Human Capital: Managing the Most Vital Intangible Asset

Introduction to Intangible Assets

According to Kaplan and Norton (2013), intangible assets can be categorized into three types: human capital, information capital, and organizational capital. These assets are of great relevance to any business. Often, however, their monetary value outside the formal or perceived boundaries of a business is diminished. Of the three, the most important intangible asset an organization could possess is human capital — and it is also the most difficult to manage.

Why Human Capital Is the Most Important Intangible Asset

Human capital, in the words of Kaplan and Norton (2013), includes "employee skills, talent, and knowledge." When it comes to the implementation of organizational strategy, the relevance of this asset cannot be overstated. For a business to be successful, people-oriented capabilities are essential. Neither of the other two categories of intangible assets can operate without human capital. Human skills and capabilities are required to manage all other assets, as well as to implement business ideas and objectives.

Human capital can be an important source of an organization's competitive advantage — particularly when a company focuses not only on hiring but also on retaining people with the right set of skills and capabilities. According to Barney (as cited in Baron, 2007, p. 26), the human capital advantage concept is largely founded "on the belief that sustainable competitive advantage is achieved when a firm has a HR pool that cannot be imitated or substituted by its rivals." Such an organization must, however, develop sound strategies to ensure that once this resource is acquired, it is not poached by competing entities.

Challenges of Managing Human Capital

Despite being the most important intangible asset, human capital remains the most difficult to manage. This is particularly true given the diverse nature of the people an organization works with in pursuing its objectives. Matching the right people to various organizational roles can also be a significant challenge, especially given the impact that a mismatch of skills and capabilities can have on the implementation of organizational strategies.

While some capabilities and skills suited to specific roles can be acquired through training and experience, others — such as time management, temperament, and interpersonal skills — are largely innate and cannot be developed in a conventional setting. Companies also find it difficult to ensure that their personnel are consistently performing at a high level, a challenge made more acute by the realities of global competition. For this reason, organizations must continually invest in training so that employees not only acquire new techniques but also sharpen their existing skill sets.

Employee motivation is another issue of significant relevance. Boosting employee morale in a way that advances the organizational agenda requires genuine commitment from leadership — an aspect that is, unfortunately, often overlooked.

References

Baron, A. (2007). Human Capital Management: Achieving Added Value through People. Philadelphia: Kogan Page Publishers.

Kaplan, R., & Norton, D. P. (2013). Strategy Maps: Converting Intangible Assets into Tangible Outcomes. New York, NY: Harvard Business Press.