Human Capital Development

Human Capital Development

Mazen Joureih (Cardiff Metropolitan University, UK)
Copyright: © 2019 |Pages: 19
DOI: 10.4018/978-1-5225-7721-8.ch007

Abstract

The main purpose of the chapter is to provide a contemporary view of human capital (HC) based on recent research and from a theoretical perspective. Based on this, the chapter demonstrates the significance of individual knowledge, skills, and qualifications—human capital—for organizational outcomes and consequently economic growth. Although the concept of HC can be traced back to the work of Schultz with a considerable body of literature, the inherent dilemma with HC is that, unlike the organizational capital that a firm possesses, HC is an intangible asset that can simply leave and never return. Recently, an emerging stream of literature has attempted to unify both the individual and organizational level perspectives of HC and examine how they are related to competitive advantage. Given these considerations, in this chapter, HC will be viewed as a bridging concept where HC serves as a link between human resource (HR) practices and organizational performance in terms of building a worker as an asset. The chapter also presents the key approaches to HC measurement.
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An Overview Of The Hc Concept

Since the initial definition of HC by Schultz (1961), who suggested that HC consisted of the “knowledge, skills and abilities of the people employed in an organization” (p.140), the term has been developed by scholars such as Becker (1993), who defined HC as the “knowledge, information, ideas, skills, and health of individuals” (p.3). Based on this, the concept of HC has been conceptualised in a variety of ways in the management literature. The HC theory is rooted back to the economist Becker (1964). Since then, the study of HC has emerged across a variety of disciplines, such as the management area, both the strategy and HRM fields have shown considerable attention to the concept of HC (Wright & McMahan, 2011).

Edvinnson and Malone (1997) viewed HC as a sub-component of intellectual capital in their (value platform) model of intellectual capital management, while Dzinkowski (2000) argued that managing HC within organizations has been drawn from human resource management (HRM) practices. Moreover, HC is typically accumulated through education, training, and working experience on knowledge specific to an organization and/or task (Alan et al. 2008). Rastogi (2002) stated that HC’s knowledge, skills, and abilities is an important input for organizations’ outcomes. Thus, the Organization for Economic Co-Operation and Development (OECD, 2001) stated that HC is referred to as “the knowledge, skills, competencies, and attributes embodied in individuals that facilitate the creation of personal, social and economic well-being” (p.18).

Key Terms in this Chapter

Cost-Based Approach: This approach estimates HC based on costs of production and child rearing costs to parents.

Human Capital Theory: Recognizes the HR as an important factor for creating economic value and emphasizes the labor costs relative to the ROI for developing employee skills and knowledge.

Competitive advantage: A competitive advantage comes from providing greater value and services for customers than competitors can.

Human Capital: It is referred to as the knowledge, skills, competencies, and attributes embodied in individuals that facilitate the creation of personal, social, and economic wellbeing.

Income-Based Approach: This approach is closely related to each individual’s benefits obtained through education and training investment.

Organizational Performance: SHRM researchers have classified organizational performance into three essential groups related to HRM: 1) HR outcomes refer to those that are linked most directly to HRM organization; 2) operational outcomes are those associated with the goals of an organizational operation, such as productivity, product quality, and quality of service; and 3) financial outcomes.

Intellectual Capital (IC): IC refers to the intangible assets (e.g., the intellectual material, knowledge, experience, intellectual property, and information) that a business can use to create wealth.

Resource-Based View (RBV): The RBV theory by Barney essentially argues that a competitive advantage of an organization stems from a set of tangible and intangible resources at its disposal. The theory also offers valuable insights into the role of HC in building organizational competitive advantage.

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