Human Capital Management

The concept human capital management’ (HCM) is based on the concept of human capital as explained in the fi rst part of this chapter. The next three sections describe the processes of human capital management - measurement, internal and external reporting.

Human Capital Management

The concept human capital management’ (HCM) is based on the concept of human capital as explained in the first part of this chapter. The next three sections describe the processes of human capital management - measurement, internal and external reporting.

Human Capital Management Defined

HCM is concerned with obtaining, analysing and reporting on data that inform 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 emphasized by Kearns (2005), ultimately about value. HCM is concerned with purposeful measurement, not just measurement. The defining characteristic of HCM is the use of metrics to guide an approach to managing people that regards them as assets and emphasizes that competitive advantage is achieved by strategic investments in those assets through employee engagement and retention, talent management and learning and development programmes. HCM provides a bridge between Human Resource and business strategy.

The Concept of Human Capital

Individuals generate, retain and use knowledge and skill (human capital) and create intellectual capital. Their knowledge is enhanced by the interactions between them (social capital) and generates the institutionalized knowledge possessed by an organization (organizational capital). These concepts of human, intellectual, social and organizational capital are explained below.

Human Capital

Human capital consists of the knowledge, skills and abilities of the people employed in an organization. The term was originated by Schultz (1961) who elaborated his concept 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.’ A more detailed definition was put forward by Bontis et al (1999), as follows.

Human capital defined, Bontis et al (1999)

Human capital 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.

Reference

• Bontis, N, Dragonetti, N C, Jacobsen, K and Roos, G (1999) The knowledge toolbox: a review of the tools available to measure and manage intangible resources, European Management Journal, 17 (4), pp 391-402.
• Kearns, P (2005) Evaluating the ROI from Learning, CIPD, London
• Schultz, T W (1961) Investment in human capital, American Economic Review, 51, March, pp 1-17.