March 2010

Channel Chat

Invest in people

By Jim Pinto

Today's competitive global markets generate steadily increasing pressures to improve return on investment (ROI). Many companies are focused on management of capital assets and constantly being measured from a strictly financial viewpoint.

But there are no real measurements to monitor and maximize company's biggest assets-people. In most companies, this is the realm of "human resources," often reporting at a non-executive level to a financial manager and mostly related to payroll, vacations, insurance, legal regulations, and discipline. Even in large corporations, the human resources manager is often ranked lower than other executives.

mar41People-assets are too often frittered away as casualties of short-term financial thinking. The problem is not that companies do not value their people-it is that they do not know how to value them. It is not simply a matter of buying more tools and paying more attention; it is much more widespread and diffuse than that. Loyalty is a two-way process, a culture carefully developed and nurtured over a long time.

Successful organizations recognize intellectual capital and knowledge management are the core ingredients of success. Good businesses know while most other assets become obsolete and are replaceable, fully developing and utilizing the knowledge and experience of their people has paramount importance.

Human capital

In order to value people, companies must move beyond the concept of human resources and toward the notion of human capital. The term "resource" implies an available supply that can be drawn upon when needed. The term "capital," however, refers to something that produces value, and gains or loses value depending on how much is invested in it, and how it is maintained.

Successful companies treat people as assets. But many profit-orientated corporations treat people as costs and overhead expenses, much like any other expense that can be reduced or eliminated for short-term gain. That attitude becomes embedded as part of the corporate culture.

The last thing a company should do for short-term gain is asset dumping. Indeed, that is the time to get the assets working extra hard. Everyone knows without good people, good products cannot be developed, or good services delivered, or good customer relationships maintained. But when times get tough, people are often viewed as expendable. And sadly, the lower down the chain a person is, the more expendable they become.

Treating people as if they are costs demoralizes and disenfranchises them. A company's competitive advantage erodes whenever the investment in people is cut back-when layoffs occur. This takes a predictable toll on the company's health and inevitably the bottom line.

Many organizations would protest. After all, they go to great lengths to communicate how they value their people and make every effort to do the right thing by all their employees. But, the ultimate test is in how people are accounted for in the financials-assets or expenses. The peculiar word, "headcount," is a clear indication of typical "bean-counting" myopia, or how people are viewed in financially orientated companies. Salary expenses, benefits expenses, training expenses, etc., are all the "costs" that are typically most affected by "belt tightening" when last quarter's (or last year's) earnings turn out to be less than expected.

If intellectual capital was developed and cared for in the same way mechanical equipment was acquired, maintained, and upgraded, then companies would not consider cutting the training budget or withholding merit increases when there is a profit shortfall. The asset that thrives is the one that is fed.

Treating people as if they truly are assets not only impacts how they get accounted for, but how they are cared for and nurtured. If people are given the same care as expensive capital equipment, are provided the "maintenance and support" needed to maximize performance, then the company is more likely to generate good results.

While financial assets depreciate, people investments appreciate-they continue to grow and produce more and more. People are a company's primary assets; they represent the knowledge base, the proprietary edge.

For successful companies today, management goes beyond capital assets. Investment in people can pay off more than investments in other assets. It is a long-term strategy. It involves consistent, long-term investments in leadership and the development of committed, talented people.

In the push for improvement, an organization's primary assets and biggest investments are its people. Look around your own company to see whether people are being treated as expendable costs, or as valuable human capital. That will give you a measure of its success.


Jim Pinto is an industry analyst and founder of Action Instruments. You can e-mail him at or view his writings at Read the Table of Contents of his book, Pinto's Points, at