Solutions Manual Strategic Management Text and Cases 8th Edition Dess

Solutions Manual Strategic Management Text and Cases 8th Edition Dess McNamara Eisner Download: https://testbankarea.com/download/strategic-management-text-cases-8thedition-solutions-manual-dess-mcnamara-eisner/ Test Bank for Strategic Management: Text and Cases 8th Edition by Gregory Dess, Gerry McNamara, Alan Eisner Completed download: https://testbankarea.com/download/strategic-management-text-cases-8thedition-test-bank-dess-mcnamara-eisner/

Chapter 4 Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources ..........................

108 (4-2)

The Central Role of Knowledge in Today’s Economy ...........................

110 (4-5)

Human Capital: The Foundation of Intellectual Capital .......................

112 (4-6)

Attracting Human Capital................................................................................................ Developing Human Capital ............................................................................................. Retaining Human Capital ................................................................................................ Enhancing Human Capital: Redefining Jobs and Managing Diversity ..........................

114 (4-7) 116 (4-11) 118 (4-15) 121 (4-19)

The Vital Role of Social Capital ............................................................... 123 (4-20) How Social Capital Helps Attract and Retain Talent ...................................................... Social Networks: Implications for Knowledge Management and Career Success .......... The Potential Downside of Social Capital .......................................................................

124 (4-20) 124 (4-20) 129 (4-23)

Using Technology to Leverage Human Capital and Knowledge .......... 131 (4-24) Using Networks to Share Information ............................................................................. Electronic Teams: Using Technology to Enhance Collaboration ................................... Codifying Knowledge for Competitive Advantage ...........................................................

131 (4-24) 132 (4-25) 134 (4-25)

Protecting the Intellectual Assets of the Organization: Intellectual Property and Dynamic Capabilities .................................... 135 (4-27) 2-1

Intellectual Property Rights ............................................................................................. Dynamic Capabilities.......................................................................................................

136 (4-27) 137 (4-27)

Issue for Debate .......................................................................................... 138 (4-27) Reflecting on Career Implications............................................................ 139 (4-28) Summary ..................................................................................................... 139 (4-30)

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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—than on 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 how the effectiveness of human capital can be increased by redefining jobs and the value of a diverse work force.

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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.

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Lecture/Discussion Outline We open the chapter in LEARNING FROM MISTAKES 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:

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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.

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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.

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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.

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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 crossselling 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. 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.

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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 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:

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Discussion Question 4: What are the implications of EXHIBIT 4.1 for today’s organizations? 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.”

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Knowledge comes in two different forms: explicit (easily documented, stored, etc.) and tacit (in the minds of employees and shared only 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. The SUPPLEMENT below helps to reinforce the importance of top talent in today’s organizations and the need to retain that talent. It raises the concept of “core competents,” an insightful contrast to the more commonly-known term, core competence.

 Extra Example: Winning in the Knowledge Economy—The Importance of Core Competents Talented executives will always be in demand and will be able to attract substantial salary and remuneration packages. In effect, corporate power will be concentrated in the hands of the few. “What is critical in the firm of the future is not so much the core competencies as the core competents,” predicts Jonas Ridderstrale, a professor at the Stockholm School of Economics. “These walking monopolies will stay as long as the company can offer them something that they want. When that is no longer the case, they will leave.”

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Ridderstrale points to a growing array of supporting evidence. Bill Gates has reflected that if 20 of Microsoft’s key people were to leave, the company would risk bankruptcy. In a study by the Corporate Leadership Council, a computer firm recognized 100 “core competents” out of 16,000 employees; a software company had 10 out of 11,000; and a transportation group deemed 20 of its 33,000 employees as really critical. Source: Crainer, S. & Dearlove, D. 1999. Death of executive talent. Management Review, July–August: 22.

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Discussion Question 5: What are the career planning implications for you (that is, how do students see themselves becoming core competents)?

The following SUPPLEMENT provides more insight into why human capital is becoming more valuable in today’s knowledge economy.

 Extra Example: The Growing Importance of Knowledge Workers in Today’s Economy Intangible assets, primarily derived from human capital, have soared from 17 percent of the S+P’s market value in 1975 to 84 percent in 2015, according to the advisory firm Ocean Tomo. Even a manufacturer like Stryker gets 70 percent of its value from intangibles (it makes replacement knees, hips, and other joints loaded with intellectual capital). As technology takes over more of the fact-based, rules-based, left-brain skills of knowledge workers, employees who excel at human relationships are emerging as the new “it” men and women. More and more major employers are recognizing they need workers who are good at team building, collaboration, and cultural sensitivity, according to global forecasting firm Oxford Economics. Other research shows the most effective teams are not those whose members boast the highest IQs, but rather those whose members are most sensitive to the thoughts and feelings of others. Source: Colvin, G. 2015. Personal bests. Fortune, March 15: 106–110.

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:

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Discussion Question 6: Why do many firms devote more efforts to attracting human capital than they do to developing or retaining talent?

STRATEGY SPOTLIGHT 4.1 discusses the importance of a firm’s “green” or environmental sustainability strategy in attracting young talent. Ask:

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Discussion Question 7: How important is a firm’s “green strategy” in your job search?

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 155 th, 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 risktakers 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

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Discussion Question 8: Do you agree with the idea that “higher labor flexibility eases unemployment”? Discussion Question 9: From the perspective of this article, would employees or employers in the U.S. be happy that it is first in the rankings? Why?

A.

Attracting Human Capital

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We begin by questioning 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.)

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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 334-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: McGregor, J. 2009. CEO breeding grounds: Looking beyond GE and P&G for talent. Bloomberg Businessweek. April 11: 38.

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Discussion Question 10: 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? 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:

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Discussion Question 11: Do you think the approach used by Southwest Airlines is a good idea? For other companies with which you are familiar? We discuss the “Bozo filter” that Cooper Software, Inc. uses to screen employees.

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Discussion Question 12: What are the advantages (and disadvantages) of the “Bozo Filter”? Would it work in other organizations with which you are familiar?

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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:

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Discussion Question 13: 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?

 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.

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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.

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Discussion Question 14: 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? 3.

Attracting Millennials

We discuss 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. We also include some “tips” on how to get hired. In might be interesting (and admittedly! a risk) to present an alternate perspective in class and see how the students react. The SUPPLEMENT below—in a 2007 article from Fortune magazine—presents a far less flattering perspective of this age group.

 Extra Example: Generation Y—A Less Flattering Perspective . . . Upon graduation, it turns out that a lot of Generation Yers hadn’t learned much about struggle or sacrifice. As the first of them began to graduate from college in the late 1990s, the average educational debt soared to $19,000 for new graduates, and many Yers went to the only place they know they’d be safe: home. Lots haven’t left. A survey of college graduates from 2000 to 2006 by Experience Inc. found that 58 percent of those polled had moved home after school and that 32 percent stayed more than a year. Even among those who’ve managed to stay away, Pew found that 73 percent of 18- to 25-year-olds have received financial assistance from their parents in the past year, and 64 percent have even gotten help with errands. Source: Hira, N.A. 2007. You raised them, now manage them. Fortune. May 28: 38–46.

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Discussion Question 15: Do you think that Yers might have expectations that are unrealistic? If so, what has led to such expectations? Discussion Question 16: What should potential employers do? (e.g., provide more “realistic” job previews?)

The following SUPPLEMENT 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

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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 2011 and has been in the top three ever since. 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.

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Discussion Question 17: Are you aware of other companies using non-financial incentives to attract young talent in the industry? Discussion Question 18: 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? Discussion Question 19: If this strategy works well for Google, why don’t more companies implement 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 and Motorola. The following SUPPLEMENT provides some guidelines/suggestions for enhancing one’s career success. Although these points are directed at women managers, they should also apply to men. In addition, these issues may spur some lively discussion (such as how much risk one should take, work/life balance, and so on).

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 Extra Example: Three Suggestions for Enhanced Career Success The following suggestions are drawn from Warren Ferrell, author of Why Men Earn More: The Startling Truth Behind the Pay Gap—and What Women Can Do About It (AMACOM, January 2005). 1.

Sign up for a job with bottom-line responsibility. Kathy Vrabeck, president of Activision Publishing, the video-game producer behind Shrek 2 and the Tony Hawk series, believes that this is the advice she could give anyone seeing to earn more money. She had an early glimpse of how this works while at Eli Lilly, when she noticed that R&D was the driving function in pharmaceuticals. At Activision, she’s responsible for game development—the function on which the company’s success largely depends. According to Vrabeck, “In any company, it’s the operating jobs, not the staff jobs, that generate revenue. A company’s always willing to pay more for people who are willing to take on the responsibility of a line job and the risk it entails.

2. Find a field that entails financial or emotional risk taking Most venture capitalists can expect to earn between $100,000 and $300,000 a year, according to Salary.com. (Many, of course, earn far more!) Of course, if they bet the farm on an online pet-food supplier, they also risk losing everything. Currency traders, real-estate speculators, and many sales executives all gamble that they can use their drive and smarts to make a good living. If they’re right, they can clean up. If not, they have only themselves to blame. The market pays a premium for such chutzpah. 3. Work more hours, more weeks, and more years Many may declare: “Enough! Americans already work more hours per year than the rest of the planet!” So true. But if you are willing to be the alpha dog of wage slaves in your industry, you can expect to be rewarded handsomely. The U.S. Bureau of Labor Statistics (BLS) reports that the average person working 45 hours per week earns 44 percent more than someone who works only 40 hours. Why? The willingness to work more often leads to jobs that pay more per hour. At the upper reaches of a corporation, this can be significant. Top CEOs generally command pay in the 7-digit range—but they have also typically paid their dues with 15-hour days, six days a week, for an average of 20 years. The road to higher pay is a toll road with no EZ-Pass for the fast lane! Source: Tischler, L. 2005. Bridging the (gender wage) gap. Fast Company, January: 85–87.

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. 2.

Mentoring

We believe that this is a very important topic to address. (To clarify the difference between mentoring and sponsoring—they are not, of course, synonymous. In effect, a mentor will talk with you and provide career guidance, but a sponsor will talk about you—and “use up chips” for their protégé. We also provide insights form Intel’s approach to mentoring.

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The following SUPPLEMENT provides some advice (perhaps, “tough love!”) 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.

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Discussion Question 20: Do you agree with the above observation and suggestion? Is it reasonably “representative” of millennial behavior? Why? Why not?

3. Monitoring Progress and Tracking Development Whether a firm uses on-site formal training, off-site training (e.g., universities) or on-thejob 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:

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Discussion Question 21: Should the 2+2+2 approach be used for other large multinational firms? Why? Why not?

The following SUPPLEMENT addresses how Procter & Gamble has used a technologybased management system to monitor and track its talent.

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 Extra Example: How P&G Uses Technology to Monitor and Track Its Talent At P&G, people and positions are tracked via its technology-based talent management system. It accommodates all the firm’s 135,000 employees. However, it is primarily used to track 13,500 middle- and upper-management employees. The system captures information about: * * * *

succession planning at the country, business category, and regional levels; career histories and capabilities, as well as education and community affiliations; top talent and their development needs; and, achieving diversity objectives.

It also makes in-house talent visible to business leaders, who no longer have to scour the company to find candidates by themselves. To keep the system relevant, P&G has instituted a global talent review. This is a process by which every country, every function, and every business is assessed for its capacity to find, develop, deploy, engage, and retain skilled people, in light of specific performance objectives. For example, if the company has stated diversity in hiring objectives, the review is used to audit diversity in hiring and promotions. Determinations made in these reviews are captured in a global automated talent development system and can be assessed by decision makers through their HR managers. Source: Ready, D.A. & Conger, J.A. 2007. Make your company a talent factory. Harvard Business Review, 85 (6): 68–77.

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Discussion Question 23: What are some of the benefits of P&G’s system for attracting, developing, and retaining talent? 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:

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Discussion Question 22: What are some of the pitfalls of 360-degree evaluation systems?

Discussion Question 23: What steps should be taken to improve the chance of their success when implemented?

 Extra Example: Pitfalls and Suggestions for Making 360 Degree Systems Work Some of the pitfalls of 360 degree evaluation systems are:

1. 2. 3. 4.

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. 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. Imitating without clearly understanding what other firms have accomplished, or the likely outcomes for one’s own firm, may be a questionable strategy. 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. 2. 3. 4. 5. 6.

Making consultants/internal champions accountable for results and customization. Engaging in a pilot test initiative. Creating focus groups to identify effectiveness criteria measures. Evaluating using a pre-post control group design. Being careful what you measure and how it’s used. 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 to explain 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 addresses a “cautionary note” on evaluation systems: avoid an emphasis on internal performance measures that ignores the competitive environment that the firm faces.

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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.) The boundary between work life and home life is rapidly disappearing for many individuals. The following SUPPLEMENT provides some interesting insights from research by sociologist Dalton Conley.

 Extra Example: The Blurring Boundaries Between Work and Home One of the most interesting transformations taking place in the work place today is the rapid blurring of the boundaries between home and office. The following numbers, based on a survey of large companies that employ more than 500 employees, tell an interesting story.   

40 percent of large companies allow part-time telecommuting. 16 percent of large companies offer child care centers, some even subsidized by the company. 3 percent of large companies allow employees to bring their pets to work.

Source: Eaves, E. 2009. The Elsewhere man. Forbes. February 16: 22–24.



Discussion Question 24: Do these numbers surprise you? Why do you think companies permit such flexibility, even in an environment where unemployment is high? 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?

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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 following SUPPLEMENT 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 26: What are the advantages and disadvantages of using stock options to retain talent?

 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.

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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.

We close this section with examples of what firms are doing to increase retention through the offering of amenities and flexibilities. We provide an example of USAA, the San Antoniobased insurance and financial services company. 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.

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 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.



Discussion Question 27: 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?

EXHIBIT 4.5 gives three examples of companies (Yum Brands, Intuit, United Technologies) that have come up with rather innovative ways to retain talent during challenging economic times. The following SUPPLEMENT provides some interesting figures on how often Millennials (those roughly 18 to 34 years old) change jobs—and how some firms are adjusting to this trend.

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 Extra Example: Millennials: Fast Job Changes: What Should Firms Do? Millennials, those roughly 18 to 34 years old, make up the largest share of the U.S. workforce, about 34 percent. This outnumbers Generational Xers and baby boomers, who account for 32 percent and 31 percent, respectively, according to the Bureau of Labor Statistics. Last year, the median job tenure for workers aged 20 to 25 was shorter than 16 months. For those aged 25 to 34, it was three years—still far short of the 5.5-year median tenure for all workers aged 25 and older. Companies like International Business Machines Corp, Coca-Cola Co., and Visa Inc. Have recently relaxed office dress codes and convened councils of millennial employees to weigh in on everything from marketing campaigns to workplace polices. Auditing firm Ernst & Young Global Ltd. and Dutch health-care and consumer-products company Philips NV have begun programs designed to send employees overseas for stints of a few months, giving them global exposure and developing leadership skills. Toby Murdock, CEO of Kapost, a Boulder, Colorado marketing-software firm, said he has adopted a different approach: “Let’s be honest about that instead of trying to deny it.” He wants young workers to consider his company a career accelerator, rather than a parking lot. That attitude has given Kapost a reputation as a career launchpad, Mr. Murdock said, and helps the firm attract a stream of ambitious young candidates Source: Gellman, L. 2015. Millennials: Keep them or let them go. Wall Street Journal. May 6: B1, B7.

D.

Enhancing Human Capital: Redefining Jobs and Managing Diversity

First, we discuss how some progressive firms are redefining the jobs of their experts and transferring some of their tasks to lower-skilled people inside or outside their companies—as well as outsourcing work that requires less scarce skills and is not as strategically important. We provide examples of a San Francisco-based law firm, public schools in the United Kingdom, and a large hospital in Bangalore, India. Second, we address diversity in today’s workforce today. This has become more vital due to demographic trends and the accelerating globalization of business. We address some of the emerging demographic trends that 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. 2. 3. 4. 5. 6.

Cost Argument Resource Acquisition Argument Marketing Argument Creativity Argument Problem-Solving Argument System Flexibility Argument

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Ask:



Discussion Question 28: Are you aware of organizations that have exemplary (or ineffective) diversity programs? If so, what makes them successful (or unsuccessful)?

STRATEGY SPOTLIGHT 4.3 discusses two kinds of diversity, inherent (traits one was born with such as gender and ethnicity) and acquired (traits gained by experience such as understanding cultural differences). Research has shown “two-dimensional” diversity unlocks innovation by creating an environment where “outside the box” ideas are heard and minorities form a critical mass.

III.

The Vital Role of Social Capital

Successful firms are well aware that the attraction, development, and retention of talent are necessary but not sufficient conditions 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. 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.

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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 that should provide students’ with a grasp of key concepts. It depicts informal relationships among individuals that 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 review 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.

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 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 percent to 42 percent more likely to receive top performance evaluations, 43 percent to 72 percent more likely to be promoted, and 42 percent to 74 percent 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 29: 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.)

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 30: 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?

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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.

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. INSIGHTS FROM RESEARCH (page 130) discusses some very interesting—and counterintuitive!—findings on the benefits of reconnecting with people whom managers had not been in contact for at least three years (“dormant ties”). We also address three kinds of “network traps”: the wrong structure, the wrong relationships, and the wrong behavior. 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 tough questioning. This prevents them from engaging in “creative abrasion”—a termed coined by Harvard’s Dorothy Leonard-Barton—a key means to innovative activity.

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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. Fourth, individuals may use their contacts solely for personal gain.

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, email 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. The following SUPPLEMENT addresses some of the other challenges and limitations associated with the use of email.

 Extra Example: E-mail—Challenges and Limitations Some well-known problems associated with the use of e-mail include the distraction of spam and stuffed in-boxes as well as the potential for legal liability. However, an additional concern is misinterpreted messages, as well as the degree to which e-mail becomes a substitute for the nuanced conversations that are critical in the workplace. Business has undervalued the social dimension of communication,” says Daniel Goleman (of Emotional Intelligence “fame”), whose book, Social Intelligence, examines the science behind interpersonal connections. Research suggest that the perils of e-mail are greater than many assume. Justin Kruger, of New York University’s Stern School of Business, has found that as few as 50 percent of users grasp the tone or intent of an e-mail. Further, most people vastly overestimate their ability to relay and comprehend messages accurately. Smiley faces and exclamation points add another layer of confusion. Misinterpretation is highest, studies have found, when the e-mail comes from a boss.

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Source: Brady, D. 2006., *!?@ the e-mail. Can we talk? BusinessWeek, December 4: 109.

Teaching Tip: Clearly, email can be a double-edged sword. In the chapter we talk of its productivity-enhancing properties. Ask the students how email 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 email. We also provide an example of how sloppy use of email can provide embarrassment and damage to a career. Strategy Spotlight 4.5 suggests an innovative approach one firm took to reduce the huge number of emails that it had to deal with. 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:

 B.

Discussion Question 31: What must Access Health do, other than implementing technology, to make this network effective? (Hint: Mention reward systems, evaluation systems, effective culture, etc.) 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, email, 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.

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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:

 C.

Discussion Question 32: 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? 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 33: Are there knowledge management systems with which you are familiar? Are they effective? Why? Why not?

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 4.6 discusses how SAP uses crowdsourcing to tap knowledge well beyond its organization’s boundaries.

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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 34: 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.)

 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. 2. 3. 4. 5. 6.

Create heroes: Build a system that rewards those who share knowledge. Follow through: Hire someone to manage and update the system. Don’t let it be in vain: Make sure employees get something out of it. Bring in the boss: Involve upper management to emphasize the system’s importance. Make it a no-brainer: Design a tool that is easy to use. 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 4.7 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

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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, its 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 discuss recent patent battles that Apple has been fighting against smartphone makers running Android, Google’s mobile operating system. 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.



VI.

Issue for Debate

This issue should generate a lot of interest and debate among your students. And, I would expect many would have very strong opinions on it. At one extreme, some may claim to have an effective culture “everyone must gain—and suffer—equally.” Others would argue that it is not fair that high producers are treated the same as the average, or low, producers: “Is this a charity or a business to generate high profits!”

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DISCUSSION QUESTIONS: 1. Do you think David Cote made the right decision? Why? Why not? As noted in the “debate”, Mr. Cote provides a strong rationale for the furloughs. That is, managers typically overestimate the savings from layoffs and don’t spend time talking and thinking about how the choices they make will affect performance during a recovery. He claims layoffs are far more disruptive than furloughs because people become extremely distracted during layoffs because their friends may have lost their jobs and they fear for their own job. Plus, Mr. Cote states that since there was less need to hire during recovery, not only were hiring costs lower—but the company was able to more easily win new business. Mr. Cote did mention in the HBR article that although most everyone felt good about the approach initially, some of the higher performers (or at least those who thought they were high performers…) resented the additional financial sacrifice they had to take—assuming they would not have been laid off anyway. However, Mr. Cote claimed the level of “regrettable turnover” (people the firm did not want to lose but left anyway) was quite low. Mr. Cote did mention two mistakes he made. He said he should have told employees at town hall meetings—when they asked what sacrifice he was making—that he had forgone his bonus for the year (during the furloughs)—which was a significant percentage of his compensation, instead of merely saying “That’s not my decision—it’s up to the board.” Second, he said that he should not have insisted on relatively standard furloughs across businesses (since some markets, such as China, were still growing rapidly). 2. Do you think the decision was well received by the employees? What factors, changes in events, and so on, do you think would affect how employees came to accept (or reject) this decision? Generally, speaking this would depend on the “culture” of the organization in terms of how loyal people are to the organization, the sense of collective spirit and enthusiasm, and concern people have for their colleagues. One factor in Honeywell’s favor is that the firm had been performing very well under his leadership (the share price had more than doubled during the first 5 years of Mr. Cote’ leadership). As noted above, a key factor is the duration and severity of the furlough. Although morale seemed to dip as the recession (and furloughs) dragged on, once the recovery strengthened, Honeywell was well positioned and the amount of “regrettable turnover” was quite low.



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: Does your organization effectively attract, develop, and retain talent? If not, you may have fewer career opportunities to enhance your human capital. Take

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advantage of your organization’s human resources programs such as tuition reimbursement, mentoring, etc. At least some students in the class are likely to be taking advantage of their firm’s human capital developments programs like tuition reimbursement. Getting them to discuss why the firms are doing so would be an interesting classroom experience. Some would attribute it to altruism on the part of corporations. while others would argue that they are helping themselves while helping their employees.  Human Capital: Does your organization value diversity? What kinds of diversity seem to be addressed (e.g. age-based or ethnicity-based)? If not, there may be limited perspectives on strategic and operational issues and a career at this organization may be less attractive to you. Getting the students to expand the notion of diversity beyond just race-based diversity would be an interesting experience. Issues such as age, disability, physical appearance, religious beliefs also add to the consideration (and complexities) of managing diversity in the work place.  Social Capital: Does your organization have effective programs to build and develop social capital such that professionals develop strong “ties” to the 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? Social capital is often an abstract idea even after a lecture on the topic. Many students may be unable to fully grasp its importance. Getting them to see the connection between social capital and career opportunities can greatly help them to appreciate the role of social capital. ●

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?

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Most students are very familiar with social networking websites. Some are likely members of professional networking websites as well. While these websites enable the instructor to illustrate the role of technology, the key is to go one step further and make them aware of the differences between simple social networking systems and more sophisticated knowledge management systems.

 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 and two different types of diversity—inherent and acquired. 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

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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 email 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.

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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 one another 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 the 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 the 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 (pp. 110–112): 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.

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2. Why is it important for managers to recognize the interdependence in the attraction, development, and retention of talented professionals? Response (pp. 112–114): 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. 3. What are some of the potential downsides for firms that engage in a “war for talent”? Response (p. 120): 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. 4. Discuss the need for managers to use social capital in leveraging their human capital both within and across their firm. Response (pp. 123–129): 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 2-38

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. 5. Discuss the key role of technology in leveraging knowledge and human capital. Response (pp. 131–137): 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. Experiential Exercise Pfizer, a leading health care firm with $59 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, Pfizer values its human capital. Using the Internet and/or library resources, identify some of the actions/strategies Pfizer has taken to attract, develop, and retain human capital. What are their implications? (Fill in the table at bottom of the page.) 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.

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For example, the following insights can be gleaned from Pfizer’s 2014 Annual Report: 

 

 

In 2014, Pfizer made the decision to stop assigning a year-end rating to employees when assessing their performance (the company found that it was demotivating, and now managers provide more frequent feedback, which helps to reinforce an ownership mindset). In 2014, a “Dare to Try” program was implemented to encourage employee innovation at the grassroots level (more than 250 proposals have been funded). Pfizer’s OWNIT! Culture seeks to empower employees to try new things, invest in candid conversations, build collaborations, and address corrosive behaviors. On annual OWNIT! Days, employees attend workshops and are introduced to a Thriving for Change framework and are provided with tips for managing change. Its LIFT (Leadership Investment for Tomorrow) program shows how diversity and inclusion, as well as talent development efforts can translate into business success. Pfizer was named to the Hay Group’s prestigious 2014 “Best Companies for Leadership.”

Application Questions and 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 in 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. 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.

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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. 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). 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? 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?

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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. 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.

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