human capital is arguably the most valuable asset held by an organization today
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Running Head: People as valuable asset
People as Valuable Asset in Organizations
Elizabeth Kong Wai Yee
Human Resource Management (BA361)
Pn. Zuraida
American Degree Program
SEGi University College
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Table of Contents
Introduction......................................................................................................................................3
Human Capital as Intangible Asset..................................................................................................4
Competitive Advantage of Human Capital......................................................................................6
Human Capital in Company’s Business Value................................................................................9
Human Capital and Technology....................................................................................................11
Communication as an Essential Skill............................................................................................13
The Role of Management Team....................................................................................................14
Managing Human Resource..........................................................................................................16
Conclusion.....................................................................................................................................18
References......................................................................................................................................19
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IntroductionPeople are the basic need for organizations. Without people, the organizations could not
run even it is contented with other resources. However, there are some still doubts about the
ability of human labor as the technology is getting more and more advance. It is believed that
one day, the human capital will totally replace by machinery and all system is automated as it is
more convenient. Yet, there is some in human capital that cannot be replace as human capital is
still classified as competitive resources. With better managing system, human capital can be as
advantage as other resources.
In an organization, human capital is arguably as the most valuable assets. In the past,
executives often tried to remove human resource from the strategy equation by substituting other
capital for labor or by creating hierarchical structures. (Snell & Bohlander, 2007). Yet, there are
still some business executives firmly believed that people are the most important asset but
according to the data that had collected by the investors revealed that the economic value added
(EVA) and return on investment (ROI) shed little light on how an organization’s human assets
are performing (Weatherly, 2003). In short, human assets did not have huge influence in
improving business. However, a recent survey from USA Today and Deloitte & Touche, nearly
80 percent of corporate executives reveal that the importance of human resource management
has grown substantially over the past ten years and two-thirds said that human resource
expenditures are now viewed as a strategic investment rather than simply a cost to be minimized
(Snell & Bohlander, 2007) because much is changing today.
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Human Capital as Intangible Asset
Nothing can begin without people. People are the one who create and maintain the
intellectual capital within organizations that drives innovation and shape products. Besides,
people manage the finances, cash flow and forecasts. So, the market is an external factor that
requires people to generate interest and deliver the messaging to gain market acceptance. As a
result, people make companies a reality and make companies success which is why companies
see human capital as an investment. They train their employee and develop them into valuable
asset for the company. Investment in people is a long term strategy for the organization. The
salary and wages, costs of training and development and other cost of recruiting, maintenance
and development of people considered as investment to increase the value of people in return to
increased the future earning for company. The trend for the business are going global, invest in
training human capital enable the company to access to other country by communicating and also
understanding the culture of the foreign country.
Furthermore, human capital can be defined as an intangible asset. In accounting balance
sheet, intangible assets also called as intangible capitals which include intellectual property such
as patent formulas, product designs, process technology, copyrights and others (Memon, Mangi,
& Rohra, 2009). But, in corporation, human capital is the collective sum of the attributes, life
experience, knowledge, inventiveness, energy, and enthusiasm that its co-workers choose to
invest in their work. So, human capital is the most valuable asset because if the employees
commit into their work, the business will improve as their work presentation will satisfy
company’s customers. It is either a win-win situation or a lose-lose situation because on the other
hand, if the human capital did not manage accordingly, employees are not united, they will not
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commit in their work and consequently, the result of their work may not convince the company’s
client which lead a downfall on company’s business (Memon, Mangi, & Rohra, 2009). So, it is
believed that if a company know how its human capital contributes to their success, it than can
be measures and managed effectively.
Developing human capital in the organizations is the challenge for the leaders for
formulating future competitive strategies. With human capital, organization can maximize their
productivity by formulating strategic plan to manage human capital. The motivation of the
employee to perform their job task is important because they will commit into their work and
perform well. But, dynamic and complex competitive landscape has created considerable
uncertainty also present opportunities (Bernardin & Russell, 1998). Due to the uncertainty, it had
produce opportunities for firm to change their management style by recruiting new people.
Besides, it also create opportunities for competitors of the firm as well where the competitors of
the firm will always try to employ better for the job, in short, the rival firms are likely to lure
valued employees away.
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Competitive Advantage of Human Capital
According to the frameworks that create by Ruzzier, it has incorporated the different
factors that typically influence human capital (Ruzzier, Antoncic, Hisrich, & Konecnik, 2007).
The perceived VRIO (value, rareness, inimitability and organizationally-supported) values are
the one that make human capital become competitive advantage and also develop cross border
skills (Ruzzier, Antoncic, Hisrich, & Konecnik, 2007).
In the war of talent, people now are competitive within each other where they have to
upgrading their qualification by getting master or higher skills or qualification as well as posses
of different skills from different industry in order to survive in this competitive world (Auw,
2009). Companies with strong human capital management have the ability to create unique team
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in a most cost effective ways to create sustainable advantage because the way in which the
organizations manage its peoples can influence its performance. For example in IKEA, their
check-outs department has a high employee turnover rate and the consequence is that they have
not enough cashiers to do the job. The head of the department conduct a survey and meeting with
the entire employee to solve the problem and promote co-workers loyalty by increasing wages
for full timer and part timer. From this situation, it can be learned that employee’s loyalty will
help the company in running their business. And, only with human capital are able to come out
with creative problem solving by making good decision when things are not always predictable.
Furthermore, the resources are easy to transfer but not human capital because employees
can be loyal to the company if their needs are fulfill and work are appreciate by the organization,
therefore, the crucial differentiating factor between companies can be how human resources are
developed and nurtured in an organization. Recent research has suggested that human capital
attributes like education, experience, and skills and the effect of leadership affect the firm’s
performance. With their knowledge and experience, it can imply on the critical situation or
emergency that faces by the company and conduct instant solution for the problems. In addition,
human resources are rare and difficult to imitate. The skills, knowledge and abilities are not
equally distributed means each individual have their own uniqueness, their strength and
weakness which make them rare and competitive so it is not equally available to competitor and
so become an advantage to the organization. In order to compete, companies such as Microsoft,
McKinsey and Four Seasons Hotels invest a great deal to hire and train the best and the brightest
employees with the purpose of gaining an advantage over their competitors (Snell & Bohlander,
2007). Also, employee capabilities and contributions cannot be copied by others (Snell &
Bohlander, 2007). The teamwork and trust that the employees build between each other are so
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valuable that not anyone can imitate which make every company have its own uniqueness and
competitive advantage.
Of course, human assets unlike physical assets as the employees can decide to leave the
firm or to join it follow by their own accord because they have their own control on their
freedom. Employees may find that their options and opportunities are more attractive across
firms rather than within only one firm (Snell & Bohlander, 2007). Today’s labor market for both
employee and employer has become more “free agent” oriented (Snell & Bohlander, 2007).
Employees are less likely to work in the same job for long period as well as unlikely to spend
their entire careers in one firm because they look forward to promotions so flatter organization
structure means fewer positions for promotions that cannot promote employee loyalty. This can
be costly to organization for the reason that the recruiting cost and training and development cost
have to be incurred in the company’s balance sheet.
The newly recruit workers have to go through training for them to adapt to the company’s
culture and values before getting start to work moreover going through interview to find the
suitable people to filled the position are time consuming and costly too. Additionally, before the
position are filled in, insufficient of workers will affect the business such as product cannot be
manufacture in time or shipping cannot be done on time which lead to a loss for the company. As
a result, organization has to value their employees to avoid unwanted loss of business.
Furthermore, if employee left, they will bring together their knowledge, the training they gone
through in the company and the skills and experience they gain. Then it will become
disadvantage to the company while on the other hand increase competency of the competitors.
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Human Capital in Company’s Business Value
In this contemporary, CEOs and board chairs of corporations still recognize people as
their company’s most important asset and imply the theory into their company’s value. For
example, the vision of the famous Sweden furniture company, IKEA is to create a better
everyday life for many people where the many people including their co-workers beside from
focusing only on their customer (The IKEA way, n.d). The company has been practicing a
different way of culture which helps them in increasing the company’s sustainability which is
now the company is so competitive because they value their co-workers. Besides, their human
resource idea is very impressive which is
“Giving down to earth, straightforward people the possibility to grow, both as individuals
and in their professional roles so that together we are strongly committed to creating a
better everyday life for ourselves and our customers.” (The IKEA way, n.d)
So, this is the IKEA human resource idea which is strongly support that human capital is a
valuable asset. To achieve competitive advantage, the role of human capital is greater than ever
before because it is considered to be the wealth success and major source of competitive
advantage
Besides from IKEA, even IBM also creates a business value on human capital. The
company comes out with few strategy plans to control human capital and overcome workforce
disruptions (‘Getting personal’, n.d.). According to them, it is still not enough even though the
company’s business continuity plan most likely to protect the company’s physical assets such as
data, networks, core business applications, and facilities. They believe that organizations that
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build resiliency into their human capital are more likely to protect their most valuable resources
and maintain operations in the event of a crisis. This is the main reason for IBM to spend time
and monetary expenses on developing solutions for human capital risks (‘Getting personal’,
n.d.). Examples for human capital risks are like the employees ability to attend work, the ability
to maintain business operations and to deliver critical internal services. For the business
continuity plan to work along with human capital, IBM provides a lot of facilities and flexible
accessibility’s company strategy for the employees (‘Getting personal’, n.d.). The company aim
is to be competitive to the competitors. IBM has grown to become a very success company due
to reason that they willing to invest and value human capital.
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Human Capital and Technology
Human capital is the root of an organization. A strategic human resources management is
mean to gain competitive advantage through their co-workers which is very unlikely to other
resources of competitive advantage such as technology and physical resources. Yet business are
under pressure to increase revenue, optimizing profitability by decreasing costs, optimize
resource utilization and tightening corporate governance as far as adapting their business and IT
systems to survive, innovate and grow, but executives of organizations still convinced that
people are still the important asset. Resources other than human capital are comparatively easier
to emulate and transfer. Monetary capital can be gain by merge with other big company in order
to gain more capital and become more competitive while technology can be achieve by
importing new machinery.
The influence of technology in human resource is a potential weapon for lowering
administrative costs, increasing productivity, speeding up response times and improving decision
making and customer service because it had automating the routine job and alleviating
administrative burden (Messinis & Ahmed, 2009). However, there are several factors that need
to be evaluated which include does technology fit the application to the firm’s employee base,
the ability to upgrade or customize the software, the compatibility of the system and others (Snell
& Bohlander, 2007). For example, the system may not appropriate to replace employee’s work
on factory floor where quality control or inspection process cannot be totally automated.
Furthermore, the information may not be secured where they are a lot of cyber crime happen and
the legislation is not strong enough to protect the company as the cyber crime law is not fully
develop yet as it is still new. So, compare to human capital, it will be more save as the company
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are protect by the law and also insurance. Systems which are outdated need to be upgrade when
necessary, and of course, costs will be involved. So, by implying technology can reduce cost is
not a convincible statement while they are still containing cost to upgrade and maintenance for
the software. When there is a sudden crush in the software, business cannot be run as usual and
to hire a professional to repair is expensive which is a strong impact for the company.
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Communication as an Essential Skill
A company could not run with machinery only because it will not handle things like man
do. For example, machinery cannot do the job such as cashiers, sales assistant or customer
service. The trend for business in this contemporary is base on relationship selling.
Communication is an essential skill which improves human relation. People now prefer
communication and this is the biggest weakness of machinery. Communication will not happen
in machine, feedbacks cannot be gained and so no room for improvement in addition, only with
communication can reduce the misunderstanding and also create more business opportunity.
While on the other hand, human can change accordingly, to adapt and fulfill the need for
customers. For example, sales assistant can assist customers to find the product which they want
to buy, to help them to check stock which is available while customer service can help to solve
customer’s queries such as return or exchange. With the help of human capital and the task job
perform by them; business will improve because the customers will come back as they are
satisfied with the service provided by the organization.
Since the market is undergoing globalization, communication can reduce the disparity
between countries and also promote international trade. Trading with foreign company is risky,
is either lack of communication which cause losing a business or invest wrongly. This cannot be
done by technology or any other resource because only human capital is able to perform the task
by communicating with the business partner. Imagine with a company lack of human resource,
who are going to talk with the business partner, who are going to present their company business
plan to others?
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The Role of Management Team
Organizations have realized that their success is depends on their ability to hire, develop
and keep quality employees. According to Robert Reich, to attract and keep talented people,
companies today are not just experimenting with how they approach the competitive marketplace
of goods and services; they are also experimenting with how they approach the competitive
marketplace of talent (Reich, 1998). The model for the organization of the future aims to create
tangible and intangible value that both sides can share and enjoy. And so, companies imply a
new operating system for the employer-employee relationship to replace the old set of practices.
The executive level and managerial level team leaders are human resource as well. Without their
leadership, the works task cannot carry out smoothly. The chief executive officer is defined as
the singular organizational position that is primarily responsible to carry out strategic plan and
policies as establishes by the boards of directors. If the company has a boards of directors to in-
charge then the chief executive have to report to the directors if the company which is
proprietorship or partnership that without board of directors then the chief executive officer sets
the direction and oversees the operations of an organization.
After CEO will be the managers. An organization has a manager in every department.
Different department have their own manager that perform different task but mainly all the
managers perform the four basic functions which is planning, staffing, organizing and
controlling. The staffing is the role of human resource department’s manager. Managers
communicate organizational vision to the employees and resolve the conflicts among the
employees. However, they have to report to the chief executive. Below managers is the
supervisor where their role is to supervise the workers, inspect the progress of the work. So, all
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of the position in the organization chart is fill in by human capital. They are the same as
important as the employees. Without them acting as the leader for the organization, the company
will be unorganized and happen to be everyone in the company performs the same job which will
not bring improvement for the company and take it to the next level.
Besides from the manager have to act as the leader for the organization, the strategic plan
to manage the human resource is important as well. Because, without a good management plan
to manage the human capital, the resource will not be as value as they seems as because the
employees cannot fully perform their capabilities or the value of the employee is underestimated.
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Managing Human Resource
At present, serious concern is emerging about the changing trend of the workforce,
actions needed to ensure effective succession planning. In this regard, change management is
crucial because there should be no underestimating the importance of consistent, committed and
persistent leadership in bringing the human capital issue to the forefront of management
concerns. It is clear that leaders have to create an integrated, strategic view of their human capital
and then sustain that attention to create real improvement in managing people. Firstly, employees
should not be viewed as costs to be cut but as assets to be appreciated. A strategic human capital
management recognizes that employees are a critical asset for success so organization should
design and implement human capital policies and practices into the organization’s mission and
goals.
Additionally, there is a need to come out with meaningful and useful measurements
system from operational perspective and planning and investment perspective to make sure the
human capital is not overestimate or underestimate. Organizations are concern about the return
of investing in human capital so is better that what is measured gets managed in order to capture
the picture of the training that the company invest on human resource is spending more or less
than the organization’s competitors. Furthermore, a useful measurement system can track the
performance of human resource to ensure that human capital management practices are effective.
By using an effective measurement system also enable executives to determine the kinds of skills
employees will need to achieve in the organization’s long-run strategies.
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For example, the General Accounting Office (GAO) of United States intends to
encourage and facilitate the adoption throughout government of a greater human capital focus, as
well as of other performance management principles and to lead as an example to others
company (Walker, 2000). The company is making their own human capital a top priority and
reviewing their human capital systems from top to bottom in order to align with the
organizational mission and vision. Besides, the company under going through few new strategies
such as inventorying institutional skills, reinvigorating the company’s recruiting and mentoring
programs, redesigning the training curriculum and also reengineering the employee appraisal and
reward system (Walker, 2000). All these activities reflect the company not just focuses on living
for today but on preparing for tomorrow by investing in their people because they believe with
these investments, they can enhance the value of their people and bringing their business and
management team to the next level.
With effective human resource management, it provides organizations with many
benefits such as allows for a more effective and efficient use of resources (Behara, 2005). Wise
use of resources is important as some organizations find themselves are able to do same amount
of work or more with fewer employees. Other than that, it helps to ensure that important
positions which are empty can be filled in because filling vacancies is critical for organizations
which facing an increasing number of resources that eligible for retirement. Furthermore, it also
provides realistic staffing projections for budget purposes because there will be a clear rationale
for linking expenditures for training and retraining, development, career counseling and
recruiting efforts (Behara, 2005). Managing human capital can helps organizations to prepare for
restructuring, reducing, or expanding its human capital. So, people with wise managing system
will be a valuable asset for organizations.
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Conclusion
As a result, people are the most important asset in organizations. Managing people
effectively will increase the value of human capital. Furthermore, a good leader will bring the
organization to the next level with wise use of human capital. Value added human capital will be
as competitive as other physical resources as well. Many organizations are changing their
business value by adding the culture of valuing human capital as they believe human capital will
increase competitive advantage to the organizations. Although technology has replaced some
part of human’s work but still manpower is the best resource that organization should value as
technology come from people, is people who invent and make use of it in business. So,
eventually, without manpower technology cannot run by itself. Yet, organizations have to value
human capital in order to improve their business.
In this competitive world, organizations keep on compete with each other to maximize its
company profit margin. Physical resources can get easily but not human capital because every
human is different with each other so the only way for company to stand out from the crowd is to
have human capital that hold of professional skills that can manage the business efficiently and
doing well in decision making.
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ReferencesAuw, E. (2009). Human Capital, Capabilities & Competitive Advantage. International Review of
Business Research Papers , 25-36.
Behara, G. K. (2005, November). Human Capital Management Planning. Retrieved September 21, 2010, from bptrends: www.bptrends.com
Bernardin, H., & Russell, J. (1998). Human Resource Management. A Experimental Approach. Singapore: McGraw-Hill.
Getting personal with business continuity: Five critical success factors in overcoming workforce disruptions. (n.d.). Retrieved September 19, 2010, from IBM: http://www.ibm.com/services/continuity
Memon, D. M., Mangi, R. A., & Rohra, D. C. (2009). Human Capital a Source of Competitive Advantage " Ideas for Strategic Leadership". Australian Journal of Basic and Applied Sciences , 4182-4189.
Messinis, G., & Ahmed, A. (2009, March). Human Capital, Innovation and Technology Diffusion. Retrieved September 17, 2010, from www.cfses.com/documents/wp43.pdf
Reich, R. (1998, November). The company of the future. Retrieved September 20, 2010, from Fast Company: http://www.fastcompany.com/online/19/comfuture.html
Ruzzier, M., Antoncic, B., Hisrich, R., & Konecnik, M. (2007). Human capital and SME internationalization: a structural equation modeling study. Canadian Journal of Administrative Sciences , vol. 24, pp. 15-29.
Snell, S., & Bohlander, G. (2007). Human Resource Management. Mason: Thomson.
The IKEA way. (n.d). Retrieved September 16, 2010, from IKEA: http://www.ikea.com.my/en/about-ikea/ikea-way/
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Walker, D. M. (2000, March 9). Managing Human Capital in the 21st Century. Retrieved September 21, 2010, from United States Government Accounting Office: http://www.gao.gov
Weatherly, L. A. (2003). Human Capital-The Elusive Asset. Retrieved September 17, 2010, from SHRM: www.shrm.org/research
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