Question 1

Firms such as Apple and Microsoft will tend to have a higher ratio of market value to book value than industrial companies such as Nucor Steel.

Accepted Answer

As shown in Exhibit 4.1, firms such as Apple and Microsoft have very high market value to book value ratios because of their high investment in knowledge resources and technological expertise. In contrast, firms in more traditional industry sectors, such as Nucor, have relatively low market to book ratios.

Question 2

The difference between the market value and book value of a firm is its social capital.

Accepted Answer

Social capital is the network of relationships that individuals have throughout the organization.

Question 3

Creation of new knowledge involves the continual interaction of explicit and tacit knowledge.

Accepted Answer

New knowledge is constantly created through the continual interaction of explicit knowledge (knowledge that is codified, documented, easily reproduced, and widely distributed, such as engineering drawings, software code, and patents) and tacit knowledge (knowledge that is in the minds of employees and is based on their experiences and backgrounds).

Question 4

One of the most important elements in a good employee is his or her attitude. Firms should follow the adage: hire for attitude, train for skill.

Accepted Answer

Firms can identify top performers by focusing on key employee mind-sets, attitudes, social skills, and general orientations. If they get these elements right, the task-specific skills can be learned quickly. This does not imply that task-specific skills are unimportant; rather, it suggests that the requisite skill sets must be viewed as a necessary but not sufficient condition.

Question 5

In firms where knowledge and the management of knowledge workers are relatively important contributors to developing products, and services and physical resources are less critical, the ratio of market-to-book value tends to be much lower.

Accepted Answer

In firms where knowledge and the management of knowledge workers are relatively important contributors to developing products and services, and physical resources are less critical, the ratio of market-to-book value tends to be much higher.

Question 6

Firms in more traditional industry sectors such as Nucor and General Motors have relatively low market-to-book ratios. This reflects their greater investment in knowledge resources and lower investment in physical resources.

Accepted Answer

Firms in more traditional industry sectors such as Nucor and General Motors have relatively low market-to-book ratios. This reflects their greater investment in physical resources and lower investment in knowledge resources.

Question 7

The importance of human capital has decreased in recent years. For this reason, many firms have placed greater attention on attracting talent, but not on developing or retaining it.

Accepted Answer

In the knowledge economy, wealth is increasingly created by effective management of knowledge workers, instead of physical and financial assets. The growing importance of knowledge, coupled with the move by labor markets to reward knowledge work, tells us that investing in a company is, in essence, buying a set of talents, capabilities, skills, and ideas (intellectual capital) not physical and financial resources.

Question 8

The 360-degree evaluation and feedback system addresses many of the limitations of traditional approaches to evaluating human capital.

Accepted Answer

To address the limitations of the traditional approach, many organizations use 360-degree evaluation and feedback systems. Here, superiors, direct reports, colleagues, and even internal and external customers rate individual performance. The 360-degree feedback system complements teamwork, employee involvement, and organizational flattening.

Question 9

In most effective evaluation and reward systems employees only receive evaluation and feedback from their immediate supervisor.

Accepted Answer

As organizations continue to push responsibility downward, traditional top-down appraisal systems become insufficient. To address the limitations of the traditional approach, many organizations use 360-degree evaluation and feedback systems. Here, superiors, direct reports, colleagues, and even internal and external customers rate the performance of a person.

Question 10

Technical skills are a necessary and sufficient condition for hiring an employee.

Accepted Answer

Firms can identify top performers by focusing on key employee mind-sets, attitudes, social skills, and general orientations. If they get these elements right, the task-specific skills can be learned quickly. This does not imply that task-specific skills are unimportant; rather, it suggests that the requisite skill sets must be viewed as a necessary but not a sufficient condition.

Question 11

The Millennial generation expects employers to provide incentives to attract and retain them. A company that does this will have a competitive advantage.

Accepted Answer

This generation has also been termed Generation Y or Echo Boom and includes people that were born after 1982. Many call them impatient, demanding, or entitled. However, if employers do not provide incentives to attract and retain young workers, somebody else will. Thus, they will be at a competitive disadvantage.

Question 12

The gap between company market value and book value is far greater for knowledge-intensive corporations than for firms with strategies based primarily on intangible assets.

Accepted Answer

The gap between company market value and book value is far greater for knowledge-intensive corporations than for firms with strategies based primarily on tangible assets.

Question 13

Knowledge workers are more loyal to their companies than traditional workers.

Accepted Answer

Knowledge workers place professional development and personal enrichment (financial and otherwise) above company loyalty.

Question 14

A firm like Intel has a market-to-book value ratio that falls between Apple-Microsoft and Nucor-General Motors. This is because its low level of investment in knowledge resources is matched by a correspondingly huge investment in plant and equipment.

Accepted Answer

A firm like Intel has a market-to-book value ratio that falls between Apple-Microsoft and Nucor-General Motors. This is because its high level of investment in knowledge resources is matched by a correspondingly huge investment in plant and equipment.

Question 15

In the current economy, reliance on the three traditional financial statements (income statement, balance sheet, and statement of cash flow) has increased.
A. Howell, an expert on the changing role of finance and accounting, suggests that the big three financial statements are about as useful as an 80-year-old Los Angeles road map.

Accepted Answer

In 1978, the book value for U.S. companies was 95 percent of market value. However, market values and book values have diverged significantly. Within 20 years, the S&P industrials were, on average, trading at 2.2 times book value. Robert

Question 16

Companies have found that referrals from their own employees are generally an effective approach to recruiting top talent.

Accepted Answer

Companies like GE Medical Systems have found that current employees are the best source for new ones. When someone refers a former colleague or friend for a job, his or her credibility is on the line. Employees are careful about recommending people unless they are reasonably confident they are good candidates.

Question 17

Explicit knowledge is in the mind of employees and is based upon their experiences and backgrounds.

Accepted Answer

Tacit knowledge is knowledge that is in the minds of employees and is based on their experiences and backgrounds. Tacit knowledge is shared only with the consent and participation of the individual.

Question 18

The more reliance a firm has on intellectual capital, the closer its book value will be to its market value.

Accepted Answer

The gap between the market value and book value of a firm is far greater for knowledge-intensive corporations than for firms with strategies based primarily on tangible assets.

Question 19

Social capital does not extend beyond the organizational boundaries to include relationships between the firm and its suppliers, customers, and alliance partners.

Accepted Answer

Social capital is the network of relationships that individuals have throughout the organization. Relationships are critical in sharing and leveraging knowledge and in acquiring resources. Social capital can extend beyond the organizational boundaries to include relationships between the firm and its suppliers, customers, and alliance partners.

Question 20

Millennials value hard work and will rarely use vacation time.

Accepted Answer

Millennials strive for more work-life balance, so liberal vacations become very important. They also want assurances that they can use it. At KPMG, 80 percent of employees used 40 hours of paid time off in the first six months of a recent year.

Quiz 4: Recognizing a Firms Intellectual Assets: Moving Beyond a Firms Tangible Resources