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GCSA ASSIGNMENT INTERNATIONAL BUSINESS

HUMAN CAPITAL AND COMPETITIVENESS

PRANAV KHARBANDA MBA-IV (A) DIAS

How economic competitiveness indexes view human capital?


Competitiveness: just a fashionable concept? Competitiveness is at the top of political agendas all over the world. Several countries and regions have established policies and institutions devoted to competitiveness, including in developing and transition countries. Despite its popularity in economic literature and public policy, the concept of national economic competitiveness remains unclear and the object of criticism. The lack of clarity was recognised early by Michael Porter, whose name more than any other is associated with the concept of national competitiveness. In 1990 he wrote: we must abandon the whole notion of a competitive nation as a term having much meaning for economic prosperity (Porter, 1990, p.6) and elsewhere he noted that while the notion of a competitive company is clear, the notion of a competitive nation is not ((Porter, 1990a) reprinted in (Porter, 1998, p.158). Critics such as Paul Krugman went further. For him, the concept of competitiveness is not only based on wrong premises (i.e. the wealth of a country is based on its success in international markets, where nations compete with each other like companies) but it is also dangerous: it may lead to wrong allocation of resources and even to protectionism (Krugman, 1994). It is thus essential to define national economic competitiveness and, as a logical consequence, critically assess how to measure it. The issue of measurement is particularly important because public authorities increasingly tend to follow the so-called evidence-based policy, where policies are guided by indicators and benchmarks, typically in the form of hard statistical data. A number of indexes, data collections and rankings have been developed to present evidence in an aggregated form for policy makers on a range of topics like human development (UNDP), student achievement (PISA, PIRLS, TIMMS), and, of course, national economic competitiveness. Indeed, one of the criticisms formulated by Paul Krugman to the competitiveness literature was the lack of evidence and what he called the careless arithmetics or incorrect use of data to justify policies or theories (Krugman, 1994). However, defining critically national economic competitiveness lies outside the scope of this article. For the purposes of this article it is sufficient to recall that institutions like the World Economic Forum (WEF) or the Institute for Management Development (IMD) think of national competitiveness in terms of potentially increased productivity. The intention behind this article is to shed some light on the arithmetic regarding the human capital components in the dominant competitiveness indexes and to discuss whether the mechanics behind the arithmetic has taken centre stage instead of the dimensions of human capital, which national economic competitiveness is based on. In a global interdependent world, the need for greater economic competitiveness is used to justify educational reforms. The intense debate in Germany following relatively poor results in the PISA assessments of student achievements was not only a question of wounded national pride, but also reflected a fear that Germany would be lacking the skills needed to keep up with other countries in terms of economic prosperity (Siebert, 2005). The article will therefore examine how human capital is measured in the competitiveness indexes. How important are the human capital components within the competitiveness indexes? What is the relative weight given to human capital? And do the indicators used adequately capture the elements of human capital which has an impact on national economic competitiveness? Understanding how human capital affects the level of national economic competitiveness will allow countries to better target their sparse resources to improve their national economic competitiveness.

How is national economic competitiveness measured? The WEF and the IMD publish the two major international indexes which purports to measure (and compare) national economic competitiveness. WEF has published its Global Competitiveness Reports since 1979, while IMF celebrated the 20th anniversary of its World Competitiveness Yearbooks in 2008. As their definitions of national economic competitiveness are similar, but not identical - for the WEF, national economic competitiveness is the set of institutions, policies and factors that determine the level of productivity of a country (Sala-i-Martn et al., 2008, p.3), whereas for the IMD, national economic competitiveness is how a nation manages the totality of its resources and competencies to increase the prosperity of its people (IMD, 2008, p.32) -.it will be no surprise that the two organisations apply similar but not identical methodologies to the process of calculating competitiveness. These methodologies have naturally evolved over time. Evolution is essential to adapt the methodology to the changes in the World. What 20-30 years ago was an important factor to increase productivity and prosperity is not necessarily so crucial now, while critical technologies, such as the browsers which opened up the internet to the general public and more recently the web 2.0 and its applications, simply did not exist at the time of the first publication of the two competitiveness reports. National economic competitiveness is measured by the WEF (Sala-i-Martn et al., 2008) and IMD (2008) through composite indexes that include a set of indicators on different relevant factors. In 2008, the WEF covered and ranked 134 economies, through 123 variables. The same year, the IMD analysed 55 countries, using more than 300 criteria. Such data were organised in different ways (Table I).

Table I: WEF and IMD main categories of indicators

WEF: Twelve pillars of economic competitiveness


Basic requirements 1- Institutions 2- Infrastructure 3- Macroeconomic stability 4- Health and primary education

Efficiency enhancers 5- Higher education and training 6- Goods market efficiency 7- Labour market efficiency 8- Financial market sophistication 9- Technological readiness 10- Market size

Innovation and sophistication factors 11- Business sophistication 12- Innovation Economic performance: Domestic economy International trade International investment Employment Prices

Government efficiency: Public Finance Fiscal policy Institutional framework Business legislation Societal framework

Business efficiency: Productivity and efficiency Labour market Finance Management practices Attitudes and values

Infrastructure: Basic infrastructure Technological infrastructure Scientific infrastructure Health and environment Education

A quick overview of the main pillars/categories and sub-categories shows that the IMD and the WEF follow the same theoretical premises. Most factors appear in both indexes, even if presented and weighted in different ways. Another similarity concerns the source of the data. Both competitiveness indexes are based on a combination of hard data, coming from international databases (the World Bank's World Development Indicators which in itself draws on many international data sources as well as World Bank estimates; the OECD; the World Trade Organisation Statistics Database; and the UNESCO Institute for Statistics being the principal providers of data), and the results of an annual Executive Opinion Survey, which collects responses to long questionnaires (in 2008, there were 144 questions broken down in thirteen sections in WEFs survey and 123 items in the IMD questionnaire), from a small sample of managers of companies in each country covered by the reports. The sample sizes vary from country to country for both the WEF and the IMD, but the average size of the country samples is 92 and 72 respectively for the WEF and the IMD. These surveys permit the WEF and the IMD to cover data gaps. The surveys also allow executives to provide their opinions about the economic, social and political environment where they operate. However, the questionnaires also include areas where the executives may not have any personal or professional insights, such as the quality of primary education to give but one example. In the case of the WEF index, the very vast majority of the indicators come from the Executive Opinion Survey (81, out of a total of 110 in the 2008-2009 edition). The main difference between the WEF and the IMD indexes concern the classification of countries and, as a consequence, how indicators are weighted. The IMD applies exactly the same calculations to each country in order to establish their competitiveness scores and ranks. The WEF distinguishes between three kinds of economies and classify countries according to their stage of development: factor-driven economies (stage 1), efficiency-driven economies (stage 2) and innovation-driven economies (stage 3). The rationale behind such classification and weighting is that, according to their level of development (based on GDP per capita and by the share of exports of minerals in total exports), countries face different paths to improve their competitiveness. Infrastructure, institutions, macroeconomic stability or health and primary education, the so-called basic requirements, are according to this rationale particularly relevant for factor-driven economies, while business sophistication and innovation variables (pillars 11 and 12) are more important for the most advanced economies. According to the stage of development of a country, the WEF applies greater weights to the most relevant indicators at that stage. Basic requirements represent 60% of the score for factor-driven economies, and only 20% for innovation-driven countries. Classifying countries according to their developmental stage and weighting the indicators allows for a more dynamic analysis of the data, in the sense that one can observe how, as an economy develops, the needs of its companies to be competitive change: having a low-cost labour force or rich natural resources used to be essential at the lowest stages of development, while advanced technologies and methods are generally crucial for innovation-driven economies (Porter, Ketels and Delgado, 2007). Nevertheless, it can be argued that a bias is introduced by using different weights for different countries introduced, which has an effect on the comparability of final scores and ranking.

Does human capital matter? Analysis of the importance of education in competitiveness indices Macro-economic evidence shows that human capital leads to economic growth (Mankiw, Romer and Weil, 1992; Barro, 1997; Barro, 2000; Krueger and Lindhal, 2003). Social and economic returns of human capital (generally measured by education attainment levels) are at least as important as those of physical capital (De la Fuente, 2003). It is therefore not surprising that both the IMD and the WEF indexes include a set of data related to education, training and skills. Concretely, IMD included a sub-category of 19 indicators devoted to education in the 2008 edition of its report, as well as other variables linked to human capital: skilled labour force, finance skills, foreign highlyskilled people, competent senior managers, etc. Something similar can be said about the WEF, where the 4th pillar includes indicators on primary education and the 5th pillar is completely oriented to measure higher education and training assets. Other indicators on innovation are also directly or indirectly linked with human capital (see below). The theoretical and political quorum about the importance of human capital for competitiveness leads to another question: how important is human capital for the competitiveness models, relative to other factors? This question will be answered using WEF data. There were several reasons to focus on data from WEF. The model developed by the IMD gives the same weight to all variables , thus it deliberately does not give any special emphasis to any given aspect. Furthermore the WEF covers many more countries than the IMD which helps explain why its index is more widely referred to globally. With the greater visibility and the deliberate choice of weights comes greater responsibility for the weight assigned to any given element, whether that be human capital, physical infrastructure or a third component. And finally it was because the IMDs definition of prosperity (the goal behind increasing competitiveness) is so vague that it can not be pinned down what competitiveness will achieve. Having increased productivity as the aim for the competitiveness measured by the WEF ensures that variables should be included to the extent that the variables have a positive effect on productivity. This section analyses data used by the WEF for the 2008-2009 edition of its Global Competitiveness Report. The objective is to understand to what extent education and training matter in competitiveness, according to the WEF index. This can be done in two different ways: 1- Summing-up the weight of each indicator on education and training within the total, according to the stage of development. 2- Through simulations of the effect of changes to the human capital variables on countries ranking of competitiveness. We will first examine and discuss the weight of human capital in the WEF index before moving onto simulations. The first step is to determine which indicators cover human capital. Some are quite obvious, like those directly linked to education included in pillar 5 and 6. Other choices need further justification. They refer more largely to human capital stock, attitudes or even outputs, also in the field of research. Table II presents the WEF human capital indicators.

Table II: Human capital indicators in the WEF Global Competitiveness Index 2008 Directly linked with education and training (indicator number) Largely linked human capital (indicator number) - Quality of primary education (4.09) - Primary enrolment (4.10) - Education expenditure (4.11) - Secondary enrolment (5.01) - Tertiary enrolment (5.02) - Quality of the educational system (5.03) - Quality of science and mathematics education (5.04) - Quality of management schools (5.05) - Internet access in schools (5.06) - Local availability of research and training services (5.07) - Extent of staff training (5.08). - Brain-drain (7.09) - Capacity for innovation (12.01) - Quality of research institutions (12.02) - Company spending on research and development (12.03) - University-industry research collaboration (12.04) - Availability of researchers and engineers (12.06) - Utility patents (12.07)

Capacity for innovation for instance, can be encouraged by innovative pedagogies, as mentioned in another paper in this publication (Sahlberg and Oldroyd, 2010). The quality of research institutions and the availability of researchers and engineers is a direct function of the production of human capital or the ability to attract it (like in the USA). Utility patents, along with university-industry research collaboration, can be considered as an output of the national knowledge triangle (education, innovation and research). Company spending on research and development is intended to generate new knowledge and thus has clear implications for the level of human capital. Finally, brain drain may be viewed as a proxy of the capacity to retain highly-educated citizens. Accepting such choices, there are 18 indicators related to human capital or, in other words, 14.6% of the total. Amongst these 18, only four are based on hard data, the rest rely on the Executive Opinion Survey. A more accurate picture of the importance of education and training indicators in the WEF competitiveness index is provided by Table III, which presents the total weight of such variables within the total, by stage of development. As the various stages of development emphasise different pillars through the allocation of different weights to these pillars, a true picture of the weight of human capital in the competitiveness index must weight the human capital indicators with the weights allocated to their pillars and this must be done for each of the three possible stages.

Table III: Weight of human capital indicators in WEF Global Competitiveness Index 2008 Primary education indicators (pillar 4) indicators (pillar 12) Total human capital (pillar 3) Factor-driven stage (1) 7.5 % Efficiency-driven stage (2) Innovation-driven stage (3) 6.8 % 5.0 % 2.5 % 2% 9.7 % 9.7 % Higher education indicators (pillar 5) + brain drain (7.09) Innovation Institutions (pillar 1) Infrastructure (pillar 2) Macroeconomy

16.3 % 15 % 4% 12 %

15 %

15 % 10 % 5% 10 % 5%

18.7 % 10 % 24.2 % 5 %

These data indicate that, based on this simple calculation, human capital appears as a very relevant driver of national economic competitiveness. The table shows that human capital accounts for 16.3% of the score given to a country at the factor-driven stage. As a country becomes more developed, the weight given to human capital increases due to the weight of the innovation pillar that makes up for the declining influence of primary education. Countries at the efficiency-driven stage rely on human capital variables for 18.7% of their score and countries at the innovation-driven stage get as much as 24.2% of their final score for national economic competitiveness from variables linked to human capital.

Hiding the role of human capital? Education and training is increasingly important as a country develops and moves from a lower to a higher developmental stage. This relevance is scarcely reflected in the competitiveness model underlying WEFs index. Looking back over the last reports, human capital was acknowledged explicitly in the 2004-2005 report in the form of a separate pillar out of the 12 which collectively make up the index. Already in this report, the difference between basic human capital and advanced human capital is recognised, and the indicators making up the 5th pillar were distributed between the sub-pillars of basic requirements and efficiency enhancers respectively (Sala-i-Martn and Artadi, 2004, p.53 and 75). By the 2008-2009 report (Sala-i-Martn, Blanke; Drzeniek Hanouz, Geiger, Mia and Paua, 2008, pp.4-7) the human capital indicators are largely the same. Only two new indicators have been added: quality of primary education (4.09) and education expenditure (4.11). Most indicators have now been split up in two separate pillars (at the expense of the security pillar present in the 2004-2005 report) explicitly linked with education and training, called health and primary education (fourth pillar) and higher education and training (fifth pillar). The changes concerning human capital over the years 2004 to 2008 can therefore be said to be mainly technical adjustments, but the changes announced for the new global competitiveness index are more fundamental. Human capital would cease to be explicitly acknowledged in the new Global Competitiveness Index (GCI) as it was announced in the 2008-2009 report (Porter, Delgado, Ketels and Stern, 2008, pp.43-59), however it appears that the new GCI will not be introduced in the imminent future after all . This is a critical issue as the implicit downplaying of human capital can lead to large policy implications. Even using the present model, policy makers are guided by the explicit emphasis of other indicators to give less emphasis to education and training than what is merited judging by the importance of human capital in the current competitiveness index.

What effect does a change in human capital have on competitiveness? De-emphasising human capital is acceptable if countries generally have similar scores. Even if human capital can account for a quarter of the final competitiveness score, this hardly matters if a country can not make sufficient changes to its education and training system to impact its overall score. This section will therefore examine how much a country can change its ranking by changing its human capital scores. What would happen if a country made such drastic policy changes as to change its scores on human capital to be the best amongst all the economies covered by the WEF competitiveness report, all other things remaining constant? And what would happen if the education and training system collapsed to the point of the worst country in the world? Simulations were run independently for each country by substituting the values of the human capital indicators with the corresponding values of respectively the best and the worst performer in the world for that variable. The resulting scores were then used to assess where the country would be placed in the competitiveness ranking. Table IV shows the results of such simulation for a selection of countries. Countries mentioned in brackets in the last two columns indicate the country currently occupying the ranking which a country might achieve as a result of the simulations. The five countries that could increase their Global Competitiveness Index ranking the most through improving their human capital are all African: Chad, Burundi, Mozambique, Mali and Burkina Faso. In the case of Chad, ranked last in the world in the ranking published by the WEF, the improvement in the score would be close to 25%, allowing the country to jump to number 109, similar to the current rank of Albania. The other four African countries mentioned could increase their scores by more than 19%.

These five African countries are followed closely by Nepal, which is the Asian country that has the most to gain by improving its human capital, with a potential gain of 17.1%, Ecuador (16.7%) and Albania (16.3%). According to these simulations, they may improve their ranks respectively from ranks 114, 103 and 109 to the 76th, 60th and 67th positions. Greece, Italy and the Russian Federation were ranked 65th, 46th and 68th respectively by the WEF Global Competitiveness index. Our simulations show that improvements in education and training in these countries could lead to significant improvements in their measured competitiveness. Greece and Russia could move up to rank 32 (currently occupied by Tunisia), and Italy could jump 20 positions to the 26th position (equal to Chile). These examples provide a clear message for these countries authorities. Their current human capital make them weak in terms of competitiveness, so by focusing on improving the skills of their populations, these countries can make up a large part of the productivity gap and enhance their overall prosperity. Obviously, for some countries like Finland, Sweden, Switzerland or the United Stated, the margin of potential improvement through human capital is narrow. But our simulations, as shown in Table IV, demonstrate that the opposite might be true. If their education and training systems collapsed, they would loose an important part of their national competitiveness. Table IV shows what happens when we replace their human capital scores by the worst amongst the countries covered by the WEF. Under such simulations, their competitiveness scores would decrease by more than 17%. The United States, ranked first in the WEF report published in 2008, would become the 29th (which is the current level of Spain). Finland, ranked 6th, would appear to be as competitive as Oman. Of course, these simulations are based on unrealistic premises. First, because such increases or decreases in education and training variables are not possible in the short or medium term. Secondly, because the main assumption of the simulations is that other variables (and other countries) would remain constant. This is obviously false: indicators correlate. Improving human capital is at the same time a cause and a consequence of many other factors, included or not in the Global Competitiveness Index. And countries do not operate in a vacuum. Other countries will continue to make changes to their own education and training systems as well. Regardless, this analysis has two advantages: It provides strong messages to the countries about the relevance of human capital to improve their national competitiveness. Human capital improvements offer great potential for improving overall economic competitiveness for many countries, and for the countries that are very competitive; the simulations serve to underline the importance of maintaining well functioning education and training systems. Simulations can be done at a greater level of detail for a more sophisticated analysis. Even if it is in practice impossible for a given country to become the best (or the worst) in education and training in the short or medium term, incremental improvements are very often part of government programmes and agendas, and the intended improvements often include tangible targets with clear benchmarks. More detailed simulations can take such targets into account to estimate how the countrys position on the competitiveness index would be affected. Trends and policy indications can be provided , even if accurate forecasts cannot be done under the premise of all other variables remaining constant. The authors of this article have developed a tool that simulates how the final Competitiveness scores evolve when a user introduces a change of X percent in human capital variables for a country. For example, if Italy was able to increase its human capital scores by 10%, the final score would increase by 1.76%, improving its rank by four positions. If the Finnish human capital decreased by 10%, its final competitiveness score would be reduced by 2.38%, taking Finland from the 6th position in the 2007-2008 ranking to the 12th.

Concluding remarks and a proposal on how to include the intangible elements of education and training Human capital is an essential component of national economic competitiveness and, as demonstrated in our analysis, it is increasingly important the more developed a country becomes. More than 24% of the 2007-2008 WEF competitiveness score of the most advanced countries and more than 16% of the score of the least developed countries relate to human capital indicators. Our simulations show that countries which are not ranked highly can achieve large gains in competitiveness if they implement reforms aiming at improving their human capital and conversely countries which are currently ranked highly must maintain and continue to upgrade their human capital if they wish to retain their competitive edge. By analysing the scores for each human capital indicator in detail countries may develop blue prints for future reform efforts. Nowadays, comparative statistics like those elaborated by the WEF or the IMD on competitiveness play a crucial role in policy-making. This evidence-based policy phenomenon has scathingly been called governing by numbers (Grek, 2009). Messages provided by publications like the Global Competitiveness Report (amongst others, alongside the OECD's PISA reports or the World Bank's Doing Business surveys) severely impact policy making. This is particularly true in transition and developing countries, which are highly dependent on donors' funding. For this reason, an accurate and critical analysis of methodologies and contents is important, particularly for developing and transition countries with limited resources to be allocated efficiently. Despite the importance of human capital indicators on the final competitiveness scores, the possible new breakdown of indicators announced by the WEF for future editions of its Global Competitiveness Report implies a very limited emphasis on human capital. This shift in focus away from human capital in the model risks diverting country attention towards other areas with a lesser potential impact on competitiveness, with critical consequences in developing and transition countries. All the same, it must be remembered that the current list of indicators are limited. Partly due a lack of hard data, which mean that efforts to gather more hard data for more countries for a greater variety of variables must continue at the international level, and partly because the human capital indicators do not cover all aspects of education and training. Creative solutions are needed to make up for the fact that the existing indicators do not touch upon a number of the elements which can be expected to lead to improved human capital. Pedagogy, for example, as demonstrated by Sahlberg and Oldroyd (2010), has a huge impact on the quality of education taught in schools, but there are no variables to measure this. Creativity, innovation, social capital and methods to foster risk taking merit being included in competitiveness indexes. Many (Sahlberg and Oldroyd, 2010; Sharan, 2010; Villalba, 2010) argue that these more intangible elements of education have large effects on the final outcomes of education and training systems. As they have a large impact on the learning outcomes, they directly affect the countrys human capital and thereby the national economic competitiveness. There is not any indicator in the national competitiveness indexes that cover creativity, even if attempts of constructing composite indicators exist (Villalba, 2008). The same can be said about social capital, or "the values and beliefs that citizens share in the everyday dealings and which give meaning and provide design to all sort of rules", with substantial implications for innovation and economic performance (Maskell, 2000). Such social capital can hardly be measured, but a qualitative assessment could be provided by survey respondents.

Similarly, the intangible aspects mentioned above could be judged by survey respondents. But there is no reason to limit the survey respondents to business men, as is currently done by both the WEF and the IMD. Groups of international education and training experts could be consulted on how to rank countries on how well their education and training systems do on a range of human capital variables, which can then be used to give a more comprehensive picture of how well a country performs in terms of human capital. Each expert group do not need to cover all countries in the world as there are statistical techniques for merging results from different groups as long as there is a minimum of overlap in coverage. Such expert groups could be asked to assess how well countries do to foster creativity in students, nurture innovation, promote entrepreneurship and risk taking, and build social capital for example. The expert groups could also assess other aspects, which contribute to future competitiveness, by gauging the reform will of ministries of education, openness to innovation in teacher training and pedagogical innovation. And of course the expert groups can also assess the same questions business men are currently being asked on the quality of the education system. Correlating the responses of education experts with responses to the same questions from business men and also correlating the expert responses regarding education quality with PISA results will provide a much needed basis for estimating the reliability of the various surveys. A full list of the issues relating to human capital that has an impact on competitiveness remains to be derived. Many elements have already been referred to in this article, but the links between these elements and national economic competitiveness needs to be spelled out. This could be a very fruitful line of future research. Educationalists can thus help refocus policy discussions on the deeper issues of how to improve education and training systems and in that process steer policy makers from governing by numbers to governing by substance.

Human Capital: A Source for Sustained Competitive Advantageby Russell Coff Smart business leaders recognize that human capital is one of the keys to competitive advantage. If youre a hiring manager, you know that recruiting talent with the right mix of knowledge, skills, and abilities is difficult. And, once you find the right people, training them is expensive. After all this investment, how can a company keep rivals from poaching top talent? One approach in the management literature suggests firms can protect their human capital by encouraging employees to invest in firm-specific human capital. This refers to skills and abilities that are essential at a given company but are not broadly applicable elsewhere. As a result, these employees have limited ability or willingness to seek positions at other firms. According to this logic, employees with general human capitalknowledge and skills that can be applied in other settingshave greater market value because of their greater mobility potential. In a recent Academy of Management Review article, my co-authors and I argue that this approach to strategic human resources management may lead managers to miss other factors that play a critical role in employee retention. Constraints to employee mobility on both the supply side (for example, their desire and willingness to seek another job) and the demand side (such as how other companies would value the employees skills) can affect retention of top talent. Even if employees have firm-specific skills, another company may still hire them away since it may be very hard to observe that their skills are not broadly applicable. Accordingly, firm-specific skills may not produce a competitive advantage unless employees are happy where they are.

Our research suggests that managers should broaden their understanding of the drivers of employee retention. The Wisconsin MBAs Strategic Human Resources Management specialization prepares strategic HR leaders who understand how to create and leverage tools such as compensation design, job design, and employee selection practices to produce competitive advantage for their companies. For at least the last decade, it has been hard to pick up a business book, article, or corporate annual report without seeing statements that stress the importance of human capital. Surveys of executives confirm that many believe that finding and developing the right people should be one of their top priorities. However, it is one thing to stress the importance of human capital; it is another for organizations to be designed to reflect the importance of human capital. This article looks at four areas where human capital should have a major impact on design: corporate boards, leadership, the human resource department, and information practices. In all of these areas there is a large gap between how most organizations operate and how they should operate in an organization that is built for human capital. Corporate boards should have both the expertise and the information needed in order to understand and advise on talent issues at all levels of the organization. They should focus on developing managers who can provide leadership. The HR Department should be the most important staff group. HR should have the best talent, the best information technology resources, and it should be a valued expert resource to the firm when it comes to strategy, change management, organization design, and talent management. There is an old saying that what gets measured gets attended to. The implication of this for human capital is very straightforward. It will be a central focus of an organization only if the organization has measures that are as relevant, rigorous, and comprehensive as the measures of itsfinancial assets and physical capital.