HR Should Be Framed As One ‘Big’ Intangible Asset…

Michael D. Moberly  January 28, 2011

Most HR (human resource), or ‘people’ departments, and their directors/managers, are very good at gathering data and information to identify and track the conventional (HR related) trends, e.g., absenteeism, recruitment, on-boarding, retention, training, terminations, attrition, layoffs, and outplacement, etc. 

But, framing the HR function, and its contributory value to a company, as an accumulation of intangible (intellectual, structural, relationship) assets, remains for some, more challenging and certainly unconventional. 

The inclination and/or ability of most HR units to re-frame the data and information they have conventionally tracked, i.e., the trends noted above, into more strategic and comparative contexts or a ‘road map’ of sorts to assess and achieve more effective use of a company’s (intellectual, relationship, and structural) intangible assets, largely remains, in my view, under the radar of most ‘mhr and mba oriented’ practitioners. 

And, that’s what this post is about!  Management teams and boards should be demanding that the information and data their HR units churn out, be more relevant by going well beyond the conventional, such as the number of job candidates in the pipeline, recruitment and training costs, and/or skill shortages, etc.  Today, HR would be well served to collect, analyze, and explain data and information that will provide management teams and boards with strategic insights about the impact, inter-connectedness, and use of the full range of intangible assets which fall within the purview of forward looking HR units, again, those intellectual, structural, and relationship capital (intangible) assets.

To be sure, there are many HR managers/directors that clearly ‘get it’ by understanding…

1. that un-used, under-used, or under-valued intellectual, structural, relationship capital will frequently result in irreversibly lost opportunities. 

2. that HR’s role and contributions to a company should be executed through a comprehensive intangible asset lens, and

3. the economic fact that today, 65+% of most company’s value, sources of revenue, competitive advantages, and ‘building blocks’ for growth are grounded in – evolve directly from intangible assets. 

There remain however, numerous HR units that continue to track the conventional data and information that, in my view, likely provides little, if any, strategic insight, clarity, or context that positively contributes to a company’s strategic planning in this increasingly knowledge-intangible asset based economy. 

Those conventional measuring points are, while they may be nice to know or have at-the-ready in some instances, they’re simply not the real (new) drivers of most company’s performance and business outcomes. In other words, some HR units simply haven’t expanded their (data) collection and reporting mission to conceptually or operationally include the new business realities in which intangible assets have become the dominant underliers to revenue, value, and growth.  HR’s role and contributions to a company now should be executed through an intangible asset lens.   

In other words, there is insufficient clarity being brought to strategic planning tables relative to HR’s potential contributory value in terms of how it could favorably affect business outcomes, transactions, and/or new initiatives in a business economy that is clearly and irreversibly tethered to knowlede-based intangible assets.  

It’s certainly no secret that management teams, boards, and prospective investors are primarily interested in outcomes, favorable and profitable outcomes that is.  Thus the kind of data and information they not only need, but want, are things like, (a.) a company’s organizational capacity, (b.) its readiness, and (c.) its ability to rapidly accommodate changes in global business environments.

While I’m confident few, if any HR unit heads would argue against the importance-relevance of demonstrating (reporting) the relationship between intellectual, relationship, and structural capital and business outcomes, more, in my view, need to execute on that position.  One challenge though, lies in how HR makes the connection between and understands the relevance of the data and information they’re selecting to measure (track, monitor) and ultimately provide to management teams and boards relative to its ‘connectedness’ to business performance and transaction outcomes. 

So, I’m advocating a new mantra for HR and it starts by, (1.) telling your management team and board precisely why (through objective analysis) your HR unit is tracking-monitoring the ‘things’ it is, and (2.) describing how and why those ‘things’ really matter.  In other words, are they relevant to achieving more positive and profitable business outcomes?

Respectfully, I believe a key challenge for some HR directors/managers will be ‘crossing the proverbial chasm’, i.e., making the (business focused, oriented) connection between what HR is and shoud be measuring and company (business) performance and outcomes.  More to the point, HR finding a new roadmap for contributing (adding) value to a company.

For discussion purposes, here is an example that would advance HR’s contributory value (role) and help make it (HR) more strategically relevant.  One way it can start is by providing information and data that includes – integrates a risk assessment feature that links intellectual, structural, and relationship capital assessments to specific challenges and/or risks a company faces relative to current – routine operations as well as new (business) initiatives or transactions being considered. 

Doing this can more effectively define, quantify, and clarify ‘business risks’ that fall within HR’s purview.  Risk, in this context, would mean including an HR focused perspective about a company’s ability and/or capacity, i.e., (a.) to be innovative, (b.) to compete effectively, (c.) its receptitivity to rapid change and flexibility,  (d.) the speed in which it can create and deliver new products/services, (e.) its ability to collectively solve problems, (f.) the level of enthusiasm (employees) invest in their work, and (g.) the sum of employee’s attributes, training, specialties, skills, and know how, etc.

It’s worthy to remember, each of the above are, in fact, intangible assets, so again, when steadily rising percentages (65+%) of most company’s value and sources of revenue evolve directly from (those and other) intangible assets, it’s time HR ‘put more skin in the game’!

(This post was inspired by and adapted from the work of Mike Prokopeak (Talent Management Perspectives) and his article titled, ‘What Financial Analysts Think of Human Capital’)

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