Saturday, June 20, 2015

Three Aspects of Human Capital

Human Capital (HC) is one of the constituents of Intangible Capitals (IC).

People are the most invaluable asset, and Talent Management is always one of the most important disciplines to manage the business. There are quite a few terms that have been used. From personnel management to Human Resource Management to Human Capital Management of today. Whatever you use to refer to the people in the organization, there is an investment that is needed in order to achieve the business goal and this investment has various perspectives - one being the human perspective. So organizations need to see this as a critical aspect of growth and invest in their people, thereby taking the debate away from the term of reference to the reality of what it should be.

Human Capital (HC) as one of the constituents of Intangible Capital (IC). In finance dominant organizational culture, people have been called human cost, human resource, human asset and human capital. Human Capital does make sense within the context of the goals of a company especially when you consider Human Capital is the largest intangible asset of a company. Companies are usually very good at creating models around their tangible assets. Companies scale their growth around tangible asset models. With advancements in technology, industrial organizational psychology and expectations on people performance, the term Human Capital makes sense. To compete businesses rely so much on their people assets or human capital, to reach their goals and succeed. Here are the constitutes if Intangible Capital:
- Human Capital: This includes all the talent, competencies, and experience of your employees and managers.
- Structural Capital: This includes all knowledge that stays behind when your employees go offsite at the end of the day. There is significant structural capital in today’s organizations including recorded knowledge, processes, software and intellectual property.
-Relationship Capital: This includes all key external relationships that drive your business, with customers, suppliers, partners, outsourcing and financing partners, to name a few. This kind of capital also includes organizational brand and reputation. Due to the growing importance of networks in organizational structures, this is also sometimes called Network Capital.

There’s an argument of the term “Human Capital” as being “Inhuman” in a certain way: It is understandable that the term 'Human Capital' is somewhat offensive, after all, people offer so much value, it is a bit degrading to associate people with such a cold and calculating term, feels like a hollow attempt to sound more 'businessy,' capital and the management of it is more typically associated with buildings and equipment and things. When a company invests in an asset, it is written down over a number of years depending on its life expectancy/tax rules. When you invest in an employee, say, attending a course, its cost is written off as a cost in the accounts immediately. From an accounting perspective, there is no long-term value. From HR perspective, it may be huge for people development. Try applying pure accountancy treatments to other capital assets to employees and then you will see how they like being treated as capital.

The paradox is that If you cannot satisfy the financial criteria, then the additional things that people want out of a job simply cannot happen - you can't have the feeling of belonging, a sense of purpose, and something interesting to do unless you can keep the light on. It is also very important that data be used to enhance decision making and help lesson subjectivity. People are paid to perform for their business which benefits the enterprise. Data doesn't dumb down or change the relationship aspect of business and human interactions. Data and monetizing the value of people's contributions helps HR become a strategic leader and key stakeholder, not just a management force. Putting a price tag on the Human Capital is going to happen and  it is a correct evaluation of the abilities of people in terms of what they know, what they can do, etc.

HR has always evaluated people and performance. I/O psychology has been around as a science for over 100 years studying people performance via assessments, utility analyzes and other methods which help companies evaluate the value they are getting from their people. Assessing job fit or competencies as they relate to performance is part of HR and human capital management. Talent managers should understand the concern that they should really treat people as ends in themselves, with respect, dignity, and kindness, but corporations are artificial organizations in which ROI is indeed a criterion and in which there is a fiduciary duty to be honored.


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