What is Human Capital?

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what-is-human-capital

 

When it comes to the discussion of employees and your workforce, the words “human capital” shouldn’t be far behind. Managers and leaders throw around statements like, “Are people are our most valuable asset,” and “Our key competitive difference is our people.” And yet, few companies actually mean what they say and do what they say. Why is that?

The fundamental challenge for all organizations unless we are staffing our organizations with cyborgs and robots is our people. It’s a slippery slope between keeping our employees happy while also expecting they perform at maximum capacity and flawlessly at that. Each day, as business leaders we are expecting our workforce, our human capital to perform at maximum velocity while exerting as little restraining force as possible to achieve peak business performance. Just like the physics of maximum velocity without proper identification, planning and focus, it just doesn’t add up.

If humans account for 100% in a business’s success, it makes sense that a CEO and executive team would consider their human capital to be their top priority. Ninety-three percent in fact, do according to a 2013 Skillsoft study and yet employment engagement and worth is at a nearly all time low. I hate to be cynical but sometimes a company’s focus on engagement and employee development is meant for the corporate elite like high potential employees or it is merely a marketing play to drive employee productivity. Self-imposed processes, policies and business often get in the way of what makes your business what it is today.

Organizations do a lot of dancing around when it comes to human capital because it’s the cornerstone of everything we do and yet most organizations spend more time calculating profits than understanding, appreciating and developing their human capital.

So What is Human Capital

Human capital is a combination of people, process, environment, performance and measures leading our organization to a single common goal. Some of these measures can be in the form of recruiting metrics or HR formulas as well as more all encompassing measures like quarterly revenues and annual net capital.

When we look at one of the most foundational finance and accounting formulas, we understand how to calculate and articulate without question.

owners-equityIn business our assets are normally concrete things like our office space, money in the bank, land and a combination of fixed and liquid assets we own. Our liabilities account for our debts like property payments, credit cards and other expenses we incur. Subtract the two and you can find your network worth, owner’s equity or net capital. In keeping with the same theory the measurement for human capital should look like this:

formula for human capital

 

Human Capital Measurement

The question remains what differentiates simple assets or liabilities from their human counterparts? Are simple human capital metrics and measurement like cost per hire, calculating employee turnover and other HR metrics enough? The short answer is no. The challenge with placing value on human capital is that their are elements that can’t be auto populated, generated or forecasted because the human spirit more than a sales quota and widgets per hours. It’s rooted in who we are as an individual or as an organization going beyond numbers into an intangible element we cannot calculate. Human capital is our people and our people define our culture, our success and overcome obstacles because of thoughts, feelings and emotions not because of a spreadsheet or computer program.  Human capital is the heart of what makes a business unique and alive. In business, human capital is at the heart of what we do.

Photo Credit Big Stock Photo.  

 

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Comments

  1. Human Capital is a hideous term that was first banded around in the early 1990s and which I immediately thought made employees sound like nothing more than cattle or sheep, each with a price on their head. The world needs less corporate speak, less stupid hybrid words and more plain common sense, comprehensible and maybe even flattering terminology.

    Reply
  2. I wholeheartedly agree with the previous comment regarding the term Human Capital. It is utterly demeaning to the people to whom it is applied and belongs in the same waste bin of gobbledygook as all the other corporate speak.

    Mark |
    Reply
    • Mark,

      I agree with you. It’s a stupid word and yet we are the Human Capital industry. There are many terms in this industry that are created just for the sake of creating like talent community and social recruiting. Like human capital, these don’t really articulate what it is that they actually do.

      The challenge is that business leaders are using these terms to describe their teams focusing on placing a value that is numbers based when in reality human capital is pretty intangible. Don’t tell that to the fans of Big Data in our space.

      If human capital doesn’t work, what are we supposed to call our people? There really is no right answer I think without sounding like we are herding sheep and cattle which in fact is alot of what human capital is really all about.

      JMM

      Reply

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