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What is human capital?

02 Oct

Investing In Human Capital Results In Long-Term Returns

Human capital is often discussed in business and political discussions and considered a well-known parameter in conversation. But just what is human capital and is it strictly a business term or can it be applied in other aspects of everyday life? Human capital is quite simply the investment and the return on people producing a valued product in the market place. And just like a large piece of machinery or a piece of real estate, human capital must be developed, sustained and managed carefully for the maximum return on the investment.

Investing In People

There is a general rule in business that whenever a new employee is hired the business will lose money with the new worker for a certain amount of time. Whether it’s a few days or a few months, there is an investment in the employee to teach, train and instill the business philosophy of the new job. Employers take this loss as a cost of doing business but anticipate the long-term return to eventually far exceed the temporary loss. This is the basis of all capital investment: putting money in to see it grow and return profits later.

Managing Human Investments

As with any investment there are managers who apply certain conditions and processes leading to a fulfilling relationship for both the employee and the employer. Human capital consulting with professional human relation specialists will lead to a better work environment, incentives for greater production and eventually a seamless work flow with all involved engaged in increasing the business’s bottom line. Human capital consulting with both business owners and employees allows for more feedback as to what works and what is not as effective. It’s difficult to apply specific criteria to all businesses and adaptability is key to effectively managing the workforce.

Incentives

Over time businesses have also learned their capital investment in people involves additional rewards other than just money. These include the well-known job perks of paid vacations, health insurance, satisfactory overtime compensation, bonuses, family time allowances and breaks during the workday. Whether a factory floor worker or a commissioned salesman out on the road, the means to manage human assets remains constant. Applying additional compensation for the employee is much like upgrades and regular maintenance to existing machinery or other production assets: increasing productivity and reducing friction. Also, these benefits lead to greater retention with existing workers. This means a greater return on the initial investment while avoiding the expected loss of hiring a replacement worker and starting the process over of training and familiarization with a new job.

Fokal Fusion is a boutique “non-consulting” consulting firm. Located in Houston, TX, Fokal Fusion works alongside with our clients to determine the problems and then get to work to get the job done.

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