In most industries, it is now possible to buy on the international marketplace machinery and equipment that is comparable to that in place by the leading global firms. Access to machinery and equipments is not the differentiating factor. Ability to use it effectively is. A company that lost all of its equipment but kept skills and know how of its workforce could be back in business relatively quickly. A company that lost its workforce, while keeping its equipment, would never recover.
This excerpt captures the differences between physical and intellectual capital and reveals the unique advantages of the latter. The Coca-Cola Company’s experience testifies to this reality. After transferring the bulk of its tangible assets to its bottlers, Coke’s $150 billion market value derived largely from its brand and management systems.
HR’s emerging strategic potential hinges on the increasingly central role of intangible assets and intellectual capital in today’s economy. Sustained, superior business performance requires a firm to continually hone its competitive edge. Traditionally, this effort took the form of industry-level barriers to entry, patent protections, and governmental regulations. But technological change, rapid innovation, and deregulation have largely eliminated those barriers. Because enduring, superior performance now requires flexibility, innovation, and speed to market its products. Competitive advantage today stems primarily from the internal resources and capabilities of individual organizations including a firm’s ability to develop and retain a capable and committed workforce.
HR is the key enabler of human capital and therefore HR is in a prime position to leverage many other intangibles as well, such as goodwill, research and development, and advertising. A properly trained and performance oriented human capital of an Industry will always have an edge over its competitors. Effectiveness all depends upon how competent the managers are in imparting training and planning strategies.