they find important both for themselves and their firms? Answer: Microsoft enhances human and social capital through policies like continuous learning opportunities, a robust mentorship program, and initiatives for diversity and inclusion, all supported by platforms for employee collaboration and feedback. Ethics Questions 1. Recall an example of a firm that recently faced an ethical crisis. How do you feel the crisis and management’s handling of it affected the firm’s human capital and social capital? Response: Students are likely to respond with a wide variety of examples. For each, it may be useful to draw specific links between the firm’s crisis and the stressors put on individual professionals within the firm. From the human capital perspective, it might be useful to reexamine the issue of retaining human capital. How would the crisis affect the firm’s ability to retain its professionals? With regard to social capital, the crisis might have a profound effect on the interpersonal relationships between professionals at the firm and individuals in suppliers or customers. The firm’s inter-organizational is likely to suffer. To emphasize the importance of the crisis, it may be useful to link all these issues to the firm’s sustainable competitive advantage. Answer: Volkswagen's emissions scandal eroded trust with employees and stakeholders, damaging morale and reputation. The crisis led to increased scrutiny on leadership and governance, impacting employee retention and supplier relationships. 2. Based on your experiences or what you have learned in your previous classes, are you familiar with any companies that used unethical practices to attract talented professionals? What do you feel were the short-term and long-term consequences of such practices? Response: Such unethical practices usually take the form of promising something to attract the talent and then not delivering on the promise after hiring. Of course, the short- and long-term consequences are likely to be negative, ranging from disappointment to sabotage. The talented professionals are likely to have high turnover. (Note to instructor) Because the students are sharing their experiences, the discussion may be emotional. So the next question may be to ask why such unethical practices are so common? Students may respond with arguments such as that the practices are normal in the industry, that firms are facing cost pressures, or that the talented professionals were naïve. The last question, then, is to ask students if firms are aware of all the short- and long-term consequences of their unethical practices, and if these consequences could be reduced if the unethical practices were changed to more ethical ones. The end result of the discussion should be to raise issues with these unethical practices. Answer: Wells Fargo's fake accounts scandal involved unethical practices to meet sales targets, attracting talent with misleading incentives. Short-term, it boosted sales but led to long-term damage in reputation, legal penalties, and decreased employee trust. Solution Manual for Strategic Management: Creating Competitive Advantages Gregory G. Dess, Alan Eisner, G.T. (Tom) Lumpkin, Gerry McNamara 9780077636081, 9781259245558