Human capital is capital in the form of human resources. When shifting to the business world, it means becoming an intangible asset belonging to the company. However, these resources cannot be included on a company’s balance sheet.
There are agencies or companies that use the term Human Resource Management, but together with human capital, both are in charge of managing humans in a business organization. However, there are still differences in the definition of “human” in their treatment.
Definition of Human Capital
By definition, HC can be interpreted as human capital, where further this human capital is a collection of aspects of knowledge, skills, abilities and any skills that make up a human being as an asset in the company.
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They will later become an added value for the company to carry out daily operations through providing motivation, competence, as well as collaboration between teams. Contributions from workers can be in the form of developing employee skills.
This development is expected to increase the quality and quantity of company productivity, transfer existing knowledge from workers to the company, as well as change the culture within the company itself.
Later, if the worker is no longer working, the company can still use the employee’s knowledge. Because of that employees can be considered as valuable capital and their hard work is appreciated so that it is made a legacy by the company.
Types of Human Capital
Human capital consists of various types. Some of them are as follows.
1. General Management Human Capital
This human capital can be developed for human resources at the highest level. Usually they have competence in the field of company management , such as leadership, decision making, and other functional expertise.
2. Strategic Human Capital
This type requires human resources to have strategic competencies that will be gained from experience when dealing with certain situations. This capital is needed by the company in order to adapt to unexpected situations.
3. Industry Human Capital
This one human capital requires individuals to have knowledge related to certain industries, both from a technical, regulatory, and other side. For example, knowledge of the food industry, retail industry, automotive industry, and so on.
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4. Relationship Human Capital
The competency that must be possessed by most workers is the ability to communicate. When employees are able to establish good communication, both with fellow employees or other business colleagues, this is included in the human capital relationship.
This competency is crucial for a worker, because with good interaction skills, they will be motivated to achieve the objectives of their work.
5. Company Specific Human Capital
This human capital relates to policies and related company structures where they have their own unique sides. Wherever they work, all workers are required to be able to adapt to all conditions within the company.
When employees understand the culture and unique terms, they can work easily based on the company’s vision and mission.
Examples of Human Capital Work
After fully understanding the definition of human capital, it’s time to move on to the next topic. In what ways do they work? The following are examples of the duties and work of an HC.
1. Recruiting Employees
Being a human capital means being an important part when recruiting employees. This process can start from making job vacancies, sorting prospective workers, conducting interviews, to the process of signing work contracts.
To make it easier to recruit employees, you can post job advertisements & manage incoming applicants with the Company Dashboard at KitaLulus. See more here.
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2. Determine Employee Job Responsibilities
With different positions, each employee has different responsibilities. human capital is tasked with determining the responsibilities of new employees who are ready to work with detailed job descriptions.
3. Employee Workload Management
When a company develops, it means that human capital is in charge of determining the strategy that must be implemented; Is it necessary to recruit new workers or add workload to employees who are still working with an overtime system or overtime according to their capacity?
4. Implementation of Efficiency Through Technology
Work related to human capital has a heavy burden, especially from the human resource perspective. Utilization of technology can increase efficiency, such as the use of hris applications . Through this software, you as the company’s HR team are able to efficiently manage employees and are cloud-based so that data is safe and easy to access.
5. Running a Manpower Training and Development Program
Workers are company assets that have the potential to increase productivity if managed properly. This human resource management can take the form of training programs, seminars according to business fields, as well as educational benefits and scholarships for employees with high potential in boosting economic value.
6. Data Validation
The large number of tasks and data that have accumulated for human capital management, starting from social security claims according to regulations, leave applications, employee salary forms, and others, must be checked and data validated on all files so that they comply with the provisions.
7. Checking Attendance and Timeliness
This point becomes an important work related to human capital. Checking employee attendance and punctuality can have an impact on evaluating employees who value their time and regard their work as a serious matter with high responsibility.
By using an online attendance application , employees can make attendance more easily and the HR team can also analyze employee attendance data accurately.
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The difference between Human Capital and Human Resources
Based on the definition and function of HC and HR can be distinguished as follows.
1. Function of Human Capital
HC becomes a department with the task of managing human beings as a valuable company capital. These human values need to be improved in order to provide benefits for the company. The resources are not exhausted, but the existing values are developed.
Human capital functions to design strategies in building engagement, increasing employee loyalty, and reducing turnover. HC assesses employees with significant contributions, increasing values, competencies, and skills that bring the company towards better development.
2. Human Resources Function
The difference with HC, Human Resources is a department with the task of managing human beings as company resources in supporting company goals until they are achieved. In this case, resources will run out due to the aging age of the workers.
Human Resources functions to manage workers from recruitment, training, evaluation, to compensation. HR is responsible for work relations, job security, and the welfare of its workers. The value of workers is measured by the results of their work. HCM team can use hr dashboard to analyze employee data.
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Human Capital Theory
This theory is a theory that explains that companies are very likely to measure the investment value of workers, employment, and society as a whole. According to his theory, investment is enough for humans to grow the economy.
For example, several countries offer their citizens to pursue higher education free of charge because college graduates can earn more and spend more to boost the country’s economy.
From the point of view of business administration, the theory of human capital becomes an extension whose origin is human resource management itself. The idea of this theory is often associated with the father of modern economics, Adam Smith, in 1776.
He explained that competency can be obtained and is useful for all members of society in general. Adam Smith also suggested that the difference in pay would be based on the level of difficulty in each field of work.
Today, the theory of human capital is often reviewed more deeply so that the intangible components can be measured. These components include cultural capital, social capital, and intellectual capital. The explanation is as follows.
1. Cultural Capital
Cultural capital is a combination of knowledge and intellectual abilities in encouraging a person’s ability to achieve a higher social status. This is useful for doing work that is more beneficial in the economic field.
In the world economy, further education, job-specific training, and innate talent are typical methods by which one can build cultural capital in anticipation of higher levels of wage income.
2. Social Capital (Social Capital)
Social capital is a modern human capital theory where social relations can be beneficial in every development of the era, such as corporate goodwill, brand recognition, as well as being a key element for sensory psychological marketing.
This capital is not the same as human assets. Like charisma and fame, these two things cannot be taught or imparted to another individual by the method of imparting skills and knowledge.
3. Intellectual Capital (Intellectual Capital)
Intellectual capital is a value in modern human capital theory that is intangible from all that is known to workers in business, but can give businesses a competitive edge. For example, the creation of thoughts, inventions, and works of art.
Unlike human capital assets in the form of skills and education, this capital will continue to exist in the company even after the employee has resigned. Because it is protected by copyright and patent laws, non-disclosure agreements will also be signed by the workers.
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Example of Human Capital
When talking about human capital itself, it can take various forms. Some examples of the capitals that are often found in an individual worker can be seen in the following explanation.
1. Ability
Humans have two kinds of abilities, namely natural and developed. Natural ability is shown through what has been possessed since birth, such as a soccer player with his soccer skills, considered human capital which is profitable in terms of career and good salary.
Then, this ability also requires hard work and a continuous learning process so that the ability becomes a developing ability. With this effort, the ability to develop will ultimately be economically profitable.
2. Creativity
Creativity in every HR can be considered as a natural ability, but one example of this human capital can develop even though creative skills are generally possessed naturally. In some cases, creative people are more productive in creative work.
3. Education
The focus of human capital theory is education. Because, in this era everyone can learn and spread knowledge from anywhere and anytime with the development of technology called the internet. HR must consider capabilities in this field.
4. Experience
The more experience one has, the better one will develop in the future. Just like someone who has succeeded in repairing hundreds of internet networks will have better skills than those who have no experience at all.
Logically, if someone has a lot of experience, then they have faced many conditions. So, if an experienced worker is called in, he can recall the solutions they have implemented.
5. Assessment
The next example of human capital is appraisal, where decisions made under different conditions can be shaped and developed. For example, a company’s annual project may be assessed if the employee has gone through similar circumstances in the past.
The Importance of Human Capital Management in Companies
Human capital has an important function in increasing work productivity, producing professional services, providing the right solutions for companies based on the knowledge possessed by workers in the company.
Therefore, HC is clearly a valuable asset for companies with traits that cannot be easily replaced by other human resources. Therefore, it is very important to analyze and present information systems for the development and implementation of effective and efficient business strategies. Human capital management is crucial because it plays an important role in company innovation and renewal. The following two things support the contribution of HC investment to the company.
Employees with high HC will be able to provide more consistent and better quality services so that companies can retain customers and even attract new customers.
Potential consumers can use the HC quality of workers in the company as a filter tool in choosing the products or services available in the company.
The decision to choose a management concept in a company or organization depends on the industry itself, as well as the vision and mission of the company. Maybe the company is already good at managing HR with the concept of HRM and there are no problems with work results and growth.
Therefore, to see the advantages or disadvantages of Human Resource Management or Human Capital Management cannot be decided with certainty. However, when comparing the two, HCM views HR as a valuable asset to invest in. Because HCM sees that human resources can be invested more, HCM is considered to be able to contribute better benefits for workers as well as for the company as a whole.
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Benefits of Implementing Human Capital Management in Companies
At present, it is understood that the quality of employees is the key in increasing the growth and development of the company. To improve the quality of its workers, it must be looked back at the initial stage when the process of finding and recruiting these workers.
The view of human capital will lead to further understanding of the company’s vision, employee potential, and prospects for higher quality business development. Another fact, HCM is in charge of and involved in the development of the company’s business as well.
They will find out the ins and outs of the business, the company’s targets, and the HC Team will design a work model or program as well as a strategy for building quality human resources for the smooth running of the company’s business. Thus, the benefits of HCM can be summarized as follows.
- HCM can encourage HR practitioners to recruit the right people for the right positions.
- HCM can focus on the right options for skills development and training of workers.
- HCM can help workers analyze their deficiencies and then support them in developing skill improvement strategies.
- HCM can support companies in determining equal costs after understanding the potential of each worker. Thus, the company can maximize Return of Investment (ROI).
- HCM can increase employee retention ratios and increase employee engagement.
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Strategy in Implementing Human Capital Management
Establishing HCM cannot be an easy and fast process. The results of HR planning in the long term cannot be felt in a short time. Therefore, the following is a strategy for considering HCM planning in companies.
1. Set a Targeted Vision
This human capital management planning component requires an understanding of the company, including the vision, budget constraints, requirements and expectations of stakeholders, as well as workforce requirements so that strategic directions can be achieved.
2. Define Clear Goals
Understanding the gap between the current situation and the desired state will help in advancing the HR goals of increasing the efficiency of all workers, but also making them feel ’embraced’ by the company.
3. Policy in achieving the target
The next stage in the strategy for implementing human capital management is setting goals and objectives with a wise strategy. Practitioners must make long-term planning to ensure workers are satisfied with their jobs and give their best.
4. Plan the Best Implementation
The best implementation includes the required actions and steps, such as the allocation of resources that can be accounted for, setting deadlines in implementing the human capital plan and budget allocations.
5. Determine an Accountability System
Plan tracking should be followed by an accountability system so that the success and failure of the plan can be measured. This strategy can help analyze gaps and ways to fix them.