Human Capital Risks

Human Capital includes all the people that work in your organization. The skills and experience of your people are critical. Knowledge and learning begin and end with people. Employees keep everything going every day. And they originate and perfect new knowledge that can create future earnings. The key with human capital is to turn smart people into a team who want to share their knowledge and institutionalize best practices so the team isn’t at risk when any one individual walks out the door at night.

The key risks associated with human capital include the: Read more

Four Ways of Understanding Employees As Human Capital

Every human being is different. As employees, human beings bring unique talents and abilities to their employers. This diverse skills set brings a richness to an organization that can be difficult to capture. Do not let this richness keep you from trying to understand your human capital as a productive asset. There are actually some very clear ways of describing employee groups:

• Competencies
• Experience
• Longevity
• Attitude

Read more

The Central Importance of Human Capital

Knowledge in an organization begins and ends with people. The knowledge and experience that employees bring to their work is probably the greatest driver of an organization’s success. What employees know helps to build an organization as well as to preserve, maintain and improve it.

This importance is generally accepted. It is rare to meet a CEO who won’t tell you that his or her organization has the “best people” in the market. But this kind of statement is rarely challenged. Most businesspeople still don’t know how to see beyond the people and understand the employees and managers of an organization as knowledge assets—as human capital.

There are some that are critical of the label “human capital.” To them, it seems to smack of an attitude that people are just nameless cogs in an organization, exploited for their knowledge and experience. We don’t share that view. In fact, we like the term human capital because it is a graphic statement of the fact that people are indeed an asset of the organization. Assets require investment and maintenance. And they are a critical part of the productive capacity of the organization.

To us, this is the realization that matters—that your people are part of your productive capacity, now more so than ever. Because the future of your company depends on what you know rather than what you own. And what you know as an organization is intimately tied to the knowledge and experience of the people in your organization. In looking at human capital, it is helpful to distinguish between employees and managers. Both groups are employees but managers need a set of competencies that is distinct from those required for your value creation processes–I’ll look at each in the next couple posts.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization

My comments at US Corporations in the Recovery & Beyond

The conference kicked off late yesterday. On our panel, we each made short introductory remarks and then had a great discussion.

The folks from Nypro had an amazing story to tell. Owned by the sixth largest ESOP in the country, the employees have had $300 million in wealth gain in the last 15 years. They combine ownership with complete financial transparency–an ESOP needs both to succeed. They feel that they have been successful in thinking long term.

Here are some of the thoughts that I covered in my remarks:
I was in a meeting with a client recently. The company is a division of a multi-national that sells a home healthcare product that more often than not, they install in their customers’ homes. A number of years ago, they outsourced their installation staff. In the years that I have known them, I’ve heard remarks about smelly, unattractive people showing up at people’s homes.

There’s a new guy in charge-used to be in manufacturing-that is changing how they think about these low-paid but very valuable people. Now everyone sees them the face of this company in the market.

So now they are giving them training on how to teach older people to feel comfortable with the service, handling objections when the customer is waffling on the service, on market development (to drop brochures to the super when they are in an apartment building),.

Bottom line, they are investing in these people and viewing them as an asset rather than an expense. And they are converting them into knowledge workers, empowered and enabled to think on their feet and create value for the company.

This isn’t that different from stories I have heard in manufacturing companies who have shifted how they see their production employees. These are stories on the ground how the shift to the knowledge era has changed work not just at the high tech, high end-it’s everywhere.

Today, 70% of the value of the average business comes from knowledge intangibles. Michael Mandel is here and he has written about this at a macroeconomic level. The same information gap that exists on a macro level also exists on a micro level.

But accounting, the markets and limitations of industrial-era management tools still in use all conspire against recognizing and leveraging this value.

70% of the value of companies is invisible to investors, managers and stakeholders. It has forced us to see companies as income statements rather than balance sheets.

A number of the other speakers here are addressing the issue of financialization of corporations. My perspective is that this financialization is a logical outcome of the short-term thinking that results from looking only at income statements.

But it’s actually very simple to address this once one admits it is a problem. Good work has been done for close to 20 years (mostly in Asia and Europe) to identify the sources of intangible value. They are:

• People (human capital)
• Relationships (relationship capital)
• Processes (structural capital)

Every company has a unique combination of people, process and relationships that work as a system to create value for its customers. This system is the “factory” of our era.

These factories are amazing. They are infinitely scalable. They are flexible and dynamic. And they can be a hotbed of innovation. —But only if they are understood as factories, as assets.

In the eye of an income statement, they are still expenses. And an expense mindset thinks outsourcing to improve this year’s earnings is the right solution.

If we cannot arm managers and investors with information about more than just today’s earnings, we will never achieve the level of innovation that we need to fuel the growth of our economy. Sustainable human resources practices are dependent on a longer-term viewpoint.

There are many academics in this audience. Many have not heard the IC perspective before. I look forward to more conversations today. I plan to Tweet if possible.

I will be speaking at US Corporations in the Recovery and Beyond

Next week, I’ll be speaking on a panel at the conference conference on US Corporations in the Recovery and Beyond hosted by The New School for Social Research in New York City. The conference is on the 22-23 of April. It was organized by William Milberg and Bill Lazonick (I have written about Bill’s great research on stock repurchases in the past)

The schedule includes an interesting mix of academics and businesspeople.  I am participating in the panel called Sustainable Human Resource Practices:

• Louis Uchitelle, New York Times (moderator)
• Mary Adams, I-Capital Advisors
• Rosemary Batt, Cornell University
• Ron Blackwell, AFL-CIO
• Jim Buonomo, Al Cotton, and Jim Elliott, Nypro Inc

It has been fun but challenging to prepare for this discussion. There are so many wonderful aspects of the knowledge economy (flexibility, challenging work, increased value of human capital). Yet we are living the disruption of the transition from the industrial to the knowledge era and many aspects of the shift are not pretty.

Other panels are about innovation, job creation, globalization, compensation (Vanguard founder John Bogle is leading that one), financial behavior and governance.

I’ll be sure to share what I hear via Twitter and this blog.

If you happen to be in New York on April 22 or 23, let me know!

Human Capital: The Temp vs. Full-time Employee

Throughout the discussion of unemployment over the past months, I have been watching for a information on a segment of the working population that does not have a single employer. No one counts un- or underemployment of this segment and I have been wondering about how big a trend this is.

In the last week, I found two very interesting sources. They couldn’t answer the unemployment question but they did tell me that this is a bigger segment than I realized. One from Bloomberg BusinessWeek called The Disposable Worker and the other from the Boston Globe on The End of the Office…and the Future of Work. Read more

Intangibles and Airplane Security

Last night on NPR, I listened to a report on the heightened security measures that are being put in place in airports around the world.

Listening to the report, I couldn’t help but think that our leaders are getting the balance between tangible and intangible efforts wrong. Read more

Getting the Most Our of Your Workforce – Manage It As Part of Your Intellectual/Intangible Capital

Gary Hamel has a new article on human capital called Management’s Dirty Little Secret. He talks about the very large lack of engagement of most employees (in a global survey by Towers Perrin, only one-fifth of employees are “truly engaged”).

Hamel explores all the reasons that this may be true including ignorance, indifference and impotence.

But his discussion is totally focused around the human capital itself. He doesn’t make a good case for how human capital fits into the value creation process of today’s knowledge-based economy.  Read more

Shedding Light on the Value and Performance of Intangible Capital

The first thing that most people ask when discussing intangibles is value. My answer is, “how can you value something for which you have no data?”

I do not mean to imply that it is impossible to develop data on your intangible capital. It’s just that most companies have not taken the necessary steps to accomplish this. How can you create a sound data set on your intangibles? Read more

Does Your Intellectual Capital Walk Out the Door at Night?

You know how people always say that the value of a business walks out the door at night? They are right on one level. Human capital is a critical part of every business, more so all the time as we move more deeply into the knowledge economy.

But there is more to intellectual capital than what’s inside your employees’ heads. And if you worry about your value walking out the door, you better understand the rest of the story. Read more

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