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? The economy, with the rampant labor shortage and subsequent supply chain issues, looks to be taking a turn for the worse. One of the most relevant topics to come to the fore, especially regarding the labor shortage, is human capital.
That’s right. Human capital. It’s not about machines, statistics, developing artificial intelligence, or even the remnants of the pandemic—though each of these does play a role in how we consider and innovate human capital. Instead, it’s about people. We’re going to explain exactly what human capital is, what makes it so different from other forms of capital, and why it’s more important than ever in 2022.
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. The term “human capital” was initially coined in the 1950s and 60s by economists Gary Becker and Theodore Schultz. It is the intangible qualities and assets that a worker possesses, or is capable of gaining, which benefit the company and the overall economy. Human capital could include an employee’s assets like education, mental and physical well-being, computer knowledge, communication skills, leadership qualities, and people management.
It can be broken down into two main categories: specific and general. Specific human capital refers to any training, education, and skills that a worker receives which are specific to one company or operation. Learning how to use a particular program or machine owned and operated by a company is one example of specific human capital. Generally, a company is more likely to fund this type of education as it receives the direct and near-exclusive benefits of educating the employee.
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, rather than the company.
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 amongst other forms of capital. 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 external factors. While measuring it 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.
But growth potential doesn’t mean a thing if businesses can’t retain talent. That’s why a renewed focus on talent management is necessary for the foreseeable future.
Talent Management in the Labor Crisis
Many experts are calling the labor crisis the Great Resignation. The unfortunate reality of this labor situation and it’s residual effects on the economy is that we’re probably in it for the long haul. And no matter how hard businesses may try to gain and retain talent, it’s going to be challenging for a while.
However, there are a few things businesses can do to attract new talent and, at the very least, tread water. We wrote about this in one of our recent blogs—go check it out!
In order to combat the Great Resignation, modern workplaces are changing faster than ever. Businesses that capture the transformative power of human capital will be on track to continue to innovate and grow.
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. And workers place a different value on their time and energy than they did pre-pandemic. So 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 blog we previously mentioned offers a few ways to innovate the workplace to adapt to changing worker expectations. Deloitte’s report highlights many ideas that coincide with some of ours, and we feel there are a few key ones for businesses to pay attention to.
Give Workers Ownership in Their Work
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!
Augment Human Capital with Technological Capital
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.
Allow Workers to Innovate Their Own Environments
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. HR must be always examining the worker experience and looking for ways to improve and grow it. We often talk about how businesses need some sort of “secret sauce” that makes them stand out from competitors, but the same must be done internally. What sets one business apart from another from the employee perspective?
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 meaningfully transform the workplace, and hopefully help motivate workers to come back to the workplace. Empowering individuals and teams to push the boundaries of what’s possible is at the very heart of human capital in 2022 and beyond. Humans can and will create value for businesses—if only we let them.