Encyclopedia of Leadership

13.9

HUMAN CAPITAL: TRULY THE

MOST VALUABLE ASSET

Contributed by Clem Blakeslee and inspired by Brian Friedman, James Hatch, David Walker, Riel Millar, Ikujuro

Nonaka, Hirotaka Takeuchi, David Ulrich, Jack Zenger, and Norman Smallwood.

Human capital is people—the human beings who keep an organization humming, vibrant,

and innovating. Modern industrial societies have generally lost the recognition that human

talent and human intellect, as well as human sweat, represent wealth. Writings about the

development of the New World recognized the capital infusion that immigrants represented.

Robert Reich, former U.S. Secretary of Labor and a Harvard economist, has argued that the

industrial societies that are most competitive are those that truly respect the concept of human

capital and consistently pursue the enhancement of human capital. Recent attempts to focus

attention on human capital speak of intellectual capital, knowledge management, and learn-

ing organizations.

Yet an ambivalence exists in modern organizations. On one hand, the value of human

assets in organizations is often talked about as a capital investment: “our greatest resource.” On

the other hand, people are often treated like overhead, “G&A,” an expense. In national and

corporate terms, we squander human capital by treating it as though it were merely an

expense. Contrast this indifference with the successful emphasis of Singapore on human cap-

ital and human resource development.

HUMAN KNOWLEDGE AND SKILLS AS COMPETITIVE ADVANTAGES

Defining human capital is more challenging than using the traditional economic measures.

The traditional capitalization based in bricks and mortar seems to be changing. Witness the

present stock market performance, applying a much larger premium to the intangible, softer

assets like innovative capability, strategic position, leadership, human resource capabilities,

systems, first-to-market responses, and so on.

Ulrich, Zenger, and Smallwood define human capital as:

Nonaka and Takeuchi don’t speak of human capital, but of a related concept, knowledge

creation, with the sequence:

The Organisation for Economic Cooperation and Development (OECD) based in Europe

published a book that states: “Spurred by the emerging knowledge economy, government pol-

icy makers, human resource managers, financial accountants, and educators are developing

methods for systematically evaluating and recording knowledge assets acquired through expe-

418 SECTION 13 TOOLS FORLEADINGPERFORMANCE

Human Capital = Employee Capability ×Employee Commitment

Knowledge

Creation

Continuous

Improvement

Competitive

Advantage

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