Four Ways of Understanding Employees As Human Capital

June 21, 2010 by  

Every human being is different. As employees, human beings bring unique talents and abilities to their employers. This diverse skills set brings a richness to an organization that can be difficult to capture. Do not let this richness keep you from trying to understand your human capital as a productive asset. There are actually some very clear ways of describing employee groups:

  • Competencies
  • Experience
  • Longevity
  • Attitude


Competencies

Competencies are a way of thinking about the knowledge behind your revenue streams and your value creation processes. Competencies are also one of the basic ways of understanding the knowledge contained in your human capital. When we work with companies, we try to get the management team to define the competencies needed at the corporate or group level. This kind of thinking can be pushed down to the level of each employee. The core competencies of an organization are related to its value creation processes. Please remember that there are also a separate set of competencies related to support services that are specific to the function such as accounting or information technology. These need to be understood but are apart from the core competencies associated with value creation that we examine here.

For example, project management is a core competency for a number of our client companies but this competency is matched by others that are unique to their specific businesses, to the kind of projects they manage. One has deep knowledge of the FDA requirements for software development. Another has a pool of expertise that includes master craftsmen that can do challenging custom jobs better than anyone else in their market. A third delivers help desk solutions for IT users around the country.

Competencies help you identify what is important in your employees’ work. They can be described pretty explicitly. They can be measured. They can be used as a basis for hiring and promotion. They are the right starting point for developing a clear picture of your employees as a productive asset, as part of your knowledge capital.

Experience

Another way of understanding the depth of knowledge represented by human capital is experience. Although years of work are not, in itself, a guarantee of a high level of knowledge, it is generally a good starting indicator. Of course, not every company understands this. Circuit City famously dismissed all their experienced salespeople the year before they went bankrupt to lower their average personnel costs.

Mixing types and levels of experience is a common way of developing balanced teams within an organization. One of the big fears of the aging workforce is that the experience and knowledge of Baby Boomers will be irrevocably lost as they retire. Meeting this challenge will require improved intangibles management that takes the kind of broad view of organizational knowledge such as that described in this book.

Longevity and Turnover

Longevity and turnover are related to experience as a way of framing human capital. In fact, they used to be critical metrics of the strength of a workforce. In today’s more mobile world where large amounts of an organization’s work may be done outside the normal employee base, these factors are less important. An employee’s choice to stay at a company is still a positive thing. But the dynamism of our economy has made it harder for companies and employees to stay in one place for their whole career. As such, an employee with decades of service to a single company is no longer the norm, nor a requirement for stability and growth.

Nevertheless, turnover can be an important factor in the formation of human capital. Examples of high-turnover jobs include bank tellers, caregivers, and call-center workers. In most organizations, these kinds of roles do not contribute to creation of a lot new knowledge capital because of the short average staff tenure. In fact, companies lose knowledge and incur considerable costs to keep a constant stream of new employees coming into the organization. There is something of a chicken-and-egg situation with high turnover jobs—which comes first: the tedium and pressure of the way the jobs are structured or the high turnover? Mitigating the tedium and empowering employees can be an antidote to the costs of high turnover.

Attitude

We all know without seeing research that a good attitude can make the difference between effective and ineffective employees. In case you have any doubt, we can cite research that compares the performance of the companies on Fortune’s list of the “100 Best Companies to Work for in America.” A study by Alex Edmans showed that the performance of these companies from 1984 to 2005 exceeded that of the overall market by 4%. Don’t ignore how your people feel about working in your organization.

We live in the knowledge era. Employees will always hold key parts of your organization’s knowledge in their heads. That makes employees more important than ever. The way to deal with this fact is to break down their role in your success. Understand it. Monitor it. Make the most of it.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization

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