Forecasting is at the front of every business’s collective effort right now. What’s coming next? What are the latest trends? How can we prepare for the future? One of the most relevant topics to come to the fore is human capital. That’s right. Human capital. It’s not about machines. It’s not about statistics. It’s not about the latest evolution in AI. And it’s certainly not about the pandemic (although all of those things contribute to the growing importance of human capital). Rather, it’s about people. We’re going to explain exactly what human capital is, what makes human capital so different from other forms of capital, and why it’s more important than ever in 2021.
What is Human Capital?
First, we must begin with the definition of capital. Capital is essentially anything that confers value or benefit to its owner or administrator. Human capital, then, is the intangible qualities and assets that improve a worker’s performance, benefiting the company and the overall economy. Human capital could include assets like education, mental and physical well-being, communication skills, leadership qualities, and people management. The term “human capital” was initially coined in the 1950s and 60s by economists Gary Becker and Theodore Schultz.
It can be broken down into two main categories: specific and general. Specific human capital refers to any training, education, and skills that are specific to one company. Learning how to use a particular program or machine owned and operated by a company is one example of specific human capital. A company is more likely to fund this type of education.
Conversely, general human capital is any training, education, or skills that would benefit the worker in any or many industries and companies. This could look like taking an online course on leadership or communication skills. Individuals are more likely to invest in this form of training.
The “Human” in Human Capital
But what exactly is so “human” about human capital? About eight years ago, Russian economist Konstantin Gurdgiev gave a Ted Talk in Dublin, Ireland titled “Human capital & the age of change.” In this talk, Gurdgiev discusses the shift the modern economy is taking toward human-capital-intensive growth, where entrepreneurship, creativity, and a revolutionized approach to risk-taking are realized. In a later interview, Gurdgiev says he believes urbanism is the “ground zero” of economics. Successful urbanism operates on what he calls the C.A.R.E. System, which incentivizes individuals by creating, attracting, retaining, and enabling human capital in city structures.
But even if you can create, attract, retain, and enable human capital, how do you measure it? Gurdgiev says: “Many economists assess human capital using simple criteria: either by looking at skill sets that can be quantified, or at the growth of industry in the country. I see this approach as highly limited. To me human capital is something that is extremely difficult to measure: not the industry, but the entrepreneurs themselves as a certain type of people who are ready to handle the risks and find possibilities for business development in spite of them.”
Herein, we approach the answer to our question. Human capital is unique compared to its non-human counterparts. People are organic—never static—and have endless creative and energetic potential, unlike financial capital, for example, which can be easily measured and has limited growth potential based on other factors. While measuring human capital is vital in the sense that we need quantifiable results to predict the value of investment, we can also look to the virtually unlimited growth potential of a human being.
Why is Human Capital Indispensable in 2021?
Surprise, surprise—we’re talking about the pandemic again. With the rapid shift to digital, many businesses must rely even more on the value created by employees rather than that generated by machines and other automated and mechanized processes.
Of course, offering on-the-job training is a great way to boost human capital. We’ve discussed this in past blogs—go take a look! However, there is more that businesses can do than offer additional training. In 2021, we’re looking at the transformation of the workplace. That transformation begins with human capital.
Human Capital is Transformative
In their 2021 Human Capital Trends report, Deloitte notes that human capital is no longer defined by the disjoined initiatives and programs of the past. Instead, organizations must take a broader view of human capital in which it is a dynamic aspect of business. It demands attention in order to thrive. The report highlights many ideas, but we feel there are a few key ones for businesses to pay attention to.
First, businesses should allow employees’ to personally drive work, instead of directing it for them. Giving workers more choice over their work allows the organization to align their workers’ passion areas with new business goals, leading to higher output for the company as a whole. Really, it’s a win for everyone.
Second, the intuitive use of technology to augment teams allows employees to perform the work that is distinctly human. Then, teams can perform more work at a higher quality. In fact, in a survey of more than 3,600 business executives, results showed that they believed implementing technology into the workplace was one of the top three ways to transform work.
Finally, HR departments should embrace dynamism and empower employee creativity and agency through “re-architecting” the workplace. HR can no longer only be a policy-writing and enforcing body. Humans are changing and so are the ways that they’re working. HR needs to be at the forefront of that change.
At the end of the day, what we’re saying is that businesses must be people and employee-centered to adapt to the future of work. Investing in education and training for employees and giving them the means to pursue their passions is the way to transform the workplace for the better. Empowering individuals and teams to push the boundaries of what’s possible is at the very heart of human capital in 2021 and beyond. Humans can and will create value for businesses—if only we let them.