What the heck is human capital?

Photo: Anotai Yuthongcome / Shutterstock.com.

All of these experiences have made me think twice about the human capital label. What does it mean? And what value does it serve.

Truth be told, I used to feel ambivalent about using the phrase human capital. I understood the intention behind the words. It's supposed to signal that humans are as valuable to an organisation as other assets, such as money, land or equipment.

The idea is that when the words 'human' and 'capital' are connected, it helps elevate the people aspect of work from the subordinate position associated with human resources or even worse, payroll (i.e. a cost item on a financial spreadsheet).

In this sense, an attempt to place equal value on financial and human capital, by using the phrase human capital, is very positive. So why would I be ambivalent?

Persistent resolve

There are three reasons why.

1. I questioned if I was perpetuating another bit of jargon, one which helps distinguish between those “in the know" from everyone else and I really dislike that.
   
   
2. Each of the conference experiences made me feel misunderstood and even a little devalued (the implication being that if I was doing something important or meaningful - being a lawyer, maybe - then the MC would have recognised it immediately).
   
   I felt a little bruised each time and having been a lawyer, the emotional gap between those introductions and my more recent ones felt very wide.
   
   
3. The phrase 'human capital' uses financial capital as the benchmark of high value. It implies the standard of what is valuable to a company has been set by financial capital and humans are trying to demonstrate they are just as valuable. I would prefer people set the standard – lofty as that sounds.
   
   

So I really had to think about whether I would keep on using that title after my name or let it die a quiet death. My resolve to persist is because of two much more important factors.

Firstly, I associate the term capital with investment. Just as we think about investing financial capital so as to become more prosperous, talking about human capital has the capacity to focus us on investing in people.

It moves us away from thinking about people as human resources, which brings to mind using a commodity (resource) until it is exhausted (like mining coal or logging forests) and industrial processes (a conveyor belt of people in, people out, people in, people out).

It moves us even further away from thinking of HR as a compliance issue which, along with payroll, involves a box to be ticked and a negative line item in an Excel file.

If you think about human capital as an investment in people it's obvious my work domain is all about leadership, culture, learning, well-being, flexibility, workforce planning, strategy, change management, diversity, inclusion… the list goes on and on. Now who doesn't want to work on those issues?

Secondly, and perhaps even more importantly, Deloitte's 2015 Human Capital Trends report identified reinventing HR: as one of the top five issues vexing 3,300 business and HR leaders across more than 100 countries. Why?

Reinventing HR

Only 30 per cent of those leaders think HR has a reputation for making sound business decisions, and only 22 per cent think that HR is adapting to the changing needs of their workforce. Not surprisingly, 80 per cent told Deloitte their company's HR skills – or lack thereof – are a significant issue, one impeding organisational growth.

I commonly hear complaints that people in HR are not strategic thinkers or business savvy or strong influencers. It's a gross overstatement but there's a kernel of truth to those comments.

Even so, it's hardly fair to blame those working in HR when the survey also found only 11 per cent of companies provide “excellent" training and experiences to HR staff to build strategic capabilities. A bit of a vicious circle and one which probably reflects the low value placed on HR – until now.

When business leaders put together a story which connects their ability to execute against strategic objectives (e.g. grow market share, develop innovative products) with the calibre of their people and when they realise that investing in people is a much better strategy than churn and burn, they turn to HR for the answers.

At the moment HR is not fully set up for success, it's still more of an administrative function than a strategic advisory. There's a lot to do to bring that vision to life, so where to start? I am a firm believer in the importance of language to influence how people think differently about issues and solutions. My hunch is if business and HR leaders start to use the language of human capital - and relegate the word 'HR' to the trash bucket that also contains the word 'personnel' - it will help crystallise the idea that to create great workplaces we need to invest in people.

It's a small idea but one I'm going to test. The next time I notice the awkward pause or get asked “what the heck is human capital?", I'm going to say it's “all about how organisations invest in people, focussing on leadership, culture, well-being, diversity…".

In fact, I might even lead with that statement and be part of the change I want to see.

Juliet Bourke, Partner, Human Capital, Deloitte