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Human Capital vs Human Resource – the Line is Blurred!

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In a recent LinkedIn conversation, the questions “What is human capital? How do you build it?” were asked. What transpired was a conversation that clearly showed the divide between Human Capital Management and Human Resource Management.

For instance, some answered that “Human capital is the driving force behind an enterprise”, and “Human Capital is the “source of revenue generation” for most organisations today.” Others responded “they are the the People of the business. The Profit and the Loss – The heart, the soul. They are the body that powers the mechanism”. And ultimately “What people can bring to those roles is one aspect to consider – the key to what they will contribute is based on how they feel their overall capabilities (beyond technical skills) are valued and respected.”

Clearly the line between Human Capital Management and Human Resource Management is blurred. There is a huge difference between Human Capital Management and Human Resource Management. They are NOT the same thing, and BOTH are necessary. The key questions are where is the line between them, and where does the responsibility lie?

Human Resource is about “people”, whereas Human Capital is about “assets”. People in and of themselves are not “assets” (to an organisation let me quickly add). It’s their skills, knowledge, attitude and aptitude that are the “assets” to an organisation. This is the “value” that “people” bring to the organisation. If “people” don’t have the skills etc that the organisation needs to achieve it’s goals, they are no longer an “asset”, but could effectively become a “liability” to the organisation. But they are still “people”.

Because the line between Human Capital Management and Human Resource Management is blurred, HR generally tries to take on both roles. This is, in my opinion, neither correct, nor workable.

Take a car for instance, different people drive the car than service the car. The driver wants to get the furthest quicker and at the lowest cost. The service person wants to maintain and protect the car. It’s the same with Human Capital Management and Human Resource Management.

Human Capital Management needs to drive the value of their assets (including human assets) to achieve business goals. Human Resource Management needs to service and maintain the “human assets”, which should include ensuring that they have the skills, knowledge, etc. that the organisation needs to achieve its goals.

Human Capital Management is a function of Line Management. Their role is to drive organisational performance through effective use of these assets. This includes ensuring that they have the right environment in which to function effectively, as well as ensuring that they are, in fact, functioning effectively.

Human Resource Management is a function of HR. Their role is to build, maintain and service the human assets, which includes developing the right skills in Line Management that will enable them to function effectively as managers of “human assets”.

There needs to be a partnership relationship between Human Capital Management (Line Management) and Human Resource Management that creates a Human Capital Strategy that ensures that the organisation has the “right skills, at the right time, in the right numbers and at the right cost”.

This means that Line Management needs to get a lot better at Workforce Planning, Workforce Metrics, and Workforce Engagement. They also need to get a lot better at measuring the effectiveness of their “assets”.

It also means that HR need to become more cognizant of the skills required by management today, and they need to play a more facilitative role that ensures that there is an effectively workplace in place that stimulates the behaviours and motivation of the “human assets”.

And this is where the break-down happens. Line Management don’t take on their responsibility and HR try to take it all on. Abdication and dissipation.

To find out more about developing effective Human Capital practices in organizations, call us.