Learn the value of those you employ

Fans of Hollywood actress Gwyneth Paltrow were amazed to see her play an
overweight frump in the movie Shallow Hal. The star dons total body make-up as
part of a dual role in which she also appears as her usual svelte self.
Gwyneth’s character is gargantuan in the eyes of everybody except newly enlightened
admirer Hal, who sees her as gamine.

The moral of the movie is that society is so fixated with physical
appearance that we lose sight of inner beauty. But failure to distinguish
between weight and value is not just a problem in relationships. It also
disrupts economic and business activity in today’s so-called ‘weightless

The physical weight of output of the developed world has barely changed
since the end of the Second World War, but the real value of output is three
times higher. This is because services now account for about two-thirds of what
most advanced economies produce, while new technologies have given rise to
miniaturisation and lighter manufactures.

Far more of the value of goods and services resides in the higher quality that
richer and more sophisticated consumers demand, notably in the form of design
and brand. With such intangibles accounting for a greater share of what is
produced it is not surprising that economies have grown without gaining weight.

Economic weightlessness fundamentally changes the rules of the game when it
comes to assessing how well organisations are performing. Yet financial markets
have been slow in coming to terms with this – the consequences of which were
spelt out by Alan Greenspan, chairman of the US Federal Reserve.

As Greenspan rightly warns, the growing importance of intangibles like
brand, corporate reputation and human capital is confounding investors.

Not only did the prospect of earning vast fortunes out of thin air result in
dotcom mania and mortality, but the collapse of Enron demonstrated that
reputation must rest on solid foundations.

Similar problems also arise within organisations. For example, inadequate
human capital accounting is one reason why too many organisations continue to
treat their people as a cost to be minimised rather than a valuable asset. This
hinders strategic people management and limits the development of the UK
workforce as a whole. But despite the emergence of a mini industry offering
ideas on how to value human capital, progress in turning this situation around
is painfully slow.

Organisations could do worse than establish how much they invest in human
capital and estimate the return on that investment. The longer bosses fail to
identify the value of the people they employ, the heavier weather they will
make of the weightless economy.

By John Philpott, Chief 
economist, Chartered Institute of Personnel and Development

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