Intellectual capital (IC) and social capital (SC), as forms of intangible value in organizations,

are crucial assets in today's volatile business environment. Efforts to retain and develop these
intangibles are becoming more deliberate and disciplined. However, organizations fail to
recognize the relationship between organizational distress and the loss and/or reduction of
intangible value. The loss of intangible value may potentially impact an organization with
equal or greater damage than the loss of more tangible value. IC and SC generate many
outcomes beneficial to the individual and the organization. These benefits are reduced when
stress of employees becomes excessive and damaging. The relationship between the health of
an organization and the degree of impact of distress serves as a lingering threat to
organizational financial resources. Managers must build upon the growing knowledge from
research and practice to help organizations account for the costs of organizational distress,
translate the importance of intangible value into tangible terms, and garner support for
developing IC and SC to obtain business objectives. Deliberate and disciplined effort to build
collaborative capital can facilitate the growth of IC and SC which minimize the damage of
organizational distress.

Intellectual capital helps to drive success and create value. Although physical and financial assets
remain important, intellectual capital elements such as the right skills and knowledge, a respected
brand and a good corporate reputation, strong relationships with key suppliers, the possession of
customer and market data, or a culture of innovation set enterprises apart. Growth, above-average
earnings, and sustainable competitive advantages are no longer driven by investing in physical assets
such as factories, offices, or machinery, but instead by investing in and managing intellectual capital.
The success of leading companies such as Amazon, Google, Microsoft, and Wal-Mart is based on
their intellectual capital. Physical assets such as distribution warehouses, office buildings, and stores
are important, but not as much as (for example) knowledge about customers, technology, and
markets. For example, organizations such as Wal-Mart, with its huge store infrastructure, couldnt
perform as well as it does without (a) the intelligence to build its stores at the right locations, (b) the
knowledge about consumers to stock the right goods, and (c) its expertise in inventory replenishment.
Intellectual capital allows organizations to leverage their tangible resources. Without appropriate
intellectual capital, physical assets are just commodities that can yield, at best, average returns.1
Identifying and managing the right intellectual capital is and will increasingly be the key differentiator
between successful, mediocre, and failing enterprises.


Defining Intellectual Capital
Intellectual capital encompasses both the inventory of knowledge-based assets as
well as the
capacity to acquire and assimilate new learning rapidly. It is often invisible,
intangible, or difficult
to detect and quantify. In fact, many companies view intellectual capital as a
spectrum, ranging
from ideas, thoughts, the stuff in peoples heads (implicit knowledge) to concrete
intellectual
assets, like software code, with true measurable value that can be tracked and
managed. By
this definition, it includes the organizations intellectual property - its legally
protectable and
exploitable intangible assets.
However, intellectual capital is much more than just intellectual property. At its roots,
it is based
in the know-how of people. It encompasses the intellectual and learned abilities of
the
workforce - its skills, knowledge, abilities and behaviors. It is a compilation of the
individual,
group and corporate knowledge brought to the table in solving complex business
problems. It
consists of information, experience, wisdom and ideas that are linked to the
organizations
mission or principal purpose, and which will ultimately add value to the consumer of
that
organizations output.
_________________________________________________________________________________
_________
Valuing Intellectual Capital 5
Intellectual capital represents the resources that produce imagination, inventiveness,
and
competitiveness, through the generation and dissemination of thoughts, ideas and
fresh
approaches. It is the sum and synergy of knowledge, experience, relationships,
processes,
discoveries, innovations, market presence, and community influence.
Most survey participants distinguished between three different types of intellectual
capital:
The first, human capital, is composed of the skill, talent, knowledge, and expertise
of the
employee base. It can be described as a companys collective capability to extract
the best
solutions for customers from the knowledge base of its individuals. Human capital
resides in
the people who walk in and out the front door every day.
The second type, structural capital, can be thought of as the firms organizational
capabilities
to meet market requirements. It is the knowledge that has been captured and
institutionalized within the structure, processes and culture of an organization. It
includes
patents, copyrights, proprietary software, trademarks, trade secrets and general
organizational know-how. It can be stored in the form of documented procedures,
databases, expert systems, decision-support software and knowledge management
systems. Structural capital is everything left at the office when the employees go
home, and
can clearly be regarded as company property. This is the reason it is important to
capture
human knowledge as structural capital. Unlike human capital, structural capital can
be owned
and thereby traded.
Finally, customer capital refers to the organizations network of satisfied clients,
and their
loyalty to the company. The value of an organizations intellectual capital should be
measured in terms of the quantity and quality of the client relationships that have
been built up
over time. It is the clients confidence in the products and services provided that has
value.
Customer capital would have been a truly alien notion to bookkeepers just a few
decades
ago. Yet it has always been there, hidden within the entry for goodwill




Strategy implementation involves ensuring that a firm has proper
strategic controls and organizational designs. Of particular importance is ensuring that the
firm has established effective means to coordinate and integrate activities within the firm
as well as with its suppliers, customers, and alliance partners. In addition, leadership plays
a central role. This involves many things. Paramount among these, however, is ensuring
that the organization is committed to excellence and ethical behavior as well as consistently
being entrepreneurial in creating and taking advantage of new opportunities.


Enhancing Employee Involvement
in the Strategic Management Process
Todays organizations increasingly need to anticipate and respond to dramatic and unpredictable
changes in the competitive environment. With the emergence of the knowledge
economy, human capital (as opposed to financial and physical assets) has become
the key to securing advantages in the marketplace that persist over time.
24 PART 1 Strategic Analysis
Exhibit 1.5 Brainpower Weighs In
Weight Price
Product Price in Pounds per Pound
Pentium III 800MHz microprocessor
Viagra (tablet)
Gold (ounce)
Herms scarf
Palm V
Saving Private Ryan on DVD
Cigarettes (20)
Who Moved My Cheese? by Spencer
Johnson
Mercedes-Benz E-class four-door sedan
The Competitive Advantage of Nations by
Michael Porter
Chevrolet Cavalier four-door sedan
Hot-rolled steel (ton)
$ 851.00
8.00
301.70
275.00
449.00
34.99
4.00
19.99
78,445.00
40.00
17,770.00
370.00
0.01984
0.00068
0.0625
0.14
0.26
0.04
0.04
0.49
4,134.00
2.99
2,630.00
2,000.00
$42,893.00
11,766.00
4,827.20
1,964.29
1,726.92
874.75
100.00
40.80
18.98
13.38
6.76
0.19
Source: G. Colvin, Were Worth Our Weight in Pentium Chips, Fortune, March 20, 2000, p. 68. 2001
Time Inc. All rights reserved.
To develop and mobilize people and other assets in the organization, leaders are
needed throughout the organization.32 No longer can organizations be effective if the
top does the thinking and the rest of the organization does the work. Everyone
needs to be involved in the strategic management process. Peter Senge noted the critical
need for three types of leaders.
_ Local line leaders who have significant profit and loss responsibility.
_ Executive leaders who champion and guide ideas, create a learning infrastructure,
and establish a domain for taking action.
_ Internal networkers who, although having little positional power and formal
authority, generate their power through the conviction and clarity of their ideas.33
Sally Helgesen, author of The Web of Inclusion: A New Architecture for Building
Great Organizations, made a similar point regarding the need for leaders throughout the
organization. She asserted that many organizations fall prey to the heroes-and-drones
syndrome, exalting the value of those in powerful positions while implicitly demeaning
the contributions of those who fail to achieve top rank.34 Culture and processes in
which leaders emerge at all levels, both up and down as well as across the organization,
typify todays high-performing firms.35
Now we will provide examples of what some firms are doing to increase the involvement
of employees throughout the organization. Top-level executives are key in
setting the tone. Consider Richard Branson, founder of the Virgin Group, whose core
businesses include retail operations, hotels, communications, and an airline. He is well
known for creating a culture and informal structure where anybody in the organization
can be involved in generating and acting upon new business ideas. In a recent interview,
he stated
[S]peed is something that we are better at than most companies. We dont have formal board
meetings, committees, etc. If someone has an idea, they can pick up the phone and talk to
me. I can vote done, lets do it. Or, better still, they can just go ahead and do it. They know
that they are not going to get a mouthful from me if they make a mistake. Rules and regulations
are not our forte. Analyzing things to death is not our kind of thing. We very rarely
sit back and analyze what we do.36
To inculcate a strategic management perspective throughout the organization, many
large traditional organizations often require a major effort in transformational change.
This involves extensive communication, training, and development to strengthen a strategic
perspective throughout the organization. Ford Motor Company is one such example.
Ford instituted a major cultural overhaul and embarked on a broad-based attempt
to develop leaders throughout the organization. It wanted to build an army of warriorentrepreneurs
people who have the courage and skills to reject old ideas, and who
believe in change passionately enough to make it happen. A few details: