Why people are the most crucial assets in business


Human capital plays a more significant role in business growth today than in the past. Fotosearch

Some years ago when I was young, my parents, like many other rural folks valued land more than anything else in life. In fact, some people failed to educate their children because they did not have school fees despite having big parcels of land which they could sell and get money.

In their wisdom of the day land was a better asset to bequeath a son than anything else. They could not imagine a person succeeding in life without this treasured asset. Times have changed, not only in the village but globally. Knowledge is the most treasured asset.

Today, more than half of gross domestic product (GDP) of best world economies are knowledge-based. It is based on intellectual assets and intangible people skills. Intellectual and information processes create more wealth today than tangible assets.

Companies that are leveraging on knowledge and intangible assets are doing better than those that count on tangible assets.

This does not refer to service companies or IT sector only. Even in manufacturing sector, it is intellectual activities such as process design, product design, innovation, marketing and logistics that determine who earns more.

In a knowledge-powered market, wealth is created by effective management of information systems and having skilled employees who keep innovating to give customers what they need, but not by the efficient control of physical and financial assets as it was in the past.

This means that the value of a company or business, which anyone is buying or investing in, depends on its intellectual capital which comprises skills, knowledge, ideas and talent of its staff, not physical and financial assets.

Put in other words, when you invest in companies like Safaricom, KCB, Equity or National Bank, consider such intangible factors as the value perception of their products, knowledge and attributes possessed by their employees and manifested in customer service, service delivery models, creativity, and reputation of senior managers among others.

Their physical tangible assets such as buildings, hard cash or land do not really matter much. Similarly, the value of a school does not lie it’s its buildings, land and other assets. It lies in its teachers’ ability to make students excel.

Therefore, in knowledge based economy the best ways an individual entrepreneurs of a firm can add value is to acquire relevant knowledge and skills in the industry, attract and leverage human capital through mechanisms that create products and services of high value in the market.

Human capital may be defined as a person’s knowledge, skills, experiences and capabilities. It is a common practice for blue chip companies to hunt senior employees from other companies, civil service as well as academia.

Such highly connected employee also bring another form of capital called social capital, which basically is the network of relationships that individuals have in the society.

This gives them leverage when dealing with high profile customers, suppliers as well as other players in the market, enabling them to negotiate the best deals for their firms.

Mr Kiunga is the author of The Art of Entrepreneurship: Strategies to Succeed in a Competitive Market. Email: [email protected]