The critical role of human capital (HC) in creating and sustaining the competitive edge at organizational and national levels is recognized by researchers and practitioners. Human resource (HR) is the major driver of organizational success and the principal element that makes a business. Financial resources and technology are essential but people are the primary means by which progress is made. Leveraging, therefore, the HC to gain and sustain competitive advantage in an environment of accelerated pace of change is highly imperative. The purpose of this article is to discuss the significance and leveraging of human capital (HC) for sustainable competitive advantage (SCA) in the new economy. It gives an overview of the human capital management (HCM) concept, distinguishing it from personnel management and human resource management (HRM) and discusses HCM’s significant role as key differentiator for organizational SCA.
The competitive business climate of the 21st century puts pressure on organizations to take a more proactive posture regarding people management for the survival, sustainable growth, and development of organizations. The current economic landscape, according to Ulrich (1997), is characterized by challenges such as globalization, responsiveness to customers, increasing revenue and decreasing costs, building organizational capability, change, and transformation, implementing technology, attracting and developing HC, and ensuring fundamental and long-lasting change. This dynamic business landscape has produced volatile business environment as well as unique business opportunities with highly intense competitive pressures. Modern organizations, therefore, face the formidable challenges of growth and sustainability in the face of new technologies, mergers, acquisitions, consolidations, downsizing, restructuring, delayering, and diminished budgets. Increasingly, researchers and practitioners are coming to terms with the salient fact that HC is the only active source of organizational transformation, sustainable economic growth and development, creativity, innovation, and knowledge. Only the organizations that are apt to effectively leverage their HC to create value would have long-term relevance. What then is HC and how does it relate to a company’s long-term economic sustainability?
The term “human capital” was first used by Schultz (1961). This concept, at the firm level, is understood as the education, skills, competence, on-the-job training, and work experience of the labor force. Definitions of this concept abound, underscoring its popularity and recognition among researchers and practitioners. The OECD (2001) defines it as “The knowledge, skills, competencies, and attributes embodied in individuals that facilitate the creation of personal, social, and economic well-being.”
It is the value that people bring to their work in the form of knowledge and skills (Lipnack & Stamps, 2000) and the aggregate of all resources: physical, knowledge, social, and reputational directly contributed by individuals to an organization (DeNisi, Hitt, & Jackson, 2003). It entails “individual education, know-how, competence, ability to act in a variety of situations, experience, judgment, wisdom, knowledge, skill, motivation, and attitude” (Wilson, 2005). Underscoring the importance of HC, Davenport (1999) in his definition states that it “comprises all the intangible assets that people bring to their jobs. It is the currency of work, the specie that workers trade for financial and other reward” and the collective capability of one firm to extract the best solutions from the knowledge of its individuals (Bontis, 1998).