To Replace Assets or Improve Them?

May 28, 2021

Posted on 28th May 2021 at 14:40

From Our What’sUp? Workshop 26 May 2021

Many businesses have assets in the form of equipment which is used in the provision of services or manufacture. Each asset has an expected life, and the cost of these assets is offset in the accounts over a period of time so that the value within the company reduces.
That’s the financial aspect.
However, this same equipment adds value to the output of the company. Once the expected life has been reached, do we discard them and purchase new ones?
Rarely. If kept in good condition, assets can continue to provide good service for some time yet, although wear and tear may take its toll and the output or quality might reduce over time.
Sometimes the assets can be upgraded to improve productivity, change processes or add new functions – particularly related to software – but this can be a risky approach as your physical equipment may differ in some ways to the manufactured one, after some usage, so equipment performance isn’t necessarily 100% guaranteed, unless done in the manufacturer’s plant. Other factors such as downtime, reduced productivity, training requirements and installation costs add to this consideration, so on-site asset improvements need a very balanced approach to make them worthwhile.
Now let’s focus on the other major asset of a business – its people. If we consider the decision about whether to improve or replace, hands are held up in horror at the concept of replacing someone with another of a very similar function; there are rules and procedures governing this anyway. So, the option is really to improve the human asset.
But how to do this?
Well, there’s training, for one. Many businesses support apprenticeship schemes, others find that they spend lots of time providing apprentice training, only for the apprentices to move on at the end of the training to a (slightly) higher paid job. Other training may be offered or delivered, and frequently this is targeted at the business aspirations of the company, and not necessarily the aspirations of the worker (of course, there are exceptions).
A popular approach for many companies is through promotion. An employee is recognised for their work by being given more responsibility, often supervisory or managerial tasks as well, coupled with a pay increase (and usually expected to work additional hours). This is “in recognition of their good work and increasing their status”. The extra pay is nice, and it’s good to be recognised, but does that employee know how to manage, or even want to? It often seems that the only way to gain recognition is through a progression of the hierarchy.
In our panel discussion, we considered smaller businesses with a stable workforce and why people may move on. A strong likely cause seems to be that a ceiling exists in the hierarchy where people with skills are in a role that they’re not likely to vacate any time soon, and the promising workers see that serving time is going to be a major factor in development and improvement of their skills.
So, they resign. And you’ve lost some valuable asset and going to have to train another one.
Let’s consider the employee as an individual; they may have family or personal commitments, they may have aspirations that you know nothing about, they make have some cracking ideas, but there’s no way to let you know about them. Whilst it’s not the simplest approach for the company to try to understand every member of your workforce, there are likely to be some hidden talents that not only will help your business develop, grow and improve, but with some support, will pay back your investment massively. It can be as simple as providing the support to enable a worker to pass their GCSE Maths that they failed at school and which has knocked their confidence, to release an advocate of change and improvement that costs very little to achieve.
Let’s not think of our employees as machinery, but as adaptable assets.