Human Capital

Topics: Human resource management, Management, Organizational studies and human resource management Pages: 10 (3099 words) Published: January 16, 2006
Introduction

The organisations can no longer try and convince themselves that change is an option. It is inevitable and, to survive, organisations must accept it and move forward. On that note, there is a definite shift in priorities and values in the corporate world. There is a growing interest in people as the corporate asset is part of this shift in values.

Human Capital Theory

Human Capital is the most valuable asset an organisation can hold today. It is seen increasingly as a key determinant of economic performance (Fitzsimons, 1999). Human capital is defined as the attributes of a person who are adding value to the organisation by being productive in some economic context which can either make an organisation fly or fall (Purcell & Ahlstrand, 1994). These collective sums of attributes include life experience, knowledge, inventiveness, energy and enthusiasm that people choose to invest in their work (Beardwell & Holden, 1997).

Gary Becker in his book Human Capital defines human capital theory as activities that increase future consumption possibilities by increasing the resources in people (Sorensen, 2000). The central argument of the human capital theory is that training is regarded as an investment in human capital, where the expectation of a higher future productivity level becomes the reason for undertaking training (Sorensen, 2004). Human capital can be categorised into two basic forms i.e. general and specific (Spencer, 2004). The investment aspect is essential in the human capital theory. The acquisition of human capital through training and education is an investment in the sense that the individual foregoes current income for increased potential earnings in the future (Pfeffer, 1998). Investment in specific human capital will increase an employee's productivity, but only at the work place where the employee is attached to. Investment in general human capital, on the other hand, increases an employee's productivity at other work places than the work place the employee is connected with at the time of investment (Sorensen, 2004). The theory also suggests that this kind of investment will be joint effort between the employer and employee.

Nevertheless, at the practical level, human capital is not just knowledge and skills; it is also people's willingness to apply their knowledge at work. Unlike other assets, people cannot be deployed against their wishes. The value they create for their organisation depends on their level of commitments and efforts, as much as on their know-how (Spencer, 2004). Their knowledge exists in two basic forms (Spencer, 2004):-

* Explicit knowledge - information and skills that are easily communicated, documented and conveyed to others.

* Tacit knowledge - subjective and experiential based knowledge (ways of doing things) such as intuition, feelings and mental models and technical skills such as craft and know-how.

Tacit knowledge functions as a background knowledge which assists in accomplishing tasks. Without this knowledge the tasks cannot be accomplished as well and learning of the task takes much longer.

The human element of 21st century organisations is a key performance indicator and as such should be recognised, protected and nurtured by employers to maintain and improve overall performance in the rapidly evolving markets of the information age, in which knowledge is power and the rules of the organisation game have changed fundamentally and irreversibly (Pfeffer, 1998). This emergence of the idea of knowledge as a key source of competitive advantage has led to fundamental shift of focus towards people and acceptance of the roles they play in organisational performance.

Human Capital - critical investment for the future

Organisations today operate in a fast changing business environment. A certain consensus seems to be emerging regarding the changing basis for competition among organisations. Given easy access nowadays to the technologies required...
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