Introduction
The purpose of every business is to generate income by using available resources to satisfy unlimited wants. Each company and entrepreneur possess financial, physical, and human capital and aims to allocate and utilize them effectively to achieve maximum profit. Organizations and entrepreneurs differently manage human capital, with companies focusing on effective labor management and entrepreneurs using their knowledge and skills to gain profit.
Human and Physical Capital
Capital means money or assets that enhance the financial strength of an organization or individual. The most common form of capital is financial assets, which refers to money used by entrepreneurs and businesses to purchase resources and materials to make products or provide services. Physical capital includes tangible goods that assist in the production process, such as machinery, tools, equipment, and manufacturing facilities. Human capital means the stock of knowledge, skills, and talent of employees. The main difference between physical and human capital is that physical capital is tangible and is owned by the company, while human capital is intangible and owned by employees, who rent it to the company. Physical capital can be traded in the market, while human capital is not traded directly, with only the services of human capital available for sale.
Allocation of Physical Capital
To satisfy unlimited wants, all types of capital need to be allocated rationally. Allocation means assigning available resources to specific uses chosen among many possible alternatives. The key to the effective allocation of capital is strategic planning that takes into consideration both the assets’ availability and project time. In order to effectively allocate physical capital, a company needs to establish its current and long-term priorities and available resources, and plan their usage, development, and expansion in compliance with the objectives. For example, ensure that the company possesses the necessary logistical resources to provide the timely delivery of services, and restructure them to cover the expanding area of operation.
Using Labor to Make Profit
Companies utilize human capital in the form of labor to create income to satisfy unlimited wants, employing individuals who invest their talents, time, and energy to help the company to produce goods or render services. Walmart, a multinational retail corporation, employs more than 2.2 million associates around the world (Company facts, n. d., para. 1). With such a number of employees, the company is able to accomplish things that smaller businesses cannot and relies on the economy of scale to achieve high profitability. In results in the management paying less attention to employees’ needs and the company being criticized for poor working conditions, low wages, and ineffective employee relations policies.
Entrepreneurial Human Capital
Entrepreneurial human capital includes a set of factors, such as knowledge, skills, and experience, that reduce the risk of failure, increase confidence, and improve business performance. Multiple studies suggest that learning and knowledge are particularly significant for successful entrepreneurship, allowing business owners to detect opportunities, generate new ideas, and be flexible in conditions of change and uncertainty (Amin, 2018). Leadership qualities are another valuable factor that allows entrepreneurs to set goals, introduce initiatives, and motivate themselves and their employees. Using their own skills, knowledge, competencies, and talents, entrepreneurs can discern a sector where their available resources can satisfy unlimited wants while creating the highest income and set relevant goals to achieve success.
Conclusion
Effective management of physical and human capital is the key to business success for both companies and entrepreneurs. The understanding of current and long-term goals objectives and the assessment of available resources is required for the successful allocation of capital. When utilizing human capital, large corporations put more value in cheap labor, while for entrepreneurs, individual qualities and skills are more important for generating income to satisfy unlimited wants.
References
Amin, S. (2018). Does entrepreneurial human capital is important for organizational performance? Business and Economics Journal, 9(2), pp. 350–355. Web.
Company facts. (n. d.). Walmart. Web.