Assets can be defined as “tangible and intangible resources of a firm which can be drawn upon by a the firm when required to achieve its objective(s)” (Ray and Ramakrishnan, 2006). Tangible assets include financial and physical assets such as machineries and manufacturing plants while examples of intangible assets are branding, company reputation, technological know-how and human resource (Noe et al., 2012). Human resource is the most important asset of an organisation.
Using studies which showed that effective use of human resources contributed to better corporate performance and/or productivity, this essay attempts to show that this intangible asset is a key driver in the survival and competitiveness of an organisation.
For organisations to be successful, they need to survive and obtain an advantage over their competitors. There are many ways to attain a competitive advantage, including patented product and process technologies, protection and regulation of domestic markets and access to financial resources (Pfeffer, 1994).
However, the aforementioned contributors of success are deemed to be less relevant in today’s societies because technologies can be imitated, markets are increasingly globalised and global capital markets ever more opened for worldwide movement of financial resources (Pfeffer, 1994). Instead, in today’s organisations, it is widely accepted that employees are key strategic resources for companies because their knowledge, expertise, ideas and services drive innovations, steer product developments and build relationships with clients.
This in turn increase companies performances through multiple means such as driving profits, increasing productivity and building large customer bases. For example, Sears, a multinational US company, attributed its transformational success through its believe in the 3″Cs” of “Compelling Place to Work”, “Compelling Place to Shop” and followed by “Compelling Place to Invest” (Yeung and Berman, 1997).
The senior management at Sears believed that by optimising its human resources (through shaping of employee’s attitudes, increasing motivation and skills), it will become an attractive venue for customers to shop with high level of satisfaction.
Consequently, it will be a good investment option due to strong financial results (through increase in customer expenditure) and productivity (through optimisation of human resources) (Yeung and Berman, 1997). Strategically valuable resources may give companies a competitive edge. Bartlett and Ghoshal (2002) argued that there is an evolving corporate strategy from one that competes for markets and products, to one that compete for resources and competencies, to the current strategy of competing for talents and dreams.
Resources are deemed to be valuable when they cannot be easily imitated, their value depreciate slowly, they cannot be easily substituted and they are relatively better than competitors with similar resources (Collis and Montgomery, 2008). While these resources may be tangible or acquired capabilities, it is the view of this author that it is people that best fit the described characteristics of valuable resources. Creativity and expertise of an employee may not be easily duplicated. It takes time to groom talents, and their experiences and competencies cannot be easily replaced. Thus, to gain a competitive edge, companies need to invest in the hearts and minds of the key success factor – human resource.
Many studies have shown that effective HRM (such as investments in training and strategic HRM) had led to increase in company performances, through proxy indicators such as increased profits return, labour productivity, and service quality. In the employee-customer-profit chain model devised by senior management at Sears, they predicted that a 5 unit increase in employee attitude will drive 1.3 unit increase in customer impression that will in turn increase revenue growth by 0.5% (Rucci et al, 1998). When put into context, in 1998, a 4% rise in employee and customer satisfaction translated to an increase in more than $200 million of revenues over a 12-month period (Rucci et al, 1998). Other than the example on Sears, Choudhury (2010) showed that there is a positive relationship between investment in human capital and company performance in India’s information technology sector. Similar positive correlation can also be observed from studies analysing quality of human capital and sales revenue per employee in Romanian software companies (Camelia, 2012) and perceived effectiveness of rewards on corporate performance in Nigerian Banks (Ojo, 2011).
As an important asset of the organisation, human resources need to be managed properly. HRM encompasses a multitude of responsibilities including recruitment, training and development, benefits, health and services (Noe et al., 2012). There are many case studies that have demonstrated that a highly-skilled workforce and appropriate training of employees play a key role in increased company performances. A survey done on 62 retail stores showed that percentage of personnel trained in their designed training programme correlated with the stores’ performances (Russell et al., 1985).
Another study done in 15 manufacturing sectors of seven European Union countries suggested that intermediate- and highly-skilled workers increases labour productivity, which is a proxy for companies performances (Corvers, 1997). It is envisioned that with training, employees will be equipped with job-related skill sets and competencies. A company with cutting edge technology needs employees with the know-how to operate the machineries. A retail shop may distinguishes itself from another shop that sells similar merchandise through quality services that helps build a brand name and large clientele. Employees may learn how to serve customers through training programmes. A study of 2003-2006 Training Top 100 survey report published by the Training Magazine showed that there is a positive correlation between training expenditure and operating performances (Liao et al., 2011). This supports the general perception that training is an important HRM tool for companies to survive in the increasingly competitive market.
Human resource is a key contributor to the success of organisations today. Examples used in this essay reinforced the argument that human resource is likely to the most important corporate asset as it is a unique resource that drives companies performance. In order to effectively tap on this valuable resource, companies need to train employees so that their potential can be harnessed.