By Dr. Joseph Odhiambo
The dawn of the Fourth Industrial Revolution (4IR) is one of the most drastic revolution to the world of work. Its exponential growth highly influenced by technological innovation, raises both opportunities and threats to the management of the human capital; the epicenter of the Human Resource Function.
Redefining the role of HRM is at the core of this revolution that has fundamentally changed the way we live, work and relate to one another. How then, can the HRM function maintain its relevance in a world that is rapidly changing the role of Human Capital? Coupled with talent mobility that HRM grapples with, the world now has the potential to connect billions of people through digital networks, boosting the efficiency of organisations and the management of Human Capital. One of the major fall-outs of this trend is that the drivers for value creation in business have changed from financial and physical capital to human capital.
Characterised by accounting for the value of every organisation or business to its reporting and disclosure, this phenomenon continues to redefine HRM’s identity and its role in the organisation. Forward looking organisations are starting to pay attention to information regarding drivers of businesses. Hence, the evolution of Accounting for Human Resources. This concept relates to what organisations now refer to as HR analytics. How are we accounting for human resource and what are the measures? By and large, the concept of Human Capital as defined by the great authors such as Armstrong remains relevant as a factor in the organisation that is composed of the combined intelligence, skills and expertise that gives the organisation its distinctive character.
Organisations with mature HR practices are more likely to consider human resources as valuable organisational resources. This perspective challenges the role of human resource as International Financial Reporting Standards (IFRS) are demanding for fair value of assets. By implication, Human Capital can only be regarded as intangible assets of the organisation. If that is the case, then HRM can no longer be regarded as a partner to the business, but one of the main drivers of the business operations.
HRM needs to reconsider approaches for developing and measuring Human Capital value that seem reasonable beyond traditional Human Capital accounting measures that are acceptable in financial reports.
The new development and interest on wide acceptance of International Financial Reporting Standards (IFRS) acts as a trigger to the necessity of considering human resources as an asset of the firm. However, as there is no accounting standard on treatment of Human Resource, this then overrides the overarching concept of human resources as business partners.
Currently, there are no frameworks describing intangible assets on which strategies on human resources are anchored. However, from the last two decades, the balanced scorecard approach provided guidelines on this ground by measuring the four perspectives that included human capital management. However, not all organisations have adopted the balanced scorecard approach. To this extent, executives leading most of the organisations are still using measurement frameworks designed for industrial economy organisations which emphasize measurements of tangible assets.
4IR is the dawn of the new management system that every organisation is struggling with to remain afloat and competitive.HR ought to lead the debate to influence decision making by spotlighting the very fact that intangible assets (Human Capital) are very critical in managing value creation of any organisation.
The value of intangible assets can only be determined in the context of strategy that they create value. This would then include quantification of factors of intangible assets (Human Capital) such as employee morale and empowerment that relates to the realisation of strategies and increased values of tangible assets that accounting standards report on. Consequently, the current measurement standards of HRM practices as embedded on performance management systems were not designed to deal with the sophistications and complexity currently presented by the changes in the world of work today. HR must therefore be proactive in innovating its practice.
Many organisations are now leveraging on knowledge management as an aspect of contemporary valuation approach of a competitive advantage. While considerable milestones have been achieved, this is yet to unlock and describe value created by factors like time cycles, experience level, turnovers, operational excellence through productivity, corporate citizenship of the employees, increased customer value among others.
In conclusion, operating in volatile, uncertain, complex and ambiguous environment characterised by disruptions gives HR a golden opportunity in making managerial decisions that will benefit the long-run strategic goals and profitability of any organisation. But this can only be realised if HR will rise and take the center stage. HR can only walk the talk by becoming innovative to claim their role in the organisation.