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How Human Capital and Human Resources are different.

Updated on February 9, 2008

Current trends in employee relations.

If you are an employer, or manage employees, you have probably heard of Human Capital. It is a new trend in workforce management. But how does this relate to Human Resources?

We may think of "Human Resources" as a department within an organization, or as measurable labor performed by an individual. Many of us are not familiar with the term "Human Capital" at all; still others are confused by its meaning.

The significance of the myriad contributions made by human beings, whether called human resources or human capital, reaches far beyond any boardroom. What and how individuals contribute is critical to the growth and advancement of any given society and to mankind, in general.

What is the difference between "Human Resources" and "Human Capital"? Perhaps the simplest explanation can be found in one of the resources we commonly rely on to gather information - the dictionary

"Resources" have been defined as "The total means available for economic and political development, such as mineral wealth, labor force and armaments. An available supply that can be drawn on when needed."

"Capital" is defined as "Any form of wealth employed or capable of being employed in the production of more wealth."

Simply put, by definition, resources are finite. We can strip coal, gold and iron mines until the supply is exhausted. Capital can be infinite, as it can be used to produce more and more capital.

Few can argue that capital makes the world go ‘round. We rely upon the powerful performance of financial capital, technological capital and human capital to keep it spinning.

Human capital is partially comprised of skills, understanding, knowledge and experience - some of which may be innate. From a broader perspective, human capital includes the character, ethics, personality and creativity of a human being. Even if we are born with these attributes, it is often required we spend time, effort and money to retain or to grow them - thereby, increasing human capital.

We may accumulate, maintain and increase human capital in many ways; through education, job training, work experience, life experience, investment in health, etc. Time, money and effort are spent acquiring human capital.

Capital is capital - you spend something now, in hopes of getting a return on your investment later. Many companies have come to recognize their investment in human capital may be the most important investment they will ever make. When it comes to human capital, you are investing in people and the "return" you receive most likely is much more than financial gain. You may also gain knowledge, a larger group of contacts, more productivity, increased happiness and security.

In this competitive world marketplace, the likes of which we have never seen before, it is crucial that Human Resource professionals recognize the importance of investing in human capital. Experts agree that it costs much less to retain an existing employee than to recruit a new one.

A recent article in Real Estate Weekly highlighted the ways in which a real estate services company both values and invests in human capital.

Michael Rodriguez, President of Alliance Building Services, wrote about the incredibly high turnover rate in the real estate services industry. This industry includes cleaners, security guards, messengers and restoration workers. It is quite common for industry workers to come to work late, disinterested and ready to quit.

Mr. Rodriguez states "To make money in business, you must invest money. The same principle applies to keeping quality employees on staff and motivating them to do their job well". While many industries, corporations and organizations espouse "Our employees are our most valuable asset", many "do" little or nothing to back-up this message.

The President of Alliance Building Services was determined not only to "talk the talk" but to "walk the walk" as well. Investing in his employees became a top priority. He decided to focus on improving employee services and technology to show employees he cares. Improvements included:

• Setting up an Employee Service Center; this center is staffed by knowledgeable professionals who are in place solely to provided better services to employees. Employees get immediate assistance with questions regarding medical insurance, safety concerns, personnel issues, etc. Employees now feel they are being "heard".

• New computers, along with the latest software, have been added. Many of Alliance's staff had little knowledge of computer basics. Free thirty-minute instructional computer classes are now offered during lunch breaks and before or after work. These upgrades benefit the company by increasing productivity and efficiency. Employees are learning a new, marketable skill which boosts morale.

• New recognition programs have been put in place, such as "Employee of the Month, Quarter and Year". Each honoree is rewarded with a bonus, a paid day off and their picture showcased in Real Estate Weekly.

• Most employees felt there was no room for advancement in the company or within the industry - they believed they had "dead-end jobs". Alliance now offers partial tuition reimbursement to all employees. With a chance to increase their knowledge base and their own human capital, many employees have taken advantage of this opportunity.

Since these changes have been implanted, Mr. Rodriguez is pleased to report a 30% decrease in turnover in one quarter, a happier and much more productive staff.

Comments

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    • ShahidNaqvi profile image

      SYED SHAHID ABBAS NAQVI 

      8 months ago from Pakistan

      Very nice your article is great

    • profile image

      KJS 

      5 years ago

      We just made the official branding switch from HR to HC. I am getting frequent employee comments like "I get it that I am a resource, but now that I am capital I feel less human" and "now we are just human cattle."

    • jackcalara profile image

      jackcalara 

      5 years ago from Gurgaon

      before reading this Hub I didn't know that Human capital and human resources are the different things but now you have cleared here that both are different visit here http://pennclo.com/about-the-program/advisory-boar... for Human capital resources

    • profile image

      mary 

      6 years ago

      pls, i hv a question. what are the effects of human capital development on the performance of brewery industry in Nigeria?

    • profile image

      anonymous 

      6 years ago

      i understand nothing out of this !

    • profile image

      k boy 

      6 years ago

      why is investment necessary to involve in business,with reference

    • profile image

      AUAS 44444 

      6 years ago

      I WANTED TO KNOW THE DEFINITION OF THE CAPITAL OF HUMAN RESOURCES BUT THIS HELPED A BIT THANKZZZ!!!!!!!!!

    • profile image

      Manny1985 

      6 years ago

      How about HCRM - Human Capital Resource Management..I've been seeing such now a days in some Global Companies

    • profile image

      Manny 

      6 years ago

      How about HCRM - Human Capital Resource Management..Now a days I've been seeing such in various Global Companies.

    • profile image

      Caroline 

      6 years ago

      in an organization,which is more currently used - human resource department or human capital management?

    • profile image

      Perculiar 

      7 years ago

      Give a detail explaination on return to investment on human capital

    • pager7 profile image

      pager7 

      8 years ago from Kampala-Uganda

      Very well researched information here.

    • profile image

      Ingrid Shields 

      9 years ago

      I have seen organizations that still think of its HR Departments as administrative support and personnel. Unless the leadership of the organization is in support of the investment in human capital, any initiatives to evolve the business and its greatest expense - employees, has proven futile. It has been difficult to bring the leadership along in this direction and at best, an education for me as an HR Director who reports to the CFO. But the CEO is stuck; and the CFO is trying and so we march incrementally trying to educate and change the culture. But it's extremely difficult and challenging.

    • profile image

      Hal Curry 

      9 years ago

      I have been using the term since the mid-90's. The above paper offers a succint definition. The current step is to help managers and other leaders discover the many ways to positively impact the metrics around Human Capital. I still see a focus on technology and we need to also remind ourselves that employees ultimatley get to determine if an organization has properly approached them through "investment" mechanism's. The more employee's have bought into management's efforts to invest in them, the bigger the pay-off moving forward.

    • lifeislikethat profile imageAUTHOR

      lifeislikethat 

      10 years ago from Maui, Hawaii

      Unfortunatly, most employers have thought the idea of investing in their companies included improving everything but the workforce. The concentration has been more on technology than people, as though they could be replaced. Hopefully as the trend towards Human Capital emerges, people will be happier at work and companies will be happy with the increased productivity.

    • JarrodHaze profile image

      JarrodHaze 

      10 years ago

      It's incredible to think that Human Capital is only now a new trend in workforce management, yet my old professor Gary Becker has been writing about it for decades (1964.)

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