This factsheet was last updated in July 2012.
What is human capital?
The term ‘human capital’ is widely used in HR to describe people at work and their collective knowledge, skills, abilities and capacity to develop and innovate. Human capital reporting aims to provide quantitative, as well as qualitative, data on a range of measures (such as labour turnover or employee engagement levels) to help identify which sort of HR or management interventions will drive business performance.
It is now commonly accepted that the value of organisations is drawn from a mixture of tangible assets in the form of equipment, money, land or other physical objects together with intangibles in the form of brand, reputation, knowledge and, of course, people – critically important in an increasingly knowledge-based economy.
However, the evaluation of human capital remains difficult for most companies. There are a number of reasons for this:
- The contribution of people is difficult to isolate from other factors such as the economic situation, market forces and customer or social trends.
- The value of people is often expressed in qualitative rather than quantitative terms that make it difficult to represent in traditional accountancy models.
- HR data has traditionally been collected for administrative rather than evaluation purposes.
- HR people do not always have the skills or resources to interpret or explain data to evaluate the contribution of people to business performance.
- Senior leaders or stakeholders do not recognise human capital as a performance measure and therefore do not demand human capital information.
These difficulties have been further compounded by the varying definitions of human capital developed over the years.
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- What is human capital?
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