Human Capital Is Vitally Important for an Organization's Success

Human capital is the stock of competencies, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value

The set of skills which an employee acquires on the job, through training and experience, and which increase that employee's value in the marketplace.

Many theories connect investment in human capital development to education, and the role of human capital in economic development, productivity growth, and innovation has frequently been cited as a justification for government subsidies for education and job skills training.

Human capital is vitally important for an organization's success

Human capital increases through education and experience

Human capital may be specific to particular jobs or tasks and not general and readily transferable.

Recent work has attempted to improve the linkages between education and the needs of the labor market by linking labor market data to education loan pricing.

EX: As doctors get more experience; their competence base will increase, as will their endowment of human capital

Human capital is an intangible asset - it is not owned by the firm that employs it and is generally not fungible. Specifically, individuals arrive at 9am and leave at 5pm (in the conventional office model) taking most of their knowledge and relationships (human capital) with them.

Human capital consumes time in these key activities:

1.  Knowledge (activities involving one employee),

2.  Collaboration (activities involving more than 1 employee),

3.  Processes (activities specifically focused on the knowledge and collaborative activities generated by organizational structure– such as silo impacts, internal politics, etc.) and

4.  Absence (annual leave, sick leave, holidays, etc.).

Human capital risk accumulates in four primary categories:

1.  Absence activities (activities related to employees not showing up for work such as sick leave, industrial action, etc.)

2.  Collaborative activities: meetings, phone calls, instructor led training, etc.;

3.  Knowledge Activities: finding/retrieving information, research, email, messaging, blogging, information analysis, etc.

4.  Process activities: combo of knowledge and collaborative activities: errors/rework, manual data transformation, stress, politics, etc.

Investing in human capital, people assets

Today's competitive global market environment brings steadily increasing pressure to improve return on investment (ROI). In the push for improvement, an organization’s biggest investment and its primary assets are its human capital.

Asset management

Many companies are focused on management of capital assets – maximizing utilization and minimizing downtime with a minimum of upkeep and maintenance.

Operating ROI is constantly monitored and can be made available at any time.

But there are no real measurements to monitor and maximize company’s biggest assets – people. In most companies this is the realm of “human resources”, often reporting at a non-executive level to a financial manager and mostly related to payroll, vacations, insurance, legal regulations and discipline. Even in large corporations, the Human Resource (HR) Manager is often ranked lower than other executives.

·  workers should be treated as assets, not as liabilities to be minimized or eliminated

·  the corporation is a human community built on trust and respect for workers, and not just a profit-making machine

·  there is "no business without a customer"

·  knowledge is the essential capital of the New Economy

People are a company’s primary assets; they represent the knowledge base, the proprietary edge.

Successful organizations recognize that intellectual capital and knowledge management are the core ingredients of success. Good businesses know that while most other assets are replaceable and become obsolete, developing and nurturing people, and exploiting their knowledge and experience is paramount.

Human Capital

In order to value people, companies must move beyond the concept of human resources and toward the notion of human capital. The term “resource” implies an available supply that can be drawn upon when needed. The term “capital,” however, refers to something that gains or losses value depending on how much is invested in it, and how that investment is made.

Here are some ideas that flow from the concept of “human capital”:

·  People are assets that must be valued, measured, and developed.

·  People are not hard assets that depreciate in value and can be written off; they are dynamic assets can increase in value with time.

·  People are primary assets. “Human capital” represents the remaining assets of a business after everything else has been eliminated.

·  The systems created to recruit, reward and develop people form the major part of any company’s value — more than other assets such as cash, land, plants and equipment, and intellectual property.

·  Company value and, therefore, shareholder value suffers when human capital is mismanaged.

Universities

Colleges and universities can contribute to the economic success of a region by deepening the skills and knowledge—or human capital—of its residents. Producing graduates who join the region’s educated workforce is one way these institutions increase human capital levels. In addition, the knowledge and technologies created through research activities at area universities may not only attract new firms to a region but also help existing businesses expand and innovate. These “spillover effects” can in turn raise the region’s demand for high-skilled workers.

Human Capital and Local Economic Development

It has long been recognized that a person’s human capital contributes

to his or her economic success. While human capital covers an array

of knowledge and skills, a college degree represents a significant

block of human capital—and one that is easily quantified. The

number of people holding college degrees differs widely across the

country and, correspondingly, so does economic activity. Research

shows a positive relationship between the share of a metro area’s working-age population holding at least a four-year college degree

Higher levels of human capital in a region can contribute to

higher levels of economic activity for several reasons. Human capital

increases individual-level productivity and the generation of ideas.

By extension, a region having more people with higher levels of

human capital should have greater economic activity overall. However,

the total effect of higher levels of human capital on economic

activity is larger than the sum of its parts. The geographic concentration

of human capital facilitates what economists refer to as

“knowledge spillovers”—the transfer of knowledge and skills from

one individual to another. One person may, through observation and

communication, learn skills from another; alternatively, the sharing

of ideas among individuals may generate new insights that increase

the knowledge of the group. When people increase their knowledge

in these ways, they create a secondary pathway that increases human

capital, which can further enhance regional productivity, encourage

innovation, and promote growth.

Other studies have shown that regions with higher levels of

human capital also tend to have higher wages, more innovation,

faster population and employment growth, and greater prospects for

“reinvention” as the economy changes over time. Given the impact

of human capital on a region’s economic performance, it is important

to understand which factors help explain the large differences in human capital levels across metropolitan areas.

Higher Education Activities and Local Human Capital

In addition to employing a large number of high-skilled workers,

colleges and universities have the potential to raise local human

capital levels in two other ways. First, and perhaps most obviously,

these institutions can increase the supply of human capital by

producing skilled labor. Newly minted graduates directly raise human

capital in a region if they remain in the area and enter the local labor

market. Second, much of the research and development (R&D)

activity in the United States occurs at colleges and universities. R&D

activities can also raise an area’s human capital levels if there are

spillovers into the local economy that increase the demand for human

capital, regardless of whether that human capital is produced

Conclusion

The amount of human capital in a region is a key determinant of

its economic vitality and long-run economic success. As the U.S.

economy continues to shift away from manufacturing and the distribution

of goods toward the production of knowledge and ideas, the

importance of human capital to a region will only grow.

Colleges and universities can facilitate an increase in both the

supply of and demand for human capital by producing degrees and

engaging in research activities. As a result, higher education institutions

can play a vital role in local economic development.

Nevertheless, in their efforts to enhance local human capital,

policymakers should consider a number of issues. First, while

colleges and universities do increase the supply of human capital

in metropolitan areas, there is only a small positive relationship between the human capital produced by these institutions and the

local stock of human capital. Thus, policymakers have limited ability

to raise the level of human capital in a region if they focus solely on

increasing the number of local graduates. The demand side of the

labor market is an important factor—local graduates need job

opportunities in order to stay.