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Human Capital Management


The People are the lifeblood of each business enterprise. One cannot compare people with building and raw material. There should be a reliable way to quantify the contribution of Human Capital to corporate profit. There is a proper pathway to reach financial gains by operational improvement in human resource. Hence, one should give a fresh look towards this source.

Gary Becker, the Noble Prize – winning economist, acknowledged in his book Human Capital : “….expenditures on education, training, medical care etc. are investments in capital. However, these produce human not physical or financial capital because you cannot separate a person from his or her knowledge, skills, health or values.” The question remains how one should measure, evaluate human capital in earning the corporate gains. Although progress is made in each sphere but accounts have failed to measure the interest earned from human capital. Hence, one should realize this fact that human capital management has given a new face to see the human resource.

Human capital is a new discipline not only for human resource department but also to the financial and investment analysts as well as to the accountants. It is not a buzzword but a future demand. Human capital management is not the new clothing of HR measurement. But it has startling facts which might wake up all the successful organizations. It requires new set of skills which is not available in the market but has to be created, hence it is a challenging discipline, demanded by most of the organizations to increase the return on investment.

Human Capital Management is a systems approach to people management. It involves systematic process of analysis, measurement and evaluation of HR practices and procedures to create value in the competitive world. This approach is applicable to private as well as public sector organizations. Effective implementation of Human Capital Management can lead to drastic improvement in business performance.

Companies get competitive advantage not by accident but by effectively managing the human resources to create and market new products and services. HCM has the potential to fuel innovation and creativity in organizations to increase the performance and reach the ultimate organisatioinal goal. The HCM leads to reduced HR and operational costs, more efficient delivery of the work, shifting to highly strategic HR staff to drive business growth and revenue and improved service to HR’s customers. We can infer that there is a gradual change from Human Resource Management to Human Capital Management.Let us discuss the transformation of HRM to HCM.

Human Capital Management – A transformation

Human capital has revolutionized the business world. This is an agenda discussed at the top level, every now and then. Human capital management does not happen by chance but rigorous research and minds of expertise has given rise to this new discipline. This is not replacing Human resource Accounting or Human Asset Accounting but it has lot of hidden things. The subject is capturing the minds of the financial analysts and business leaders. Earlier Humans were called as “Resource” or “asset” but now they have taken the position of “Value adders” or “Capital”.

1. Human Resource management finds the cost invested in Human resource while Human capital management searches for the value added to the organization by the people.
2. Human capital management look towards output of the people while human resource management calculates the input by the people.
3. HCM is aligned with the corporate strategic plans while HRM works on day to day plan.
4. Financial analysts and accountants have a role to play in HCM while there is no such role defined in HRM.
5. HCM manages internal as well as external customers while HRM manages only internal customers.
6. HCM is an investment while HRM is the expenditure done on human resource.
7. HCM increases employee satisfaction level to a great extent while HRM is unable reach at that level.
8. HCM develops the full potential of people while HRM is still at back.
9. HCM attaches the financial value to the HR practices while HRM is still working on qualitative terms.
10. HCM stresses on the measurement of the Human capital while it is not done in the case of HRM (The major setback).
11. The skill set of delivering HCM is not present in the market while one has to create it but for HRM lot many individuals are present.
We understand there is a contrast between HRM and HCM. HCM is not at all the replacement of HRM but all together a new discipline with many things stored in it. If implemented effectively in a firm will be instrumental to achieve the organizational goal. The swot analysis can throw more light on the human capital management.

SWOT Analyses of Human Capital Management

Strengths of the Human Capital Management

-  HCM provides solid evidence about how much a HR-strategy is actually worth in terms of market-value. 
- It is a long term-term sustainable development performance in an increasingly competitive world. 
- It gauges the human costs and improve productivity of an organization. 
- It satisfies internal as well as external customers. 
- It looks for the best monetary value from human potential. 
- HCM provides a systems approach to improving the performance of an organization and its employees, by integrating initiatives that impact their performance, including restructuring and business process improvement.

Weaknesses :

1. To measure the human potential is a tedious task.
2. “Capital” in accounts terminology is a liability which signifies that human resource is a liability to an organization.
3. Besides having the managing skills, the human resource manager should have the knowledge of operations (Finance & accounts) to calculate the value.
4. It is very difficult to separate human potential from human.

Opportunities :
1. It is a new discipline link human resource and corporate strategy.
2. Business leaders will understand the importance of “Human Resource”.
3. Ambitious and potential people will be rewarded.
4. Longterm improvement in the market value of the business enterprise.
5. The setting up of new skill set in the market to manage human resource.

Threats :

1. Measurement of human potential will lead to threat to undermine performers.
2. Getting Human Capital Management on the corporate agenda is very difficult.
3. The financial analysts have to show the human value in profit and loss account and ultimately in balance sheet.
4. To integrate human capital with organizational measures.
5. Putting HCM into practice in real world.

After analyzing the swot of the new discipline, the ultimate challenge is the implementation and making the HCM workable in the organization. The tedious task is to create the team to work on the HCM , since it is not available in the market. After the creation of the team , the challenge is to mentor the board of directors to align the HR practices with business. The following chart will speak on the workability of the HCM in the company.

STEPS TO MAKE HCM Workable in an organization :

• Awareness of the subject to the Board of directors

• To signify that HCM has a totally different outlook than HRM

• To get the green light from the board of directors

• To develop HCM team

• To produce HCM data

The details of the above step is given as follows :

1. Awareness of the subject to the Board of directors

Show the figures and data to the board to get their attention and commitment towards the subject. Try to know the organization’s planning to compete the competitors. Tell them , return on investment from Human Capital can increase the profit many fold.

2. To signify that HCM has a totally different outlook than HRM

HCM is talking about value addition but this doesn’t mean that under-performance is ignored. It is the concept of maximizing the profit by discovering the potential in humans. It is the generation of profit from ambitious and talented people.

3. To get the green light from the board of directors

The mantra for board now is “ We maximize the value of our people – their individual value and our value are one and the same”. Tell them there would be plenty of resistance along the road to HCM. But if target is hit, one can earn profit many fold.

4. To develop HCM team

The HCM skill set are not present in the market. They have to be created. It is better to train the existing Human resource and convert them into HCM Team members. They should know to convert human qualities into numbers.

5. To produce HCM data

Draft the report of HCM. Measure the employees attitudes, satisfaction, performance, recruitment, training etc. Do not measure staff turnover instead measure the revenue opportunities lost in terms of experience.

If HCM is effectively and efficiently implemented in an organization, CEO’S and business leaders start expecting from HR. It is obvious on their part to receive the feedback on implementation since they have to give answer to the shareholders and stakeholders of the organization.


Once Brockbank & Ulrich said, “HR professionals can and should blur boundaries by integrating what happens in the organization more directly to what customers experience on the outside.”

It means HR should recognize the external customers and function to create market value for investors, customers and all stakeholders. This will help in implementation process of Human Capital Management. The owner demand more revenue from less expenses from HR department. The challenge on HR is to calculate the revenue from HR Practices and procedures. Not only owner, but external as well as internal customers desire steady flow of products and services. The challenge on the HR department is to connect the outside factors like technology, economic and demographics to their routine job. Hence, transformation of HR is in demand to deliver value. But to do value addition is again not an easy task. Recognition of the following steps can help in meeting the challenge.

Five steps to meet the challenge of value addition :

1. Understand the objective of purchase of the customers.
2. Act like a customer and competitor.
3. Strategise and measure HR with organisational’s role.
4. Align HR practices with the customer’s proposition.
5. Continue the process.

HR needs to take initiative for implementing the above challenging steps. Let’s find out the role of HR professionals in adding the value i.e. Human Capital Management.

HR Professionals – Role in Value addition

1. Recognize external environment and adapt the HR practices accordingly.
2. Create market value for investors
3. Increases customer share.
4. Establishes employee value
5. Manages and measure performance process.
6. Manages information processes that add value.
7. Aligns its organization to the strategy of the business.

We have discussed much about the human capital management. But this discussion is incomplete if we remain unaware about the techniques of measuring the Human Capital. Let’s broaden the knowledge on HCM by understanding the underlying principles of an effective measurement system of Human Capital. Let’s first define what is benchmarking.

Benchmarking :

“It is the continuous process of measuring products, services and practices against the toughest competitors or those companies recognized as industry leaders.”


1. Senior Management Projection:

The management should take an interest and proactive action to acknowledge the importance of the system.

2. HR Scoreboard and Strategic Business Plan Alignment

The measures in the HR scoreboard should move towards achieving the organizational goals. Hence there should be proper alignment in HR Scoreboard and strategic Business Plan.

3. Accounatbility of HR :

Accounatbility is of two types. First, successful implementation of the HR policy and secondly, collecting the data to support the measure.of that policy.

4. Validity :

The measurement system should be simple and clear and rigourously exercised and examined.

5. Result Measurement :

Measurement of the implementation of Human policy is a tedious task. We can divide the result measure in two parts. Process result is the efficiency and effectiveness of the the process to complete the task while Result measure is the effectiveness and efficiency of the output received by the process measure.

Example : The time taken to fill the vacancy in the organization is the process measure while the productivity given by an employee after occupying the position which will help in attaining the company objective is the Result measure.

6. Lag & Lead Measure :

Lag and lead measure are the sides of a same coin. Lag , as the name speaks tells us about the past report. Example : Financial Reports.
Lead Measures indicates about future happenings and result. It gives us the indication whether we have to adopt the past method or do some changes to reach the objective.

7. Actionable Measures:

Measure only vital measures which provide greater insight and ability to take action for HR Strategy & Plan of the company.

8. Dynamic :

The world is very dynamic. Business process is changing at every second to attain position in the competitive world. Hence, measurement system should also adopt itself according to the need of the environment.

9. Distribution Down The Line :

There should be proper distribution of the measurement system down the line to achieve organizational goal.. This communication will bring trust & respect to HR. The result will be HR will be seen as Strategic Business Partner.

The principles are nothing but the guidelines on which the measuring techniques are based but the real calculation on the return on investment on Human Capital plays pivotal role in Human Capital Management. The techniques are as follows :

The Techniques to calculate Return On Investment on Human Capital

The understanding of the concept of return on investment on HR Practices. HR practices includes, recruitment, selection, placement, retention, training & development, performance management, compensation management, organization development, employee delightment etc.. The boundary of HR practices is not confined till HR department but it applies to the whole of the organization.

1. Return On Investment

Return on Investment is defined as earnings divided by investment. The ROI process calculate the impact of various HR programs on employees to attain organizational objectives. The ROI Process is the measuring technique in the form of Scorecard to track and monitor the impact of the Human Resource Programs.

ROI Process

1. Collecting data during HR program implementation.
2. Collecting data after HR Program implementation.
3. Isolating the effects of an HR program.
4. Converting data to monetary value.
5. Monitoring the cost of human measures.
6. Calculating the actual return on investment.
7. Identifying intangible measures.
8. Communicating results.

The HR Scorecard

HR scorecard was created by Brian Becker, Mark Huselid and David Ulrich. They have tried to show a strong relationship between people HR practices and company performance. The scorecard measures labor costs, productivity of the human resource, employee survey scores, labor supply, performance etc. The HR scoreboard has been instrumental in increasing the visibility of HR and its impact on the business. It is to be noted that “An HR Scoreboard should be considered an HR Measurement System, while an HR Measurement System should not be considered an HR Scoreboard.”

HR scorecard is a card of an employee which measures vital HR practices performed by him/her and the analysis of the impact on organizational objective. This has an advantage that it pulls an employee to think beyond the internal customers of the organization.


Balance scorecard is the terminology used a bit earlier for the measurement of the customer service performance improvements, benchmarking competitors etc. But due to difficulty to convert the performance into numbers the technique was left behind. Some of the company’s took courage to explore this and came with “Human Capital Scoreboard.” Hence we can say that HCS starts from a point where the BSC leaves.

HCS is a tool kit of analysis, coaching and software to help in the “3 P’s” of Performance, productivity and profit.


It benchmarks an organizations current human capital capabilities into four quadrants : Mastyer, Apprentice, Novice and Plugger.
Besides the above techniques there are many ways to quantify the human capital. Since it is an emerging discipline, research is still going on it.

How Human Capital Management is done in industrial sector. How can it be implemented effectively and efficiently to give valuable return on investment to satisfy the internal and external customers of the organization. Here, the presentation of brief study of the cases is given to covert theoretical concepts into practical inputs.



1. Toyota is one of the best company to get highest return on the investment on Human Capital. The conclusion is not this that Toyota has best HR function but the remedy is the more dollars returned on the investment of the people. Toyota’s market value (share price * no. of shares) is more than $166 million Which is more than the combined value of Ford, General Motors & Daimler Chrysler. Share prices are based on the confidence of the company built by the people of the organization. Share prices create market value. It means the market is represented by the Human capital of the organization and if measured in quantifiable terms it can show the value in numbers.

2. Wyeth Consumer Healthcare study

The company is focused on research and development activities. Attracting, developing and retaining the talent is one of the top priority of the firm. The WCH’s competency development and interviewing training team won an internal Global Excellence Award for their evaluating changes in the interviewing process. Here the company developed the Team to improve the selection system. The team used a Development dimension International’s Target selection system for conducting valid interviews to manage customer expectations and providing measurement outcomes. The result of this Team was improvement in interviewing skills, confidence and quality of the interview process. Both strategic and tactical measurement tools were applied for the study. The Team created the value of competency based HR system. It was successful since the HR strategy was supported by business plan. This shows the success is certain if HR becomes the strategic partner of the firm and human capital evaluation techniques gives result in numbers.

3. Hewlett Packard

HP has the talent for the market adaptation. HP leads in flexible working hours, open work environments and employee stock sharing. It has an adaptive enterprise strategy which includes proactive ness, workforce planning and employee development. We know that business always ask for quantifiable results like utilization rates, workforce gaps and production capabilities etc. The biggest productivity opportunity is people. Therefore, seeing the changing scenarios demand HP has aligned the ongoing skills development to business direction. In HP, workforce planning starts with an assessment of the current workforce, including a skills inventory and then moves to capacity and capability modeling. The HP creates the most efficient and cost effective ways to fill the capacity gaps. “To be successful, the alignment of the workforce planning and business strategy has to be rigourous, meticulous and disciplined in execution, but the payoffs are huge”. This proactive approach led the merger of HP and Compaq, which closed on May 3, 2002, impacted 155,000 employees and millions of customers worldwide, a successful Human Capital Management event.


The Human Capital Management is a dynamic term but it becomes in real sense vibrant and dynamic if implemented in the organization. HR is a strategic business partner and its alignment with business plans gives challenging results. Investment on the Human capital and Measurement system gives Return on investment in the balance sheet. Hence, HR performance is visible to the business leaders. The Human is no more the asset but value adders.

1. “Ascent” – “The Times Of India”
2. How to Measure Human Resources Management by Jac Fitz-enz
3. Human Capital- Magazine
4. The ROI of Human Capital : Measuring the Economic Value of Employee Performance by Jac Fitz-enz

1. Full Title of the manuscript : “The Human Capital Management”

2. Name and Designation of all authors : 
- Prof. Rekha Singh 
- Prof. Ambrish Sharma

3. An Abstract : Human Capital Management


Human capital management is an approach to people management that treats it as a high level strategic issue and seeks systematically to analyse, measure and evaluate how people policies and practices create value. Human capital’s mantra is “We aim to maximize the value of our people – their individual value and our value are one and the same.” HCM talks about value of people rather than their cost, it talks about outputs, not inputs. HCM is totally a new discipline which has revolutionized the minds of business leaders. Business leaders are recognizing the scintillating effects of considering human as “Capital” rather than mere employees. Discussion on the case of a leading organization will prove it. There is a lot of difference between Human Capital Management and Human Resource Management. The skill set for managing HCM is not available in the market but has to be created since we need people who can interpret the balance sheet and the profit and loss account besides Human Resource Management. Making the technique of HCM operational in an organization is a challenge but is still feasible if we follow certain steps. HCM is not the cost invested in training, talent acquisition, retaining etc. but it is “ value” added in our people. HCM does not talk about increasing value to the internal customers but it also lays emphasis on external customers. There is a vast difference in HCM and HRM. There is a gradual transformation of HRM into a new discipline called HCM (Human Capital Management”.

4. A maximum of five keywords : 
- Human 
- Capital 
- Management 
- value 

5. The academic track(s) that describes the paper : Human Resource Management, Organisational Behaviour

The author can be reached at

Comments Listing
Posted: 24/02/2011 04:29:07

it is very usefull to us

Posted: 24/02/2011 04:26:18

it is realy very usefull to us

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