TOPIC 2

UNDERSTANDING HUMAN CAPITAL &

HUMAN RESOURCE MANAGEMENT

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Definitions of human capital
• The term human capital can trace its roots to the early
1960s, when Schultz (1961) proposed that HC
consisted of the ‘knowledge, skills and abilities of the
people employed in an organisation’.

• Schultz revamped this definition and defined HC as:

‘…all human abilities to be either innate or acquired.
Attributes … which are valuable and can be
augmented by appropriate investment will be human
capital’ (Schultz ,1981).
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• Becker (1993) - the ‘knowledge, information, ideas, skills, and
health of individuals’.

• Bontis et al (1999) - ‘the human factor in the organisation; the

combined intelligence, skills and expertise that gives the
organisation its distinctive character. The human elements of the
organisation 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 organisation’.

• Thomas et al (2013), - ‘people, their performance and their

potential in the organisation’

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 Human capital management - strategic and planned
approach to managing a workforce.
 Investment perspective of HRM
 The Human Capital Idea:
 1) People are assets whose value can be
enhanced through investment.
 2) Human capital approaches should be
designed, implemented, and assessed by how well
they help the agency achieve strategic results and
pursue its mission.
 According to Walker (2001), the HCM concept is
supposed to capture all efforts addressing people
issues, not merely to serve as a new name for HRM. It
aims to build an understanding that business strategies
have people implications, which require serious
attention, investment, and action.

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Human Capital Theory
•Developed by Becker (1964)
•Grown in importance worldwide - it focuses on education
and training as a source of capital.
•One of the key explanations for the rapid development of
Asian countries in the 1970s and 80s is high investment in
human capital

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A reciprocal relationship between
supply and demand
 The higher the potential for employee
contribution, the more attractive human
capital investments will be.

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The uniqueness of human capital
 Sources of employee value
1.Technical knowledge
2.Ability to learn and grow
3.Decision-making capabilities
4.Motivation
5.Commitment
6.Teamwork

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 HR value chain
 Employee outcomes  organizational outcome 
financial/accounting outcome  market-based
outcome

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Human capital management
processes

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Next thing to ponder….

• how about human potential?

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• Based on the history of South Korean reforms, what will you advise our
government/minister of human resources in upgrading our human capital?
What is the good and bad thing learned from S.Korea?

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