IMPORTANCE OF HR AS AN INTANGIBLE ASSET IN ORGANIZATIONS: DEVELOPMENT OF THE CONCEPT(4)

Drs. Pfau and Kay (2002) summarized that these and many other factors fell into the following categories shown together with their aggregate affect upon a company’s market value:
Fig1Importance Of Hr As An_decrypted
By not managing intangible assets well, such as human resources, it has an obvious adverse affect upon the company and its overall value. In order to begin to fix the problem and to maximize overall shareholder value, management must first, “decide where to compete and to invest, how to allocate resources among many alternatives, and how to share the proceeds among the people who put up the money and do the work.” Secondly, management must do a better job of leading, monitoring, and improving performance (Stewart). As these managerial tasks pertain specifically to human resources, management must:

1. Achieve recruiting and retention excellence
2. Create a total rewards and accountability orientation
3. Establish a collegial, flexible workplace
4. Open up communications between management and employees
5. Implement focused human resources technology (Pfau 2002)

Like the challenge of motivating employees, in order to properly motivate management, “companies need to generate better information about their investments in intangibles and the benefits that flow from them” (Lev). By improving the amount of available information, managers can make better decisions and investors will have a clearer picture of the company’s overall performance, all of which will lead to a more accurate valuation of the company and lower the cost of the company’s cost of capital (Lev).

Currently, researchers have already determined the correlation of high uncertainty discount shareholders apply to intangible asset-intensive research and development (R & D) companies because such analytical information is already required on the company’s financials. However, when it comes to human resources and other intangible assets, such investment information is not widely tracked and reported, and, subsequently, unlike bona fide research and development companies, investment in human resources is frequently undervalued because companies have not agreed on a way or means to actually track the positive or negative outcomes.

Remedies for underreporting of Intangible asset

The under reporting of intangible assets, such as human resources, effectively leaves behind a significant amount of shareholder wealth and contributes to the company’s higher cost of capital. Both of which, can be remedied:

1. If company is focused on their greatest assets, the intangible assets, studied them, monitored them, and invested in them for the maximum shareholder return.
2. Furthermore, companies need to establish the way or means to actually account for the investment in their intangible assets where an industry could agree upon much like the Generally Accepted Accounting Procedures as it pertains to financial reporting.

CONCLUSION

With the help of this research paper we can conclude that by not managing intangible assets well, such as human resources, it has an obvious adverse affect upon the company and its overall value. In order to begin to fix the problem and to maximize overall shareholder value, management must first, “decide where to compete and to invest, how to allocate resources among many alternatives, and how to share the proceeds among the people who put up the money and do the work.” Secondly, management must do a better job of leading, monitoring, and improving performance (Stewart). At the end we can also say that the under reporting of intangible assets, such as human resources, effectively leaves behind a significant amount of shareholder wealth and contributes to the company’s higher cost of capital.