Humans, the trickiest of all assets
People are an organisation’s most important asset – but managing this asset isn’t as straightforward as it used to be. DANIELLE DU TOIT looks at what makes human asset management one of the most important areas a business can focus on, and how to get it right.
Asset management is the important task of managing a business’s assets or resources. Assets can be defined as resources owned by a company or business as a result of past events and from which future economic benefits are expected to flow.
Financial, physical and intangible assets are a company’s most important resources, and misappropriation will lead to losses. Financial assets refer to the company’s cash and marketable securities as well as capital investments. Physical assets include tangible assets such as property, motor vehicles and computer systems.
Intangible assets – assets that aren’t physical in nature, such as the skills, attitude, knowledge and experience of humans; or human capital – can only be influenced and never fully controlled.
Human asset management has become a source of great company growth; managers are seeing opportunities to grow and expand their human capital, and are looking to invest heavily in this field. According to a PricewaterhouseCoopers survey called Broadening Horizons, which focused on South African CEOs, talent-related expenses increased by 69 percent in the year 2011.
Human capital can be defined as a measure of the economic value of an employee’s skill set. It is the stock of competencies, knowledge and personality attributes embodied in the ability to perform labour. This includes one’s knowledge, education, business know-how, certifications, intellectual property, patents, relationships and anything that might make someone an asset to a company.
Liability or asset?
Human capital can be a company’s best asset or greatest liability – as recently seen with the Impala Platinum Rustenburg strikes. Over 17 000 workers were unhappy with their salaries and decided to strike.
Due to the nature of their jobs, the strike was declared illegal. Impala fired 17 200 employed miners after six weeks of striking and had to start filling those places with experienced people.
Impala’s production was severely hindered by the strike. April 2012 deliveries had to be halved. It is estimated that about 80 000 ounces of platinum production was lost during the weeks of the strike. The Impala share price dropped nine percent on the Johannesburg Stock Exchange.
The international version of the local Broadening Horizons survey, called Growth Reimagined, focused on international CEOs and their opinions in the areas of company growth. It revealed that many companies were failing to understand the importance of talent management in the workplace – and were therefore unable to create a sustainable environment for these people to work in.
Many of the 1 296 CEOs interviewed said they needed to place more importance on human capital, and should attack it with as much vigour as other areas of the business. As many as 66 percent said there was a lack of talent and that this was constraining business growth.
“Efficiency wage theory”
This shortage of competent people, where demand has far outstripped supply, has led to many companies poaching from others and applying the “efficiency wage theory”: paying their people more than the market norm in the hope that this will motivate them to work harder and remain loyal.
There is a mentality that monetary compensation will lead to mutual gift-giving – intellectual and physical – but money isn’t the only form of compensation employees are looking for. Listed companies are giving employees stock options, and many people won’t even consider a job unless it comes with medical aid and a pension plan.
CEOs are looking for ways to improve retention, and non-financial rewards need to be reviewed. There is a general consensus that benefits involving training and mentoring programmes should be more common. These sorts of initiatives – rather than just regular pay cheques – were also more highly pursued by younger people. This led back to the 69 percent increase in the talent management spending bracket.
An international trend in human capital management is the hiring of “millennials” – young, highly educated and highly motivated youths generally born in the 1980s. They are characterised by having a familiarity with media, technology and current communications, with a casual view on politics and religion. Millennials are more incentivised by non-financial rewards and opportunities to grow within companies.
Many of South Africa’s private and public companies were included in the local survey, and 84 percent felt that it should be government priority to create and foster an up-skilled workforce. More than half of the CEOs interviewed said they struggled to find competent staff.
Clearly, once a human asset has been found, retention is everything. Pioneer Foods, one of the largest beverage and food companies in South Africa, was recently voted as the 10th best large company to work for in the Deloitte Best Company Survey – largely because it realised the need to retain its 12 000 employees.
The company believes the good results it has achieved can largely be attributed to the drive, passion, commitment and dedication of its people.
“The fundamental belief of the Group is that the main asset of Pioneer Foods is the competent and committed people who drive business value,” says managing director André Hanekom.
Pioneer Foods has spent approximately R24 million on education and learning and development programmes with the understanding that in-house promotion is always more efficient than external hiring.
The real value of human capital
So how do we begin to measure human capital? If human capital is an application of skills, then how can one put an amount on it, an intangible thing? And if it has an amount, can it depreciate?
The answer is yes – it depreciates when we don’t nurture and value it. If a company doesn’t create an environment in which people can align with the mission and vision of the business, and develop, then the capital depreciates.
There is a cycle that occurs with positive motivation and incentives – people begin to implement business designs with more productivity and efficiency. This leads to increased market share and thus economic success, which breeds motivation. And so the cycle begins again.
Business owners and managers must remember that success is about people and not policies.