CHAPTER 4

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

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 The Importance of Intellectual
Assets
Consider. . .
A company’s value is not derived solely from its
physical assets. Rather it is based on knowledge,
know-how, and intellectual assets – all embedded
in people.

In the knowledge economy, wealth is increasingly

created by effective management of knowledge
workers instead of by the efficient control of
physical & financial assets.

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 Organizational Assets

Physical Assets

Intellectual Assets

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 The Central Role of Knowledge
(1 of 2)

Intellectual capital is a measure of the value of a

firm’s intangible assets – the difference between a
firm’s market value & book value. It includes these
assets:
• Reputation
• Employee loyalty & commitment
• Customer relationships
• Company values
• Brand names
• Experience & skills of employees

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 The Central Role of Knowledge
(2 of 2)

Human capital includes the individual capabilities,

knowledge, skills, and experience of the company’s
employees and managers.
Social capital includes the network of relationships
that individuals have throughout the organization.
Knowledge management is critical to organizational
success. Knowledge includes:
• Explicit knowledge – codified, documented,
easily reproduced, and widely distributed
• Tacit knowledge – in the minds of employees,
based on their experiences and backgrounds

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Codifying Knowledge for Competitive Advantage

Tacit knowledge Explicit (codified)

• Embedded in personal knowledge
experience • Can be documented
• Shared only with the
• Can be widely
consent and
participation of the
distributed
individual • Can be easily
• Has the organization replicated
effectively used • Can be reused many
technology to codify
knowledge for
times at very low cost
competitive advantage?

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 Enhancing Human Capital:
Redefining Jobs & Managing Diversity

Redefining jobs – breaking high-end knowledge work

into specialized pieces - helps address skill shortages.
Sound management of diverse workforces can
improve an organization’s effectiveness & competitive
advantages through:
• Lower cost
• Better reputation, leading to resource acquisition
• Marketing sensitivity to client cultures
• Creativity through diversity of perspectives
• Better problem solving
• Greater organizational flexibility

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 Networks & Electronic Teams: Share
Information & Enhance Collaboration

Using networks to share information and develop

products and services
• Through e-mail
• Through an intra-company news feed
Using electronic teams or e-teams to accelerate
product development
• Advantages: few geographic constraints; access to
multiple social contacts
• Challenges: failure to identify team members with the
most appropriate knowledge and resources; low
cohesion, low trust, lack of shared understanding
creates “process loss”

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 Protecting Intellectual Assets

Intellectual property rights are more difficult to

define and protect than property rights for physical
assets.
Unlike physical assets, intellectual property can be
stolen.
If intellectual property rights are not reliably
protected by the state, there will be no incentive to
develop new products and services.

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 Protecting Intellectual Assets
Through Dynamic Capabilities

Dynamic capabilities involve the capacity to build

and protect a competitive advantage.
• Requires knowledge, assets, competencies, and
complementary assets & technologies
• Requires the ability to sense & seize new
opportunities, generate new knowledge, and
reconfigure existing assets & capabilities
• Include internal processes & routines that enable
product development, strategic decision making,
alliances, or acquisitions

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