Human Capital

Did you know that investing in people brings great returns on investment? Our expertise offering transactional advice in the human capital services and solutions sector will help you discover and polish corporate and human treasures that represent the gold standard of long-term business success.

Our skilled human capital consulting know-how can help you identify and navigate the best business deals that are based on building profits through building people.

What is human capital?

A simple human capital definition includes the concept of an economic value that employees bring to their employers (and nations) through their level of work performance – and generally, to the local and global economies in which these workers participate as consumers.

The most long-lived and outstanding businesses often have one thing in common: the quality and commitment of their employees. While it might at face value seem hard to define human capital, these somewhat abstract notions form the essential core of what we think of when we talk about ‘human capital’.

Human Capital includes those business practices that involve the management of human resources to ensure the provision of particular skill sets and competencies to a business based on its organisational and market requirements. These practices are carried out in three main areas related to a company’s workforce, namely:

  • talent acquisition
  • talent management, and
  • talent optimisation

Examples of human capital can’t be easily quantified, or seen as separate or discrete from those who display or demonstrate them.

What is human capital in the economy?

According to human capital theory, and as measured by the the World Bank’s Human Capital Index (HCI) – an initiative linked to the global Human Capital Project (HCP) – economic growth and a healthy bottom line are strongly correlated with the extent to which a company ensures effective human resource management by investing in its human capital.

This observable association is due to the enhancement of the above-mentioned HC abilities, qualities and traits through the human capital investments made by employers and governments – and the resulting subsequent increased outputs by their employees and citizens, which can be directly linked to the human capital improvements made.

The benefits of employer and national investment in human capital also accrue as direct financial benefits to the individual workers on the receiving end of the investments, in terms of higher earning potential and income. This improved earning power enables these individuals to access greater disposable income and build wealth, allowing them to participate in – and so, also help grow – the economies in which they are economically active.

However, as with all assets, human capital can depreciate in value if, for example, workers experience prolonged unemployment, or if they are unable to stay abreast of developments in areas such as innovation and technology. Organisations that are mindful of this phenomenon will thus actively seek to empower and improve their human capital to prevent this kind of devaluation. These are the kind of organisations that represent worthy investment vehicles.

What does human capital mean?

The value of human capital – both to a business, and by extension, to an economy – is defined in terms of intangible assets and qualities, such as the skills and experience gained by workers through education and training.

But types of human capital can also be measured in terms of workers’ health and wellbeing, innate or cultivated intelligence, and other hard-to-quantify traits much valued by employers such as:

  • engagement, loyalty and punctuality
  • problem solving capabilities
  • good communication abilities, and
  • expert management of people.

Representing an intangible asset, human capital cannot be numerically captured in a company’s balance sheets. As the word ‘human’ in the term ‘human capital’ denotes, the capabilities and qualities that underlie the concept of this form of value are inherent or intrinsic to the people who possess or receive them.

What does human capital mean?

Because of the variable nature of equality in the labour market, the value and benefits of human capital development can be improved—and are more likely to be realised—if an employer invests in educating, training and the provision of good benefits to their workers.

Since wise investment in human capital is seen as leading to increased worker productivity—and by extension, profitability—it is an important element in the strategies that organisations should undertake to ensure their continued success.

In particular, when considering potential investment transactions, it is useful to take into account that the most effective business practices frequently involve skilful human capital management (HCM) and investing in employees in a variety of ways, most significantly through education and training, and by providing beneficial work conditions to employees.

If you want to know what makes for a successful  transactional investment or prospect, examine how a business looks after, nurtures and cultivates its talent.

In sum: good human capital management is based on the understanding that by investing in its people, an organisation stands a better chance of ensuring more successful business outcomes overall.

 

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