6.4.1 Capital resources for organisations
Traditionally the delineation of capital resources in organisations has been between tangible and intangible resources. Tangible resources are made up of financial, physical human and organisational resources. Intangible resources are identified reputation, technological resources and innovation.
Tangible resources also revolve around items that could be ascribed an accounting value; (a) Raw materials, (b) Plant (machines, tools and auxiliary materials), and (c) human labour. Unlike the first two components, human labour was not a finite resource. It can be enhanced, developed and so improve its value.
Intangible assets such as knowledge in organisations have always been an essential part of successful organisations. The development and access to knowledge and capabilities is now being identified as a critical asset that can contribute towards an organisation’s success or failure. Savage stated ‘The basis of wealth (in the ‘knowledge age’) is shifting from that which is ‘possessed as a commodity’ to the value of human capability’ (1996:121). Attempts therefore have been made to develop systems to quantify and support how organisations can enhance the capital value of people through improved knowledge acquisition, transfer and generation.
The problem was HC reporting had not neatly fitted into the prevailing approaches to accounting. As we noted in our previous chapter on Knowledge Capital organisations have addressed this issue in a range of different ways. More immediately executives have sought to change how accountants accommodate human capital. (Parker et al., 1989:147) also believed that developments in this area had previously been truncated because ‘research in this subject has primarily developed since the 1960s based on the human resource school management’. While people were a factor of production and recognized as having ‘value’ they were not able to accommodate HC reporting or human asset reporting (Stittle, 2004:314).
It has been suggested that the breakthrough came when human resources were considered an organisational asset rather than a ‘cost’ (Stittles, 2004: 323). As such they could be meaningfully accounted for as a ‘human capital asset’ . An asset is:
. . . rights or other access to future economic benefits controlled by an entity as a result of past transactions or events (Accounting Standards Board, 1996, cited in Stittles, 2004:321)
Definitions of HC tend to focus on knowledge as a capital asset vested in the individual that can be deployed to maximise organisational and industry competitiveness (Davenport & Prusak, 1998; Davenport, 1999; Bontis, 2002:630-631; Gimeno, et. al, 1997:750-1). This core focus in many ways can be traced back to the 1991 model from Skandia AFS where Edvinsson tied human capital to structural and relational capital to form Intellectual Capital (Edvinsson & Malone, 1997).
This leads to our first HC principle we should note as part of our study in this chapter–
HC is vested in people . HC seems to hold more value when its specific relevance can be made tangible by tying its use to an organisation’s commercial outcome.
Schematically, Fitz-ens represented the link between HC and enterprise profitability and goals as follows.
Figure 3 Fitz-enz Data-to-value cycle (Fitz-ez, 2000:9)
Fitz-ens argues v alue is created in HC as part of the initial phase in the above value chain or cycle and, ultimately, its contribution to the attainment of the enterprise goals in Phase 3 (Fitz-ens, 2000:9 & 66-67). Over time the cycle time will accelerate and goal attainment improve.
The components of HC were argued by some authors to have broader reevance. Composiiton of an individual’s capabilities included talents, knowledge and experience that could be deployed by the organisation (von Krogh, Ichijo & Nonaka, 2000:92; Edvinsson & Malone, 1997:34). Edvinsson did express that HC must be placed into a dynamic environment and constantly be upgraded (Edvinsson & Malone, 1997:34).
This leads to second principle–
HC can be developed . In fact the value of HC for the individual and the company may increase the more it can be developed.
Some authors on HC stress not all HC is resident in the individual as a personal asset. HC may be resident in the systems and structure of the organisation that permit individual knowledge to be deployed (Nonaka & Takeuchi, 1995: 62–70). It may also be resident in relationships where knowledge flows between individuals in teams or in communities or networks that span boundaries outside the organisation (Wigg, 1997:71; Dixon, 2000:142-143).
This leads to our third principle to note–
HC may reside in relationships .
To encompass all the above three principles our approach to HC will advance that:
HC is not only about the availability of capabilities relevant to current performance, but also the potential for further developing capabilities and relationships the individual may hold that can be developed to the advantage of the organisation.
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