Quantitative Model of Tacit Knowledge Estimation for Pharmaceutical Industry

Abstract

It is generally agreed that successful firms need to utilize all of their assets properly in order to gain a competitive advantage. However, little attention has been paid in business to proper utilization of tacit knowledge, a subset of intangible assets, because no specialized attempt has been made to quantify it. Once a value has been assigned to an asset, it is more easily utilized in the proper way. This paper analyzes the use of tacit knowledge in pharmaceutical industry, presents a graphical model of tacit knowledge, and finally presents and uses a simplified mathematical model that could be useful in quantifying tacit knowledge. The mathematical model was applied in the empirical study of multi-billion dollar acquisition of Genentech by Hoffman La-Roche AG. The model gives a good estimation of the value of the tacit knowledge contained in the firm, which is an important contribution to the field of finance. The quantification of tacit knowledge could be extremely beneficial for managers of pharmaceutical firms who have extremely high levels of tacit knowledge in the form of knowledge workers. By quantifying tacit knowledge, managers can get a better understanding of the real value of their firm or of the value of a firm that may be a target for acquisition.

DOI: http://dx.doi.org/10.5755/j01.ee.25.1.5083