Human Capital in simple words is “the skill set an employee acquires on job through training and experience which results into generating economic value”.
Many earlier economic theories referred to Human Capital as labor, one of the 3 factors of production.
Adam Smith saw human capital as skills, dexterity (physical, intellectual, psychological, etc) and judgment.
Human Capital can even be termed as Intellectual Capital and hence human resources. It is the ability to work together for a common purpose of creating wealth.
Management theories are sheering round to re-evaluate the invaluable human factor and its critical contribution to creation of wealth. In fact, theorists have even stressed that people are the wealth. Experts assert that while the other forms of capital, including tools, equipment, materials and technology, only represent the inert potentials, it is the human capital that converts this potential and facilitates the creation of wealth.
But, there are not many organizations which identify human capital to be as important & critical as other forms of capital. Physical assets, capital go on companies’ balance sheet however human resource does not.
On the other hand people driven organizations like, consulting firms and accounting firms deem to have better understanding of human resource than manufacturing firms.
Talent is the strategic differentiator to utilize human capital optimally. Ability to scale talent will give HR a dramatic shift from Business Support entity to a Business Partner on the table. Infosys is one of the very few organizations where human capital figures on the balance sheet affirming their asset value.
What should business leaders do in the face of current economic crisis, focus on maintaining cash or people? What should be their top priority? This question has been raised in Deloitte debates.
What is your take?
January 1st, 2009 on 3:54 pm
As Human Resource is of paramount importance, so is cash. Human beings do eat, so does a company require cash to maintain its longevity as a going concern. It seems better to retrench few to save many and the company in the process. These are never going to be easy issues to tackle.
That said, smart companies reassess their talent pool and redesign jobs to make them more engaging for people undertaking them. The underlying objective is to give more challenges to deserving people and sustain a sharp focus on goal and objectives to the company. Layoffs in a downturn may have an adverse impact on the external and internal reputation of a company, and it is always difficult to rebuild company culture once it has been destroyed. Here, efficient management of human capital and their effective utilization remains the key.