Defining Human Capital Management

Source: CIPD



In our research work at CIPD, we have found it helpful to describe human capital as one of three elements to make up intellectual capital. Intellectual capital describes the knowledge assets that are available to the organisations 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 organisation
Social capital – the structures, networks and procedures that enable those people to acquire and develop intellectual capital represented by the stocks and flows of knowledge derived from relationships within and outside the organisation
Organisational capital –the institutionalised knowledge possessed by an organisation which is stored in databases, manuals etc. This would also include HR policies and processes used to manage people.
In order to be effective, organisations must be able to understand the relationships between these different forms of capital. Human capital alone will not create value. People have to be motivated and managed by the use of good HR practice and given the opportunity to develop and use their skills to create goods and services which can be sold. If the knowledge they are creating cannot be embedded in goods and services that are in demand, then this human capital will have no value to the business.
Measuring human capital



Once people have been recognised as assets, it then becomes important to be able to quantify the value of this asset. This is vital for informed decision making about how to manage, and maximise the return on investment. Most human capital measurement has been designed with the aims of proving the value of people - assessing the impact of human resource management practices and the contribution of people to bottom-line performance. However, the methods of measurement differ from company to company. Research carried out for CIPD in 2001 concluded that there was no single measure or set of measures that would provide a value for human capital.