Why It’s Time for a Human Capital Strategy in Organizations

Author: D. Willis, MSHRM, SHRM-CP, March 24, 2017

Today, there exists considerable confusion on the differences between Human Capital and Human Resources.  This short article will attempt to shed a bit of light on the subject.

First, it is important to state that the term “Human Capital” is not the latest catch phrase for “Personnel.” In actuality, it is indicative of a more objective approach to Personnel Management that authentically embraces the all too familiar phrase in business, “Our employees are our greatest assets.”  Second, it is also important to clarify that the term does not imply the relegation of employees to mere data for monitoring on a spreadsheet relevant to their negative impact on the bottom line.  To the contrary, part of the discipline is largely focused on changes in generally accepted accounting procedures (GAAP) that would allow for the categorization of Human Capital Development expenditures as assets to be amortized based on their future value, rather than being immediately expensed when incurred as is currently required.

Human Capital practitioners approach employee issues with a greater objectivity than that applied by adherents to contemporary Human Resource Management principles.  Through the use of analytics and other statistically sound methods, Human Capital Practitioners work to validate procedures, as well as measure efficacy and validity of current and future practices.  Also, they seek to gauge the utility of proposed initiatives as they relate to current business objectives.  In short, Human Capital is for many, the missing piece of the puzzle for Human Resource practitioners.  As organizations like the Society for Human Resource Management (SHRM) work to secure the coveted “seat at the table,” for the profession, Human Capital Methodology has become an integral part of that strategy.  To quote Jack Welch, “They’re (HR) not the health, and happiness, picnics, benefits team.  They are the development team developing today’s and tomorrow’s leaders” (Jack Welch Management Institute, 2013).  Byung-Chul Lee, the founder of Samsung, held firmly to the belief that a company is its people.  That idea inspired the organization’s commitment to attracting, retaining, and developing its human capital (Khilji, Oh, & Manikoth, 2011, p. 4).  Lee went beyond the rhetoric associated with the value of human capital and put it into action.  His “people as foundational” philosophy must be prevalent in successful organizations today.  Intangible assets like human capital have both current and future value.  It is the forward-looking company that recognizes this and embraces the positive correlation between human capital development and organizational performance.

The company whose leadership thinks in the short-term and views investment in the development of human capital relative to the current year’s fiscal earnings, does a great disservice to itself, its employees, and future investors.  Human Capital Methodology, therefore, is not a competing approach to Human Resources.  It is instead complementary.  To make the most of an organization’s Human Resource function, learning and adopting the methods and principles of Human Capital is essential.

References

Jack Welch Management Institute. (2016, January 25). Jack Welch: The Role of HR. Herndon, VA, USA: Jack Welch Management Institute. Retrieved March 24, 2017, from https://www.youtube.com/watch?v=rByDmC0SqtM

Khilji, S. E., Oh, C. H., & Manikoth, N. N. (2011, July 8). Maintaining the “Single Samsung” spirit: New challenges in a changing environment. London, Ontario, Canada: Richard Ivey School of Business.