Investing in Your Company's Human Capital: Strategies to Avoid Spending Too Little--Or Too Much

Investing in Your Company's Human Capital: Strategies to Avoid Spending Too Little--Or Too Much

Investing in Your Company's Human Capital: Strategies to Avoid Spending Too Little--Or Too Much

Investing in Your Company's Human Capital: Strategies to Avoid Spending Too Little--Or Too Much

Excerpt

The press is exploding with coverage of human capital. The number of documents produced containing the term [human capital] increased from almost 700 in 1993 to over 8,000 in 2003. This growth coverage underscores the importance of human capital in the management of organizations. While the term human capital is commonplace in organizations, management's role in this important resource is often unclear. This lack of clarity lends to the mystery of human capital investment. Investment in this resource now commands much executive time and attention—requiring a concerted pursuit for the optimum investment level.

The concept of human capital is not new. It has been used by economists as far back as Adam Smith in the eighteenth century. Recently, economists who specialize in human capital theory have won Nobel Prizes; Gary Becker is perhaps the most well-known. Human capital theory explores the ways individuals and society derive economic benefits from investment in people. From an economist's point of view, human capital designates investments in improving competencies and skills

The management community has a broader view of human capital. For example, The Human Resources Glossary by William R. Tracey, published by St. Lucie Press, defines human capital as the return an organization gains from the loyalty, creativity, effort, accomplishments, and productivity of its employees. It equates to, and may actually exceed, the productive capacity of machine capital and investment in research and development.

While there is no consistent definition among human resources professionals and executives, a consistent theme is that human capital represents the relationship between what organizations invest in employees and the emerging success. The relationship to success is the mystery. Imagine this scenario. The CEO of a $5 billion revenue company proposes to its board of directors that . . .

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