Business, HRM, Management, MBA

Human capital versus organisational capital in practice (caring about people)


In light of a recent experience (yes, I’ve been rather busy these days) I’ve been thinking about the difference between human capital and organisational capital (organizational at the other side of the ocean, of course) and how that difference impacts into everyday work.

Let’s first use the books. When defining human capital, Bontis et al. propose the following:

Human capital represents the human factor in the organization; the combined intelligence, skills and expertise that gives the organization its distinctive character. The human elements of the organization are those that are capable of learning, changing, innovating and providing the creative thrust which if properly motivated can ensure the long-term survival of the organization.

While if we focus on organisational capital (also called structural capital), and quoting Yondt this time:

Organizational capital is the institutionalized knowledge possessed by an organization, which is stored in databases, manuals, etc

As you can see there’s a difference there, a huge difference. This difference can be named as the human factor. For there’s a difference between the knowledge that the organisation owns and contains, and the knowledge, skills and abilities that every worker possesses. It’s not only a matter of accounting these different sets of knowledge as assets or not, as I reflected in my last post HRM and the triple bottom line (do we really believe in people?), there’s much more than that: the effective use of that knowledge is far more important.

Because the employer-employee is not a simply-transactional one-way relationship (at least we can say it no longer is) but a sophisticated dialogue between different entities, an usually effective interchange inserted in the complex framework of the psychological contract.

The psychological contract is a useful construct that reflects the true relationship of the employment contract as assumed by the different parts: what we really expect, what we have understood we should expect, how we agree our post has been designed and our responsibilities are, and many other things that, albeit not written anywhere, are, sometimes unconsciously, stored in our minds.

If our psychological contract is breached, what will become of our knowledge? It won’t be as readily available to our company as it used to be. In fact that’s a moment where the organisational capital will be as available as always, but the human capital simply won’t.

The human factor means that we can make choices. And the drive of those choices can range from self-interest to commitment to your organisation. This commitment modulates the real availability of human capital for the organisation.

That’s why treating people right is so important. In a zillion of a second the most committed employee can turn into an alien counting the minutes until eating-time. And it is, and will be, the responsibility of her manager to make the right decisions, in the right timing, and using the right way to do things, whatever that is.

You can’t be a good manager without caring about people. You simply can’t. As good engineers must love the systems they are designing and good teachers must love what they teach (and children too), people that are managed must matter to the manager. There’s no other way.


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