Intellectual Capital

Human Capital and Organizational Performance

Management Accounting Individual Assignment

2010

Human Capital and Organizational Performance

Management Accounting Individual Assignment

2010

Abstract

Human capital is elusive and as such hard to classify, quantify, and digitize without qualitative tools. The challenge of making such an intangible asset assessable, and part of the balance sheet has resisted the test of time, and therefore even with the countless innovations and advancements of the 21st century we find ourselves challenged and without the adequate tools to incorporate the above assets to formally drive performance. Therefore in this paper I would like to discuss that since the traditional way of measuring organizational performance is missing a vital component of success, companies should focus a great deal of attention to human capital development, human resource practices and controls to give the company a competitive advantage that directly impacts performance. Most companies realize the importance of human capital, but unless they take the leap to include this scarce resource as part of their strategic competitive positioning; performance and therefore financial returns will suffer.

Paradigm Shift - Resource Based Model

For a firm to maintain sustainable superior performance it must maintain sustainable competitive advantage. Focusing the firm’s competitive advantage strategies only around market segmentation, product differentiation and cost leadership as suggested by Michael Porter in his 1980 classic Competitive Strategy: Techniques for Analyzing Industries and Competitors only limits the firms potential for high performance to constituents that are not necessarily rare and can be copied by other firms. To rectify this incomplete external competitive environment model of sustainable competitive advantage, an overall paradigm shift towards an internal knowledge resource...