Human capital is the collective value of the capabilities, knowledge, skills, life experiences, and motivation of an organization’s workforce. It is also known as intellectual capital which is the knowledge, creativity, and decision making that people contribute in an organization (Zinni et al, 2011). Many companies focus far too much on measuring return on invested capital (ROIC) rather than measuring the contributions made by their talented employees (Bryan, 2007). Organizations should realize the importance of human assets and how they can be used to predict the corporate performance and remain competitive in their specific industry. From the article “Blind Investment” by Robert J. Grossman, the main reasons for why Wall Street analysts are not interested in the human capital of a firm are due to their narrow view of corporate worth and lack of understanding of HR strategies. The investment analysts are hooked on short-term cost-control which means that they can easily lose sight or misinterpret the big picture on long-term or short-term investments. (Grossman, 2005). They tend to evaluate a company by focusing on a narrow set of numbers from financial statements which can create a biased or one-sided judgment. They also lack the knowledge to recognize the importance of human assets. This is all due to their limited exposure to strategic HR from their own HR department/ employer. The HR departments in the financial industry are rigorously concentrated on cleaning up employee relation problems and implementing sophisticated compensation packages and they are neglecting the importance of continuous competency improvement or succession planning for their employees (Grossman, 2005). Combined with the deficiency in HR awareness and the analysts ' narrow-minded, self-confident personality, the importance of Human Capital will continue to be a foreign measure to them in appraising the potential of selected organizations.
References: Bryan, L. L. (2007). The new metrics of corporate performance: Profit per employee. McKinsey Quarterly, 1, 56. Evans, G. (2007). ROI: Measuring the Contribution of Human Capital. Network Spring pg 33-35. Retrieved from http://www.wynfordgroup.com/whats_new/Measuring_the_Contribution_of_Human_Capital.pdf Fitz-Enz, J. (2000). The ROI of human capital: Measuring the economic value of employee performance. Amacom Books. Grossman, R. J. (2005). Blind investment. HR Magazine, 50(1), 33-35. Kroll, K. M. (2006). Repurposing metrics for HR. HR MAGAZINE, 51(7), 64. Zinni, Deborah; Mathis, Robert; and Jackson, John. (2011). Human Resource Management. Second Canadian Edition. Thomson Nelson. ISBN-10: 0176501967; ISBN-13: 978-0-17-650196-9