Every now and then you get brought up short. I used the term “human capital” for year and didn’t think all that much about it. Everybody seemed to know what it meant. Then a retired executive who’s a friend asked, “Just what is ‘human capital?'”
I said something glib about how human beings were assets you invest in and not costs you control, but my friend wasn’t fooled. He’s fearless anyway and he retired before many of the current waves of jargon swept over the business press. He asked me for a simple definition of the term. I didn’t have one.
So I went looking. The early definitions are economic. Investopedia offered this:
“Economist Theodore Schultz invented the term in the 1960s to reflect the value of our human capacities. He believed human capital was like any other type of capital; it could be invested in through education, training and enhanced benefits that will lead to an improvement in the quality and level of production.”
In his 1998 book Intellectual Capital: The New Wealth of Organizations, Thomas Stewart gets a little more operational. He describes “human capital,” essentially, as what people in the organization know that is relevant to the organization’s purpose.
That’s good, but I was looking for something more specific as a guide to talent development. I found what I was looking for in Boris Groysberg’s 2006 HBR article: “Are Leaders Portable?” In that article, he tosses off the following definition: of human capital:
“productive assets in the form of human competencies”
Even better, Groysberg, outlines a “Portfolio Model of Human Capital” that identifies specific areas of competency. He’s concerned with C-suite executives, so we have to modify his classifications slightly, but here they are.
“General Management Human Capital,” which I would modify to “Basic Competencies.” These are the competencies necessary to do the basic job, whether that job is management or engineering or plumbing.
I’d change Groysberg’s “Strategic Human Capital” to “Experience-Specific Competencies.” Two engineers might have the same Basic Competencies, but different experiences. One may have designed software, while the other has worked on power plants.
Groysberg’s “Industry Human Capital” becomes “Industry-Specific Competencies.” Every industry has its own cultural and regulatory environment.
Groysberg’s last two categories don’t need much change, except that I like the word “competency” because I think it describes what we’re discussing better than “human capital.” “Relationship Competencies” and “Company Specific Competencies” are needed for any job.
My friend says that makes sense to him. What do you think?
