Human Capital: maximising results
Oxford English Dictionary defines Human Capital as “the skills the labour force possesses and is regarded as a resource or asset.” This definition implies that investing in people, as in any productive asset, will improve their value to an organisation through increased output or productivity. As with any investment the rate of return is important and equally depends on the quality of the investment and the asset itself. So what determines the quality of Human Capital as an asset?
The quality of Human Capital in any organisation is driven, amongst other factors, by its employees’ education, experience, intelligence, skills, health and other values such as loyalty and punctuality. Some of these qualities are brought by employees to an organisation when they join, while others have to be developed in the workplace and require investment. What becomes clear when looking at these qualities is that all of them can be improved with investment. However, only one stands out as a pre-requisite in the development and maintenance of the other qualities – health. The health of employees (physical, mental and emotional) is the most important underlying factor that determines the effectiveness of their investment, performance, and ultimately the quality of Human Capital. When people feel unwell, they cannot fully focus on executing their tasks and meeting their objectives, thus leading to a loss in productivity. Spillover effects should also be considered: as the performance of one’s immediate team suffers, other teams working together with the affected team will also suffer the negative consequences, and the whole organisation will be underperforming. The more senior the role of the affected individual in the organisation, the more severe are the consequences as poor decision making at the top is much more significant for the livelihood of an organisation.
All else being equal, the health of employees is a single most important factor that carries significant potential for improving organisational performance and profitability through increasing the quality of Human Capital, in good times or bad.