What is Human Capital? Human capital is just one of an organisation’s intangible assets. It is basically all of the competencies and commitment of the people within an organisation i.e. their skills, experience, potential and capacity. Other examples of intangible assets include: brand, software, design, working methods and customer relationships. Thehuman capital asset captures all the people oriented capabilities we need for a business to be successful.
It’s important to remember, however, that individuals are only an asset insofar as they choose to invest their human capital in an organisation.
Some people find the term Human Capital somewhat mechanistic, but human capital is not about describing people as economic units, rather it is away of viewing people as critical contributors to an organisation’s success. This then throws the spotlight on how businesses invest in their human capital asset, in order for it to add value. For any commercial organisation, this is an important component to understand. If a company understands how its human capital contributes to their business success, it can then be measured and managed moreeffectively.
Human capital management is a reciprocal relationship between supply and demand: employees, contractors and consultants invest their own human capital into business enterprises and the business enterprises need to manage the supplier. Any organisation interested in its performance will naturally ask how well they are managing this asset to ensure maximum return on their investment.In the same way, all employees, contractors, consultants and providers of human capital want to ensure they are getting the appropriate return for their own human capital investing through salary, bonuses, benefits, and so on.
Understanding how and why people add value or not to an organisation is an important, and difficult, management skill
st for the 21 century.
Why is Human Capital anincreasingly important issue? Human capital has never been more critical to competitiveness, because the world has changed. Over the last 15 years we have witnessed a revolution in the workforce, as well as in the workplace.
The Workplace Increasingly the developed world has evolved into a service and information economy. In an information economy, people are the critical asset and in a serviceeconomy many more outputs are intangible, as much as 80 per cent of a company’s worth is now tied to its people. Access to financial capital is no longer a source of competitive advantage; our competitiveness increasingly derives from know-how, or people’s abilities, skills and competence.
People, the human capital asset, with the right profile and capability provide an advantage, which is noteasily replicated by competitors.
The Workforce At the same time, the labour force has also changed dramatically. Organisations know they need people to deliver value in new and different ways, and that those people they depend on have changed. For example, we see an aging, more diverse population, with more women entering the workforce, more dual-earner couples. However businesses can stillstruggle with a general shortage of the skills required in a service and information economy.
The war for talent in the human capital market place means businesses can’t take for granted that individuals will want to invest their own human capital in an organisation. Elements, other than traditional pay and job security, need to be put in place to attract and retain top talent.
Thesechanges have culminated to ensure that human capital is becoming a major driver for organisational performance.
Forty-six per cent of Chief Executives say that finding good people and keeping them is their single biggest worry and most fear their employees are ill-equipped in terms of skills. The investment community is now probing human capital issues, yet most Chief Finance Officers say they...