How do Humans, An Intangible Asset, Create Tangible Value? Inputs.

Intangible Asset Path to Recognition

Coca-Cola: the 3rd most valuable brand in the world (October, 2016.) A company brand is the most widely known intangible asset (also a category of Hidden Asset.) So, intangible assets can and have significantly impacted the value of a company. This recognition of value holds an organization accountable to decision-making that invests in, supports, and protects that value.

Human Capital is also an intangible asset. While humans, like brand logos, are something we can touch, the value they create goes beyond the products or services they provide, their productivity. This intangible or hidden asset is derived from what makes humans human and not machines – their intellectual contribution or intellectual capital. The critical thinking, problem solving, idea generation, and knowledge are the most important elements that build customer trust and generate value for the organization. They are cognitive. Human. This intellectual contribution is also significant to the creation of brand equity or a ‘brand you can trust.’

“Economist Theodore Schultz invented the term "human capital" in the 1960s to reflect the value of human capacities. Human capital is a measure of the economic value of an employee’s skill set. the quality of employees can be improved by investing in them; the education, experience and abilities of employees have economic value for employers and for the economy as a whole.” – Investopedia  

Intentional Focus on Inputs

To demonstrate we value human capital, we can invest in human capital. We can invest in the inputs that demonstrate they are valued and those that in turn help them to create value. To understand inputs, we first need to acknowledge the role of outputs.

With respect to organizational decision-making (aka as ‘strategy’) we are heavily focused on the outputs of business. Productivity in the form of quantity, timing and quality. These are ‘deliverers’ of value to the bottom line. They are visibly linked, or tangible, at the end of an important continuum called a product or service reaching the hands of a customer in exchange for money. We track quarterly earnings, dividend promises, and are tightly ‘wired’ by financial means, to these directly linked tangible financials.

It is more difficult to move backwards, or up the continuum of value creation to define what went into the productivity. But this is exactly what we must do. To define what or how the quality was created. To understand and acknowledge what went into delivering this tangible value. Then to demonstrate it in how we make decisions and how we report value.

Inputs are “resources such as people, raw materials, energy, information, or finance that are put into a system (such as an economy, manufacturing plant, computer system) to obtain a desired output.” – BusinessDictionary.com

To invest in the people doing the work – the human capital, is to focus on one critical input of doing business. To focus on the inputs that support this known resource input to create value and be valued.

Investment in Human Capital. One Input Focus.

Schultz defined investment in human capital as education, training and enhanced benefits.
And human resource departments generally serve these functions. Innovative organizations have even recognized these investments internally in their accounting. To make the intangible more tangible.

Our research at the Human Value Institute would indicate that this is the right path and it is insufficient until it goes beyond these general investment areas. We have labeled these ‘traditional’ to challenge that we consider a transitional focus on valuing the inputs to   human capital. We start with the three Schultz noted as those largely guide organizations today and we add Environment and Community:

Education

Training

Benefits

Environment

Community

The column on the right is a list of new inputs. There are many more emergent in how we interact with each other and realize human capital value. Now you have a list to work from in your organization.

Strategic Decision-making

Decision-making about humans that is more strategic creates important, sustained organizational shifts. Those that develop new organizational practices that recognize outputs as outcomes and inputs as the source of those outcomes. These new practices include those that define a true investment in the attributes that deliver the value that only humans can: customer trust, solutions, innovation and long-term viability from leadership. We can measure the extent to which an organization’s strategy, structure and culture are positioned to value human capital and the inputs associated with human created value.

Ultimately, we envision an organization’s value inclusive of human capital as it has achieved with brand equity. Based on knowledge, innovation potential, and customer created trust, which would include the way in which human capital value creates brand value. We would be able to quantify the role humans at Coca-Cola play in creating one of the most valuable brands in the world.

In our next piece we will summarize how you might realize Human Capital as an asset against the measurement areas noted in the first blog in this three-part series.


Thank you to Kori Joneson and Porter Teegarden for their ideas provided for this article.

Steph Sharma will be speaking at the Sustainable Brands New Metrics ’17 conference on November 13th-15th. Learn more about her Boot Camp session here.

Steph Sharma
Managing Director
The Human Value Institute
November 6, 2017