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
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
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
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
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”
The student should be made sensitive to the dilemmas and trade-offs involved in making these
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
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
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
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
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
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
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
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
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
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
In 2014, a “Dare to Try” program was implemented to encourage employee innovation at
Pfizer’s OWNIT! Culture seeks to empower employees to try new things, invest in
candid conversations, build collaborations, and address corrosive behaviors. On annual
Its LIFT (Leadership Investment for Tomorrow) program shows how diversity and
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
Strategically, the high technology industries will have more of a unidimensional focus on
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
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
To show that the social capital is vital to the firm’s competitive advantage, there should be an
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
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
(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?
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
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
(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