Human Capital

Human capital. If you’re unfamiliar with the concept, it sounds strange. Most people define capital as something tangible, like money or stocks, which begs the question: where do the humans come into play and why should any of this matter to HR?

According to famed American economist Gary S. Becker, intangible things like a computer training course or additional schooling can be forms of capital because they “-raise earnings, improve health, or add to a person’s good habits over much of his lifetime.” These skills fall under “human capital” because they are innately attached to the people that possess them, increasing the human’s, or in this case, employee’s value in areas like greater knowledge or understanding, or productivity.

Too often, companies lose the people element of human capital and ultimately, HR’s reputation pays the price. Focusing only on numbers and tangible equity, like money or ROI, can break trust between HR and employees, and at worst, make HR seem as a watchdog for the company and not a resource for its people.

The United Nations’ Human Development Index goes a step further, suggesting we differentiate human capital’s benefits from economic development altogether and think more along the lines of human development. They write that the real objective of development should be to create an enabling environment for people to enjoy long, healthy and creative lives.

The UN also notes that human development is holistic in the sense that it’s not just about the formation of abilities (like learning a new skill), but the enjoyment of these newly found capabilities for work or leisure.

The UN also notes that human development is holistic in the sense that it's not just about the formation of abilities, but the enjoyment of these newly found capabilities for work or leisure.Click To Tweet

Echoing that concept in an article for Forbes, consultant Glenn Llopis proposes that HR should focus on bridging the gap between “human” and “resources.”

He writes,

“Human capital is how people contribute to growth. It is about allowing the individual to influence more. The individual needs to define the business – and thus should define the work that HR does.”

Human capital is how people contribute to growth. It is about allowing the individual to influence more.Click To Tweet

Llopis cites the example of Banfield Pet Hospital, a subsidiary of Mars, Inc. Banfield is the largest privately owned general veterinary practice in the country, operating more than 1,000 veterinary hospitals, including locations inside PetSmart stores. With 17,000-plus associates, Banfield recognized a need to align its growth strategy with a need for better defined human capital and its newly appointed president, Brian Garish, was determined to make their employees a focus.

In a revolutionary move, Banfield doesn’t have an HR department. Instead, they have a People & Organization department. Garish’s approach to HR is revolutionary in that he knew the company’s strategy had to focus on developing people, not just capital. Garish and Banfield’s senior vice president of People & Organization, Stephanie Neuvirth, both agree that HR can no longer be a facilitator for administrative processes, but instead must serve as a co-pilot with leadership to deliver the company’s growth strategy and the people who make it happen.

HR can no longer be a facilitator for administrative processes, but instead must serve as a co-pilot with leadership to deliver the company’s growth strategy and the people who make it happen.Click To Tweet

According to Llopis, HR as a co-pilot requires “-the kind of business acumen, strategic and organizational agility, and ability to influence business decisions with the use of data, analytics, and insights that CEOs and presidents (i.e., the pilots) don’t give them.” He writes that if HR is going connect humans with company resources, it must be empowered to do so while desiring a deeper understanding of what employees need, and what the company needs to facilitate the development of this human capital.

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In the end, all HR strategy should boil down to one thing: people, not just resources. Without people, there is no human capital to invest in and any form of data is useless. Llopis writes that the HR of the future must be about defining business by aligning company growth with the growth of its employees. The former cannot exist without the latter.

For the foreseeable future, an organization’s evolution is dependent upon HR departments becoming experts in human capital. Shape your strategy only after you invest in the most critical element of your company’s growth: your people.

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[…] of what makes a good performance. From our own perspective as HR experts, we know that too often, companies lose the people element of their human capital and ultimately, HR and management’s reputations pay the price. Focusing only on numbers and […]

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