What Is Human Capital and Why Is it Important?

If you've been around the corporate world long enough, there's no doubt that you've heard business leaders proclaim something along the lines of, “our people are our greatest assets.” It seems like every company espouses this belief, but how many of them actually “walk the walk”? What is human capital? It's the understanding that people really are the greatest assets of a given company. However, human capital doesn't have much value when business leaders fail to develop, nurture and align their employees with the goals of the company.

Let's say you just purchased a million-dollar piece of equipment for your business. You're paying it off in installments, and you expect it to serve you and your company for five to ten years. With such a huge investment, you would certainly take regular trips down to your production floor to ensure that it was working properly, receiving the proper maintenance and giving you a solid return. Most business leaders would agree that keeping a close eye on such an important and expensive piece of equipment would be essential to the well-being of the company.

Now imagine that you've just hired an individual at a salary of $50,000 a year. You want this employee to stick around for a while, too, so that hire is really another million-dollar investment. The problem is that business owners and leaders tend to pay very little attention to their human capital. They don't check on their progress, they don't ensure that they're fine-tuned for efficient production, they fail to ensure that the employee has what is needed to perform great work and they never provide adjustments that can help optimize performance.

Defining Human Capital and “Walking the Walk”

So, what is human capital, and what does it mean to actually “walk the walk” when it comes to living up to the declaration that your people are your greatest assets?

• Human capital is the development of your people

• Human capital is an understanding of your peoples' true value and worth to your organization

• Human capital is just as important (if not more so) as your company's other investments

In order to get the most out of your investments in your workforce, you simply need to align what you do with what you say. If your people truly are your greatest assets, you need to treat them as such. Just like you would check in with your million-dollar machine's operator on a regular basis, you need to interact with the people who represent your company's human capital.

When you interact with your workforce, keep these questions in mind:

• Are employees in tune with the goals of the company?

• Are employees producing appropriately?

• Are there any “glitches”?

• Is there any down time?

• How are the employees connecting with each other and to the rest of the company?

By asking these questions, you can ensure that your human capital gives you value, but you can also improve the ways in which your employees work together to help your organization.

Why Is Human Capital Important?

When business leaders say that their people are their greatest assets, they're saying that human capital is the most important aspect of their companies. When they say this, they're on the right track, but too many of them fail to see their human capital investments for what they're really worth.

Human capital is important because your people truly are the lifeblood of your company. Your ability to manage them positively and effectively helps your company succeed, and it has a tremendous impact on your bottom line.

Over the last several years since the Great Recession, a number of businesses have cut down on human capital, and many of them have suffered as a result. On the other hand, those companies that took the opposite approach have been able to thrive thanks to their focus on hiring, developing and nurturing their people. These companies didn't just survive the recession; they emerged from it stronger than ever, all because they decided to live up to the idea that their people really are their greatest assets.

Looking Ahead

What is human capital? It's truly the key to your success, but it requires you to pay attention to your investments. If you honestly believe that people are your greatest assets and you “walk the walk” to prove it, there's little doubt that you'll find yourself steps ahead of your competitors.

My next blog post will expand on the idea of human capital by showing you how human capital consulting can help you ensure that your employees are in tune and aligned with the goals of your organization. Stay tuned!

How do you invest in your human capital? Are you looking for more insights into developing your workforce? Learn more about the Ex3 Matters philosophy by reading Buddy Hobart's free eBook, “Experience Matters,” or by checking out the free Ex3 Matters consulting guides.