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The term Human Capital has now become common in HR language to describe people and their collective skills, abilities, experience and potential. Human Capital is one of three elements to make up intellectual capital. Intellectual ll l capital l describes d b the h k knowledge l d assets available l bl to the organizations and is a large part of intangible value. It can be described as:
Human capital the knowledge, skills, abilities and capacity to develop and innovate possessed by people in an organization Social capital the structures, networks and procedures that enable those people to acquire and develop intellectual capital represented y the stocks and flows of knowledge g derived from relationships p by within and outside the organization Organizational capital the institutionalized knowledge possessed by an organization which is stored in databases, manuals etc. This would policies and p processes used to manage g p people. p also include HR p

There are many definitions of human capital, some of which unfortunately refer just to the efficiency of the HR function such as the average number of training days per employee. A strategic approach to people management that focuses

Human capital extends well beyond the HR function to encompass the total people strategy of the organization and g practices p needed to optimize p performance p the management and drive value creation. Human capital owned by all of the business leaders and resides in everyone within the organization.

on the issues that are critical to an organization's success - The h DTI's ' AfP f task kf force A form of asset management: a plan for securing, managing and motivating the workforce capable of achieving business goals - MERCER

h to t people l management t that th t treats t t it as a high-level hi h l l an approach

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Human Capital Management can be defined as

Defining the link between HR and business strategy is an important issue to understand the HCM A human capital approach implies that a realistic business strategy must be informed by human capital data.

strategic issue and seeks systematically to analyze, measure and evaluate how people policies and practices create value

Human capital can be seen as a bridging concept between HR and business strategy.

how can a business pursue a strategy that doesnt take account of the capacity of all the resources available, including the h h human ones? ?

HCM, unlike HRM, is about assessing the impact of people management practices and the contribution of people to bottombottom line performance. The development of human capital might develop as follows: g the effectiveness of HR assessing evaluating the impact and effectiveness of people management processes using human capital data developing measures to calculate the return on investment in people HCM, which includes strategically-focused areas HCM reporting.

A As organizations i ti evolve l th their i h human capital it l evaluation l ti and d reporting, they increasingly adopt a more sophisticated approach to their measurement techniques.

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4 Principles Human capital should be viewed as a bridging concept linking business strategy and HR practices. It is a precarious asset the potential mobility of individual employees could and can undermine an organization's ability to deliver. bring notably It is a paradoxical asset the qualities that individuals bring, flexibility, mobility and personal commitment, the very same factors that create competitive value, are some of the most difficult to measure. context-dependent dependent. Human capital measurement is context The specific set of measures are less important than the process of measuring and the uses for the information gathered. Focus on internal rather than external reporting, as the latter is impossible without solid internal information information. There are three core principles behind effective HCM: insist on systems thinking get the 'right' facts focus on value.

From compensation to talent management, learning and development to organization design design, have sometimes been built up in isolation and from 'best' professional practice rather than being developed as an integrated support for business needs. Human Capital strategy seeks to address this by

placing the investment and development of the workforce as a key component of business strategy.

This implies that People Management should be clearly set out in a framework that allows for a strategic 'fit' and for flexibility in matching changing business requirements. It's well worth producing a human capital business plan with a summary of the organisation's human capital strategy.

The most commonly used models and frameworks for HCM are: 1. The human resource benchmarking model 2. The balanced scorecard 3 The 3. Th H Human C Capital it l M Monitor it 4. The engagement model 5. The organizational performance model.

Benchmarking is an organized method for collecting data that can be used to improve organizational performance, rather than simply gathering a mass of statistics that add little or no value. What are the issues we need to address to survive and succeed? it's critical to transform this benchmarking data into useful, value-adding information The following methodology can be used to transform benchmarking data into impact
o o o o o o o o Decide where improvement is essential. Establish the parameters you're seeking. Establish your benchmarking team. Specify the data. Undertake collection of data. data Locate suitable benchmarking partners. Analyze the results. Implement.

1- The HR benchmarking model

2- Balanced scorecard
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This is one of the best-known methodologies. It aligns the evaluation of the people dimension to a company's company s strategic aims through a balanced scorecard. The scorecard originally had four elements:
Financial, Customer, Customer Internal business process, Learning and growth.

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One of the main benefits of the scorecard approach is that it provides a simple l communication tool lf for internal l and d external l stakeholders. k h ld The need to create clear alignment between HR's own functional organization, the supporting HR systems and employee behaviors This suggests gg a strong g link between HR activity y and the development p of a firm's human capital. The idea of an HR scorecard has reinforced the need for business measurement of HR activities, and it is also a relatively popular tool which many HR functions use to assess their own effectiveness effectiveness.

Andrew Mayo, a member of the CIPD's steering group, has sought to identify the human value of the enterprise or 'human human asset worth worth. . He emphasizes that people should be viewed as an asset rather than a cost. The main challenges are:
How an organization should recognize the intrinsic diversity in the worth of its people and value it How to create a framework of people-related metrics as part of an organization's overall performance How to quantify both the financial and non-financial value to stakeholders.

3- The Human Capital Monitor

The human asset worth is defined as being equal to 'employment employment cost x individual asset multiplier (IAM)/1,000'. This is a weighted average assessment of capability, potential to grow, personal performance and alignment to the organization's values set in the context of the workforce environment (how leadership, leadership culture culture, motivation and learning are driving success). The process of measurement leads you to consider whether human capital is sufficient, increasing or decreasing and highlights issues to address.

The application of the engagement model looked at the employee customer profit chain - if you keep your employees satisfied customerprofit satisfied, they will The result of this this, in Measuring and Managing Employee Performance is that the pursuit of employee satisfaction has become interlinked with the concept of HR strategy and business alignment Measuring and improving employee satisfaction has become an important basis of organizational improvement. Employee attitude or climate surveys have become a key measure of human capital. Surveys have shown links between employee morale and business metrics, particularly at the business unit performance level
help ensure that your customers remain satisfied, and your customers in turn will ensure and improve your corporate profits.

4- The Engagement Model

Human Capital Strategy consists of six interconnected factors (MERCER): People - who is in the organization; their skills and competencies on hiring; what skills and competences they develop through training and experience; their level of qualification. Work Processes how work gets done; the degree of teamwork and interdependence among organizational units; and the role of technology Managerial Structure the degree of employee discretion, management direction and control; spans of control, performance management and work procedures Information and Knowledge how information is shared and exchanged among employees and with suppliers and customers through formal or informal means Decision Making how important decisions are made and who makes them; the degree of decentralization, participation and timeliness of decisions Rewards how monetary and non-monetary incentives are used; how much pay is at risk; individual versus group rewards; current versus longer-term 'career rewards'.

The Organizational Performance Model

The Virtuous Human Capital Circle

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By Linking management to measures, measures to reporting, reporting to management management, companies are beginning to build the credibility, information flows and knowledge necessary to embed a human capital perspective in management and measurement practices both at HR and top management level level.