The value of human capital intangible assets

The global economy is supported by 3.3 billion employees, consisting of 2 billion individuals employed in the informal economy, and comprises the most vulnerable workers in the labor market. The Asian Development Bank (ADB) estimates a slowdown in the global gross domestic product (GDP) due to the COVID-19 pandemic of 4.1%, amounting to approximately $2 (USD) trillion with the envisaged financial fallout reminiscent of an apocalyptic movie scene with a fleet of economists trying to shore up global confidence in advance of the tsunami and political leaders rallying for public support during its landfall and inspiring optimism after its devastation.

Though ever-resilient human beings are, in addition to overcoming the psycho-social and financial damage brought by this viral crisis, we must collectively move forward in a purposeful and coordinated manner to systematically overhaul existing economic structures and mechanisms. Notwithstanding, I am confident that we are presented with a great opportunity to purposefully mobilize local, national and regional human capital to support a livelihood transformation into a new sustainable economy.

In the 20th century and pre-COVID-19 world, researchers calculated that 8 of 10 employees produce services rather than products. In addition, with rapid technological advancements, many tasks-oriented functions have been ubiquitously replaced. The combination of high-speed mobile internet and the broad adoption of big data, analytics, and cloud systems have preceded shifts in capital investment and prompted a demand for retooling, reskilling, and upskilling personnel capacity. Further, rapid automation, artificial intelligence (AI), machine learning (ML), and robotics predict a significant shift in productive hours with a differential of approximately 42% in machine production and 58% in human functions by 2022. Although 133 million new jobs will offset those lost by 2022, the increase in machine learning algorithms, AI, and commercial robotics is expected to displace 75 million jobs, according to the World Economic Forum (WEF).

68% of U.S. GDP is generated by service – United States Bureau of Economic Analysis (BEA)

The coronavirus pandemic has accelerated the implementation of web-enabled business and cloud applications that enable work from home (WFH) – virtual office business model. A remote workforce allows business space to adapt operations in response to an immediate crisis with longer terms economic implications. Moreover, the virtual office arrangement has the added benefit of substantially reducing onsite site presence and costs associated with the maintenance of office facilities and the warehousing of personnel. The loss of roughly 40 million jobs in the U.S. and the European Union combined and the foreseen disruption of 6.7% of working hours is equivalent to 195 million job losses in 2020. Still, in this uncertain economy, the manufacturing sector faces other challenges. It requires precisely calibrated and robust measures to adequately manage the reduction of cost spending while ensuring the safety of essential personnel in its response to dynamic market activity and forces.

“Start with the obvious… Intangible assets are worth a lot, and accountants don’t do a good job in assessing their value.” — Aswath Damodaran

As a way to retain their strategic advantage while preserving market share, large enterprises have allocated resources to upskill and reskill their workforces, particularly individuals performing high-value roles. An example of a high-profile enterprise is Amazon which announced an investment of $700 million in workforce training. In line with the work of Leonard Nakamura (Emeritus Economist) of the Federal Reserve Bank of Philadelphia, who estimated the investment in intangible assets to be over $1 trillion in 2000 and its capitalized value of $6 trillion in the same year, it is apparent that Amazon recognizes the importance of human capital and it’s proactively developing these assets. This single example represents the nexus of purpose-driven investment in intangible resources in a volatile and unpredictable market. More succinctly, this is a clear recognition of human capital as the cornerstone that ensures competitive advantage in an increasingly global market, and the upskilling and reskilling process should be an effort of a private-public partnership that can close the skill gaps pain point facing many industries and will support a quick and effective way for economic recovery. Nonetheless, even though public organizations and private enterprises must advance with a renewed understanding of the pre and likely post-COVID-19 induced realities, private individuals whose livelihoods have been disrupted, who harbor warranted concerns of employability, must also embark on a constructive journey that seeks to restore their dignity and in a purposely manner.

Robots could replace 20 million global manufacturing jobs in 2030 – Oxford Economics.

Robotic and technology augmentation will displace 75 million jobs and generate 133 million new ones by 2022 – World Economic Forum (WEF)

Amazon will invest $700 million to train 100k employees as automation technology will replace many tasks performed by a human.

Before the global pandemic, companies were already (slowly) working to address skills gaps with traditional metrics, including developing job descriptions of hard and soft skills. However, often these descriptive profiles fail to fully capture multidimensional talents that are pivotal and incalculably in responding to the needs of a changing global market (see my previous article, “The Case for Job/Career Jumpers“). On separate occasions during my coaching and management consulting practices, I realized that many business owners were unaware of their employees’ full range of talents, often failing miserably to recognize and reel in their employees’ unique skills.

“It is tempting, if the only tool you have is a hammer, to treat everything as it is were a nail” — Abraham Maslow.

This lack of vision of some business leaders significantly hinders strategic planning. It is equivalent to the proverbial technician who uses a hammer to perform many unrelated tasks. Yet, at the same time, the tool is valuable in the unique function it serves; its practical use validates its purpose, and although abound the tool-box is with specific utensils, each having its application, the failure of the user to select the appropriate tool and able employ it in the job, fails to accomplish the primary objective, reduce efficiency and, more importantly, leaves little room for creating contemplation in the future.

For this reason, engaging, hiring, and training talent should be something other than guesswork or, put it – filling a position. Particularly when business leaders are well compensated and placed to discern the utility of various intangible human capital with whom they can successfully partner in different workforce functions to advance sustainable solutions within their enterprises and organizations. Fortunately for HR organizations and leaders, the global marketplace has an abundance of HR automation tools enhanced with the support of AI and ML algorithms. These technologies are part of the toolbox that augments HR organizations and leaders by doing the heavy lifting and presenting objective data so leaders can make data-driving decisions quickly and effectively. In addition, reports can be run rapidly and on-demand very quickly, provide and integrate data and analytics across all business areas and human capital benchmarks, so it becomes a more effective performance review, and the feedback loop can be achieved.

Discovering and identifying workforce potential and talents should not be based only on intuition and guesswork but on scientific, unbiased, and objective data that align individual employees’ career aspirations and purpose with the company’s objectives.

“Know thyself, and you will quantify your value. Not from the financial terms perspective but from the people you positively impact.”