Human Capital Strategy: New Jargon or New Paradigm for the Executives?

Human capital is a new jargon, often being coin-phrased by writers in the human resource issues and by executives at large local or multi-national companies.

Human resource practitioners have questioned the exact meaning of human capital? Is this jargon has more meaning than the term human recourse that they have already familiar with?

As in human resource’s literature and also in the common practise, the terminology ‘people’ or ‘employee’ in a company is regarded as the one type of the resources in production factors, along with other resources, such as land, plant, machinery and capital.

Companies consider the people or employees as the resources that some day will be in scarcity if they are being overly used. Some companies consider the recruitment and the maintenance of the human resource is costly, burdensome and too expensive, and the companies have not gain the same return as they had already contributed.

The terminology, human capital, on the other hand, focused on people or employees as one of the primary or key assets in the company with unlimited quantities and unlimited in values, being managed in a systematic process, resulting in value creations for the respective stakeholders, such as shareholders, consumer, employees and community.

Jac Fiz-enz, one of the scholar who introduced jargon human capital, in his book, The ROI of Human Capital, has pointed out that employees, as part of the resources in a company, have made up 40 % of the general and administration expenses. Therefore, company must scrutinize the return of investment of its human assets, as a significant resource and capital of its production activities.

In company activities, human capital strategy must be based on the vision and mission of the company, along with the business strategy that already has been stated. Human Capital strategy need also to consider the other strategies in the company related to other functions within.

This synergy between the strategies has contributed to the effect that the company will be able to increase its competitive edge against its competitor through its human capital assets.

Human capital strategy is aiming to ensure the company to gain profit continuously by offering products or services that satisfy consumer’s needs. To ascertain that human assets in the company will be able to produce product and services, the process of Human Capital Process needed to be executed.

Based on the inputs from Dave Ulrich, Wayne Broadbank, Jac Fiz-enz and from CIPD UK’s research result, PPM Management has stipulated 4 (four) process categories, being : Acquisition, Development, Engagement and Retention Processes.

Each one of the process category has its own objective and the management system, as its tool to implement the process. For instance, Development Process, is a process to be executed by company to ensure that all human assets that are already in place, will have the opportunity to broaden its own competencies as far as it goes.

In this process, there are several human capital systems to be designed and implemented, mainly the learning & development system and the leadership development system.

The objective of the Human Capital Process and particularly the management system that are being designed and implemented, is to produce the highly-performing human assets. To ascertain the achievement result of the said objective, the human capital function in the company need to design the measurement tools for each management system that is being implemented.

In doing so, the company will be certain that the investment of the specific knowledge, skills, attitude ; in the long run, will have added value for the success of company’s performance.

In reality and everyday practise, this change of the new paradigm has not been fully understood by top management or practician of human resources. For example, if we took a simple survey in the, we would observe that books related to leadership are generally become best sellers, which indicate that this topic is regarded as an important issue in the business.

At PPM Management, the leadership program is a customised program which is in high demand for the companies. Yet, companies that request measurement tools program to observe the impact of the competency development or related to the company’s performance, not more than 4% of the companies.

Even, a company who has changed the function of human resource to become human capital still has not changed its measurement tools in its development system. In this situation, the organization will not be able to ensure whether its leadership development program that has been implemented, will enhance the competency of its senior executives each year and will have a positive relationship with the success of the company, as the philosophy of human capital strategy has already predicted.

Jakarta, 7 February 2008

Octa Melia JalalOcta Melia Jalal. Director of Executive Development and Head of PPM Center for Human Capital Development at PPM Management, Jakarta. She is also a consultant in human resources issues.

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