Introduction
Developing the human capital of the workforce is one of the biggest interests of many organizations today. Managers realize the fact that developing human capital enhances the efficiency, effectiveness and overall performance of the workers. The human capital, in this case, refers to the skills, motivation, knowledge, health and commitment that employees possess. This is the innovativeness and creativity source that is renewable constantly but cannot be emulated in the financial statements (Hall, 2008). It is always owned by the people who possess it, and the only way it can be shared is if the skills are recorded down in a tangible fashion. Human capital includes characteristics which are expandable, self-generating, transportable, and shareable. They are closely associated with the possibility that the stock of knowledge adds an individuals’ human capital. These characteristics mean that the original holder of knowledge can distribute his or her knowledge to others when necessary (Haveman, Bershadker, & Schwabish, 2003). Human capital is valuable to the organization in the sense that it forms the basis for the success and prosperity of the firm. For this reasons, managers have realized the need to measure human capital of their employees to identify whether or not the workforce has the necessary skill, knowledge, and expertise in executing their duties. This paper describes how organizations measure human capital and the metrics used for the same. It will begin by discussing the importance of measuring human capital.
Reasons for Measuring Human Capital
To Establish Gaps in Human Capital
It is true that an organization can determine what it doesn’t have by measuring what it already has. For example, a company may decide to measure the competency of the information technology specialists in the firm’s Information Technology department to identify whether or not there is a need to employ more experienced specialists in the department. When putting to mind the organization’s overall objectives, the company manager, therefore, has to measure the human capital to identify the various gaps that are present. For example, if the company’s objective is to become the best internet provider in the region, then having a human capital that possesses high IT skills is a very important attribute. But if the objective is to be the largest distributor of cement in the country, having quality IT skills is not going to be a high priority in the workplace. When you quantify what you possess, you will be able to realize what you do not have ("Measuring Human Capital: Why and How to Measure it," 2016). One strategy that managers can implement to address gaps of human capital is to introduce employee training programs.
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To Actuate the Return of Investment of your Human Capital
It is important to note that human capital is also an asset that one invests in and expects to get returns on, just like all the other resources. A manager can know the effectiveness and efficiency of it by calculating the returns. In this case, the organization’s management team evaluates whether the employees have what it takes to achieve the goals and objectives of the company. The tea also assesses how the employees of employees are of benefit to the organization. This is important as it helps the company to prove its worth in the workplace by measuring their ROI. Organization leaders can also compare the return of investment of the human capital of their workers to that of staff working in other companies to gauge the extent at which firm has invested in employees’ human capital.
To Improve the Gap in Human Capital
Once the management identifies what is lacking in terms of human capital, they work out how to close the gap and improve their employees. They do this according to their various goals in the organization. The employees are mostly sent for training if the need arises, while others are just given a short course on what they will improve on. The organization often brings public speakers from time to time to improve and polish on the various skills required in the company.
How Companies Measure Human Capital
Companies use the Human Capital Index to track and capture the development state of human capital in the world. It takes an approach to human capital that is long-term. It examines an employee’s life before and during working, from childhood habits to current one. This is because most of the challenges that affect adults, such as hearts diseases, poor numeracy and literacy, criminality, mental issues, and obesity, can be drawn back to their life when they were young. It, thus, examines the quality of their childhood. The index also takes into consideration the productivity and health of the older population (Baron & Armstrong, 2007). The index has four pillars: the education pillar, the health and wellness pillar, the employment and workforce pillar, and the enabling environment pillar.
The Education Pillar
The Education pillar has indicators which relate to the qualitative and quantitative aspects of the whole education life, which includes tertiary, secondary and primary levels and possess information on the future workforce as well as the present workforce. The education access for the children and the youth, who are the workforce of tomorrow, is recorded using net enrolment rate for both primary and secondary school, including a measure of the gender gap in education. The rate also captures children that are participating in enrollment at the optimum age group for that particular school. Since economic and social marginalization denies the poor people quality education, it is important for managers to measure the quality of education of their employees, right from when they were children. Although many records show a lot of children go to school and learn, they fail to state the qualities of the learning environments. The Education pillar has qualitative indicators, for instance, the quality of science and mathematics instruction, the management quality of schools, the level and frequency of Internet access in the schools, quality of education, and the quality of the system of education offered. It also measures the percentage of people in the workforce who have gone through primary, secondary and tertiary education.
The Health and Wellness Pillar
This contains indicators that relate to the mental and physical well-being of the population from early childhood to current adulthood. The pillar records how some socio-cultural, physiological, geographical, and environmental health factors affect the development of human capital. It includes indicators for early development that predict the future workforce health and non-communicable and communicable diseases that affect the overall capacity and productivity of the existing labor force.
A fundamental element of human capital is population survival. Living longer lives is an indication of not only longer years of productivity per capita but also an indication of good health. This pillar includes a measure of the health parity sub-index, infant mortality in the population, and general life expectancy (Gates & Langevin, 2016). The physical health state of the masses is captured in the sub-pillar of health, focusing on adults and children. The initial years of infancy are delicate for a young one, where diseases and nutritional deficiencies may affect the cognitive and physical development of the child, resulting in not being able to reach their productive potential when they grow up. Early development indicators of physical and long-term cognitive impairment consist of an average of wasting and stunting in young ones under the age of five years.
The pillar of health also captures the number of years lost in impoverished health in the working population. The sub-pillar of services consists of added indicators which provide a wider view of the healthcare quality and the accessibility of healthcare services. The health pillar also quantifies the use of better sanitation facilities and better sources of drinking water, which reduce health attacks that lead to absenteeism and deterioration of productivity in the workplace.
The Workforce and Employment Pillar
This pillar is made to measure the training, experience, knowledge, and talent in the working population in the country. It combines the participation rates of the labor force to quantify the number of people in the country that are attaining experience in their places of work with indicators of the quality level of the experience gained. The participation sub-pillar calculates the number of people that actively participate in the workplace as well as how prosperously particular sectors of the population can contribute. It also measures the gap in gender in the economic participation, whether the country is leveraging both men and women or not affects the average experience accumulation (Gates, 2002). There is also an indicator that represents the participation labor force of people over the age of sixty-five. A low participation rate in labor force is considered undesirable but is negative for the countries that have long and healthy life expectancies that face declining workforces and aging populations. The rate of unemployment for both the adult and youth population is also included. The indicators record those the people in the economy that are looking for work actively and are available for working and omits the ones who are not actively looking for somewhere to work. It includes the youth and adult unemployment because of its larger multiplier effects in the near future.
The sub-pillar of talent contains some concepts to measure a wide and average measure of talent. It integrates the assessment of business leaders of their countries capability to attract and keep talent, and of the companies’ capability to get highly skilled employees. It assesses whether the country’s available talent leads to positive economic results in the form of knowledge and innovation generation.
The Enabling Environment Pillar
This pillar addresses the infrastructure, legal framework, and different other factors that enhance returns on human capital. This pillar captures whether the human capital is effectively deployed or whether barriers found in the environment are coming in the way of adequate use of human capital, thereby nullifying investments made in the development of human capital ( Measuring What People Know , 1996).
The sub-pillar of infrastructure that looks at physical transport, aids in the access of various workplaces and is essential in linking communities and industries together, is measured via a survey indicator on the domestic transport quality. The use of the internet and mobile phones also increases exchange and communication all through the complicated networks that support the growth of human capital.
Cross-sector and cross-industry learning aid in exchange of information, innovation, and human capital development. The concepts are seized via survey indicators.
The sub-pillar of framework examines the legal environment which various people are either self-employed or employed by a company. It eases business operations especially in a foreign country by looking at how conducive the regulatory and legal environment is to operate a local business ("10 Measures of Human Capital Management - Workforce Magazine", 2016). The protection of intellectual property is vital from the perspective of a human capital as it preserves the knowledge of individuals as well as the assets that are connected to that knowledge.
In conclusion, the effective and efficient measurement of human capital is both a required necessity for almost all organizations. Organizations should work on preserving their human capital and improving them from time to time. This will enable a smooth flow of progress in the workplace.
References
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Baron, A. & Armstrong, M. (2007). Human capital management . London: Kogan Page Ltd.
Gates, S. (2002). Value at work . New York, NY: Conference Board.
Gates, S. & Langevin, P. (2016). Human capital measures, strategy, and performance: HR managers' perceptions . Retrieved 7 November 2016, from
Hall, B. (2008). The new human capital strategy . New York: AMACOM.
Haveman, R., Bershadker, A., & Schwabish, J. (2003). Human capital in the United States from 1975 to 2000 . Kalamazoo, Mich.: W.E. Upjohn Institute for Employment Research.
Measuring Human Capital: Why and How to Measure it . (2016). AtmanCo . Retrieved 7 November 2016, from https://atmanco.com/blog/hcm/measuring-human-capital/
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