Understanding Capital Resources Is Key for All Business (2024)

So many resources are necessary to drive a business forward.

But not all resources are easy to quantify. And, resources that are difficult to quantify can also be difficult to grow and improve.

Capital resources are a great example of this. While some capital resources are tangible, often, the most valuable ones are not.

Let’s explore:

• The types of capital resources
• What characteristics define them
• How they interact to driveorganizational performance

What are capital resources?

Capital resources are human-made resources used by a company to create goods and services.

With capital goods,companies can remain productiveand keep serving their customers.

A capital resource can be equipment and machinery or even infrastructure. They’re a bit different from factors of production. The latter refers to both human-made and natural resources.

So, land can be a factor of production, but it’s not a capital resource.

In general, an increase in capital resources can impact the economy positively. That’s because a higher investment in capital resources usually results in a more productive output for companies.

Here is a list of capital resources to help you get a better idea of what we’re talking about:

• Office buildings
• Production processes
• Tools
• Vehicles
• Manufacturing facilities
• Heavy machinery
• Proprietary software
• Inventory
• Cash flow

What is a capital resource in HR?

Human resources (HR)are the people a company needs to create goods, provide services, sell their offers, and grow.

Departments that handle human resources are often called HR. However, what they are really doing is human resource management (HRM).

HRM is the process of:

• Hiring the right people for a company
• Optimizing human productivity
• Managing employees effectively
• Training andretaining employees

As a result, an HR department manages certain types of capital resources, like intellectual, social, andhuman capital.

These types of capital resources all stem from human resources. If you removed all human resources from a company, there would be no intellectual, social, or human capital left.

What is intellectual capital?

Intellectual capital refers to the knowledge, skills, training, and any other types of known information that the employees of a company have.

A company can use this knowledge to:

• Drive innovation
• Generate profits
• Find new customers

And anything else that can potentially improve processes and make the business better.

When combined, intellectual capital is the sum of all employee expertise and processes that help a company improve its bottom line.

Intellectual capital can also include intellectual property. This is the product of human intellect. Business processes can be intellectual property. So can patents and copyrights.

Here’s an example of both intellectual capital and intellectual property. Let’s say a company develops an in-house training program to improve productivity.

This program teaches employees how to work in a specific process for all aspects of their jobs. The program itself is intellectual capital and intellectual property. The process shown to employees during the training is also intellectual capital and intellectual property.

It’s a proprietary process that provides a unique advantage to this business. However, by giving this training, the company has now grown its intellectual capital. That’s because every employee in the training now knows and understands how the process works.

As a result, a higher number of employees now have this knowledge and can improve productivity in their daily work lives.

What is social capital?

Social capital is the positive product generated by human interaction.

When two or more people in a company interact in a positive way, several benefits can come from this interaction.

These can include:

• Future opportunities for business
• New innovative ideas
• Useful information passed from one person to another
• Shared values
• Mutual respect

Social capital is what allows individuals in an organization to work together effectively and productively.

To work together in harmony, people need:

• Trust
• Mutual relationships
• Common work values
• Shared identity through belonging

Company culture plays an important rolein improving social capital in an organization. With a healthy company culture, healthy relationships between colleagues can flourish. This can lead to better trust and productivity.

Employees can also interact more freely with one another and share ideas. As ideas get shared, new ideas can flourish, and knowledge can get shared between teammates. This helps companies grow their intellectual capital.

A great example of social capital at work is when companies provide opportunities for their employees tomingle outside of work and have fun. Company outings and BBQs, for instance, provide these opportunities.

Even if employees don’t talk about work, they’re still building relationships with each other. The bonds they create can help them work more effectively together when they go back to work.

What is human capital?

A company is only as good as the people who are a part of it. Human capital is what these people bring to a company.

Human capital makes up the abilities, work experiences, and skills of employees in an organization. This is different from human resources. Human resources aren’t a capital resource since humans are a natural resource.

But a worker’s experience and set of skills, on the other hand, are human-made.

Human capital includes:

• Employee education and training
• An employee’s health
• Past work experiences of each employee
• Employee skills and intelligence

This concept is similar to intellectual capital, but they’re not the same. Human capital is instead a subcategory of intellectual capital.

Intellectual capital also doesn’t take health and level of intelligence into account. It only sums up the skills and knowledge a workforce brings to the table.

Companies can increase their human capital in several ways. Like intellectual capital, they can provide training and education. Human capital management is an important area of focus for every organization.

Improving motivation and employee driveis another way to improve human capital. Employees who have more drive to perform are a more valuable asset than employees who have difficulty finding the motivation to work.

4 characteristics of capital resources

Some capital resources are tangible, while others aren’t. So how can you tell what is and isn’t a capital resource?

Here are four characteristics of all capital resources you can use to identify your own organization’s resources.

1. Capital is made by people

As previously mentioned, humans develop capital resources.

Without people, no capital resources can be generated. So any type of resource that occurs naturally isn’t an example of a capital resource.

2. Capital on its own is passive

Capital resources are necessary for the success of any organization. But they cannot operate on their own.

Capital resources need labor to become effective. Let’s consider work processes, which are a type of intellectual labor.

These processes don’t serve any purpose if people aren’t using them. The same goes for human capital resources such as education and skills. The fact that they exist doesn’t produce anything.

Human labor is required to put these skills to use.

3. Capital is mobile

Unlike natural resources like land, capital resources are highly mobile.

Whether it’s tangible resources like machinery or intangible resources like human capital, these resources can migrate from one place to another.

When this occurs for human capital, this phenomenon is also known as brain drain. It’s another reason organizations need towork to improve retention rates.

If they don’t invest in their intellectual, social, and human capital, these resources can easily get drained when employees leave.

4. Capital can depreciate

It seems obvious that tangible capital assets like manufacturing facilities and buildings depreciate over time. But intellectual, social, and human capital aren’t immune to depreciation.

For example, effective work processes can become outdated or even obsolete as industries evolve.

Social capital can also erode over time if not maintained. That’s one of the reasons 39% of executives believe that introducingdigital collaboration platforms is the most important factor to make remote work sustainableover the long run.

What is not a capital resource

So what isn’t considered a capital resource?

Raw materials used to manufacture products aren’t capital resources. These are instead considered commodities.

Even if a commodity seems human-made, it isn’t always a capital resource. For example, if a company grows or produces silk, it’s still considered a commodity and not a capital resource.

Labor also isn’t a capital resource. The knowledge and skills that make this labor possible are considered capital resources, but the actual labor isn’t.

Capital resources examples

Intellectual, social, and human capital resources are closely related. They cannot exist without each other. So what are some examples of capital resources and how they interact with each other?

Example 1: Work process

Let’s bring back the example of a company training to teach a proprietary work process.

The process itself is intellectual capital. So is the knowledge of the process.

By teaching this process to its employees, a company won’t just improve its intellectual capital but also its human capital.

If a few of these employees were to leave the company for a competitor, the company wouldn’t lose its intellectual capital. That’s because it would retain the process itself.

However, it would lose some human capital.

In addition, this training can also improve social capital. Employees who collaborate with each other and learn as a team can learn to better trust each other and work more efficiently together.

They can also increase their trust in the company as they learn the new process.

Example 2: Company retreat

When a company provides employees with a company retreat, all three resources can grow. The unique experience will help employees bond.

But these experiences may also improve the human capital of an organization.

Providing employees with exciting challenges outside of their day-to-day lives adds perspective and unique points of view they wouldn’t have had otherwise.

Example 3: Employee relationships

Social capital can lead to human capital grouping together.

Here’s how this works. When colleagues form close relationships, they come to enjoy working together. One employee may be inclined to stay at a company instead of taking an outside offer if their colleagues stay.

On the other hand, that same employee may decide to follow their friends to another company if they were all given an offer.

Understand your capital resources

Because capital resources aren’t all tangible assets, they can be difficult to quantify.

But it’s important to understand the capital resources in your organization so that you can actively work to improve them.

One of the ways you can increase intellectual, social, and human capital is through the BetterUp coaching platform.

BetterUp’s personalized, comprehensive coaching can help drive whole-person growth and improve your organization.Request a demo today.

Published August 17, 2021