Importance of Human Capital for an Organization

The concept of human capital (HC) has been formulated by Nobel prize-winner and economist Theodore Schultz in the early 1960s as a way of explaining the advantages of investing in education on a national scale. According to the abilities and skills of Human Resource of an organization which can be augmented with proper investment is called Human Capital (HC). HC represents the human factor in the organization; the combined intelligence, skills and expertise that gives the organization its distinctive character. The human elements of the organization are those that are capable of learning, changing, innovating and providing the creative thrust which if properly motivated can ensure the long-term survival of the organization (Hossain & Roy, 2016)

Difference between Human Capital and Human Resource (HR) Management

Human capital is driven by two important issues, namely strategy and measurement, both understood as a continuing process, strategy ranges from a low focus (emphasis in on cost); to high strategic focus. The focus of measurement ranges from a focus on activities (low) to a focus on performance enhance organizational capabilities (high end of measurement axis). The distinction between HR and HC becomes dearer when visually represent, as in the figure below (Hossain, 2016);

 

Figure I – HC Vs. HR (Source: Human Capital Review)

 

For example, Marks & Spencer is one of the best-loved retail brands, but they didn’t reach the top through marketing efforts. It was their HR strategies. They focus much on the success of the employees through their development of skills and abilities which could be identified as HC rather than HRM.  Employee engagement puts Marks & Spencer at the top of the rung of the business success ladder. According to annual staff surveys, prioritized employee skills build the backbone of the success model at Marks & Spencer. The company has a strong reputation in employee relations, winning awards and honors for how employees are treated up and down the supply chain (Rashid, 2019).

 

 Image I – Marks & Spencer  (Source: www.ft.com)

The accumulation of knowledge and human capital has a direct effect on efficiency. In advanced countries, which the growth of gross domestic product has been raised, employees training level has directly increased their working life. Most social benefits, derived from the collection of human capital, such as good health, more urban employment, reduction of crime, and increase in social correlation will affect the economic growth in the long term. The organizations’ emphasis on human capital is based on the view that the market value of organizations depends more on intangible assets especially human capital than on tangible assets. Employing and keeping the best employees in the organization is a part of this deal (Pasban & Nojedeh, 2016).

In conclusion, HC is more than new name for HR, focusing on HC required total transformation of HR to become a value adding business function-one which human capital drives organizational performance. The basic principle is very simple-developing your people (asset maximization) in direct support of your business goals, and will create and extract value from your human capital (Zakaria & Fadzila, 2011).

 

References

Hossain, M. H. & Roy, I., 2016. Human Capital Management : The New Competitive Approach. International Journal of Economics, Commerce and Management , 4(5), pp. 1020-1045.

Pasban, M. & Nojedeh, S. H., 2016. A Review of the Role of Human Capital in the Organization. Procedia - Social and Behavioral Sciences, 4(2), pp. 249-253.

Rashid, M., 2019. HR Practices on Marks & Spencer , Dhaka, Bangladesh: North South University .

Zakaria, S. & Fadzila, W., 2011. Transforming Human Resources into Human Capital. Information Management and Business Review, 2(2), pp. 48-54.