LP - 7

5 Nov 14

Ch 4
Recognizing a Firms Intellectual Assets
Learning Objectives
Why Management of Knowledge professionals and
knowledge itself are critical in todays Org
How leveraging human capital is critical to strategy
formulation Hiring for attitude, training for skill
Key role of social capital in leveraging Human capital
Vital role of technology in leveraging knowledge and
human capital
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Basic Concepts
Knowledge is the primary means of wealth
generation in todays economy
Human capital - being a resource is the foundation of
intellectual capital. Therefore, while attracting human
capital, issues such as hiring for attitude, training for
skills must be addressed.
Social Capital networks relationships among a
firms members play a pivotal role in achieving value.
Technology is dominant in leveraging human capital
Finally, Leveraging human capital is vital to
formulation of strategy

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Leveraging Human Capital

Strong human capital often leads to

useful relationships among others, within
the firm, promoting a social infrastructure
that is often vital for gaining consensus
on major decisions, integrating multiple
administrative
levels,
promoting
cooperation, and sharing information
across departmental boundaries.
XEROX is not such a company. Why?
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XEROX Human Leveraging at the lowest

In 1990, Paul Allaire becomes CEO with a mission --- To ensure
XEROX to be major Technology Player. In 1997, Rick Thoman joins ex
IBM as COO.
By 1999, the stocks soared to all-time high - $64. The BOD appointed
Paul Allaire Chairman and Thoman the CEO. Together they launched
millennium goals. However, the plan failed due poor management of
human and social capital inherent in XEROXs executive ranks.
In 1999, The CFO (Barry Romeril) faired badly causing huge losses to
XEROX. There was plethora of law suits, penalties by S & E
Commission for falsification of profits, and loan write offs etc. However,
CFO could not be fired being a close friend of Chairman.
Thomas Dolan, president of global sales and her sister a director
prevailed upon Chairman not to restructure XEROX despite stiff
competition by Japanese firms. The move adversely affected morale
of sales force.
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XEROX Human Leveraging at the lowest

The Uncertainty prevailed throughout the firm resulting
into loss of Sales Reps and with that:
Loss of product knowledge and
Valuable social relationship with the clients

In May 2001, inevitable happened:

Thoman (CEO) was fired
Dolans (President Global Sales) sister (Business Director) made COO
Romeril (CFO) retained the job

By 2003, XEROX was facing bankruptcy and:

Experienced problems leveraging its talent and technologies into
successful products and services
Human and social capital eroded due dysfunctional
organizational politics at the top
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Example Pakistani companies

THE ROLE OF KNOWLEDGE IN TODAYS

ECONOMY

Until yesterday, most Managers directed

maximum efforts towards 2 traditional
factors of production, -- Labor and Capital
and were duly interested in:
Tangible resources Land, Machinery,
Finance and
Intangible resources Brand names,
Image of the firm, and Customer loyalty
etc
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Slide 1/2

THE ROLE OF KNOWLEDGE IN TODAYS ECONOMY -

Times have changed and with that the

emphasis:
50% of GDP in developed economies is due
to Knowledge based economy --- Intellectual
assets as well as intangible peoples skills.
In USA, 76% of GDP is from the services. R &
D plays a pivotal role in Manufacturing sector
A comparison of machine v/s knowledge
based economies is on the next slide:
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Slide-2/2

COMPARISON OF MACHINE V/S KNOWLEDGE BASED

ECONOMIES
Machine age
Physical world
It consisted of things
Companies made and
distributed things (Products)
Management allocated
things (capital budgets)
Management invested in
things (Plant and
equipment)
Peoples ancillary and things
central.
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Knowledge / Information age

Things are ancillary

Knowledge is central
Companys values derive
from knowledge, knowhow, intellectual assets,
and competencies ---- all
imbedded in people.
Wealth is created through
the management of
knowledge workers
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HOW TO CREATE VALUE IN KNOWLEDGE INTENSIVE ECONOMIES

1. Consider Human Capital --- individual capabilities,

knowledge, skills, and experiences of employees and
managers
2. Social capital is critical in sharing and leveraging
knowledge and in acquiring resources
3. The Concept of knowledge --1.
2.

Explicit --- codified, documented, easily reproduced and

widely distributed (Drawings, software etc)
Tacit --- That rests in the minds of employees and is based on
experience and backgrounds shared only through consent

4. The new knowledge is constantly being created

through a mix of Explicit and Tacit knowledge .
5.
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Knowledge management is being stressed upon by Org

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Human Capital Foundation for Intellectual Capital

The knowledge worker (KW) has risen to prominence in
recent times. It is a source of CA and is changing the
balance of power in todays org.
The KW places professional development and personal
enrichment above company loyalty.
Attracting, recruiting and hiring the best and the
brightest is a critical first step in the process of building
intellectual capital. The other two equally critical steps
are Developing and Retaining human capital.
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ATTRACTING HUMAN CAPITAL

Hiring for Attitude, Training for Skills ---Due

emphasis
on
general
knowledge,
experience, social skills, values, beliefs and
attitude of employees

Sound
recruiting
Networking ----

approaches

and

Best and the brightest out of thousands of

applications.
The other best practice could be recruiting the
one proposed by a current employee
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DEVELOPING HUMAN CAPITAL

A $ spent on training is worth $30 in terms of productivity
gains.
The Org must not lose in terms of morale, values
turnover and productivity.
Therefore:
Ensure adequate Training to maintain High growth
and high quality of product
Encourage widespread involvement of leaders at all
levels of the Org
Monitor progress and track development
Evaluate Human Capital
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RETAINING HUMAN CAPITAL

Employees must identify with the Org Mission and
Values ---- Your Satisfaction is our pride or duty before
self
Provide

challenging

work

and

Stimulating

Environment --- Create internal market for employees

by lowering barriers to mobility
Ensure

timely

availability

of

due

financial

and

nonfinancial rewards --- criterion must be known and well

publicized
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THE SOCIAL CAPITAL VITAL ROLE

Social capital is defined as friendships, and
working relationships among talented individuals
Notwithstanding the critical roles of recruiting,
developing and retaining Human Capital, the
development of social capital has gained
importance, because it ties KW to a given firm.
An indulgent, mutually acceptable, and tolerant
attitude helps in retainer ship of employees
The downside of Social capital is equally
dangerous and need to be curtailed
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TECHNOLOGY AND LEVERAGING HUMAN CAPITAL

AND KNOWLEDGE
Modern Tech is helping dissemination of information
within and outside the Org in the most speedier and
effective way
The Tech has given rise to Virtual World and Virtual
Teams
In order to make gains and ensure CA, the knowledge
has been codified an expensive preposition
It is becoming exceedingly difficult to retain knowledge
once the employee leaves the org. The reverse is also
true in cases where the information is available on net.
Wikileaks -------- ?
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LEVERAGING HUMAN CAPITAL AND STRATEGY

FORMULATION
Business-Level Strategy --- Managers must integrate the
primary and support activities in their firms value chain.
(External Analysis)

Corporate Level Strategy --- Managers must determine

what important relationships (products, markets, technologies)
exist across businesses and how they can be leveraged.
International - Level Strategy --- How to achieve
economies of scale and how to adopt to local market
demands
Internet Strategies --- Internet based technologies create
CA by relaying information, enhancing speed of decision
making and resolution of ideas.
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Thank You, any question----?

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LP- 7
Ch 8
Discussion Final project
Learning Objectives
Importance of Internet Technologies
How Internet Technologies are impacting Porters Five
Forces Model
How e-business capabilities are affecting industry
profitability
How firms are using Internet technologies to add
value and achieve unique advantages
How internet based business models are being used
to improve strategic positioning
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Case Study e business

Agillion Inc
A software company created in 1999 in
Texas as Application Service Provider
(ASP)
Its product was Customer Page costing
only $29.95
By early 2001, it had Cisco, Office Depot,
and IBM as its customers.
By early July 2001, The Internet Bubble
busted and Agillion also doomed with it.
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Case Study e business

What went wrong:
Unnecessary, uncontrolled and unproductive
(huge) expenditures
Adopted a weak business model whereby it failed
to meet the demands of small businesses
Poor inventory control and sales force
management
Equally poor marketing and sales strategy

Ultimate end: With $100 in bank and $20m in

debt, it filed for bankruptcy and eventually
merged with another company. It failed to
take advantage of emerging technology.
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IMPACT OF IT
Technological Jump ---- Shift from analogue to digital
Beneficiaries are phone services, photo services, TV
signals, and even e-books
Speed --- DSL

E-commerce is B2B
Healthcare and education have benefited the most

Question:
Have following Favorite Business Terms become icons
of the past -----?
Competitive advantages
Industry analysis
Long term customer relations
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WORLD INTERNET USAGE AND POPULATION

STATISTICS ---- June 30, 2012

World Regions

Population
( 2012 Est.)

Internet Users Internet Users

Dec. 31, 2000 Latest Data

Penetration Growth Users

(%
2000%
Population) 2012 of Table

Africa

1,073,380,925

4,514,400

167,335,676

15.6 %

3,606.7
%

Asia

3,922,066,987

114,304,000

1,076,681,059

27.5 %

841.9 % 44.8 %

Europe

816,372,817

105,096,093

518,512,109

63.5 %

393.4 % 21.5 %

Middle East

223,608,203

3,284,800

90,000,455

40.2 %

2,639.9
%

North America

348,280,154

108,096,800

273,785,413

78.6 %

153.3 % 11.4 %

Latin America /
Caribbean

592,994,842

18,068,919

254,915,884

43.0 %

1,310.8
10.6 %
%

Oceania / Australia

35,815,913

7,620,480

24,279,579

67.8 %

218.6 % 1.0 %

7,012,519,841

360,985,492

2,405,510,175

34.3 %

566.4 % 100.0
22%

WORLD
03/11/15TOTAL

7.0 %

3.7 %

Internet Users in Pakistan

1990 ---- less than 0.5 M
2012 ---- Exceeding 30 M

20 M +

1.5 M

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India--- 3rd largest

52M in 2008

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E-Commerce
1979
1981

1994
1996
2012

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Invented by Michael Aldrich

Thomson Holidays in UK France
Tesco
Netscape ---- 1st on line bank
IndiaMart B2B
US e-commerce online $226Bn

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Impact on Five Competitive Forces

The Threat of New Entrants
New entrants are a bigger threat because internet
based technologies have lower barriers to entry

Reasons
Relatively inexpensive to make an entry
Creation of website is inexpensive
Business created on Internet saves traditional
expenses like travel, hotelling, rents, sales force
salaries, printing and postage etc
Easy
access
to
distribution
channels,
manufacturers, wholesalers, etc
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IMPACT ON FIVE COMPETITIVE FORCES

2. The bargaining power of Buyers
Enhances Buyers power by providing more
information to consumers on internet. Book
publishing / sale is the most usual example.
End users switching costs are much lower.
Loyalty with every new deal is the order of the
day.
Bargaining power of distribution channels buyers
may decrease due internet
The more outlets from which a product can be
purchased, the lower the potential profitability for
any single outlet.
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IMPACT ON FIVE COMPETITIVE FORCES

3.
The bargaining power of Suppliers
The net effect of the internet on supplier power
will depend on the nature of competition in a
given industry.
Free markets save money by organizing auctions on internet
Internet inhibits the ability of suppliers to offer highly
differentiated or unique products
The growth of new Web-based business in general may
create more downstream outlets for suppliers to sell.
Suppliers will have greater power to the extent that they can
reach end users directly without intermediaries.
Internet is also creating possibilities for re-intermediators in
certain cases
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IMPACT ON FIVE COMPETITIVE FORCES

4. The threat of substitutes
The primary factor that leads to substitutes is
Economic.
Cyber storage initially free has now some
cost
Market research is another example --- doing
it on net is almost free
Even test marketing survey is almost free
now

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IMPACT ON FIVE COMPETITIVE FORCES

5. Competitive Rivalry
Only those competitors that can use the Web
to give them a distinct image, create unique
product offerings, or provide faster, smarter,
cheaper services are likely to capture greater
profitability with the new technology.

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HOW INTERNET ADDS VALUE

Search Activities --- It refers to the process of
gathering information and identifying purchase
options.
Evaluation Activities --- It refers to the process of
considering alternatives and comparing the costs
and benefits of various options.
Problem-solving Activities --- It refers to the
process of identifying problems or needs and
generating ideas and action plans to address
those needs; in other words, educating customers.
Transaction Activities --- It refers to the process of
completing the sale, including negotiating and
agreeing contractually, making payments, and
taking delivery.
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ADDITIONAL SOURCES OF COMPETITIVE

ADVANTAGE
Three types of content can improve the value
propositions of a website
1. Customer Feedback ---- Buyers often trust what
other buyers say than a companys promises
2. Expertise ----The internet has emerged as a
powerful tool for learning. People use it as a
library.
3. Entertainment Programming ---- More and more
people are using internet as an entertainment
media
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IMPACT OF INTERNET ON STRATEGIES

Overall Cost Leadership -- Managing costs and even
structures
Lowering transaction costs

changing

cost

Differentiation -- Internet is making it possible mass customization.

Dell computer is one such example.

Focus -- Low cost and more differentiation --- Nike shoes

allowing to have choice colors and signatures
that can be seen on Internet prior production
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BUSINESS MODELS
Exhibit 8.5 page 271

Commission based
Advertising based
Markup based
Production based
Referral based
Subscription based
Fee-for-service based

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Quiz -2 STM Mba 6A+B 6 Mar 13

Read the case studies chapter 1-3. Answer
the following:
1. Summary of each case study (100-150
words each)
2. What has been the roles of CEOs and
management in loss of CA/CP in each case.
3. What should have been done by the
respective managements to avert disasters.

The quiz may be done in groups of 2s.

Time duration ---- 1 hr
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DISCUSSION FINAL PROJECT

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