2.8 Organizational Resources

Human capital consists of everything to do with the employees of an organization. It consists of all the experience, knowledge, education, creativity, and abilities of the individuals within a firm. Human capital carries incredible value as a firm’s premier source of innovation and profitability. Without credible human capital, all other capital is useless and unprofitable.

Physical capital includes everything a firm uses for the creation of a product apart from raw materials. Physical capital may include all production equipment, computers, vehicles, and buildings a firm owns and uses for operation.

Financial capital is the cash a firm uses to purchase assets necessary for business operation.

Information capital can refer both to information technology – databases and networks – which help a firm operate and function, and business intelligence which form the backbone of the business and its operation. This concept is built firmly on the idea that information is as valuable as tangible assets and physical capital and is just as vital as any other resource a firm may have.

Natural resources consist of all raw material and substances used in production. Materials such as minerals, lumber, water, livestock, land, and crops are classified as natural resources. Given many firms deal solely with finished products, manufacturing firms and producers are the most common firms to exploit raw materials and be concerned with natural resources.

Realizing a firm’s organizational resources is the start to strategic organizational thinking. Finding where a firm’s strengths and weaknesses are is critical. For example, firms lacking in human capital may consider finding new employees. Those with remarkable human capital should initiate programs which boost employee autonomy and creativity in order to best fit the value of their resources. Google, for example, recognizing the incredible human capital within their firm, gives their employees one day of work time a week to work on whatever projects they want. Such a loose and unorthodox program has been the birthplace to key services such as Gmail.

If your company has some weaknesses that really hold you back from realizing profits, your strategy should focus on fixing these. For instance, if your company is weak in information capital because all the computer systems are outdated, you might focus on fixing this by investing both in new systems and in employee training so they can use the new computers.

However, if your firm doesn’t have any weaknesses that hold the company back unduly, you should consider focusing on a strength. If your company has lots of cash available, you could take advantage of your financial capital to grow the company. You could invest in higher quality machinery, recruit some higher-quality employees, or even acquire another company. By focusing on your strengths, you exploit your competitive advantage.