human resources or human capital

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Human Resources or Human Capital?

Nov 9, 2010 Lillian LeBlanc

As the workforce has evolved, so has the profession that supports it. The function that is commonly called HR - short for human resources - has shifted

its focus to meet the changing needs of the organizations and employees that it serves.

Personnel to human resources

Until the 1980s, the function that supported employees was usually called personnel or personnel services. This matter-of-fact term aptly described the

collection of activities that provided services to employees. The precursor to the human resources function was focused on transactions such as hiring,

firing, setting policies, administering pay and benefits, and training staff.

As the workforce evolved and became more diverse, forward thinking companies tapped the staff of the personnel function to consider ways to meet

the divergent needs of an increasingly complex workforce. Human Resources degree programs emerged to educate professionals in thebroader

skillsetneeded to effectively service the new workforce.

Human resources gains credibility

The shift from a transaction oriented personnel department to a strategically minded human resources function moved the profession from the back

office to the board room. Human resources professionals with broad based business experience provided companies with expert advice on strategies

to recruit and retain the best and brightest employees.

Human resources blossomed into a full business partner for the organization and in many cases, the function reported directly to the CEO.

Companiesembraced the need to incorporate the people side of the business into all decisions related to operational strategy. Human resources was

often charged with preserving culture, as more companies recognized the substantial return on investment from high levels ofemployee

engagementor becoming a recognizedgreat place to work.

Human resources becomes human capital

A recent trend in the human resources field is emerging, focusing heavily onmetricsto quantify the effectiveness of human resources activities.

Understanding the measurable outcomes of human resources programs and policies is important and some in the profession are advocating a shift to

rename the function from human resources to human capital.

Websterdefines capital as accumulated goods devoted to the production of other goods. Employees certainly do assist the organization to produce

goods or provide services; therefore the workforce may indeed qualify as capital in the broadest sense. But this mindset may not be consistent with the

recognized elements of best places to work. Best workplaces are acknowledged for treating employees with respect, t rust and credibility not for

approaching staff in the same manner as machinery or inventory.

Todays human resources professional is a strategic business partner, entrusted with preserving culture by helping to enhancetrust, respect and

credibility between employees and leaders. As the profession continues to evolve, with more emphasis placed on quantifiable results, there is pressure

to change the name of the human resources function to human capital. The profession seems poised for an interesting debate between the relative

importance of soft best place attributes versus quantitative metrics in the definition of its mission.

Human Capital

by Gary S. Becker

But such tangible forms of capital are not the only type of capital. Schooling, a computer training course,

expenditures on medical care, and lectures on the virtues of punctuality and honesty are also capital. That is

because they raise earnings, improve health, or add to a persons good habits over much of his lifetime.

Therefore, economists regard expenditures onEDUCATION, training, medical care, and so on as investments

in human capital. They are called human capital because people cannot be separated from their knowledge,

skills, health, or values in the way they can be separated from their financial and physical assets.
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Education, training, and health are the most important investments in human capital. Many studies have

shown that high school and college education in the United States greatly raise a persons income, even

after netting out direct and indirect costs of schooling, and even after adjusting for the fact that people with

more education tend to have higher IQs and better-educated, richer parents. Similar evidence covering

many years is now available from more than a hundred countries with different cultures and economic

systems. The earnings of more-educated people are almost always well above average, although the gains

are generally larger in less-developed countries.

How Human Capital and Human Resources are different

Current trends in employee relations.

If you are an employer, or manage employees, you have probably heard of Human Capital. It is a new trend in workforce

management. But how does this relate to Human Resources?

We may think of "Human Resources" as a department within an organization, or as measurable labor performed by an individual.

Many of us are not familiar with the term "Human Capital" at all; still others are confused by its meaning.

The significance of the myriad contributions made by human beings, whether called human resources or human capital, reaches farbeyond any boardroom. What and how individuals contribute is critical to the growth and advancement of any given society and to

mankind, in general.

What is the difference between "Human Resources" and "Human Capital"? Perhaps the simplest explanation can be found in one of

the resources we commonly rely on to gather information - the dictionary

"Resources" have been defined as "The total means available for economic and political development, such as mineral wealth, labor

force and armaments. An available supply that can be drawn on when needed."

"Capital" is defined as "Any form of wealth employed or capable of being employed in the production of more wealth."

Simply put, by definition, resources are finite. We can strip coal, gold and iron mines until the supply is exhausted. Capital can be

infinite, as it can be used to produce more and more capital.

Few can argue that capital makes the world go round. We rely upon the powerful performance of financial capital, technologicalcapital and human capital to keep it spinning.

Human capital is partially comprised of skills, understanding, knowledge and experience - some of which may be innate. From a

broader perspective, human capital includes the character, ethics, personality and creativity of a human being. Even if we are born

with these attributes, it is often required we spend time, effort and money to retain or to grow them - thereby, increasing human

capital.

We may accumulate, maintain and increase human capital in many ways; through education, job training, work experience, life

experience, investment in health, etc. Time, money and effort are spent acquiring human capital.

Capital is capital - you spend something now, in hopes of getting a return on your investment later. Many companies have come to

recognize their investment in human capital may be the most important investment they will ever make. When it comes to human

capital, you are investing in people and the "return" you receive most likely is much more than financial gain. You may also gain

knowledge, a larger group of contacts, more productivity, increased happiness and security.

In this competitive world marketplace, the likes of which we have never seen before, it is crucial that Human Resource professionals

recognize the importance of investing in human capital. Experts agree that it costs much less to retain an existing employee than to

recruit a new one.

A recent article in Real Estate Weekly highlighted the ways in which a real estate services company both values and invests in

human capital.

Michael Rodriguez, President of Alliance Building Services, wrote about the incredibly high turnover rate in the real estate services

industry. This industry includes cleaners, security guards, messengers and restoration workers. It is quite common for industry

workers to come to work late, disinterested and ready to quit.


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Mr. Rodriguez states "To make money in business, you must invest money. The same principle applies to keeping quality

employees on staff and motivating them to do their job well". While many industries, corporations and organizations espouse "Our

employees are our most valuable asset", many "do" little or nothing to back-up this message.

The President of Alliance Building Services was determined not only to "talk the talk" but to "walk the walk" as well. Investing in his

employees became a top priority. He decided to focus on improving employee services and technology to show employees he

cares. Improvements included:

Setting up an Employee Service Center; this center is staffed by knowledgeable professionals who are in place solely to provided

better services to employees. Employees get immediate assistance with questions regarding medical insurance, safety concerns,

personnel issues, etc. Employees now feel they are being "heard".

New computers, along with the latest software, have been added. Many of Alliance's staff had little knowledge of computer basics.

Free thirty-minute instructional computer classes are now of fered during lunch breaks and before or after work. These upgrades

benefit the company by increasing productivity and efficiency. Employees are learning a new, marketable skill which boosts morale.

New recognition programs have been put in place, such as "Employee of the Month, Quarter and Year". Each honoree is rewarded

with a bonus, a paid day off and their picture showcased in Real Estate Weekly.

Most employees felt there was no room for advancement in the company or within the industry - they believed they had "dead-end

jobs". Alliance now offers partial tuition reimbursement to all employees. With a chance to increase their knowledge base and their

own human capital, many employees have taken advantage of this opportunity.

Since these changes have been implanted, Mr. Rodriguez is pleased to report a 30% decrease in turnover in one quarter, a happierand much more productive staff.\\

Linking knowledge management with human capital strategy

development

To get anywhere with knowledge management, you must have a strategy

and individuals must be persuaded to contribute to both forumulation andimplementation. (chourides et al)

According to Liebowitz (2004), knowledge management has an crucial link

with creation of a human capital strategy, for which the U.S government has

introduced a Chief Human Capital Officer in every agency or department.

He has placed Knowledge management as on of the four pillars of human

capital strategy, the other three being competency, performance and change

management. KM process is divided into knowledge identification, sharing,

application and creation. The four steps of both human capital strategy andknowledge management are related to Maslow Hierarchy of needs to create

a link with each other.

human resources or human capital

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