Ramesh Menon’s Blog
If you burn your finger in a pot of boiling water, should you blame the water, the pot, the fire or yourself?
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Assets devalue… they depreciate… they erode their value…. they also go stale over a period of time… IF PEOPLE ARE ASSETS, DO THEY ALSO GO THROUGH THE ABOVE MENTIONED STAGES? My boss tells me that people are the only assets we have, and these assets become redundant the moment they stop delivering benefits…. WHAT FEATURES IN PEOPLE ASSETS DELIVER WHAT BENEFITS? What is the Mantra to perennially increase people valuation?
Hi Ramesh. Well said and assessed. As an HR pro, I have been part of this endless debate for many years now, and would continue to.
One pointed reference – IF PEOPLE ARE ASSETS, WHY ARENT THEY ON BALANCE SHEETS? WHY ARE THEY ONLY ON THE COST SIDE, AND NOT PROFIT SIDE?
Yes, they are, people are like real estate – especially houses. They have a good value when they are new, and how much depends on quality (education and other credentials) then the value of this asset appreciate with a good pace (with their learning and experience curve) and they see the peak of their value (career, money, position), and then comes the dreaded point where the pace with which the value was appreciating slows down (as they grow older). Sometimes, they depreciate (bad economy, terminations, layoffs, physical or mental challenges, unacceptable behavior) instead of appreciating (not every house appreciates)…
Hi.I had posted this same query on my Linkedin mail-box, and I did receive an overwhelming response. I would like to produce them here for the benefit of the author of this piece, as well as the visitors to this site. Due credits about the opinion to those who posted it against my query on Linkedin in the first place.
comment by: Yavuz Bayrak, Billing Analyst at DHL EECC
Short ansswer: YES, people are assets. After hiring an employee he or she goes down a learning curve with respect the task he or she is doing so the value delivered increases (the speed of this depends ont which percentage of learning curve he or she is on). This employee can also erode the value he is adding (because of the things he or she does after or before adding value; does something good but also bad); it is also possible that he adds negative value by doing the wrong things the whole time.Some people always add value because they always perform well and are very loyal and when they are older they train new employees so they pass their experience so they are adding value thru someone else but some (most) people add more value in their younger years and the pass of adding value slows down and begins to decrease when they get old .So after they have gone through the process of Question Mark > Star > Cash Cow they have come to be a “Dog” and here the best choice is to disinvest or “sell” this asset to the government at their value at that time (mostly 0)
I do like the analogy of people as assets . . . IF the analogy includes the concept that assets can depreciate OR appreciate, dependent on how you manage those assets.
A person whose workplace skills gradually become outdated is a depreciating asset. That same person who is encouraged and supported in their efforts to remain current in their work skills is an appreciating asset.
They will also be an asset that appreciates you and the organization:).
Interesting… Thanks for including my response
Having said that we can draw similarities with any other ASSET in the Balance Sheet.
1. Human Assets have also started appearing in the Company’s Balance Sheet.
2. Value of assets can appreciate if the asset has a good market value.
3. Value can be added if we spend anything which will improve the life span of the asset. In this case as an example, high cost training in my opinion should be added to the cost .
4. It can depreciate if it becomes useless !
5. Asset can also be re valued based on potential !
6. Asset can be transferred to another sister concern at book value if this can be profitably used there.
7. Some times assets are kept at a low one dollar / rupee value only because we need to identify them !
8. Assets will be written off from the book if it has been fully depreciated and become useless !
With only one difference that this type of asset has life & self respect and should be treated with dignity !
People are assets, it is what we do to our people that causes them to devalue or depreciate. Think of how you might treat your personal items such as a vehicle. There is someone that has a 1957 Chevy in mint condition that will sell for more today than it did in 1957. The difference is that someone took extra care of the vehicle and gave it what it needed to not only maintain its value but increase it. To many times as managers and owners do we not look upon our people as assets. This causes them to feel disenfranchised and to lose focus. People in most causes just want to be appreciated for what they do. It is up to management to develop them further and to get a little more out of them. One of my favorite movies “Facing the Giants” has a scene where a guy was able to crawl an entire football field when he though that he could only go about 50 yards. People will put limits on themselves which may appear to be that they are eroding their value but management has an obligation to get them to a higher level. This can be done just my coaching their behaviors and they will be achieving more and not realizing that you are developing them. Just like in the movie he kept telling the player just one more. Develop your people and they will be assets; make your people feel worthless and useless and you will cause them to depreciate. This applies to relationships in general.
Yes, not only are people assets, they are the most important asset any business enterprise has – though all too many organizations pay lip service to this idea and take the view that anyone who leaves is replaceable, so who cares?
Sad, but true.
The moment people stop delivering benefits, also knows as their deliverables, they become redundant. I would argue that they could become redundant. It’s not a given!
A good leader must look into why people are suddenly not delivering and take the appropriate corrective action. This could be dismissal, if the person has simply stopped working because he or she doesn’t care any more. But there could be many other factors behind this failure to hit goals; and the effective leader must truly understand what the reasons are and take the appropriate corrective action.
This could be retraining, moving the person to a role more suited to them, helping them through a tough personal situation. Etc.
Not all assets depreciate; some appreciate in value as they become vested with further experience and expertise: e.g., patents, R&D, real estate, antiques, vintage cars, brain power, etc.
Human resources will only go stale if the person stops learning, drops out, or is neglected by their organization in terms of further HRD training/investment. Otherwise, they should become more value assets as they progress through their career. Even a person who is not progressing, in terms of promotions, can still be increasing in value and become indispensable in their post because they know it inside out and backwards. Their skills do not become redundant.
One of the basic problems is that the salaries and related expenses of human resources are not place in the Balance Sheet as an Asset. Why should salaries and training courses be “written off” (notice the words) as an operating expense when, in fact, they are an investment in the future. It is astonishing that the accounting profession never changed this procedure, beyond talking about it.
The people or in better words your internal customers(employees) are the asset because they are the one who create synergy,bring business and are biggest source of advertisement via positive word of mouth for the company. As these people interact with end customer they understand needs and growing requirement of end users. In case of attrition company is on higher risk of not only losing the non documented knowledge but also interpersonal relationship which he/she might have build up, and with their moving either customer would move away or they would look for better or equivalent service from the serving employee.
Remember is saying: “Old is gold and new is silver”.
When you buy a high performance machine, drive it to death and do not take care of it or maintenance it, it will not hold value. It will eventually break down.
When you buy the ingredients for a fine meal and then do not prepare the meal using all the ingredients in the recipe, those ingredients you do not use will rot.
When you buy a puppy and then beat it, kick it, refuse to feed it or otherwise abuse it, it will not want to be around you, will not trust you, and will run off at the first chance, or else bite you.
And so it is with people. People come with their unique qualities, their strengths, their flaws. It is not up to the employee, but to the management and the owners, to make sure their investment is well maintained, driven without excessive wear and tear, used as directed in the business recipe, not abused (verbally or emotionally), and treated as valuable things. When properly treated, most people will thrive. But when mistreated, people will react in negative ways.
If you have someone who is acting negatively, it is best to see what you did to make it happen.
The combined talents, abilities and skills of the human “assets” of evey organization is in fact the most important part of their asset base.
I also feel like organizations share a resonsibility with their people to ensure that these assets don’t “depreciate”.
When I have been an executive in organizations I required every individual to participate in a minimum of personal/professional development every year. They weren’t allowed to stop growing, for themselves or for us.
We also created and/or identified opportunities for them to do this. In some cases it was time, in other cases money through tution refund, specialized training, etc.
I have been in a situation where we had to close plants or lay people off. That didn’t mean that their value decreased, it meant that we could not retain all of the assets in our portfolio.
I have had to terminate people who became a “non-performing asset” or because of cultural fit did not represent a good investment in the first place.
A great story comes to mind that I heard 30 years ago about the difference between Japanese and American management.
The speaker talked about the U.S passion for technology and how if we were to make a $1 million investment in equipment we would spend hours and put teams on it and study it judiciously.
With people we are more cavalier, if we got the wrong “part” just discard it and get another.
He said in Japan when they looked at this “asset” and did a valuation over a 20 year period taking into consideration salary, training, benefits, and inflation they recognized they were making the same $1 million investment and did their research accordingly.
I would submit it would be very difficult to find truly world class performing companies that do not recognize the value of their human assets and treat them accordingly.
The difference we need to undertake is to recognize that our employees individually and collectively are not only assets, but partners in our success- they aren’t capital equipment to be “depreciated” and disposed of when we have exhausted their “value”.
In today´s business perspective where a worrisome shortage of talent is beginning to be evident when a company is urged to fill some vacant managers and technicians due to the impending retirement of the baby-boomers workforce, economical growth in India and China and record prices in crude oil markets is then relevant, convenient and pertinent in achieving and sustaining competitiveness excel in the tasks of attracting, hiring and retaining critical talent for core operations in the enterprise.
In doing so, leading companies as part of their policies of Employer Brand Management are developing career development plans and succession plans as valid resources to anticipate the inventory of skills and competences that must be fulfilled when developing the portfolio of corporate projects scheduled to achieve the goals envisioned for the business.
Based in the premise that employees are the most valuable asset in current organizations, most of the Fortune 500 companies are developing programs with diverse recreational activities to help to employees in reaching a healthy balance between life and burn, and by this way minimize the risks of having employees suffering from professional burnout.
Having said that, is straightforward the appreciation that for these companies their employees are considered as an asset because they have the unique opportunity of enjoying of a supportive workplace environment where their professional development will be systematically encouraged and additionally they have the privilege of working in a company, which culture is appreciative to recognize, reward and celebrate the value that a responsible and competent professional may offer to his/her organization.
During employee´s life-cycle the value that an employee accumulates progressively through of his/her progressive career development is congruent with the learnings and experiences that this worker achieve in different job positions within the company and the investments that his/her company develops systematically in training programs and capacitation.
Yes people are assets but a particular class of assets. Looking at some of the answers so far it might help to think of the people as assets like fruit trees. you look after them , feed them, water them and prune them (i.e .cut out redundant bits (behaviours) so new bits can flourish and bear fruit) and they will last a very long time.
As regards considering this to be an operating expense and ‘writing off’ training, basically I agree – actually worth doing a cost benefit analysis and trying to establish some sort of npv.
As regards old is gold – at 61 I agree – but age is just a number