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How could a capabilities audit, as presented in "Capitalizing on Capabilities," help an organization assess its intangible value? How could it help an organization improve its overall performance?

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How Capabilities Audit Can Assist To Monitor Intangible Assets


How could a capabilities audit, as presented in "Capitalizing on Capabilities," help an organization assess its intangible value? How could it help an organization improve its overall performance?

Please keep the following things in mind when addressing this discussion question:

1) How can I determine the strengths and weaknesses of my people (e.g., in terms of skills, competencies, and capabilities)?

2) What skills, competencies, and capabilities do I need to achieve my day-to-day & strategic goals/objectives of the company?

3) What are the gaps in skills, competencies, and capabilities of my workforce required to do the job, excel, and beat the competition?

4) How can I nurture an environment where each member of the organization achieve his/her highest potential (e.g., skills/competencies/capabilities)?

5) How can I leverage those skills/competencies/capabilities to achieve the highest productivity/output/results as well as social results (social ROI)?


Strategic Human Resources Management


The American economy has experienced many revolutions in its relatively brief history. First came the industrial revolution, which changed the nation from one comprised mostly of artisans and craftsmen to one of factories, automation, mass production, and urbanization. More recently was the technology revolution, which introduced new ways to store, manage, and share massive amounts of information, especially via the Internet. This was followed quickly by what many refer to as the knowledge revolution, where the very nature of work has changed dramatically. Initially, this trend was a shift from manufacturing to services. However, in the last two decades, there has been a significant shift towards knowledge-based work, where what people "know" rather than what they "do" has become increasingly relevant and valuable. This change is seen clearly in the rise of consultancy-based work and jobs. For example, companies such as IBM or UPS now focus more on providing their clients with solutions-based services, ones that may or may not include their own products. Today, IBM actually earns more of its income from this type of business than it does from selling its own product lines. The same trend is evident with the large accounting firms who have developed a consultancy business in addition to their traditional accounting and audit services.

The Importance of Intellectual Capital

The shift towards a knowledge economy during the past 20 years has resulted in a change in the way we think about the value of a firm. Traditional assets such as property, equipment, and even technology began to take a back seat to the knowledge people carried around in their heads. The term intellectual capital became popular in business nomenclature. Business leaders began to talk up the value of their intellectual assets, and even Wall Street began to include these intangibles in factoring how well a firm was expected to perform.

According to Dave Ulrich (2004), intellectual capital is a firm`s only "appreciable asset" (pp. 15-16). As the need for intellectual capital increases, companies must find ways to ensure that it develops and grows. Known as the "Talent Management" process in many companies today, it involves the attraction, development, and retention of a firm`s intellectual capital, and has become an important responsibility of the Human Resources (HR) function. Ulrich (2004) outlines five tools that firms can use to increase their intellectual capital competence:

1. Buy. The firm goes outside to hire new talent.

2. Build. The firm invests in employee learning and training.

3. Borrow. The firm hires consultants and forms partnerships with suppliers, customers, and vendors to share knowledge, create new knowledge, and bring in new ways to work.

4. Bounce. The firm removes those employees who fail to change, learn, and adapt.

5. Bind. The firm finds ways to keep those workers it finds most valuable (p. 16).

Human Resources as Strategic Business Partner

Because intellectual capital and talent management have become critical for success today, the function of HR has begun to transform itself in an attempt to meet new demands and challenges; however, the function has also come under attack. When employees are asked what role their HR department plays within their organizations, they often respond with a list of tactical responsibilities, such as looking after the payroll, managing employee benefits, and interviewing for entry-level positions. HR often is viewed in a "policing role" to ensure company policy and procedures are followed. Because of this perception, the question is often asked: Does HR really add value in this new era, where human capital is so important and is seemingly everyone`s responsibility? In fact, some companies have gone so far as to outsource their HR function.

The Four Roles of Human Resources

The HR community has gotten the message, and is moving towards playing a more strategic role within organizations. Dave Ulrich, one of the leading thinkers in this field, has outlined a new agenda for HR that is radically different from the traditional role. The article "A New Mandate for Human Resources" (1998) outlines Ulrich`s groundbreaking thinking on this topic. Fundamentally, HR has to play an important role at the very "top of the house," and has to be invited to the table when top executives are planning the strategy for their firms. Only in this way can HR really contribute to the bottom line. In fact, HR should be as critical to strategy formulation and execution as any other function: finance, marketing, information technology, or operations.

Corporate leaders should view HR as a business partner to line management, rather than a staff function removed from the day-to-day realities of the business. Not surprisingly, this new business partner role requires a completely different skill set for HR managers. Ulrich (1998) identifies three other important roles for today`s HR practitioners: First, they need to be the agents driving change within organizations, helping to shape change and improve the company`s capacity to change. Employees and outsiders see this very clearly with merger and acquisition activities, where HR has a critical role to play in the integration of the two organizational cultures. Secondly, HR needs to be the champion for employees, to ensure that they are able to contribute and deliver results. The third, HR today is to be an expert in how work is organized and executed. Just as an operations manager is responsible for the efficiencies of processes and workflow, so must HR tend to the efficiencies and effectiveness of "people work."

Human Resources Building Organizational Capability

Because people do not work in a vacuum, the overall capabilities of the organization must be considered. Even the most capable people will fail if put into a dysfunctional or toxic work environment. HR has an important role to play in ensuring that talent has every chance to deliver superior results. Dave Ulrich and Norm Smallwood (2004) present an intriguing model to frame individual and organizational capabilities in terms of both technical and social competence. The organization must deliver in all of these areas if it is to achieve a sustainable competitive advantage. The authors provide a practical tool for conducting an "organizational audit" that will highlight important capabilities for a given organization and where possible gaps might exist.

The Softer Side of Sears

Retailer giant Sears, Roebuck and Company invested considerable resources and time in developing its "employee-customer-profit model," which is a rigorous tool that measures the correlation between employee satisfaction and customer satisfaction, and in turn, customer satisfaction and shareholder satisfaction (as measured in increased profits). This study provides a concrete example of how critical employees are to the overall performance of a business organization and underscores why human capital matters. The study is important because it puts in place a measurement system for human capital, which is difficult to do and is a major factor in why human capital is often undervalued.


In today`s knowledge economy, intellectual capital is more critical than it has ever been. HR has a pivotal role to play in attracting, developing, and retaining talent. As such, HR must work as effective business partners with line management and the executive team to ensure that individual and organizational capabilities are built and grown for competitive advantage. The transition in role may not be easy for traditional HR employees, some of whom do not have the skills to take on this new and very different mandate. Subsequently, one of the key issues will be to attract the right people to the HR function itself. Business knowledge and the capacity to deal with continuous change will be baseline entrance requirements for today`s HR practitioners.


Rucci, A. J., Kirn, S. P., and Quinn, R. T. (1998, January/February). The employee-customer-profit chain at Sears. Harvard Business Review, 76(1), (p. 82). Retrieved October 25, 2005, from EBSCOHost database. AN: 16951.

Ulrich, D. (1998, Winter). Human resource management and industrial relations. Sloan Management Review, 39(2), (pp. 15−26).

Ulrich, D. (1998, January/February). A new mandate for human resources. Harvard Business Review,76(1), (p. 124).Retrieved October 25, 2005, from EBSCOHost database. AN: 16992.

Ulrich, D. (1999, January/February). Should we do away with HR? Harvard Business Review.

Ulrich, D., and Smallwood, N. (2004, June). Capitalizing on capabilities. Harvard Business Review, 82(6), (pp 119-127). Retrieved October 25, 2005, from EBSCOHost database. AN: 13208578.


According to Urich & Smallwood (2004) the tangible assets are the total skills, ability and expertise of the organization. Intangible assets are achieved when organizations prioritize to invest in staffing, recruiting, compensation, training and other human resources areas. Organizational goals are achieved when people and resources are aligned together. The outcome such strategy represents who the organization is and what they represent. The outcome of intangible assets such as skills and talents are not easy to measure so management often provide autonomy and flexibility to the generators of such talents and skill. Collaboration within the team and organization would generate efficiency by sharing or drawing resources, ideas, and talents from other departments. Collaboration throughout the organization and within departments generates a shared vision towards a project and such collaboration provides an added strength to the vision. The talents of committed employees enable the organization to increase their productivity and meet their goal on time. Leaders should institute strategies to reward and retain talents. Accountability generates high performance from employees. Employee’s commitment to their work and responsibility enables organization to be successful. Projects are completed and vision is achieved, with accountability new products are released on time and a product exceeds customer satisfaction.

Urich, D., & Smallwodd, N. (2004). Capitalizing on capabilities. Harvard Business Review, 82(6), 199-127

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How Capabilities Audit Can Assist To Monitor Intangible Assets Insert Name: Institutional Affiliation: Due Date: HR manager can determine the strengths and weaknesses of his people by conducting capabilities audit to monitor the organization’s intangible assets. It will highlight employees’ competencies that are most important based on the organization’s strategy and history, and assess how effective the organization delivers on such capabilities and result into an action plan for development and improvement (Ulrich and Smallwood, 2004). Carrying out capabilities audit can help to make employees’ capabilities meaningful and visible to the ma


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