Organizations compete with each other for people and through people. To an employer, human capital is the skills, knowledge, experience, creativity, judgment, and a range of other traits, possessed by workers and applied to the production of goods and services. Organizations able to attract and engage people with the right human capital are the most successful.
Human capital is built through education and experience; it resides in you and is made available to an organization by you.
you’re a complex and expensive machine
Human capital is different than labor. In classical economic theory, labor and the means of production, like machines, are separate. However, in neoclassical economic theory, human capital is a means of production, just like machines.
What does this mean for workers? The problem is not that there is such a thing as human capital, it’s that people are often unaware that they are being managed like any other means of production. Employers are increasingly aware of the complex, human machines they employ and are becoming better at extracting specific skills for the least investment. And, like a machine, your useful life to an employer is limited unless the employer or you make adequate investment to maintain and build your human capital.
you’re a rented machine with a narrow margin
Human resources (not HR, but the humans employed by an organization) are usually an organization’s highest input cost. Employers must carefully manage any additional investment in human resources. These additional costs are investments in training and development. Worst of all for employers, when workers leave an organization they take any new skills, knowledge, and experience (human capital) with them.
beware of internal training
Many organizations manage their human capital cost by focusing investment toward non-transferable skills, referred to as specific human capital. Specific human capital is the skill and knowledge that only benefits one company or one industry, whereas general human capital is marketable by workers across the entire world of work.
Organizations with career development programs and internal training that builds skill and knowledge in the organization’s unique products and services, or in their own unique management and leadership practices, are best positioned to control their investment in human capital. However, workers in these organizations are often less marketable to other employers.
beware of becoming commoditized
Organizations employing a commoditized workforce face the highest risk of human capital flight (large numbers of workers leaving one organization, industry sector or country for another). Skills become commoditized when how one person does a task is almost indistinguishable from how someone else does it. General skills in construction and manufacturing, and also some accounting, engineering, project management, and information technology skills, have become commoditized.
For organizations employing a commoditized workforce, investment in training and development is an expense that shows little or no return. Many of these organizations control their human resource cost by simply expanding and contracting their workforce between the good times and the bad; they pay well in the good times to attract workers, and simply lay them off when their sector is under pressure. Building your human capital can change you from a commoditized to a specialized worker and get you out of this cyclical world of work.
taking control of your own human capital
Human capital is built through education and experience; it resides in the worker and is made available to an organization by the worker. We each control our own human capital, but we may not always take active control. Here’s the three best ways to build your own human capital:
strategic investment in the quantity and quality of your education
If you can afford to invest in your own education, do it, but do it strategically. More education is sometimes good, but the right education is much better. That psychology degree you always wanted might not be as valuable to a prospective employer as an MBA or engineering degree. In North America, even though most Ph.D.’s work outside of academia, on average they make less than people with Master’s degrees. But education, at best, just gets you an interview. It’s the right skills and experience that often results in a job offer.
focus on marketable skills and experience
The skills and experience you develop at one employer may be even more valuable to another. The best way to build marketable skills and experience is to be selective about the roles and assignments you pursue with your current employer. Always think one job ahead, “If I accept this management role, will I build the skills and expereince I need to get another (or better) job?”
develop your organizational agility
Organizational agility means knowing how organizations work and being able to influence the benefits you receive from an organization. Someone with organizational agility is able to navigate the complexities of organizations and be more effective in a new role sooner than someone else. More importantly, however, you’ll be able to identify the programs, assignments and people in your current organization that can help you build your human capital.
