A large number of resources are required to propel a firm forward.
However, not all resources like natural human capital resources are easily quantifiable. Furthermore, resources that are difficult to assess can be difficult to expand and develop.
Capital resources are a prime example. While some capital resources are physical, the most valuable ones are frequently not.
What are Capital Resources?
Capital Resources are man-made assets that include machinery, equipment, buildings, and other items used in the production of goods and services.
Unlike raw materials, which are the raw materials that are processed for further manufacturing, capital resources are significant variables that contribute to the company’s productive activities.
Here’s a list of capital resources to assist you to understand what we’re talking about:
- Buildings for offices
- Manufacturing procedures
- Tools
- Vehicles
- Manufacturing plants
- Heavy equipment
- Exclusive software
- Inventory
- Flow of funds
What are Human Capital Resources?
Human resources (HR) are the people that a company requires in order to make things, provide services, market their products, and expand.
Human resources (HR) departments are frequently referred to as such. They are, nonetheless, engaged in human resource management (HRM).
Human resource management (HRM) is the process of:
- Choosing the Best Employees for a Company
- Increasing human productivity
- Effective employee management
- Employee retention and training
As a result, an HR department is in charge of managing particular types of capital resources, such as intellectual, social, and human capital.
Human resources are the wellspring of all of these capital resources. There would be no intellectual, social, or human capital remaining in a corporation if all human resources were withdrawn.
What is Intellectual Capital?
Intellectual capital refers to a company’s employees’ expertise, skills, training, and any other sorts of known information.
This knowledge can be used by a corporation to:
- Motivate innovation
- Profits are generated.
- Find new clients.
- And anything else that has the potential to improve operations and benefit the business.
When all employee expertise and processes that assist a firm to improve its bottom line are added together, intellectual capital is the total of all employee expertise and processes that help a company improve its bottom line.
Intellectual property is also a type of intellectual capital. This is the result of human thought. Business processes can be protected as intellectual property. Patents and copyrights can, too.
Here’s an example of intellectual capital as well as intellectual property. Assume a corporation creates an in-house training program to boost efficiency.
This program teaches employees how to operate in a systematic manner in all parts of their jobs. The program is intellectual capital and intellectual property in and of itself. The process demonstrated to employees during training constitutes intellectual capital and intellectual property.
It’s a proprietary procedure that gives this company a distinct advantage. However, the company’s intellectual capital has increased as a result of this training. This is due to the fact that every person in the training now knows and understands how the process works.
As a result, more employees now have this knowledge which may boost their productivity in their daily work lives.
What is Social Capital?
Human connection produces social capital, which is a beneficial commodity.
When two or more employees in a company are engaged in a constructive way, various benefits might result.
These are some examples:
- Business Opportunities in the Future
- Innovative new concepts
- Information that is useful and is shared from one person to another
- Values that everyone shares
- Mutual admiration
Individuals in a company rely on social capital to collaborate efficiently and productively.
People require the following in order to collaborate harmoniously:
- Trust
- Relationships between people
- Workplace principles that are shared
- Belonging creates a shared identity.
The importance of company culture in increasing social capital in a firm cannot be overstated. Healthy relationships between coworkers can grow in an environment with positive business culture. This can result in increased trust and productivity.
Employees can also interact with one another more freely and share ideas. As ideas are communicated, new ideas might emerge, and expertise can be shared among coworkers. This assists businesses in increasing their intellectual capital.
When organizations create opportunities for their employees to interact and have fun outside of work, this is a terrific example of social capital at work. These possibilities can be found at company outings and BBQs, for example.
Even if employees do not discuss work, they are still forming relationships with one another. When they return to work, the relationships they form will allow them to operate more effectively together.
What is Human Capital?
A business is only as good as the people that work for it. Human capital is the value that these individuals offer to an organization.
Human capital is comprised of an organization’s employees’ abilities, job experiences, and skills. This is not the same as human resources. Human resources are not a capital resource because persons are a natural resource.
However, a worker’s experience and skill set are created by humans.
Human capital consists of:
- Education and training for employees
- The health of an employee
- Each employee’s previous job experiences
- Employee intellect and abilities
This concept is comparable to but not the same as intellectual capital. Human capital, on the other hand, is a subtype of intellectual capital.
Intellectual capital does not take into account one’s health or level of intelligence. It just summarizes the skills and knowledge brought to the table by a worker.
Companies can boost their human capital in a variety of ways. They, like intellectual capital, can offer training and education.
However, increasing employee motivation and desire is another strategy to increase human capital. Employees who are driven to succeed are a more valuable asset than employees who struggle to find the motivation to work.
4 Features of Capital Resources
Some capital resources are tangibly available, while others are not. So, how do you distinguish between what is and isn’t a capital resource?
Here are four characteristics of all capital resources that you can use to identify the resources in your own firm.
#1. People create capital.
Humans, as previously stated, generate capital resources.
There can be no capital resources without people. As a result, any naturally occurring resource is not an example of a capital resource.
#2. Capital is a passive asset on its own.
Capital resources are required for any organization’s success. However, they are unable to function on their own.
Labour is required for capital resources to be effective. Consider work procedures as an example of intellectual effort.
These procedures are meaningless unless people use them. The same may be said for human capital resources like education and skills. The mere fact that they exist has no effect.
To put these abilities to use, human labour is required.
#3. Capital is mobile.
Capital resources, unlike natural resources such as land, are very movable.
These resources can move from one location to another, whether they are concrete resources like machinery or intangible resources like human capital.
When this happens with human capital, the issue is known as brain drain. This is another reason why organizations must try to increase retention rates.
If companies do not invest in their intellectual, social, and human capital, they risk having these resources depleted when employees leave.
#4. Capital can lose value.
It appears self-evident that tangible capital assets such as manufacturing plants and buildings decline with time. However, intellectual, social, and human capital are all subject to depreciation.
Effective work methods, for example, can become outmoded or even obsolete as industries grow.
If social capital is not maintained, it will deteriorate over time. That is one of the reasons why 39% of executives say that implementing digital collaboration platforms is the most crucial aspect in making remote work sustainable in the long run.
What does not constitute a Capital Resources?
So, what does not qualify as a capital resource?
Raw materials utilized in the production of goods are not capital resources. These are instead regarded as commodities.
Even though a commodity appears to be manufactured by humans, it is not always a capital resource. For example, if a corporation grows or manufactures silk, it is still seen as a commodity rather than a capital resource.
Labour is not a capital resource either. The knowledge and skills that enable this labour are considered capital resources, but the labour itself is not.
Examples of Capital Resources
Intellectual, social, and human capital resources are inextricably linked. They cannot exist apart from one another. So, what are some examples of capital resources and how do they interact?
Example 1: Workflow
Consider the case of a corporation training to teach a unique work procedure.
The process is intellectual capital in and of itself. The process knowledge is also important.
A company’s intellectual capital and human capital will both improve if it teaches this process to its staff.
Even if a couple of these individuals left for a competitor, the company would not lose its intellectual capital. This is due to the fact that it would keep the process itself.
It would, however, lose some human capital.
Furthermore, this training has the potential to boost social capital. Employees who interact and grow as a team might learn to trust one another and work more efficiently together.
As customers understand the new method, they might also improve their faith in the organization.
Example 2: A corporate getaway
When a company offers a company retreat to its employees, all three resources can expand. Employees will bond as a result of the one-of-a-kind event.
However, these experiences may help an organization’s human capital.
Employees who are given fascinating challenges outside of their daily life gain perspective and new points of view that they would not have had otherwise.
Example 3: Employee interactions
Human capital can be grouped together as a result of social capital.
This is how it works. When coworkers create close bonds, they begin to enjoy working together. If their colleagues stay, one employee may be persuaded to stay at a company rather than accepting an outside offer.
That same employee, on the other hand, may elect to follow their pals to another company if they are all made an offer.
What Distinguishes Capital Resources from Components of Production?
Different firms use a variety of resources in the manufacture of their goods and the delivery of their services. However, the simplest approach to classify each is to determine whether or not it is man-made. Here’s how the four variables of production compare to and differ from capital resources.
#1. Land:
Land, as an FOP, refers to all natural resources used in the creation of goods. It contains not only land, but also all raw materials derived from it, such as gold, minerals, ore, and oil. Land and all renewable and non-renewable resources extracted from it are not man-made but divinely created, and hence do not fall under the category of capital resources.
It’s worth noting that any raw material derived from the land is not a capital resource. However, if it is improved or polished further, it may qualify as a capital resource. The land is an FOP in and of itself, but it can become a capital resource if it is built or redeveloped.
#2. Labour
Labor, often known as human resources, is the labour that people do. It encompasses all of man’s physical and mental effort that contributes to production.
However, capital resources only contain man-made things (goods, equipment, infrastructure, etc.). As a result, labour is classified as a human resource rather than a capital resource.
#3. Capital
Capital goods are meant by the term capital. These are man-made objects that contribute to the manufacturing process, such as machinery, equipment, tools, hammers, and structures.
Capital Goods and capital resources are nearly equal. The majority of capital resources are classified as Factors of production.
#4. Entrepreneurship:
The concept of starting a business is referred to as entrepreneurship. This FOP is the driving force that brings the other three FOPs together to manage a firm successfully.
Conclusion
There may be many resources that enhance the production process, and there may be distinct capital resources for different or even the same industries within the category of capital resources. The following are some things to keep in mind when it comes to ‘Capital Resources.’
Capital resources are ‘man-made’ assets that are utilised in a production process, whether in a manufacturing or service organization.
The three-point requirements for recognizing a capital resource are that it must be man-made, contribute to the manufacturing process, and be usable more than once.
The raw materials used in the manufacturing process are not included in capital resources. These are solely the assets that help with production.
On various levels, capital resources differ from factors of production such as land, labour, capital, and enterprise. FOP and capital resources may, however, overlap at some point.
Natural and human resources are not included in capital resources.
Capital Resources FAQs
What are not capital resources?
Raw materials are not capital resources. Commodities are raw resources that are treated or refined to create the finished product.
How are capital resources important?
Capital resources are valued items that are required for economic activity to begin and continue to function. Money for investments, infrastructure such as power, roads, and schools, and access to technology (tools, machines) that helps firms to be more productive and lucrative are all examples of capital resources.
What is capital resources preservation?
The preservation of resources is a method of storing items such as money and other material resources for future use.
