Human Capital Management

 

Introduction

The expression "human capital management" (HCM) describes a collection of practices that transform conventional HR duties into chances for the company to enhance productivity, interest, and income. By appropriate management and sufficient investment, HCM is dedicated to optimizing the value of human capital as rather than estimating the cost of maintaining human resources. As defined by Baron, A & Armstrong, M,(2007), HCM is concerned with obtaining, analyzing and reporting on data which informs the direction of value-adding people management strategic, investment and operational decisions at corporate level and at the level of front-line management. It is, as Kearns,(2005) emphasized, ultimately about value.

 The concept of human capital

Intellectual capital and human capital are produced, retained, and used by individuals. Their contacts with one another (social capital) enhance their knowledge, which in turn produces the institutionalized knowledge that an organization possesses (organizational capital).The knowledge, skills, and abilities of the individuals working for a company make up its human capital. The creation and analysis of the data required to grow and manage these individuals is the focus of HCM.

The term ‘human capital’ was originated by Schultz, (1961), who elaborated his notion in 1981 as follows:

Consider all human abilities to be either innate or acquired. Attributes… which are valuable and can be augmented by appropriate investment will be human capital.

 Intellectual capital

Intellectual capital is the value of a company's employee knowledge, skills, business training, or any proprietary information that may provide the company with a competitive edge. Intellectual capital is most commonly broken down into three categories.

                    Figure 1/Intellectual capital components (Sources: https://www.wallstreetmojo.com/intellectual-capital/)

Human capital associated with the overarching notion of intellectual capital. This is defined as the stocks and flows of knowledge available to an organization. Bontis, (1998) defined intangible resources as the factors other than financial and physical assets that contribute to the value-generating processes of a firm and are under its control.

Relationship capital (social capital) is another element of intellectual capital. It consists of the knowledge derived from networks of relationships within and outside the organization. The concept of social capital was defined by Putnam,(1996) as ‘the features of social life – networks, norms and trust – that enable participants to act together more effectively to pursue shared objectives.

Structural capital (Organizational capital) is the institutionalized knowledge possessed by an organization which is stored in databases, manuals and so on (Youndt, 2000).

 The need for human capital measurement

The case for developing techniques for valuing human capital to support decision-making in people management is strong. This could entail figuring out which important factors influence people management and simulating the impact of changing them. It is necessary to create a framework for the collection and analysis of trustworthy data, such as added value per employee, productivity, and measures of employee behaviour. Becker et al (2001) refer to the need to develop a ‘high-performance perspective’ in which HR and other executives view HR as a system embedded within the larger system of the firm’s strategy implementation.

Figure 2/Need to determine HCM Value

Reasons to measure human capital

The recognized importance of achieving human capital advantage has led to an interest in the development of methods of measuring the value and impact of that capital:

·        Human capital constitutes a key element of the market worth of a company.

·         Employees bring value, and it makes sense to evaluate this value in order to inform HR strategy and track the success and consequences of HR procedures and policies.

·         The process of developing metrics, gathering data, and analysing it will direct the organization's attention toward what must be done to locate, retain, develop, and maximize its human capital.

·         Measurements can be used to monitor progress in achieving strategic HR goals and generally to evaluate the effectiveness of HR practices.

Conclusion

The success of organizations and economic progress are largely dependent on human capital. The concept of "human capital," which describes an individual's knowledge, skills, abilities, and experiences that add to their value and productivity in the workforce. Productivity, creativity, and competitiveness can all be increased by investing in human capital through programs for education, training, and development.

References

Armstrong, M., 2010. Human capital management. In: Essential Human Resources Management Practice. London: Great Britain and the United States in 2010 by Kogan Page Limited,, pp. PP 71-83.

Baron, A & Armstrong, M, 2007. Human Capital Management, Achieving added value through people, Kogan Page, London.

Bontis, N., 1998. Intellectual capital: an exploratory study that develops measures and models. Management decision, Volume 36 (2), p. pp 63 –76.

Chen, J., 2021. Investopedia. [Online]
Available at: https://www.investopedia.com/terms/i/intellectual_capital.asp
[Accessed 8th April 2024].

Kearns, P., 2005. Evaluating the ROI from Learning, CIPD, London.

Putnam, R., 1996. Who killed civic America?. Prospect, Volume March, p. pp 66 – 72.

Schultz, T. W., 1961. Investment in human capital,. American Economic Review,, Volume 51 March, p. pp 1–17.

Youndt, M. A., 2000. Human resource considerations and value creation. the mediating role of intellectual capital, paper delivered at National Conference of U S Academy of Management, Toronto,, Volume August.