Discovering the Human in Human Capital
The CHRO of a successful digital entertainment firm recently illustrated their human resource management philosophy of ‘A players only’ by narrating the story of how they parted ways with an employee who “was bright, hardworking, and creative ... and important to our early growth”, but whose “skills (i.e., professional credentials were) no longer adequate” for the firm’s future. Makes sense, right? Would you retain any other production input if did not serve its stated purpose – i.e., would you maintain a Telex machine in the digital age? The problem with this view is that it is based on a misunderstanding of the type of capital that is contained in and generated by humans, and even more fundamentally it ignores the human aspect of human capital.
Skills relevant to a specific job constitute only one aspect of employees’ human capital resources (HCR), which in their entirety encompasses the bundle of knowledge, skills, abilities, and other characteristics (KSAO’s) that can be potentially accessed by the organization. In other words, “bright, hardworking, and creative” are all aspects of human capital. The key to converting these KSAO’s into resources is accessibility, i.e., the actions taken by the organization to extract value from the employee’s KSAO’s. Using our example, can this digital entertainment firm find a way to use this employee’s organizational knowledge, intellectual abilities, and traits to successfully pursue its strategy (e.g., through training, job-rotation, educational reimbursement for credentialing)?
While human capital refers to what individuals bring to organizations, social capital is embedded within social networks, and refers to both, bonds within a group and the social bridges between groups. People within organizations rely on each other for information and support, and the loss of experienced and loyal employees who perform these roles can be difficult to replace. In other words, unlike physical assets, human and social capital are complex and often, non-substitutable. So, assessing employees on only a few job-specific criteria can lead to organizations missing out on other critical aspects of employee behavior (e.g., creativity, customer-relevant knowledge) that are needed for the overall health of the organization. This is not to say that organizations should ignore performance issues. Rather, organizations should make the effort to develop and place employees in roles where their unique skills and other characteristics can be best leveraged.
Many common-sense prescriptions related to the management of human capital (e.g., ‘A Players only’) are based on an inadequate understanding of human behavior. People within organizations are not simply disembodied sets of organization-relevant skills. A large body of scientific work in the fields of organizational behavior and HRM indicates that employees’ attitudes and behaviors are based on how they experience the workplace. An organization that takes the time to support and develop its employees for the long-term is likely to reap the benefits of a committed workforce with high levels of employee retention. Moreover, creation of a positive employee focused climate can – in itself - positively influence employee performance. In other words, a successful long term human capital strategy should include a focus on developing HCR and a positive organizational climate.
In “An Essay on Man” (1732/34) Alexander Pope instructed us to Know then thyself, presume not God to scan; The proper study of mankind is man. I find this pertinent to our discussion in that the study of human capital and its relevance to strategy is incomplete without a deeper understanding of human experience and social behavior. In treating them as production input, let us not lose sight of the fact that employees are also complex and versatile inputs, which when accessed with skills and compassion, can serve as a source of competitive advantage for the firm.
Mahesh Subramony, PHD is an Associate Professor of Management and Director of the Center for Human Capital and Leadership at Northern Illinois University. He can be reached at msubramony@niu.edu.