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MIND OVER MATTER
WHY INTELLECTUAL CAPITAL IS THE
CHIEF SOURCE OF WEALTH
By RONALD J. BAKER
Book Reviewed by :
Imran Aziz Fozia Iqbal Badar ul Islam Syed Ali Azfer Fareeha Nisar
Afaq Haider
Submitted to :
Dr. Bakhtiar Ali
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Mind Over MatterRonald J. Baker
Chapter 1-2
Imran Aziz
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Introduction
Encompasses the triumph of human spirit,
imagination, and creativity.
Knowledge economy.Challenged the physical fallacy.
Intellectual capital- The key to success in
the twenty-first century.
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Mind Over Materialism
Materialist Fallacy
Land, Gold, Oil, Land, Raw materials.
Israel per capita GDP $17,220
Saudi Arabia has $8,870 Taiwan, Hong Kong, Singapore have no natural
resource yet have standards of living than Russia& Indonesia.
There is no such thing as a natural resource,except for the mind of man.
An Inquiry into the Nature and Causes of the Wealth
of Nations (Adam Smith)
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Mind Over Materialism
Smith exposed the mercantile system fallacy
Humans can produce more goods than they
can consume. Specialization & Division of Labor. e.g. Pin
Factory
Money is not wealth. Real wealth- Goods or services money can
buy.
e.g. India
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Mind Over Materialism
Do Trade Deficits Diminish Wealth?
Free Trade Zone in America
It can work internationallyThomas Sowell
Germany and France have had international
trade surplusesTheir unemployment rates were in double
digits.
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Mind Over Marxism
Karl Marx- Labor was a source of all values.
Adam Smith proposed Classical Model of
Competition .Freedom
Self- Interest
Competition
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Mind Over Marxism
Cost of producing commodities.
Cost of capital
EquipmentRent
Risk
All of the above factors determines theprice of the commodity.
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KARL MARX, FALSE PROPHET
Value of commodity is determined by
quantity of labor.
Not applicable at land and labor.
e.g. China & India
Did not take into account the law of
diminishing marginal utility.
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THE MARGINALIST REVOLUTION
Three economists developed Theory ofMarginalism
William Stanley Jevons Great Britain
Leon Walras France
Carl Menger- Austria
The value of goods arises from their
relationship to our needs.
Value is like beauty
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Mengers Law of Imputation
Lower order goods
Higher order goods
Demand for higher order goods is derivedfrom lower order goods.
e.g. Tobacco
Combination of Marginalism & Law ofImputation
Explains human behaviour
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MIND OVER MATTER
Chapter 3 - The Economy in Mind
Chapter 4 - A Flawed TheoryThe Old
Business Equation
Chapter 5 - A Better TheoryThe New
Business Equation
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In The Wealth of Nations, Adam Smith
wrote of four stages in society:
The age of hunters
The age of shepherds The agrarian age
The age of commerce
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The transition from the agrarian age to theIndustrial Age is dated from the late eighteenthto the early nineteenth century.
French used the term in 1820s.
Marx used the term in 1800s
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The term service worker was coined around1920.
The terms knowledge industries, knowledgework and knowledge worker were coinedaround 1961.
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Dr. W. Edwards Deming used to say,
Without theory, experience has no meaning.No one has questions to ask. Hence withouttheory, there is no learning. Theory leads toprediction. Without prediction, experience and
examples teach nothing.
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Kant said,
Concepts without perceptions are empty;perceptions without concepts are blind.
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IC has three categories originally proposed byKarl-Erik Sveiby, a leading thinker in knowledgetheory, in 1989:
Human capital
Structural capital
Social capital
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Negative intellectual capital
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ANALYZING THE PREDOMINANT
BUSINESS EQUATION
Revenue = Capacity Efficiency Cost-PlusPrice
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New Business Equation
Profitability = Intellectual Capital Price
Effectiveness
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MIND OVER MATTER
Chapter 6 - The Scarcest Resource of All
Chapter 7 Ideas Have Consequences
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THE SCARCEST RESOURCE OF ALL
Information is not knowledge
Specific knowledge is more important the generalexpertise
Local knowledge---Tacit knowledge; knowledgespecific to time, place, and circumstances
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Information Wants to be Free,
Knowledge isnt
People develop shortcuts to decipher all of theinformation that bombards them on a daily basisknown as heuristicsand allow us to make moreeffective choices
Data. Factual information (as measurements orstatistics) used as a basis for reasoning, discussion, orcalculation. There is no judgment, interpretation,context, or basis for action. It knows nothing of its own
importance or irrelevance
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Cont
Information. Root in Latin is formare, meaning toshape. Data endowed with relevance and purpose. Ithas to have a sender and a receiver, and it is thereceiver, not the sender, who decides if the message
is information or not. We add value to information invarious ways: Contextualized; Categorized;Calculated; Corrected; Condensed
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Cont
Knowledge. The fact or condition of knowingsomething with familiarity gained through experienceor association. To turn information into knowledge weneed: Comparison; Consequences; Connections;
Conversation Knowledge by itself is static, but knowingis dynamic
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Ideas Have Consequences
knowledge is far more scarce than ideas
economic growth revolves around the human mindand its capacity for invention, discovery, and thetransformation of physical objects and ideas into
valuable goods and services
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New Growth Theory
It is not just knowledge that makes countries rich orpoor, but how that knowledge is used
innovation rests on individuals ability to create andtest ideas, thereby creating new knowledge and
wealth (Paul Romer)
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14 Meta-Inventions 800 BC- 1950
Artistic realism Linear perspective Artistic abstraction
Polyphony Drama The novel Meditation
Logic Ethics Arabic numerals The mathematical proof The calibration of
uncertainty The secular observation of
nature
The scientific method Paul Romers new factors of productionpeople,
ideas, and thingsand explore the characteristics ofwhat is known as intellectual capital.
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MIND OVER MATTER
Chapter 8 - The Characteristics of
Intellectual Capital
Chapter 9 Human Capitalism
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Chapter 8:
The Characteristics of Intellectual Capital
In knowledge economy, thousands of invisible factoriesworking on turning ideas into knowledge
Merv Griffin has made close to $70 million to $80 millionin royalties from the Jeopardy!theme song, which hewrote in less than a minute.
One of Japans largest export industries, reaching anastounding $80 billion in 2004, is animation.
Not even two years old, with no profits, YouTube waspurchased by Google for $1.65 billion.
Disneys Snow Whitevideo release generated $800million in revenue
The knowledge economy has been a gradual evolution,an indication to the importance of mind over matter, aswell as a further refutation of the physical fallacy
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Knowledge is a Verb
Knowledge has always been at the heart of economicdevelopment, recognized by economist AlfredMarshall (18421924)
Knowledge is our most powerful engine ofproduction; it enables us to subdue nature and force
her to satisfy our wants (Warsh 2006:82). Adam Smith recognized the importance of knowledge
attributed the wealth of nations to the division andspecialization of labor
Knowledge is the acquired and useful abilities of all
the inhabitants or members of the society (ORourke2007: 7475).
Carl Menger believed that knowledge was ultimatelywhat made nations prosperous.
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Knowledge is a Verb
Peter Drucker also coined the term knowledge worker,distinguished among five types of knowledge in hisextensive study1. Practical knowledge
a. Professionalb. Businessc. Workmansd. Politicale. Household
f. Other practical2. Intellectual knowledge3. Small-talk and pastime knowledge4. Spiritual knowledge5. Unwanted knowledge
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Knowledge is a Verb
Knowledge has no finite capacity, since it can be usedsimultaneously without diminishing
The knowledge is also cumulativeand uncontrollable,since the buyer can add to it, improve it, and createmore of it leads to invention leaving the origin of
idea. the buyer is unable to judge the value of knowledge
until he or she has had a chance to use it Knowledge is like the dark matter of the cosmoswe
know it is out there, but we cannot see, touch, or
measure it. Intellectual property such as patents, copyrights,
trademarks, databases, are recorded on a firmsfinancial statements at cost, which does not at allreflect their value-creating capacity
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Intellectual Capital
Intellectual capital as knowledge that can beconverted into profits, which is an adequatedefinition for our purposes since it considersknowledge as a verb (Lev 2001:155)
The goal of any firm is to leverage applicableknowledge and use it to create new knowledge
In turn, this becomes the firms IC, the ultimatefulcrum for the company of the future
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Chapter 9:
Human Capitalism
U.S. Steel entrepreneur Andrew Carnegie statedTake away my people but leave my factories, andsoon grass will grow on factory floors. Take away myfactories but leave my people, and soon we will have
a new and better factory. The economists weresaying that accountants should
treat investments in people the same as they treatinvestments in things
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The More Human the Capital, the Less
We Can Measure It
The most valuable of all capital is that invested in humanbeings - Alfred Marshall, Principles of Economics, 1890
Economist Fritz Machlup, in his study of knowledge,published in 1962, distinguished among eight types ofeducation:
Education in the home
Education in school
Training on the job
Instruction in church
Training in the armed forces Education over television
Self-education
Learning from experience
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The More Human the Capital, the Less
We Can Measure It
Edison, the Wright Brothers, Frank Lloyd Wright andMies van der Rohe, and the list of entrepreneurs wholaunched successful enterprises like Michael Dell, BillGates, Steve Jobs, and Steve Wozniak, among many
others with no, or very little, college education More schooling is not automatically more human
capital
Human capital is knowledge, experience, judgment,
leadership, problem solving ability, motivation, abilityto adapt, and wisdom put to use to serve others, theessential expression of wealth.
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The More Human the Capital, the Less
We Can Measure It
To complicate matters, converting that brain powerinto useful intellectual capital that organizations canuse and reuse requires us to understand thedifference between tacit and explicit knowledge
Tacit knowledge tends to be dynamic, while explicitknowledge is static; both are required for innovationand leverage to take place
Like any capital investor, human capital will go whereit can earn a decent economic return and is well
treated
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We Know More Than We Can Tell
Distinction between tacit and explicit knowledge
Converting tacit knowledge to explicit knowledge isone of the major roles of a chief knowledge officer(CKO)
For us knowledge management is critical. Its one ofour four core processessell work, do work, managepeople, and manage knowledge
Tacit knowledge is not necessarily always superior
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We Know More Than We Can Tell
Four different modes of knowledge conversion:
From tacit knowledge to tacit knowledge, whichwe call socialization;
From tacit knowledge to explicit knowledge, orexternalization;
From explicit knowledge to explicit knowledge, orcombination; and
From explicit knowledge to tacit knowledge, orinternalization
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We Know More Than We Can Tell
Managing explicit knowledge is certainly easier thanmanaging tacit knowledge
Explicit knowledge can be managed by assemble it;validate it; standardize and simplify it; keep it up to date;
leverage it; make sure everyone who needs it knows thatit exists, and how to use it
Tacit knowledge cant be managed as it is in the mind ofthe worker which neither be explored
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Karl Marxs Revenge
Human capital determines the performance capacityof any organization
People are not assetsand will not be replaced bycomputers no matter how far advanced artificial
intelligence becomes Knowledge work is nonlinear
We must stop thinking in terms of command-and-control management and operational efficiencymetrics.
Knowledge workers need to focus on effectivenessand deserve better than these other outdated modesof thinking
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Karl Marxs Revenge
Rabbi Daniel Lapin asks:Why do people raise theirfood to their mouths instead of lowering their mouthsto the plate?
Wealth creation is inherently spiritual, not material, in
the sense that it cannot simply be measured usingany scientific device.
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MIND OVER MATTER
Presenter :Fareeha Nisar
Chapter 10
Chapter 11
Chapter 12
Chapter 13
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Knowledge workers
Intrinsic reward Opportunity to grow
Recognize accomplishments Economic rewards
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Top 10 reasons to work at google
Lend a helping hand
Life is beautiful
Appreciation is the best motivation
Work and play are not mutually exclusive We love our employees and we want them to know it
Innovation is our blood line
Good company every where you look
Uniting the word ,one user at a time Boldly go where no one has gone before
Free lunch
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Developing And Inspiring Knowledge
Workers
Management revolution Productivity
Knowledge worker effectiveness frame work
Six major factors effecting on knowledge worker
productivity1. Task
2. Autonomy
3. Innovation
4. Learning5. productivity
6. Asset than cost
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Job categories
1. Transformational
2. Transactional
3. Tacit
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Tools for developing and inspiring
knowledge workers
knowledge organizations
Personality testing
Performance appraisals
Education Work life balance
Negative human capital
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Structural capital
Organization structure
Recruitment and remuneration policies
Management information system
Intellectual property Performance management system
Management contracts
Supplier contracts
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Methods for knowledge transfer
Story telling
Mentoring ,coaching, shadowing
Communities of practice
After action reviews
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Knowledge lesson from US
1. Us army
2. Toyota production system
3. Microsoft
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Social capital
Accounting for tastes
Element of social capital
1. Customers2. Brands
3. Networks
4. Suppliers and vendors
5. Shareholders/stakeholders6. Joint venture partners and
alliances
7. Industry association
8. Alumni
9. Unions
10. Corporate universities
11. Mass collaboration12. Cultural ,moral and
ethical capital
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Presenting By
Muhammad Afaq Haider
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Knowledge versus Beliefs
In everyday life a person with a clear-cut life goal,which he strives to reach in all circumstances, willalways be superior to others who are aimless.
It is imperative to bear in mind that man is guided farmore by his beliefs than his knowledge.
You are best understood and appraised by others onthe basis of the things you believe rather than on the
basis of the things you know.
Faith is key
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DEBITS DONT EQUAL
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DEBITS DONT EQUAL
CREDITS The theory gets more and more complex to
accountfor its lack of explanatory power.
In all fairness to accounting, it never was meant
to predict value prospectively, only to recordtransactions retroactively.
The principles of accounting also do not
comprise a theory; rather, they are simply a setof guidelines, rules, and procedures formeasuring financial items
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FINANCIAL MODEL REFORM
Financial statement accounting today is wherephysics was a century ago.
Heavily regulated industries are rarely hotbeds ofinnovation.
Another innovative tool being used by somecompanies are so called information markets.
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Summary and Conclusions
If we constantly reinvigorate, revitalize, and
challenge our worldviews, there is no limit towhat we can achieve, as long as we do not
lose faith in ourselves
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PURPOSE
It has often been observed that if you defineyour happiness by your level of success, youcan never achieve enough success to makeyou happy.
the great humbugs of life are three: Fame,Wealth and Power.
When one works simply to make money, thework is rarely joyful or meaningful.
VOCATION WHAT IS CALLING
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VOCATION: WHAT IS CALLING
YOU?
The bottom line of a calling is measured bypain, learning, and grace.
Vocation literally calls you to contribute yourtalent, energy, passion, enthusiasm, anddesire to the work you love and believe in.
Business is all about purpose, those internalbeliefs and worldviews that define who weare and what we want to accomplish.
CONTINUOUSLY DEVELOP YOUR
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CONTINUOUSLY DEVELOP YOUR
INTELLECTUAL CAPITAL
The illiterate of the 21st century will not bethose who cannot read and write, but thosewho cannot learn, unlearn, and relearn.
The most skilled are constant students, willingto look at the world in absolute wonder andthink about why things are the way they are.
IC is more than your human and structuralcapital.
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