Along with strategic human resources management (SHRM), strategic human capital management (SHCM) is a critical business concern, particularly. in today’s rapidly evolving and disruptive technical environment. Enterprisal investment in human capital is believed to drive market capitalization, and thus, is considered to be an utmost asset for an abundance of competing agencies. 

Economists contend human resource departments traditionally have not been particularly cognizant of the full array of mechanisms needed to maximize human capital value of their organizations. In such, human resource architects should acquire a thorough understanding and appreciation of finance-based partnerships and how these partnerships can enable internal stakeholders (ie., people) to be productive and perform at their highest potential. Also to recognize the difference between critical and noncritical agents – think employee risk, reputation, loyalty, retention, ethics, etc., within the organizational framework.

All enterprises possess various forms of assets: inventory, equipment, cash on hand, accounts receivable, prepaid expenses, property, manpower, etc. Organizational assets generally fall into two main categories: Tangible and intangible. Tangible assets pertain to the physical, material and financial resources of a business. Intangible assets pertain to sources without material substance, but with a definite business value. Intangible assets are those assets that are not material. These assets can only be realized conceptually such as a brand, copyrighted or patented ideas – or the intellectual property that accompany products or services that have been released to consumers.

The tangible assets that organizations hold; that is, their ‘stuff’: equipment, hardware, software, property, vehicles, etc., allow these firms to generate economic revenue through the production or distribution of goods and services or by renting out their assets to others. As assets are most often purchased they can be valued at cost. On the other hand, many physcial assets depreciate and thus must be managed by internal accounting to recoup or balance their associated losses.

Tangible assets are not products or services available to the customer. Instead, these assets act as conduits for generating returns for the business. Enterprises might also use tangible assets to acquire loans or increase cash flow, with an inhere goal to maximize the company’s overall market va

Intangible assets manifest in an abstract form. For example, a patent for a nifty walkie talkie-two way-radio-telephone-watch thing-a-ma-jig and the manufacturer’s brand name are intangible assets that can potentially garner lucrative revenues and profits over a period of time. The market value of other intangible assets, such as copyrights and trademarks are figured according to what their expected economic benefit or net income return is expected to generate. The costs of the assets are amortized (liquidated or written off) during the asset’s useful or legal lifecyle.

Intangible assets, such as patents, trademarks or copyrights are attached to a material good or service – after they are produced, as opposed to during. Intangible assets are important because they help ‘brand’ the enterprise’s consumer offerings.

The difference between what an enterprise pays for a company and to be in business against the accumalative sum of its tangible (copyright, patents, customer loyalty, brand name) assets defines the value of the company’s intangible assets.

The cumulative sum of a company’s combined tangible and intangible assets are represented on the company’s balance sheet. Balance sheets list an enterprise’s total assets and displays how the assets are financed – via either debt or equity. The balance sheet is based on the fundamental equation of assets equal liability plus equity. This accounting is also referred to as a statement of net worth or a statement of financial position.

All this is clearly visible on this document. What is not visible on a balance sheet, however, is the monetary value of manpower qualities. Here, it gets tricky. It is virtually impossible to determine values for intangible assets such as education, leadership, work background, skills and experience, motivation, commitment, innovation and the like. Yet each of these qualities can economically benefit (and hopefully not deficit) a competing enterprise in the marketplace.

The value of these inherent and gained intangible assets (within people) is called human capital. Strategic firms are keen to assess the value of human capital to improve the performance, productivity, cultural health and soundness of their organizations as they journey toward groundbreaking bottom lines.

Economists stress, to maximize earnings, companies should have empirically solid strategic systems in place. These systems should be well equipped to valuate and acess capital projects, standardize cost accounting, access spending that creates assets versus spending that creates expenses or debt. In addition their processes should feature internal controls and thorough reports of human capital investment outcomes. With a robust plan of attack, enterprises can aim for stellar performance and forecasted goals.

References

Billie Nordmeyer MBA, M. A. (2016, September 29). Tangible vs. Intangible Resources. Your Business. Retrieved January 5, 2023, from https://yourbusiness.azcentral.com/tangible-vs-intangible-resources-20874.html

Deming, D. J. (2022). Four facts about human capital. Journal of Economic Perspectives, 36(3), 75-102.

Goldin, C. (2016). Human Capital.

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