1. Human capital management
Dr. Preeti Bhaskar

2. Content
Introduction
Constituents of human capital
Importance of human capital management
Human capital management drivers
Human capital theory
Human capital measurement
Approaches to human capital measurement
Human capital reporting

3. Introduction
The word “Human Capital” was
introduced by A. W. Lewis.
Human capital consists of the
knowledge, skills and abilities of the
people employed in an organization.

4. According to Lawrence Bossidy
an American author and former
CEO of Allied Signal,
later Homewell.
“I am convinced that nothing we do
is more important than hiring and
developing people. At the end of the
day, you bet on people, not on
strategies.”

5. Definition
Human capital represents the human factor in the
organization; the combined intelligence, skills and
expertise that gives the organization its distinctive
character. The human elements of the organization 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
organization.
Bontis et al (1999)

6. Constituents of human capital
Intellectual capital
• Intellectual capital is the value of a company's employee
knowledge, skills, business training, or any proprietary
information that may provide the company with a
competitive advantage.
Social capital
• Social capital consists of the knowledge derived from
networks of relationships within and outside the
organization
Organizational capital
• Organizational capital is the institutionalized
knowledge possessed by an organization that is stored
in databases, manuals, patents etc.
Human capital consists of :

7. Human capital management
(HCM) transforms the traditional
administrative functions of
human resources (HR)
departments—recruiting,
training, payroll, compensation,
and performance management—
into opportunities to drive
engagement, productivity, and
business value.
Meaning: Human
capital management

8. Human capital management
Human capital management
(HCM) is the set of practices an
organization uses for recruiting,
managing, developing, and
optimizing employees to increase
their value to the company.

9. What’s the strategic importance
of implementing HCM in 2022?
Automation is
changing the
workforce

10. Importance of Human capital management
Improve organic growth by identifying the competencies
of individual employees
Managing a company's people resources.
Identify gaps in the capabilities of the workforce.
Align human capital management with business goals
Improve productivity and efficiency
Enhance the recruitment process
Improve performance reviews
Match positions with employee capabilities
Allows better career planning

11. Driver 1 -
Leadership
Practices
Communication
Inclusiveness
Supervision
Leadership
Driver 2 -
Employee
Engagement
Key
Responsibility
Areas
Commitment
Time management
Evaluation
Driver 3 -
Knowledge
Accessibility
Information
Availability
Team Work
Information
Sharing
Driver 4 -
Workforce
Optimization
Work processes
Working
Conditions
Accountability
Hiring
Performance
Management
Driver 5 -
Learning
Capacity
Innovation
Training
Career
Development
Learnings
Human capital management drivers

12. START
Human capital theory
Determine the impact of people on the business and their
contribution to shareholder value;
Demonstrate that HR practices produce value for money
in terms, for example, of return on investment;
Provide guidance on future HR and business strategies;
provide data that will inform strategies and practices
designed to improve the effectiveness of people
management in the organization.
• It regards people as assets and focus that investment by organizations in people will generate worthwhile
returns
• It propose that sustainable competitive advantage is attained when the firm has a human resource pool that
cannot be imitated or substituted by its rivals.
• Human capital theory helps to:

13. Human capital measurement has been
defined by IDS (2004) as being ‘about
finding links, correlations and, ideally,
causation, between different sets of
(HR) data, using
statistical techniques’.
The primary aim of HCM is to assess
the impact of human resource
management practices
and the contribution made by people
to organizational performance.
Human capital measurement

14. Reasons for interest in human
capital measurement
•Human capital constitutes a key element
of the market worth of a company
•People in organizations add value.
•Focus attention on what needs to be done
to make the best use of human capital.
•Monitor progress in achieving strategic
HR goals and evaluate HR practices.
•You cannot manage unless you measure.

15. Approaches to Human capital measurement
1. The human capital index – Watson Wyatt
2. The organizational performance model –
Mercer HR Consulting
3. The human capital monitor – Andrew Mayo
4. The balanced scorecard
5. European Foundation for Quality
Management (EFQM) model
6. The Sears Roebuck model

16. The human capital index (HCI) –
Watson Wyatt
• Total rewards and accountability 16.5 percent
• Collegial, flexible workforce 9.0 percent
• Recruiting and retention excellence 7.9 percent
• Communication integrity 7.1 percent
Categories Percentage

17. The organizational performance model –
Mercer HR Consulting
Organizational performance model developed by Mercer HR Consulting is based on the
following elements:
People
Work
processes
Management Structure
Information
and
knowledge
Decision
making
Rewards
• Each elements plays out differently within the context of the organization, creating a unique DNA.
• The statistical tool, ‘Internal Labour Market Analysis’ used by Mercer scrutinize the record of employee and labour
market data to analyse the actual experience of employees rather than stated HR programmes and policies
• Thus gaps can be identified between what is required in the workforce to support business goals and what is actually
being delivered.

18. The human capital monitor –
Andrew Mayo
Mayo has developed the ‘human capital monitor’ to
identify the human value of the enterprise or ‘human
asset worth’, which is equal to ‘employment cost ×
individual asset multiplier’.
The individual asset multiplier is a weighted average
assessment of capability, potential to grow, personal
performance (contribution) and alignment to the
organization’s values set in the context of the
workforce environment (ie how leadership, culture,
motivation and learning are driving success).
He believes that value added per person is a good
measure of the effectiveness of human capital
This Photo by Unknown Author is licensed under CC BY

19. The EFQM model
• The European Foundation for
Quality Management (EFQM)
model indicates that customer
satisfaction, people (employee)
satisfaction and impact on
society are achieved through
leadership.
• This drives the policy and
strategy, people management,
resources and processes
required to produce excellence
in business results.
EFQM model of quality

20. 1. Leadership – how the behaviour and actions of the executive team and all other leaders inspire, support
and promote a high performance culture.
2. Policy and strategy – how the organization formulates, deploys and reviews its policy and strategy and
turns them into plans and actions.
3. People management – how the organization realizes the full potential of its people.
4. Resources – how the organization manages resources effectively and efficiently.
5. Processes – how the organization identifies, manages, reviews and improves its processes.
6. Customer satisfaction – what the organization is achieving in relation to the satisfaction of its external
customers.
7. People satisfaction – what the organization is achieving in relation to the satisfaction of its people.
8. Impact on society – what the organization is achieving in satisfying the needs and expectations of the
local, national and international community at large.
9. Business results – what the organization is achieving in relation to its planned business objectives and in
satisfying the needs and expectations of everyone with a financial interest or stake in the organization.

21. The Sears Roebuck model (Rucci et al, 1998)
• The Sears Roebuck model defines the
employee-customer-profit chain. It is
sometimes called the ‘engagement model’.
• It explains that if you keep employees satisfied
in terms of their attitude to the company and
their job you will create a ‘compelling place to
work’, which will encourage retention and lead
to service helpfulness and merchandize value,
which leads to customer satisfaction, retention
and recommendations, thus creating ‘a
compelling place to shop’.
• This in turn creates ‘a compelling place to
invest’, because of its impact on return on
assets, operating margins and revenue growth
This Photo by Unknown Author is licensed under CC BY

22. The balanced
scorecard
A balanced scorecard (BSC)
is defined as a management
system that provides
feedback on both internal
business processes and
external outcomes to
continuously improve
strategic performance and
results.

23. The financial perspective
• Focuses on financial performances of an organization. It normally covers the revenue and profit targets of commercial
companies as well as the budget and cost-saving targets of not-for-profit organisations. The financial health of an
organisation is a critical perspective for managers to track. It is important to note that financial performance is usually the
result of good performance in the other three scorecard perspectives.
The customer perspective
• Focuses on performance targets as they relate to customers and the market. It usually covers customer growth and service
targets as well as market share and branding objectives. Typical measures and KPIs in this perspective include customer
satisfaction, service levels, net promoter scores, market share and brand awareness.
The internal process perspective
• Focuses on internal operational goals and covers objectives as they relate to the key processes necessary to deliver the
customer objectives. Here, companies outline the internal business processes goals and the things the organization has to do
really well internally in order to push performance. Typical example measures and KPIs include process improvements,
quality optimization and capacity utilization.
The learning and growth perspective
• Focuses on the intangible drivers of future and is often broken down into the following components:
• Human Capital (skills, talent, and knowledge)
• Information Capital (databases, information systems, networks, and technology infrastructure)
• Organization Capital (culture, leadership, employee alignment, teamwork and knowledge management).
• Typical example measures and KPIs include staff engagement, skills assessment, performance management scores and
corporate culture audits.

24. Human capital reporting
Human capital reporting is
concerned with providing
information on how well the
human capital of an
organization is managed.
Types of
Human capital
reporting
External
reporting
Internal
reporting

25. Human
capital
internal
reporting
• Analysing and reporting human capital data to
top management and line managers will lead to
better informed decision making about what kind
of actions or practices will improve business
results, increased ability to recognize problems
and take rapid action to deal with them, and the
scope to demonstrate the effectiveness of HR
solutions and thus support the business case for
greater investment in HR practices.
• Human capital information is usually reported
internally in the form of management reports
providing information for managers, often through
the intranet and on dashboards

26. Human
capital
external
reporting
• The companies to prepare a business review.
• This has to disclose information that is
necessary for the understanding of the
development, performance or position of the
business of the company including the
analysis of key financial and other
performance indicators, and information
relating to environmental and employee
matters, social and community issues, and any
policies of the company in relation to these
matters and their effectiveness.