Module 1

Strategic management is “consisting of the analysis, decisions, and actions an

organization undertakes in order to create and sustain competitive advantages.” This
definition captures two main elements of the field of strategic management.

First, strategic management entails three on-going processes: analysis, decisions,

and actions. That is, managers must analyze the internal and external environment as well
as their hierarchy of goals in order to formulate and implement strategies.
Second, the essence of strategic management is the study of why some firms
outperform others. Managers must create advantages that are sustainable over a period of time,
instead of merely temporary. That is: How can we create competitive advantages in the marketplace
that are not only unique and valuablebut also difficult for competitors to copy or substitute?

The Four Key Attributes of Strategic Management

- Directs the organization toward overall goals and objectives.
- Includes multiple stakeholders in decision making.
- Needs to incorporate short-term and long-term perspectives.
- Recognizes trade-offs between efficiency and effectiveness.

“ambidextrous behaviors”—the ability to both be

proactive in taking advantage of future opportunities, as well as in exploiting an existing
resource base. There are four most important traits of ambidextrous individuals.
Strategy analysis consists of, in effect, the “advance work” that must be done in
order to effectively formulate and implement strategies. Many strategies fail because
managers may want to formulate and implement strategies without a careful analysis of
the overarching goals of the organization, as well as a thorough analysis of its external and
internal environment.

Strategy Formulation
A firm’s strategy is formulated at several levels. First, business-level strategy addresses
the issue of how firms compete in an industry to gain competitive advantage. Second,
corporate-level strategy focuses on two issues: (1) what businesses to compete in, and (2)
how businesses can be managed to achieve synergy, that is, create more value by
working together than if they operated as a stand-alone entity. Third, firms must develop
international strategies as they expand beyond their national boundaries. And fourth,
managers must develop entrepreneurial strategies and be aware of the competitive
dynamics in their industry.

Strategy Implementation
Clearly, effective strategies are of little value if they are not properly implemented.
Implementing strategies involves strategic controls and organizational designs;
coordination and integration among activities within the firm, as well as with customers and
suppliers; and effective leadership.
B. Social Responsibility and Environmental Sustainability: Moving Beyond the
Immediate Stakeholders

1. Social Responsibility
Managers must consider the needs of the broader community-at-large and act in a
socially responsible manner. Social responsibility is the expectation that businesses or
individuals will strive to improve the overall welfare of a society. What is your preferred side
about this issue?

The Triple Bottom Line: Incorporating Financial as well as Environmental and

Social Costs
Many companies are measuring what they call the “triple bottom line.” Such a
technique involves an assessment of environmental, social, and financial performance.
Environmental sustainability is now a value embraced by most successful corporations.

The Strategic Management Perspective: An Imperative throughout

the Organization
There is an emerging need for empowerment and a strategic management
perspective throughout organizations. This is primarily due to today’s increasingly complex,
interconnected, and ever-changing global economy. To develop and mobilize people
and other organizational assets, leaders are required throughout the organization. As
noted by MIT’s Peter Senge, there is a need for three types of leaders: local line leaders,
executive leaders, and internal networkers.

Ensuring Coherence in Strategic Direction

Successful organizations express priorities through stated goals and objectives that
form a hierarchy of goals that include its vision, mission, and strategic objectives. What
visions lack in specificity, they make up for in their ability to evoke powerful and compelling
mental images. On the other hand, strategic objectives tend to be more specific and
provide a more direct means of determining if the organization is moving toward broader,
overall goals.
A.Organizational Vision
An organizational vision has been described as a goal that is “massively inspiring,
overarching, and long-term.” It should represent a destination and evoke passion. Good
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examples of vision statements are, “Beat Xerox” (Canon) and “To take the world boating”

B.Mission Statements
A company’s mission statement differs from its vision in that it encompasses both the
purpose of the company as well as the basis for competition and competitive advantages.
Effective mission statements incorporate the concept of stakeholder management,
and suggest that organizations must respond to multiple constituencies if they are to
survive and prosper. They have the greatest impact when they are used to reflect an
organization’s enduring, overarching strategic priorities and competitive positioning.

C.Strategic objectives are used to operationalize the mission statement. That is, they
help to provide guidance on how the organization can fulfill or move toward the “higher
goals” in the goal hierarchy—the mission and vision.
Module 2

A. The Role of Scanning, Monitoring, Competitive Intelligence, and Forecasting

1. Environmental Scanning
Environmental scanning involves surveillance of the firm’s external environment to
predict environmental changes to come and detect changes that are already underway.
Examine the example of how Procter & Gamble, with its wide range of household
products, can be a good barometer of household spending.
Environmental scanning can also involve obtaining information from your customer
base. The EXTRA EXAMPLE below provides an example of how this was effectively used by
an online contact-lens retailer, Coastal Contacts.

2. Environmental Monitoring
Environmental monitoring tracks the evolution of trends, events, or streams of
activities in the external environment.
Ask yourself this question: What indicators do you believe a firm should monitor that
produces both (1) weapon systems for the military, and, (2) key components for the
commercial aircraft industry?

 Extra Example: Factors to Monitor—Vought Aircraft

Commercial Aircraft:
1. Oil prices
2. Age of fleet of airlines
3. Profitability of airlines
Defense Department:
1. Where weapons are in the life cycle
2. Mission requirements of the military

Further, the supplement of an EXTRA EXAMPLE below discusses why Caterpillar may
serve as a macroeconomic early-warning system.
 Extra Example: Caterpillar—A Macroeconomic Early-Warning System?
Although it is hard to confuse a 40-ton excavator with a crystal ball, forecasters could do
worse than tracking retail sales of the huge, yellow machines sold by Caterpillar Inc. Being
the largest seller of equipment used to build stuff or extract the stuff from the ground used
to build that stuff, Caterpillar’s customers’ appetite is sort of a macroeconomic early-
warning system.

3.Competitive Intelligence
Competitive intelligence helps firms define and understand their industry and
identify rivals’ strengths and weaknesses. Done properly, competitive intelligence helps a
company to avoid surprises by effectively anticipating and responding to competitors’
moves. Added to this, the Internet has even accelerated the speed at which firms can find
competitive intelligence.
Discuss the importance of competitive intelligence to firms in the banking (BPI, BDO,PNB Metrobank,
Union Bank), airline (PAL, Cebu Pacific, Air Asia, Air Philippines) and
automobile industry (Honda, Toyota, Nissan, General Motors, Isuzu).

4. Environmental Forecasting
Environmental scanning, monitoring, and competitive intelligence are important
inputs for analyzing the external environment. However, they are of little use unless they
provide raw material that is accurate enough to help managers make accurate forecasts.
We have to be careful in either assuming that the world is certain and open to precise
predictions, or the assumption that it is uncertain and totally unpredictable.

5. Scenario Analysis
Scenario analysis provides a set of tools that enable managers to imagine threats
and opportunities the future may bring. As a general rule, scenarios should be used by
businesses whose external environments are prone to fundamental or sudden change and
whose anticipation of such change is of vital strategic importance.

SWOT Analysis
We briefly address SWOT Analysis at this point. SWOT stands for strengths,
weaknesses, opportunities, and threats. SWOT analysis provides a framework for analyzing
these four elements of a company’s internal and external environment.
It is important to note that SWOT analysis provides the “raw material,” that is, a basic
listing of conditions and factors inside and outside of a company.

Demographic forces
• Aging population
• Rising affluence
• Changes in ethnic composition
• Geographic distribution of population
• Greater disparities in income levels
Sociocultural forces
• More women in the workforce
• Dual-income families
• Increase in temporary workers
• Greater concern for healthy diets & physical fitness (increasing levels of obesity)
• Greater concern for the environment
• Postponement of marriage & family formation, having children
Political-Legal Forces
• Deregulation of utilities & other industries
• Increases in minimum wages
• Legislation on corporate governance reforms
Technological Forces
• Genetic engineering
• Computer-aided design/computer-aided manufacturing systems (CAD/CAM)
• Research in synthetic & exotic materials
• Pollution/global warming
• Nanotechnology & physiolectics
• Digital technology can affect multiple segments of the General Environment, i.e.
crowdsourcing
Economic Forces
• Interest rates
• Unemployment
• Consumer Price Index
• Trends in GDP & net disposable income
• Changes in stock market valuations
Global Forces
• Currency exchange rates
• Increasing global trade
• Emergence of the Chinese economy
• Trade agreements among regional blocs (NAFTA, EU, ASEAN)
• General Agreement of Tariffs & Trade (GATT) – leading to decreasing tariffs/free
trade in services
• Rapid rise of the middle class in emerging countries

The Demographic Segment

Demographics are the most easily understood and quantifiable elements of the
general environment. Demographics include elements such as the aging population, rising
or declining affluence, changes in ethnic composition, geographic distribution of the
population, and income level disparities.

The Sociocultural Segment

Sociocultural forces influence the values, beliefs, and lifestyles of a society. Examples
include a higher percentage of women in the workforce, dual-income families, increases in
the number of temporary workers, greater concern for healthy diets and physical fitness,
greater interest in the environment, and families postponing having children.

The Political/Legal Segment

Political processes and legislation influence the regulations with which industries
must comply.

The Technological Segment

Developments in technology lead to new products and services and improve how
they’re produced and delivered to the end user. Innovations can create entirely new
industries and alter existing industries.

The Economic Segment

The economy has an impact on all industries, from suppliers of raw materials to
manufacturers of finished goods and services, as well as all organizations in the service,
wholesale, retail, government, and nonprofit sectors of economies. Key indicators include
interest rates, unemployment rates, the consumer price index (CPI), the Gross Domestic
Product (GDP), and net disposable income.
The Global Segment
Globalization provides both opportunities to access larger potential markets and a
broad base of factors of production such as raw materials, labor, skilled managers, and
technical professionals. However, such endeavors carry many political, social, and
economic risks. Examples of important elements in the global segment include currency
exchange rates, increasing global trade, the economic emergence of India, China’s
admittance to the World Trade Organization, trade agreements among regional blocs
(e.g., EC), and the GATT Agreement (lowering of tariffs).

Relationships among Elements of the General Environment

In our discussion of the general environment, we address many relationships among
the various elements. We realize about the impact of trends or events in the general
environment can vary across industries.

1. Crowdsourcing: A Technology that Impacts Multiple Segments of the General

Environment
We define crowdsourcing as “a practice where the Internet is used to tap a broad
range of individuals and groups to generate ideas and solve problems.” Wikipedia (the
free online encyclopedia) is a classic example of crowdsourcing where the company exists
and operates from the inputs of the crowd

A. Porter’s Five-Forces Model of Industry Competition

1. Threat of New Entrants

The threat of new entrants pertains to the possibility that the profits of established
firms in the industry may be eroded by new competitors. Depends on existing barriers to
entry:

• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages independent of scale

2. Bargaining Power of Buyers

There are conditions under which a supplier group may become powerful. Buyers
can force down prices, bargain for higher quality or more services, play competitors
against each other. Buyer groups are powerful when:
• Purchasing standard products in large volumes
• Profits are low & switching costs are few
• Backward integration is possible
• Buyer’s product quality is not affected by industry product

3. Bargaining Power of Suppliers

There are some conditions under which a supplier group may become powerful.
Suppliers can exert bargaining power by threatening to raise prices or reduce the quality of
purchased goods and services. Supplier groups are powerful when:

• Only a few firms dominate the industry

• No competition from substitute products
• Suppliers sell to several industries
• Buyer quality is affected by industry product
• Products are differentiated & have switching costs
• Forward integration is possible

4.The Threat of Substitute Products and Services

Emphasize that the viability of a substitute product depends largely on its relative
price-performance trade-off, i.e., more value for the same price or the same value for a
lower price. Examples are electronic security systems versus security guards, and the use of
steel versus plastic for components in the manufacture of automobiles.

5. The Intensity of Rivalry among Competitors in an Industry

After discussing the factors that lead to intense rivalry in an industry, provide an
example of an industry in which competition has recently been intense. For example, we
are familiar with the recurring price wars in the Philippine airline industry. We can explain
this industry situation applying the five forces analysis (e.g., undifferentiated service, low
switching costs, slow industry growth, numerous competitors, etc.) This industry is expected
to report huge losses from 2020 onwards because of the Covid 19 pandemic.
In this section we can discuss the intense rivalry between grab, food panda, and
other delivery businesses. This provides an example that intense rivalry can take place on
factors other than pricing in an industry that is highly profitable.

B. How the Internet and Digital Technologies Are Affecting the Five Competitive Forces
In most industries, new entrants will be a bigger threat because the Internet lowers
barriers to entry. Thus, scale economies may be less important in an Internet context, and
new entrants can go to market with lower capital costs.

Businesses launched on the Internet may enjoy savings on traditional expenses such
as office rent, salaries, and postage. Thus, a new entrant could use the savings to charge
lower prices and compete on price despite an incumbent competitor’s scale advantages.
Alternatively, a new entrant may be able to serve a market more effectively, with more
personalized services and greater attention to product details. Then they could build a
reputation in their niche and charge premium prices.

C. Using Industry Analyses: A Few Caveats

This section was written as a “caveat” to address some limitations of Porter’s five-
forces model. First, managers should not always avoid low profit industries.

D. Strategic Groups within Industries

It is rather clear from the prior discussion that the intensity of competition within
strategic groups is much more intense than competition across groups.
Four benefits of strategic groups as an analytical tool:
1. Strategic groupings help a firm identify mobility barriers that protect a group
from attacks by other groups.
2. It helps a firm to identify groups whose competitive position may be marginal
or tenuous.
3. It helps chart the future directions of firms’ strategies.
4. It helps in thinking through the implications of each industry trend for the
strategic group as a whole.
Module 3
Value-Chain Analysis
Value-chain analysis views the organization as a sequential
process of value-creating activities. Such an approach is very useful for understanding the
building blocks of competitive advantage. In competitive terms, value is the amount that
buyers are willing to pay for what a firm provides for them. And, a firm is profitable to the
extent that the value that it receives exceeds the total costs involved in creating the
product or service. But one needs to view the concept of value chain in its broadest
context, i.e., without regard to the boundaries of a given organization. That is, include
suppliers, customers, and alliance partners.

A. Primary Activities
Inbound Logistics
• Location of distribution facilities to minimize shipping times
• Warehouse layout and designs to increase efficiency of operations for incoming
materials
Operations
• Efficient plant operations to minimize costs
• Efficient plant layout and workflow design
• Incorporation of appropriate process technology
Outbound Logistics
• Effective shipping processes to provide quick delivery and minimize damages
• Shipping of goods in large lot sizes to minimize transportation costs
Marketing and Sales
• Innovative approaches to promotion and ADVERTISING
• Proper identification of customer segments and needs
Service
• Quick response to customer needs and emergencies
• Quality of service personnel and ongoing training

1. Procurement
Procurement refers to the function of purchasing inputs used in a firm’s value chain,
not the purchased inputs themselves. Purchased inputs include raw materials, supplies, and
other consumable items as well as such assets as machinery, laboratory equipment, office
buildings, and buildings.
2. Technology Development
Every value activity embodies technology. The array of technologies employed in
most firms is very broad, ranging from technologies used to prepare documents and
transport goods to those embodied in processes and equipment or the product itself.
Technology that is related to the product and its features supports the entire value chain,
while other technology development is associated with particular primary or support
activities.
3. Human Resource Management
Human resource management consists of activities involved in the recruiting, hiring,
training, development, and compensation of all types of personnel. It supports both
individual, primary, and support activities (e.g., hiring of engineers and scientists) and the
entire value chain (e.g., negotiations with labor unions).
4. General Administration
General Administration consists of a number of activities, including general
management, planning, finance, accounting, legal, government affairs, quality
management, and information systems. General administration (unlike other support
activities) typically supports the entire value chain and not individual activities.

C. Interrelationships among Value-Chain Activities within and across Organizations

Up to now, we have addressed value-chain activities separately. Here, we discuss:
(1) interrelationships among activities within the firm, and, (2) relationships among activities
with other organizations, such as suppliers and customers.

D. Integrating Customers into the Value Chain

One approach is to apply the “prosumer” concept. It is considered a
customer/producer who is even more extensively integrated into a firm’s value chain. It
stands in sharp contrast to the traditional marketing approach in which the customer
merely consumes the products and services produced by the company. In addition, efforts
are made to tie the customer to the company through, for example, loyalty programs and
individualized relationship marketing.

E. Applying the Value Chain to Service Organizations

We added this section on how to apply the value-chain concept to service
organizations in order to help show how it can be applied to firms other than
manufacturing firms (which is where Porter’s generic value-chain concept can be most
directly applied).
II. Resource-Based View of the Firm
The resource-based view of the firm (RBV) combines two perspectives: (1) the
internal analysis of phenomena within a company, and (2) an external analysis of the
industry and its competitive environment. It extends SWOT analysis by combining internal
and external perspectives and provides a useful framework for exploring why some firms
are more successful than others.
There are usually three types of resources that firms possess: tangible resources,
intangible resources, and organizational capabilities.
Tangible Resources

TABLE 3. Three Types of Resources

Tangible Resources
Financial
• Firm’s cash accounts and cash equivalents
• Firm’s capacity to raise equity
• Firm’s borrowing capacity
Physical
• Modern plant and facilities
• Favorable manufacturing locations
• State-of-the art machinery and equipment
Technological
• Trade secrets
• Innovative production processes
• Patents, copyrights, trademarks
Organizational
• Effective strategic panning processes
• Excellent evaluation and control systems

Intangible Resources
Human
• Experience and capabilities of employees
• Trust
• Managerial skills
• Firm specific practices and procedures
Innovation and Creativity
• Technical and scientific skills
• Innovation capacities
Reputation
• Brand name
• Reputation with customers for quality and reliability
• Reputation with suppliers for fairness, non-zero-sum relationships

Organizational Capabilities
• Firm competencies or skills the firm employs to transfer inputs to outputs
• Capacity to combine tangible and intangible resources, using organizational
processes to attain desired end

A. Types of Firm Resources

Tangible resources are assets that are relatively easy to identify and include
financial, physical, organizational, and technological resources that an organization uses
to create value for its customers.
Intangible resources are much more difficult for competitors to account for or
imitate. These include human resources, innovation resources, and reputation resources.
The example of Harley-Davidson’s strong brand image is addressed.
B. Firm Resources and Sustainable Competitive Advantages
For a firm to earn a sustainable competitive advantage, a resource must be:
valuable, rare, difficult for competitors to imitate, and difficult to substitute. TABLE 4
addresses these four criteria and their implications.

1. Is the Resource Valuable?

Resources are valuable when they enable a firm to formulate and implement
strategies that improve its efficiency or effectiveness. The SWOT framework suggests that
firms improve their performance only when they either exploit opportunities or neutralize
(minimize) threats.

2. Is the Resource Rare?

If competitors or potential competitors also possess the same valuable resource, it is
not a source of competitive advantage because all of these firms have the capability to
exploit the resource in the same way. Common strategies based on such a resource would
give no one firm an advantage. For a resource to provide a competitive advantage, it
must be uncommon, that is, rare relative to other competitors.
3. Can the Resource Be Imitated Easily?
Inimitability is a key to value creation because it constrains competition. If a
resource is inimitable, then any profits generated are more likely to be sustainable.
For imitation to be avoided, four conditions need to be satisfied:
Physical uniqueness. By definition it is inherently difficult to copy. Examples would
include a beautiful resort location, mineral rights, or Merck & Co.’s pharmaceutical
patents.
Path Dependency. This means that resources are unique and therefore scarce
because of all that has happened along the path followed in their development and/or
accumulation. We provide the examples of Gerber Products Co. and Southwest Airlines.
Causal Ambiguity. This means that would-be competitors may be thwarted
because it is impossible to disentangle the causes (or possible explanations) of either what
the valuable resource is or how it can be created. We discuss 3M’s process of innovation as
well as Continental Airlines’ failure to imitate Southwest Airlines’ successful low-cost
strategy.
Social Complexity. These include “soft” issues such as culture, trust, and leadership.
Examples include interpersonal relations among the employees and managers of a firm, its
culture, and its reputation among suppliers and customers. Although complex physical
technology is not included in this category of imperfect inimitability, the exploitation of
physical technology in a firm typically involves the use of socially complex resources.

4. Are Substitutes Readily Available?

The fourth requirement for a firm to be a source of sustainable competitive
advantage is that there must be no strategically equivalent valuable resources that are
themselves not rare or inimitable.
C.The Generation and Distribution of a Firm’s Profits: Extending the Resource-Based
View of the Firm
The key point in this section is that even though a firm may have a source of
competitive advantage that appears to satisfy the four criteria for sustainability, some (or a
good deal) of its profits may be retained (or “appropriated”) by its employees or
managers—instead of going to the owners (i.e., shareholders).

We address four conditions that explain the extent to which managers and
employees will be able to extract a proportionately high level of the profits they generate:
• Employee bargaining power
• Employee replacement cost
• Employee exit cost
• Manager bargaining power

III. Evaluating Firm Performance: Two Approaches

Here, we address two major approaches to evaluating firm performance. The first is
financial ratio analysis in which we assess how a firm is doing compared to its balance
sheet, income statement, and market valuations.
Second, we address performance from the perspective of a broader stakeholder
perspective. Kaplan and Norton’s concept of the balanced scorecard is central to our
discussion.
A. Financial Ratio Analysis
We address five different types of financial ratios:
• Short-term solvency or liquidity
• Long-term solvency measures
• Asset management
• Profitability
• Market value

1. Historical Comparisons
Comparing a firm’s performance over time helps to provide a means of evaluating
trends. We provide the example of Apple’s performance over a period of years to point
out the importance of looking at historical trends and their implications. EXHIBIT 3.10
illustrates a ten-year period of return on sales for a hypothetical company. As indicated by
the dotted trend lines, the rate of growth (or decline) differs substantially over time periods.

2. Comparisons with Industry Norms

When evaluating a firm’s financial performance, it is important to compare it with
industry norms. That is, a firm’s current ratio or profitability may be impressive at first glance.
However, it may pale when compared to industry averages.

3.Comparisons with Key Competitors

Furthermore, competition tends to be more intense
among competitors within groups than across groups. Thus, one can gain valuable insights
into a firm’s financial and competitive position if comparisons are made between a firm
and its most direct competitors. We use the example of the pharmaceutical industry. Here,
large firms such as Pfizer and Merck have enormous investments in R&D—which would
discourage new firms from competing “head to head.”
B. Integrating Financial Analysis and Stakeholder Perspectives: The Balanced
Scorecard
1. The Balanced Scorecard: Description and Benefits
The balanced scorecard helps to provide a meaningful integration of many issues
that come into play when evaluating a firm’s performance. It is a set of measures that
provide top managers with a fast but comprehensive view of the business. In a nutshell, it
includes financial indicators, operational measures of customer satisfaction, internal
processes, and the organization’s innovation and improvement activities.
a. Customer Perspective
Managers must translate their general mission statements on customer service into
specific measures that reflect the factors that really matter to customers. There are four
primary categories of customer concerns: time; quality; performance and service; and
cost.

b. Internal Business Perspective

Customer-based measures are important. However, they must be translated into
indicators of what the firm must do internally to meet customers’ expectations. The internal
measures should reflect business processes that have the greatest impact on customer satisfaction.
This includes factors such as cycle time, quality, employee skills, and
productivity.

c. Innovation and Learning Perspective

Given the rapid rate of change in markets, technologies, and global competition,
the criteria for success are constantly changing. Accordingly, a firm’s ability to improve,
innovate, and learn ties directly to its value. That is, only by developing new products and
services, creating greater value for customers, and increasing operating efficiencies, can a
company penetrate new markets, increase revenues, and grow shareholder value.

d. Financial Perspective
Such measures indicate whether the company’s strategy, implementation, and
execution are, in fact, contributing to bottom-line improvement. Typical financial goals
include profitability, growth, and shareholder value. Periodic financial statements remind
managers that improved quality, response time, productivity, and innovative products
benefit the firm only when they result in improved service, increased market share,
reduced operating expenses, or higher asset turnover.

2. Limitations and Potential Downsides of the Balanced Scorecard

One criticism of the balanced scorecard is that executives will believe that
implementing it provides a “quick fix” to organizational problems. The balanced scorecard
takes time to implement effectively, and performance problems can be linked to poor
execution of the system rather than the balanced scorecard itself. Commitment to
improve issues addressed by the balanced scorecard—such as learning and improving the
internal culture—is also essential to its successful application.
 Module 4
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 Apple’s
knowledge assets are given.

A. Attracting Human Capital

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

1. “Hire for Attitude, Train for Skill”

This is a phrase that has become more predominant in today’s business
environment.
2. Sound Recruiting Approaches and Networking
We address the recruiting challenges of Google (advise to watch the movie
‘Internship’). Clearly, firms go to great lengths to hire the “best and brightest” in their
industry.”
3. Attracting Millennials
Some companies take pains to attract “Generation Y” or “Echo Boom” employees.
These include people born after 1982. Many Y-Generation readers will be pleased to know
of the “attention” and “adulation” their getting from the recruiters.

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.
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.

3. Monitoring Progress and Tracking Development

Whether a firm uses on-site formal training, off-site training (e.g., universities) or on-
the-job training, tracking individual progress—and sharing this knowledge with both the
employee and key managers—becomes essential.

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.

C. Retaining Human Capital

We use the rather colorful imagery of “frogs in a wheelbarrow” to drive home the
point that top talent may bolt at any time. Managers have the option of either forcing top
talent to stay with the organization via non-compete clauses, golden handcuffs, etc., or
providing the type of environment wherein top talent will desire to stay. (We recognize, of
course, that employment contracts have their place—but should not be the primary
means of the retention of talent.)

1. Identifying with an Organization’s Mission and Values

People who identify with and are more committed to the core mission and values of
the organization are less likely to stray or bolt to the competition. We provide a perspective
by Apple’s Steve Jobs on values and commitment.

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 which states, “The labor of love aspect is very important. The most
successful scientists often are not the most talented. But they are the ones impelled by
curiosity. They’ve got to know what the answer is.”

3. Financial and Non-Financial Rewards and Incentives

Clearly, financial rewards are a vital organizational control mechanism (as we will
also discuss later in Module 12). 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.

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 then address six areas in which a diverse workforce can improve an

organization’s effectiveness. These are:
1. Cost Argument
2. Resource Acquisition Argument
3. Marketing Argument
4. Creativity Argument
5. Problem-Solving Argument
6. System Flexibility Argument

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.

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.

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

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.
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, but it has its benefits.

B. Electronic Teams: Using Technology to Enhance Collaboration

Technology has also enabled professionals to work as part of virtual teams to
enhance the speed and effectiveness with which products and services are developed.
For example, it helps to accelerate the design and testing of new software modules that
use the Windows-based framework as a central architecture.
We discuss the two main ways in which electronic teams are different from
traditional teams (geographical separation of team members; communication by
electronic communication channels such as faxes, email, etc.).
Two major advantages of electronic teams parallel the first two sections of this
module. First, it enables the firm to access a broader range of human capital (i.e., skills
necessary for complex assignments). Second, it’s effective in generating “social capital”
the quality of relationships and the networks that leaders and members form.
The two key challenges of making e-teams effective include: members must identify
with who among them can provide knowledge and resources; and leaders must be able
to know how to combine individual contributions.

C. Codifying Knowledge for Competitive Advantage

There are two different types of knowledge: tacit (embedded in personal
experience) and codified (knowledge that can be documented, widely distributed, and
easily replicated). A challenge of knowledge-intensive organizations is to capture and
codify the knowledge and experience that, in effect, resides in the heads of their
employees.
We provide the example of Accenture (formerly Andersen Consulting), which has
successfully codified the knowledge of its consultants by storing it in electronic depositories.
Thus, the knowledge can be employed in many jobs by a large number of consultants
since there are strong similarities across assignments.
For such a system to work, training becomes very important. Using the knowledge
management depository, newly hired Accenture consultants work through many scenarios
designed to improve business processes.

V. Protecting the Intellectual Assets of the Organization: Intellectual Property and

Dynamic Capabilities
The management of intellectual property involves
• patents,
• contracts with confidentiality and noncompete clauses,
• copyrights, and,
• development of trademarks.

A. Intellectual Property Rights

The protection of intellectual rights raises unique issues, compared to physical
property rights. Much of the production of intellectual property is characterized by
significant development costs and very low marginal costs. Indeed, it may take a
substantial investment to develop a software program. However, once developed, 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.

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.