Intangible assets and the “Great Resignation”

Article | 4 November 2021

Intangible assets and the “Great Resignation”

Intangible assets and the “Great Resignation”

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COVID-19 has unquestionably changed the way we live and work. For many, it has provided a moment to pause and seriously reflect on their job and career path. It is therefore unsurprising that many employees have switched, or are actively considering switching, their jobs due to the COVID-19 pandemic. Unlike the typical rates of employee churn one might expect in a regular year, the level of resignations due to COVID-19 is much higher than anticipated, leading to what has been termed the “Great Resignation”.

Recent research by Microsoft found that more than 40% of the global workforce are considering leaving their current employers this year. In addition, analysis by the Harvard Business Review indicates that employees aged between 30-45 years have experienced the greatest increase in resignation rates. Interestingly, industries with the highest resignation rates – notably technology and healthcare industries – are the same that experienced a surge in demand due to the pandemic.

So, what do high resignation rates have to do with intangible assets? Simple: intellectual capital.

What do we mean by intellectual capital?

Put simply, intellectual capital is the intangible resource of an organisation. It is the result of mental processes that form a set of intangible assets and covers human capital (competencies of its people), relational capital (value relating to relationships), and structural capital (everything that is left when employees go home). In other words, intellectual capital is the sum of everything everybody in a company knows that gives it a competitive edge.

Given intellectual capital can be a vague idea to understand, the following examples help to illustrate what is intellectual capital:

Human Capital

A technology company’s human capital consists of all the knowledge, expertise, and skills of its employees. Therefore, hiring a software engineer who is an expert in artificial intelligence (AI) effectively bolsters its human capital by adding that extra amount of knowledge.

Relational Capital

A company has a long-term, mutually beneficial relationship with its supplier. This relationship adds value to the company’s relational capital through a positive reputation and a positive relationship with an external entity. This positive relationship is also captured by trade marks, brand-loyal customers, and partnerships, all adding to the company’s relational capital.

Structural Capital

If a company maximises efficiency in decision-making and processes through its organisational structure, it effectively adds value to its structural capital. It’s also not just about processes and document procedures, for instance, strong company culture is another example of structural capital. This is not necessarily easy to measure, but that doesn’t mean it isn’t vital to the success of an organisation.

Loss of Employees

Not all employees have the same value. For example, those in R&D programs or those who specialist skills tend to have a greater value. The cost of filling the void left by an exiting higher-value employee can be far more than their remuneration, as their knowledge of the organisation, let alone what knowledge they may take with them, needs to be replaced. Loss of confidential information such as trade secrets is also a risk with exiting employees.

Resignation of employees will always happen, and the loss of a single employee may be easy to deal with. But the resignation of many employees in short succession, especially from a concentrated division of a company, can be profound as the loss of an employee affects human capital, relation capital, and, to a lesser extent, structural capital.

What can organisations do to protect intellectual capital?

To know what an organisation stands to lose, it must first understand what it has. Of course, knowing what an organisation has is often easier said than done, but documenting what intellectual capital an organisation provides insights into key employees and what they know about the organisation. Only then can an organisation make appropriate plans and implement structures to help retain intellectual capital. While the Great Resignation may end up affecting most organisations, those who are well-prepared will be able to maintain their pace of business and ultimately their competitiveness.

Author

Matthew Yeates

Partner | Managing Director