Tuesday, November 4, 2014

Human Capital

Human Capital

You hear the term Human Capital from time to time.  What does it mean?  Is it politically correct jargon for people being sold as slaves?  Hardly.

You may remember the slogan: "Our employees are our most important asset."  Well, look at your balance sheet and see if employees show up there under Assets.  There is no such line item.  Nor do they show up on your chart of accounts.  Where, then, do these terms come from?

They come from people who understand the value (another accounting term) of well-trained, hard-working employees.

Some things to consider:

  • Depreciation:  If you buy a machine, its value as a book asset depreciates over time until gone.  Even with continued maintenance, the best it can do is continue to perform the function for which it was built.  A human, on the other hand, will appreciate in value the more they learn, and the more skilled they become.  Hence, it only makes sense to continue to provide employees with opportunities to learn new skills and knowledge.
  • Flexibility:  A machine is built to perform a select number of functions, humans however, can adapt almost infinitely.  In Lean, we use the term flexing to refer to the ability to move a flexible employee through multiple positions throughout the day.
  • Continuous Improvement:  Employees who perform the same task over and over begin to see ways to improve the task.  Given latitude to do so within prearranged guidelines, these employees can help the organization continuously improve.  Whether they are turning a wrench, inputting data, completing online functions or leading an organization, repetition leads the mind to identify and eliminate waste.  A machine cannot do that.
  • Morale:  Machines are inanimate.  They have no feelings or sentiments.  So long as they are maintained, they will do the same function the same way, leading to the same results, day in and day out.  That's one of the values of a machine.  A human employee, on the other hand, can be led to do better.  Handled with dignity and respect, a human can be led to work longer, faster, harder for the sake of a common good.
In short, if machines are a smart investment, human employees are a brilliant investment.  Why, one might ask, do some organizations treat their employees as if they were less important than their machines?  Makes you wonder, doesn't it?