Employees are NOT your firm’s greatest asset

Even so, staff cannot be counted with furniture or be at the same level as other operating expenses

Contrary to popular belief, people are not an organisation’s most valuable asset. If a firm’s greatest asset was its employees, why is it that when an employer reviews his or her business performance in order to reduce costs during difficult times, the first course of action is usually retrenchment?

You can open any financial report from any part of the world, people or employees are categorised as expenses in the income statement or liabilities in the balance sheet where the personnel cost is due and not yet paid, and not as assets. Ask any CFO or any professional accountant regardless of whether they follow Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

While we cannot deny that people play a vital role in business, be it a labour intensive business or a capital-based one since machines are operated by people, to stress the importance of people the business makes reference to employees as human resource. The reason is that people are resourceful and provide the organisation with ‘human capital.’ According to management guru Peter Drucker of Forbes, it is this concept of ‘human capital’ that defines an organisation’s greatest asset.

The kind of human capital an organisation needs depends on a balanced scale of the knowledge, abilities, personalities and experiences of the people. This combination is to be determined at the recruitment stage, a point at which the already-defined characteristics influence a selection that matches the firm’s objectives.

Employees play an important role in driving the strategy of business and ultimately profit. As a result, there is need to engage them for purposes of understanding the overall direction of the business and the intended methods of how to reach the set goals. When employees understand the fundamentals of the business, they not only understand what is to be achieved but also feel a sense of belonging.

It is imperative that organisations change the mindset of “we have hired you, we pay you, thus you have to work.” Rather employees needs should be heard, understood and responded to. Some people may require time flexibility at work such that they work to meet the required daily set goals and not necessarily adhere to the traditional eight-hour set time. Creative professionals need inspiration and can prefer to work whilst listening to music or dressed less formally. In this way, talent can be harnessed and productivity maximised since employees are given the freedom and space that is designed to get the best out of their human capital.

While compensation structures are set and benchmarked with that of the industry, it is worth noting that talent needs to be fairly rewarded. Compensation structures need to meet the standard of living quota for maximised productivity. Entrepreneurs are to view the cost cutting practice which often entails reducing personnel cost or retrenchment as an ineffective short-term solution. A long-term solution can be to downsize other operating expenses and re-baseline projects which can help position human capital as an asset that is not on the same pedestal with operating expenses.

Training and development is a key area in enhancing the knowledge and skills of staff. Business owners should determine how to incorporate this in their processes. Not as a paper filling exercise as is often done but to develop capable individuals in preparing them for more senior positions and being future leaders.

People in a business not only coordinate the resources but do the work. Staff cannot be counted with furniture or be at the same level as other operating expenses. Business owners should consider the criticality of a motivated team involved in decision making and whose needs are addressed. Traditional Japanese firms have what they call lifetime employment, a system that places the welfare of employees over profits. The system provides employees with job security, such that in their entire lifetime they only work for one company. The aim likewise should be to retain staff and not think that people are replaceable as each person is different.