There may well be some readers of this journal who hate the term ‘human capital’. For them it has connotations with the cold debit and credit of the accountants, of seeing people as machines, an impersonal and unacceptable term for employees. Yet they may not feel as bad about ‘people as assets’, which has a more positive ring about it. We have accepted ‘human resources’, but although it can be interpreted with considerable breadth and depth, it has all too often come to mean people as costs. Given the choice, I am of the school that welcomes the concept of human capital – since if we see ‘capital’ as that which creates value through organisational effort, then there is no doubt that people, and the way they are led and organised, are the only foundational source of value creation.

Being a disciple of the Skandia school of intellectual capital (as led by Leif Edvinsson),¹ I used to believe an organisation owned all its assets – tangible and intangible. It was a certain Thomas Davenport² that highlighted the obvious for me – namely the only owner of any human capital is the person who embodies it. Thus, as an employee I choose to loan my personal capital for the use of my organisation – normally exclusively – in exchange for a set of benefits. What is this ‘capital’? It is my personal and unique set of knowledge, skills, experience, network of contacts, and my personal competencies such as my drive and ability to achieve. The organisation then has the task of first, making the most of the capital I have put at its disposal (in order to create value for other stakeholders), and second, keeping me wanting to work for it.

This led me to propound (somewhat pretentiously!) ‘Mayo’s principle of stakeholder equilibrium’. It says:

Stakeholders in an organisation, and the organisation itself, have a relationship because they add value to each other. Either party will only continue the relationship for as long as it believes it is receiving a satisfactory return of both financial and non-financial benefits, which when combined are sufficient to balance the value provided by the other party. This equilibrium is not static; it is in the interest of both parties that the overall sum of value exchanged is constantly increasing.

So what’s new about that? The first is the importance of ‘non-financial’ value. If we think of our customers, the relationship we may have with them is a highly valued ‘intangible asset’, leading to continuing revenues. Why do they stay with us? It’s a complex combination of value for money – price, product range, service, reputation and so on. If we fall down on these expectations (which we may have created), their custom can easily go elsewhere. The second key statement of the ‘principle’ is that – ideally – it is not a static relationship. Both sides have an interest in the value increasing on both sides, by investing in each another. Thus the more I offer the customer the more s/he is likely to buy from me, and the more s/he expects for the future. Our equilibrium may be delicate, but if managed is a virtuous cycle of ever-increasing value.

Now back to employees. When we strike the recruitment deal, I as an employee make available my ‘capital’ for your use and accept the combined offering of financial remuneration and the other benefits from working for you – prestige, title, training, career advancement possibilities, flexible time, travel or whatever made the mix attractive for me. The value-conscious employer has an interest in increasing my capital. The more experienced I am, the more knowledge I have, the more motivated I am to achieve – the better for the organisation. For me, too, of course – my market value increases, and I will duly expect an increase on my side of the equation. Another virtuous cycle.

When we study why people voluntarily leave organisations, we find that the most frequent reasons are to do with unsatisfied non-financial expectations – progression, security, changed locations, lack of interesting work and so on. In other words, their personal equilibrium balance has gone wrong – time to take their personal capital elsewhere. It follows that the heart of ‘talent management’ must lie in the understanding of these (very) personal equilibria – from both sides.

How masterful HR has become at isolating and developing ‘weaknesses’ (not that they use this term)! But this is about understanding how we add to the personal capital of individuals – enhancing their strengths, adding new experiences and skills. This is seen by people as part of the benefits of working for you – a synergistic gain on both sides.

In Learning and Development we are at the heart of ‘human capital management’. Our key task is to grow the human and social capital available to our organisation. But we cannot do this in isolation, staying in a nice training centre away from the workplace. The network of stakeholder equilibria throughout the organisation is held by managers, aided by their ‘business partners’ in HR. L&D has to help them play their part in the system. And one day, we will really learn about how to manage people as assets.

References
1. Leif Edvinsson, ‘Developing intellectual capital at Skandia’, Long Range Planning, vol 30, June 1997, pp. 366–373.
2. Thomas O Davenport, Human Capital, Jossey Bass, 1999.

Andrew Mayo is a consultant, speaker, writer and facilitator in international HR management, with specialisms in people and organisation development. He can be contacted on +44 (0) 1727 843424, at andrew@mliltd.com or visit www.mliltd.com

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