The Power of Human Capital

Capital can be described as anything an individual or organization uses to increase its ability to create value. In business and economics, the two fundamental kinds of capital are financial and human.

Understanding Human Capital

Often, when people think about human capital, they view it as just the number of people in an organization. But this is not the full scope or the meaning of human capital. According to Claudin Goldin, human capital can be described as "the stock of habits, knowledge, social and personality attributes (including creativity) embodied in the ability to perform labor so as to produce economic value."

Human capital is all about expanding the skills and knowledge (economic value) of the employees of a business. This fosters economic development and growth, for which SMEs are seen as the driving force in any society.

Elements of Human Capital

There are three elements of human capital, namely: Intellectual, Social, Talent, and Skill.

1. Intellectual Capital refers to employees' expertise, organizational processes, and the sum of knowledge within the business. It includes the individual's formal and informal education, enabling the person to function as a manager, senior business executive, or director and contributing to its bottom line.

2. Talent and Skill are innate and may not necessarily be acquired through formal education but also can be accrued over time via work experiences. Skill refers to specific training in business, industry, and management that employees need to carry out their roles in the organization effectively.

3. Social Capital facilitates the ability to work well within a group to achieve a common purpose or goal. It enables employees to function together as a team through trust and shared identity, norms, values, and mutual relationships.

To derive optimal value from human capital, an SME must have the foresight to invest in recruiting, managing, and developing their staff. Proper human capital management is one of the pillars that support any business as it moves from start-up to maturity. Contact me for help with crafting a human capital management plan for your business.

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