In today’s knowledge economy, around 80% of an organisation’s value lies in its intangible assets; its human, intellectual and social capital.
The value of an organisation’s intangible assets has increased prominently in recent years. At the same time a growing body of evidence is highlighting the relationship between shared purpose leadership and people management, and between more engaged, resilient employees and improved business performance.
High performing organisations create business value by analysing external market data to better understand the environment in which they are operating, measuring the human capital of the workforce, and are using people data to inform decisions on their human capital management strategies’ impact of people on business performance and how these contribute to their organisation’s success.
As Ernst & Young contests, a comprehensive picture of value creation is communicated through alignment between many factors. Including business practices, tangible and intangible assets, material, financial and non-financial capital risks, the company’s strategy, its engagement with multiple stakeholders, its sustainability agenda, governance practices and future goals over the short, medium and long term.
There is a strong case for consistent human capital management reporting and communicating as a means of providing more insight into how the company manages and develops its people to improve resilience and drive value.
While there is an increasing emphasis on the value of people, there is a relative lack of understanding on how businesses create, capture, manage, measure and report value.
Organisations need to reach a consensus on more consistent people measures and frameworks that provide stakeholders with insights into how an organisation’s people management strategy contributes to the sustainable growth.
Communicating value creation also involves describing the trade-offs between the various interdependencies on which the value creation process depends, such as between equity and advantage and quality over quantity.
Human capital measurement and reporting
Human capital measurement and reporting can provide stakeholders with insight into the opportunities and risks an organisation presents.
Assessing, measuring and managing risk and opportunity risks to current and future operations, and in particular human capital risks is essential for fine-tuning the company’s business model.
Human capital analytics can enable organisations to better identify that value and leverage human potential by better understanding how and where the people function create value.
Unlocking the Hidden Wealth of Organisations: The Development and Communication of Intangible Asset
This Cass Business School research explores key findings from case studies:
- Context: The interpretation of intellectual capital reports requires an understanding of the contexts in which the reporting organisation operates.
- Value creation: Explicitly managing brand value focuses the attention of stakeholders on the ways in which the organisation creates value.
- Risk: The reporting of Corporate Social Responsibility (CSR) or intellectual capital (IC) exposes to public gaze both the strengths and weaknesses of the organisation.
- Innovation: CSR and IC reporting is a company-wide way of thinking that promotes innovation and creativity. Systems must be in place to manage, reward and capitalise on such behaviours.
- Communication: The management of intangibles creates a potent channel for communicating with stakeholders and for motivating staff.
- Objectives: To secure the active participation of staff, the organisation’s mission should be expressed in terms of explicit knowledge goals.
- Performance. The effective management of intangibles builds on past performance by causing employees to think about improvements and innovations that will address and deliver sound performance in the future.
Learn more: Intangible Assets: Concepts and – Rutgers Accounting Web