Human Potential is the Primary Source of Competitive Advantage in Today’s Organizations

How Well Aligned Is Your Organization’s Leadership Strategy With This Reality?

–An Opinion by Rosanna M. Nadeau

Image Source: Ocean Tomo

What is The “Components of S&P Market Value” Chart And Why is it Important?

Ocean Tomo is well known for producing a practical and useful strategic tool known as the S&P 500 Market Value chart. This chart is updated annually, showing asset valuation across the S&P 500.

Valuation of business assets has long been recognized as a highly objective, probably the least subjective of the methods of business valuation. Ocean Tomo, established in 2003, provides this market value analysis among their array of expert services related to asset management.

We suggest that Ocean Tomo’s annual analysis can serve very well as a powerful tool for business leaders who look to data for insights that can guide their strategies, decisions and practices related to building and leveraging the value of intangible assets to drive business success.

This article highlights the relevance and importance of this data-based information along with the insights and leverage it offers business leaders in driving success, short and long term, for their organizations.

Here you’ll find our ideas and opinions. We are not experts in asset valuation, business valuation, or investing. This article is written from the perspective of a professional with a broad background in Human Resources and Consulting, coupled with a passion for business and people. It is our objective to provide you with useful information that you’ll find beneficial.

A Look At Assets: What are tangible and intangible assets?

Tangible Assets are physical and/or financial. Examples include Land, Buildings, Equipment, Vehicles, Cash, Supplies, Accounts Receivable, Stocks, and Bonds. These assets are concrete examples of worth, demonstrable through documentation. These can be used as collateral for financing that can be used to continue as well as expand and invest in operations.

Intangible Assets are not physical or financial. Examples include Goodwill, Brand Recognition, Customer Loyalty, Market Share, Human Capital, Intellectual Capital and Intellectual Property.

Implications of the “Components of S&P Market Value” Chart

Since 1975, the value of intangible and tangible assets has been turned upside down, as intangible assets soared from 17% to 90% of the total assets in the S&P 500 in the USA while tangible assets decreased to 10%. Intangible assets have clearly become most important for organization success in today’s business environment.

The Extraordinary Evolution of Asset Value

There are some experts who have stated that asset values have changed because of the advent of the internet. But, it’s not that simple.

In CEO Daily, a Fortune Magazine newsletter, Alan Murray shares a much bigger-picture perspective. He writes: “The three great business trends of our time–1) technology-driven transformation, 2) reinvention of office work, and 3) increased attention to social and environmental goals–are all closely related…The source of business value in the 20th century was access to capital, access to natural resources, investment in infrastructure –plants, stores, trains…It was a physical world and controlling financial and physical capital gave you the edge. Capital is plentiful, physical resources have lost value, and intellectual property rules. The way to win the game today is to attract the best and brightest talent.”

Certain types of assets are more valuable than others. Intangibles such as knowledge, business methodologies, computerized data, brand recognition and customer/supplier relationships can make a more significant contribution to business success than buildings, equipment, and machinery. In fact, some intangible assets enable competitive differentiation from other companies, and can help increase a business’s value by supporting a powerful reputation, name recognition and respect among customers.

Some intangible assets have the potential to build and leverage knowledge and skills to contribute to the business in many ways, such as promoting sales and fighting the competition. These intangible assets, that can drive such value, are typically known in business as Human Capital; they are the best and the brightest that Alan Murray refers to. They can influence the value of all other assets.

But, a critical point to keep in mind is this wise observation from PeerComps’ article dated July 8, 2019, “Intangible Assets: What They Are and How They Can Add Value to Your Business “… the development of these intangible assets is essential to the long-term life of a business. Of the 5.4 million firms with employees operating today, seven out of 10 new firms only survive about two years, and a big part of that is a lack of intangible assets.” (source: PeerComps – see Recommended Reading below)

Human Capital

And, so it is the intangible asset, Human Capital, now holding a uniquely critical priority in businesses today. When it comes to executing the business strategy, people do the work. When it comes to intellectual capital, people create it. When it comes to building brand recognition, customer loyalty, and supplier relationships, it is people who do it. In 2021, the knowledge and skills of an organization’s workforce exert powerful influence on both short-and-long-term business success.

We believe the data provided in the Ocean Tomo asset value chart above is useful in helping leaders to re-shape and re-align their leadership strategy and practices with current business needs. It informs leaders about the continually changing value of their organization’s intangible assets.

We’re convinced that the data make it clear: human potential is the primary source of competitive advantage in today’s organizations.

Therefore, it is up to business leaders to acquire, develop, inspire and actualize the potential in their people–and, to retain talent.

We know in our minds that people should be our greatest asset. Many organizations say they are. Does your organization treat people as its greatest asset? Organizations who believe that people are their greatest asset take actions to invest in and leverage this asset. There are many ways they can do this, bringing value to their people and to the business, both short-and-long-term. We suggest the following.

Five Priorities for Investing in and Leveraging Human Capital

  1. Effective recruitment and selection of talent
  2. Targeted training to equip employees with knowledge and skills the company needs today and will need tomorrow
  3. Knowledge sharing practices, methodologies and systems
  4. Leveraging the Human Resources function for strategic benefit
  5. Building and sustaining a company culture and work environment where employees can continue to learn, make meaningful contributions (meaningful to them), and achieve their job and career goals

1-Recruitment and Selection Leaders recognize that an organization’s growth and sustainability depend on its ability to attract, select, and utilize the right people. Now, as businesses are driving the economic re-opening, talent acquisition is a high area of focus. Many organizations are struggling to fill open positions, to build capacity and overcome skill gaps.

Human Capital is a critical resource. Before the pandemic, many jobs were already hard to fill, and candidates have become increasingly scarce. The pandemic has affected the way candidates view work. Many want flexibility on work location, work schedules and hours; many want higher pay than they’ve accepted in the past; benefits matter more to all age groups. And, it’s a candidate’s job market at this moment in time.

Just as many leaders have been agile in adapting to the pandemic-driven economic changes that threatened business survival, some leaders are now recognizing the need to respond to the changes in expectations that are occurring in the workforce. Wages have already begun to increase as hiring strategies are being adjusted to improve recruiting results (see articles listed under Recommended Reading). It’s possible that this in itself may result in greater availability of job candidates, but employers may need to do more to find success in recruiting and selection.

We suggest it’s a good time for hiring teams to think about some serious questions. How well prepared are businesses for the work of recruiting and selection? Are they ready to move fast and effectively through the hiring process? A skill that has been unused for some time is Interviewing. Most organizations probably believe their hiring teams already possess interviewing knowledge and skills. But, think about it for a moment. Are all of your interviewers trained and proficient? Do interviews consistently obtain enough of the right job-related information to enable selection of excellent hires? Are enough good questions being asked? Are hiring managers comfortable making hiring decisions based on information produced in interviews? How often are hiring decisions based on reference checks or gut instinct versus thorough information generated in the interview process? And, are interview processes compliant with Federal and State legislation?

We recommend proactive action to strengthen and update interviewing skills among members of interview teams — to refresh and fine-tune skills needed to enable both the interview team and the candidate to determine interest and fit. The time investment and other costs of recruiting and selection, as well as those caused by turnover, are high. Well trained, skilled hiring teams are equipped to make effective hiring decisions using reference checks primarily to verify work history.

It is imperative that hiring teams select people who are qualified and who are excited about the work to be done in the job. When a candidate is excited about the job content, he/she will have a strong desire to do that work, will find joy in doing it and is likely to fully engage. Engagement drives performance. Job performance and retention are measurement criteria of the effectiveness of a hiring process.

2-Targeted Training  Experience has shown that investing in providing training and development– beginning upon hire and continuing throughout employment– is beneficial to both employees and businesses. Effective training helps build employee engagement, a recognized catalyst for higher performance. Additional benefits may also include creating forums for employees to build work relationships essential for collaboration and teamwork and enabling people to broaden their perspectives on the impact they make, as well as ensuring people have knowledge and skills to meet business needs.

Developing employees in business-strategic areas enables them to stay focused on what’s most important to the business short-and-long-term, ensuring they prioritize work that helps the organization to deliver the company’s value proposition, its unique difference, to the customer.

Often, companies provide training programs based on industry best practices, past experience and what’s currently popular. However, sustainable strategic performance requires approaches that are tailored to meet the needs of the business and the trainees, to support and enable achievement of the business strategy. Training and development activities and programs that are aligned with the business strategy help ensure the business will have the capabilities needed in the future.

When leaders plan training ahead to have key skills available when needed and prevent important skill gaps, resources can be made available cost-effectively by establishing a comprehensive training strategy; this might include a variety of development options such as group training, college courses, outside seminars, webinars, mentoring, and special assignments to provide knowledge and skills needed, both now and in the future, as part of the business strategy.

3-Knowledge Sharing  Through sharing, knowledge that exists only in the minds of a few becomes more widely held and applied. Current technology makes sharing knowledge much easier to do today than in the past, using company social networks and/or shared networks on a company’s intranet. Investing in sharing knowledge can provide significant benefit to employees. For example, sharing knowledge makes it possible for people to capitalize on one another’s learnings; learning from one another and contributing to productivity can occur as part of the process of doing work; employees often find satisfaction in sharing knowledge with others; and, respect among peers grows as individuals and groups develop reputations as knowledge providers.

Knowledge sharing methodologies can be innovated to fit a company’s environment and culture. For instance, people can create ‘help libraries,’ flexible mentoring options, and/or directories of contacts for subject matter expertise — for internal use. And, as knowledge sharing catches on, management can reinforce its continuation and expansion.

4-Leveraging the Human Resources function for strategic impact on intangible assets. The Human Resources function has both a leadership and a tactical role that already affects intangible assets. For example hiring, employee development, compensation, benefits, employee relations, incentives, rewards and recognition — all involve and impact intangible assets. This means H.R. is positioned, through its expertise and experience in various specializations, to expand its strategic reach, to have greater impact on many intangible assets.

The heightened value of intangible assets in business is increasingly providing Human Resources professionals with a meaningful opportunity, as members of the leadership team, to help make the business successful for the short and the long term.

5-Building and sustaining a company culture and work environment where employees can continue to learn, make meaningful contributions (meaningful to them), and achieve their job and career goals Effective leadership is potentially the most critically important component of Human Capital in a business, affecting people organization-wide. This is true regardless of the size of the business. Whether there are few employees or many employees, leadership strategy, practices and behavior touch everyone, impacting all.

Countless books and training programs have been carefully written, published, created and delivered since the start of the industrial revolution. Many have provided value to people in leadership roles, but there has been no single silver bullet; and, some have become fads that dissipated over time.

In fact, there is a well-established, insightful leadership approach that we believe is practical, effective and powerfully relevant. While it is still not the one-size-fits-all answer that many would wish for, it is a framework. Indeed, many people are probably at least familiar with it: Maslow’s Hierarchy of Needs. We’ll touch on the highlights; it’s likely there will be something new to take away on what may be a topic you’ve seen before. Let’s begin.

Many of us have developed our leadership strategy and practices from experience — our experience having been led, our experience observing others, and our experience as leaders. In addition, many of us have obtained training, and, of course, most of us are well-read on the subject. We believe that it’s important as well as beneficial for leaders in today’s businesses to re-assess leadership strategy and practices, and continuously align and re-align them to meet changing business needs.

Now, perhaps more than ever before, leaders are dealing with a business environment that has been hard-hit by change and crises, including both the pandemic and the period of dramatic economic and societal change for years preceding it. Re-assessing and evolving leadership approaches can help ensure sustainability of leadership effectiveness and credibility. We believe it’s likely that all of us agree on the importance of this. So, let’s step back together to look at one tool in particular, briefly.

Maslow’s Approach: Understanding Human Needs, Motivation and Behavior

Abraham Maslow was a psychologist who became well-known for his Hierarchy of Needs. His passion was understanding human motivation and behavior and his work was the result of years of research and study. The Hierarchy of Needs became a standard, for managers as well as for students, and was the basis of Douglas McGregor’s Theory X and Theory Y perspectives.

Maslow’s Hierarchy of Needs

Image source: Maslow on Management

Mini-Descriptions of the 5 levels of needs, top down

5-Self-Actualization: Need to grow and use preferred abilities to the fullest

4-Esteem: Need for respect, prestige, recognition

3-Social: Need for belonging, acceptance, affection, love

2-Safety: Need for security, stability, protection

1-Physiological: Need for food, water, shelter, survival

Maslow’s Hierarchy is based on the belief that all human beings have specific needs that motivate behavior. The Hierarchy divides those needs into 5 categories, as shown above.

When one category of needs is mostly satisfied, people begin to gravitate toward meeting needs at the next higher level.

Maslow recognized there are exceptions.

He recognized, for example, that for some people, the higher level needs are always dominant. Some people de-prioritize their survival and/or safety needs, to do self-actualizing work.

In addition, we have discovered that, in certain circumstances, some people are unaware of the possibility for Self-Actualization as something that can be obtained through work; oftentimes this is due to past work experience in which they continuously or frequently struggled to meet survival, safety and social needs. In this situation, people may have learned that Self-Actualization can be found only in life outside work. Some people haven’t experienced Self-Actualization at all. We believe it is possible for new life experiences to change people’s expectations over time. In addition, think about the implications of this; some people lack experience with unmet physiological or safety needs.

We are convinced it is incumbent upon leaders to build an understanding of the job-related needs and expectations of their employees. It’s a crucial aspect of providing effective leadership and management. We cannot help employees to meet needs that drive motivation and behavior without this understanding.

As people progress to meet needs at higher levels of the Heirarchy, things can happen to cause a lower need to re-take priority. When that occurs, the individual shifts attention back to that need category until it is again mostly satisfied; only then can the person return focus to the next higher level of unmet need. It is rarely a direct, linear progress from Physiological or Safety needs to Self-Actualization.

As we all know, people’s needs are complex, and understanding behavior requires considerable observation. What one sees happening is not necessarily the whole picture. For example, an individual’s desire for more money may not be caused by concern about survival; it could be about esteem. This means that to accurately understand what’s driving behavior we need to observe enough instances of it, and listen to an individual’s concerns, complaints and desires, to ascertain the need that’s driving his/her behavior.

In life, we move up and down the Hierarchy. We are never done meeting our needs.

The Value of the Hierarchy of Needs for Leaders

It is generally recognized that employees are most engaged and productive when operating at the top level of the Hierarchy. Self-Actualization is the level where people find joy in doing their work. They are fully engaged, excited and energized, seeking to achieve and make a difference. This is where people thrive and add the most value for the organization. They are building their preferred knowledge and skills and leveraging them in their roles. When leaders can facilitate needs being met at this level they are enabling the organization’s success as well, short-and-long-term.

We recommend that leaders focus on understanding where their people are on the Hierarchy by observing and listening enough to determine what needs people are focused on meeting, and create a work situation that will enable people to meet their needs.

A leader who focuses on meeting Esteem and Self-Actualization needs for their group members can bring about high performance in people who are on the cusp of, or who are already looking for ways to meet Self-Actualization needs.

Leaders who also focus on creating a work situation that meets other, lower-level needs on the Hierarchy can help employees to progress up the Hierarchy more quickly than they would without leadership support.

Once leaders understand where their people are, we recommend they focus on supporting people who are looking for ways to meet needs at either the top or lower levels of the Hierarchy. If leaders focus on meeting needs serially, from the lowest need categories on up, people who are near readiness for Self-Actualization would be unsupported for a period of time, in meeting those needs. Rather than losing time by taking a level-by-level, bottom-up strategy, the optimum support plan would be to address facilitating the meeting of needs at both ends of the Hierarchy at once.

Conclusion

We suggest continuously aligning and re-aligning your leadership strategy and practices with your business strategy. Ocean Tomo’s “Components of S&P Market Value” chart will keep you abreast of external changes that indicate a possible future shift or a disruption in asset value that could influence aspects of your business strategy. And, while Human Capital remains the primary source of competitive advantage Maslow’s Hierarchy of Needs would remain the framework we recommend to guide implementation of your leadership strategy and practices.

Please provide your comments below!

Early in this article we stated our purpose and objectives in writing this article, which were the following:

  • Purpose: to highlight the relevance and importance of this data-based information along with the insights and leverage it offers business leaders in driving success, short and long term, for their organizations
  • Objective: to provide useful information that you’ll find beneficial

How well did we achieve our purpose and objective? Please let us know and include your thoughts and opinions. –Thank you!

Recommended Reading:

Ocean Tomo’s Website – LINK: https://www.oceantomo.com/

Maslow on Management – book by Abraham H. Maslow, Foreword by Warren Bennis with Deborah C. Stephens and Gary Heil, published by John Wiley & Sons, Inc., copyright 1998 by Ann R. Kaplan, all rights reserved.

Investopedia’s Basics of Business Valuation – LINK: https://www.investopedia.com/terms/b/business-valuation.asp

Budget One’s Five Key Drivers of Business Success – LINK: https://budgetone.com.au/blog/the-five-key-drivers-of-business-success-need-to-be-always-in-mind/

PeerComps Website – LINK: https://www.peercomps.com/blog/:

Entrepreneur’s 4 Big Benefits of Improved Employee Training – LINK: https://www.entrepreneur.com/article/340997

Greenhouse’s How to Use Learning and Development to Attract Talent – LINK: https://www.greenhouse.io/blog/how-to-use-learning-development-to-attract-talent

Insider’s article on companies raising wages – LINK: https://www.businessinsider.com/companies-raising-wages-workers-pandemic-hiring-chipotle-costco-target-walmart-2021-5

Go Banking Rates article on companies raising wages – LINK: https://www.gobankingrates.com/money/jobs/18-companies-raised-minimum-wage-to-15-or-more/

Reuters article on companies raising wages – LINK: https://www.reuters.com/business/us-job-growth-picks-up-may-unemployment-rate-falls-58-2021-06-04/

Copyright August 20, 2021 by Rosanna M. Nadeau

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