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Human capital management (HMC) has been described as a "paradigm shift" from the traditional approach to human resource management (2005) - a statement that makes a lot of sense. Let's start by looking at the definition of the concept of human capital management and its relationship with the concept of human resource management. To understand HCM, it is necessary to study the concept of human capital. The chapter ends with an analysis of the processes involved in HCM, including a discussion of human capital measurement and accountability.


Human capital management involves capturing, analyzing and reporting data that guides the direction of value added people management, strategic investments and operational decisions at the corporate and line management levels. A defining characteristic of HRM is the use of parameters that define an approach to employee management that treats employees as company assets and emphasizes that competitive advantage is gained through strategic investment in these assets through recruitment and retention, talent management, and learning and development programs.

The success of an organization is a consequence of the competence of its employees. This link between people and performance needs to be brought to the attention of all groups of influence.


1) is the creation of value with the help of people

2) the philosophy of human development, but only that development matters, which translates into value.


The main difference between HCM and HRM is that the former views employees as an asset to the organization, while the latter views them as a cost source. For HRM, people are the creators of added value, not overheads, while for HRM, people are a source of costs that must be managed accordingly.” In HRM, the HR team is seen as a support service to the line departments - HR is function-based, and HR people play a role that is distinct from and isolated from the roles of other functional departments. On the contrary, HCA is considered to be a respected and equal business partner at the highest level and is holistic and system-based across the organization, strategic and value-added.

The main characteristics of human resources in their general classification of the potential resources of the firm:

• the training and experience of employees determine the skills available to the firm;

• adaptability of workers determines the strategic flexibility of the firm;

• The commitment and loyalty of employees determine the firm's ability to maintain a competitive advantage.

HRM is an approach to workforce management that sees the workforce as a valuable asset rather than a source of variable costs, and which therefore recommends investing in the workforce through training, development, and measures to attract and retain a committed workforce.

HRM is a distinct approach to employment management that aims to gain competitive advantage through the strategic placement of dedicated and capable employees and the use of a wide range of interrelated culture, structure and personnel practices.

HRM argues that people are not seen as a cost, but as an asset to be invested in to increase its inherent value.

The widespread replacement of the term "HR" with HR or HRM does not mean that everyone who holds the position of director or manager of HR bases his work on the philosophy of HRM. 

Both HRM in its purest form and HCA in the sense defined above regard people as an asset of the organization. However, both HRM and HCM view people as more than just organizational assets. Both disciplines emphasize the importance of adopting an integrated and strategic approach to managing people, which is of concern to all stakeholders in an organization, not just managers. The concept of HRM complements and reinforces the concept of HRM. She doesn't supplant her. Both HMC and HRM can be seen as vital components of the people management process.


People generate, store and use knowledge and skills (human capital) and create intellectual capital. Their knowledge expands through interaction with other people (social capital) and generates assimilated knowledge that belongs to the organization (organizational capital). The following are interpretations of the concepts of humanity, intellectual, social and organizational capital.


The term "human capital" was proposed by Schultz (1961), who in 1981 supplemented his theory as follows: "Consider all human abilities either as innate or as acquired. Human capital will be a valuable asset that can be developed with the right investment.

Human capital is the organization's human aspect; it is the intelligence, skills, and knowledge that together give a company its unique identity. People are those elements of an organization that are capable of learning, changing, innovating and creating a spirit of creativity, and which, if properly motivated, can make an organization last.

The concept of human capital is most often seen as a bridging concept, i.e. the link between HR practices and company performance in terms of assets rather than business processes. They emphasize that human capital is largely non-standardized, implicit, dynamic, context-dependent, and embodied in people. These characteristics make it difficult to assess human capital, given that the features of human capital that are so important to the performance of a firm are the flexibility and creativity of individuals, their ability to develop skills over time and respond motivatedly to different contexts.

It is the knowledge, skills and abilities of people that create value, so the main focus should be on attracting, retaining, developing and preserving the human capital they represent.

People have innate abilities, behaviors and personal energy, and these elements form the human capital that workers bring to their work. It is the workers, not their employers, who own this capital and decide when, how and where they will invest it. In other words, they can choose. Work is a two-way exchange of value, not a one-way use of an asset by the owner.

Among other things, employees will have to decide how prudent behavior they should demonstrate in the performance of their roles (by prudent behavior, we mean how people do their work and how much effort, attention, innovation and productive behavior they invest). In addition, they need to decide whether they will stay in the organization or leave it.


Intellectual capital consists of the stock and movement of knowledge useful to the organization. This knowledge can be considered as intangible resources, which together with material (money and property) constitute the market or total value of the enterprise. Intangible resources are, along with financial and tangible assets, a factor that contributes to the formation of the value of the company and is under its control.


Social capital is another element of intellectual capital. It consists of knowledge gained through a network of relationships both within and outside the organization. The concept of social capital is the characteristic features of social life - interaction, norms and trust - that allow participants to act more effectively together to achieve common goals.

Social capital refers to the social institutions, relationships and norms that shape the quality and quantity of interactions between people in society… Social capital is not just the sum of these institutions that are the foundation of society, it is the glue that holds them together.

It is very important to use individual knowledge through knowledge management processes, but it is equally important to take into account social capital, i.e. The development of knowledge during interaction between people. It exists in the form of flow and stock. Intellectual capital changes and develops over time, and the joint activities of people play an important role in this process.


Organizational capital is the assimilated knowledge that an organization has, stored in the form of databases, manuals, etc. (Yundt, 2000). It is often referred to as structural capital (Edvinson and Malone, 1997), but Jundt prefers to speak of organizational capital because, he argues, the term emphasizes that it is knowledge that an organization actually owns.


The theory of human capital emphasizes the value that individuals may offer to a company. It views people as a valuable asset and emphasizes that an organization's investment in people generates returns worth the investment. Therefore, this theory underpins the philosophy of human resource management and human capital management.

For an employer, investing in people training and development is a means of attracting and retaining human capital, as well as a way to get higher returns on these investments. These revenues are expected to come from improved performance, flexibility and ability to innovate; all this is possible in case of expanding the base of skills and increasing the level of knowledge and competence. 

The general message sounds compelling: knowledge, skills and abilities are the key determinants of whether organizations and nations will succeed. 


Human capital management is about taking measurements, summarizing the results of measurements and drawing conclusions about the importance of these results, which become a guide to future actions. However, this is not the primary objective. HCI is more than just measurements. Human capital management draws the attention of the leadership team of an organization to the strategies that it must follow in order (as will be described later) to increase the added value received from the organization's employees. HCM identifies those aspects of people management that have the greatest impact on company performance. It allows you to find out what result can be obtained in the field of increasing profitability, productivity and overall efficiency through the use, development and involvement of all employees, necessary for the organization to achieve its goals. HCA shows the way to gaining an edge in human capital by shedding light on where and how investing in people generates the highest returns. HMC ensures that HRM policies and practices are carried out in a manner that ensures this objective is met. This policy includes knowledge management, resource sourcing, capability management, performance management, training and development programs, and the reward and recognition process.
From the point of view of organization, HCA raises the following practical questions:
• What are the key performance factors that create value?
• What skills do we have?
• What skills will we need now and in the future to achieve our strategic goals?
• How will we find, nurture, and keep these skills?
• How can we create a culture and environment in which organizational and individual learning takes place that meets both our needs and the needs of our employees?
• How can we ensure that both the explicit and implicit knowledge created in our organization is absorbed, recorded and effectively used?


For a human capital strategy to become a guide to action, it needs to be supplemented with human capital measurement data and analysis. According to the Mercer Organizational Effectiveness Model (Institute for Personnel and Development - CIPD, 2004), a firm's human capital strategy consists of six interrelated factors:
1. People - those who are in the organization, their skills and competencies at the time of hiring; skills and competencies that they have developed in the process of learning and gaining practical experience; their level of qualification; how extensively they apply firm-specific or generalized human capital.
2. Work processes - how work is carried out; the extent to which teamwork and interdependence among departments of the organization is widespread; the role of technology.
3. Management structure - the extent to which employees can act on their own, the degree of leadership and control by managers; intervals between control checks; performance management and work procedures.
4. Information and knowledge - how, through formal and informal means, there is a mutual exchange of information between employees, as well as with suppliers and buyers.
5. Decision making - how and who makes important decisions; degree of decentralization; participation in decision-making and the time of the latter.
6. Rewards - how monetary and non-monetary incentives are used; what is the cost of risk; individual or group reward; direct remuneration or "deferred reward in the form of career advancement".
An organization's human capital strategy can be seen as a complement to the human resource strategy.


The best thing that HR managers can do to make their strategic contribution is to develop a measurement system that convincingly demonstrates the impact of HR on business performance (Becker et al. 2001). They need to understand how the firm creates value and how to measure value creation. This implies carrying out measurements of human capital, which are described below.


According to the definition of IDS (Income Information Service, 2004), the measurement of human capital is the finding of links, correlations and, ideally, causal relationships between different sets of HR data using statistical methods. CIPD emphasizes that it deals with the analysis of the actual experience of employees, and not proclaimed HR programs and strategies.


There is such an outweighing situation that requires the development of methods for assessing human capital, such as assisting in decision making. It can mean identifying the key factors in managing people and modeling the effect of changing them. The challenge here is to develop an overall framework that collects and analyzes reliable information on value added per worker, productivity and measures of worker behavior (attrition and absenteeism rates; accident frequency/severity rates; cost reduction indicator in accordance with the proposed plan).
The need to develop a "high performance perspective" is when HR leaders and other administrators view HR as a system that is part of a larger system for implementing the firm's strategy. The firm manages and measures the relationship between the two systems and the firm's performance. The High Performance System is an integral part of this approach, it:
• links selection and promotion decisions to proven competency models;
• develops strategies that provide timely and effective reinforcement of the skills needed to implement the firm's strategy;
• Has a compensation and performance management policy that attracts, retains and motivates highly qualified employees.


The value of advantage in human capital is generally recognized, and methods for determining the value of this capital are of particular interest.
•The price of human capital should be factored into the calculation as a signal for investors or others who are thinking about whether a company's intangible assets would be included in any merger or acquisition because it is an important component of market value;
• defining evaluation criteria and collecting and analyzing related information will draw the organization's attention to what needs to be done to find, retain, develop and make the best use of its human capital;
• Measuring the value of human capital can provide the basis for resource-based HR strategies that are linked to the development of organizational knowledge and skills;
• Measurements can be used to monitor progress towards HR strategic goals and assess the effectiveness of HR use in general;
• What you have not measured, you cannot manage.


There are six main measurement methods.
Quality model developed by the European Foundation for Quality Management (EFQM)
The European Foundation for Quality Management (EFQM) Quality Model (Figure EFQM) offers another framework for measuring and reporting HCM. It includes measures of customer satisfaction, employee satisfaction and impact on society, which are achieved by management. All of this defines the policy and strategy, the management of the people, the resources and the processes needed to achieve great business performance.


EFQM quality model
The nine elements of this model can be defined as follows:

1. Leadership - how the behavior and actions of the management team and other leaders inspire, support and encourage a culture of high quality work.
2. Policy and strategy - how the organization formulates, uses and reviews its policies and strategies and turns them into plans and actions.
3. People management - how the organization achieves the full potential of its employees.
4. Resources - how the organization effectively and cost-effectively manages resources.
5. Processes - how the organization identifies, manages, reviews and improves its processes.
6. Customer Satisfaction - what the organization achieves in relation to the satisfaction of external customers.
7. Employee Satisfaction – What the organization achieves in terms of the satisfaction of its employees.
8. Impact on society - what the organization achieves in meeting the needs and expectations of the local community, its country and the world community as a whole.
9. Business results - what the organization achieves in terms of achieving its business objectives and in meeting the needs and expectations of all those who have a financial interest in it or are a group of influence.
Organizations that have adopted the EFQM model recognize the importance of measuring performance and are constantly working to make their measurements as useful as possible, but they understand that quantifying a problem does not, in and of itself, solve the problem. There is always a danger that managers will spend all their energy analysis, and there will simply not be enough of them to correct the situation.


In the process of measuring human capital, the following should be done:
• identify sources of value, including competencies and capabilities that underpin business performance;
• analyze the relationship between people management practices, outcomes and organizational performance;
• Remember that the measurement of human capital is driven by the impact of people management practices on the quality of an organization's performance, ie what steps need to be taken to improve the situation. It is not limited to measuring the effectiveness of the HR department in terms of its level of activity. The emphasis should be on value, not performance. For example, it is not enough to simply indicate the number of training days or the amount of training costs - you need to estimate the return on invested capital generated by this training;
• aim for simple measurements – focus on key areas of outcomes and behavior;
• measure certain activities only if these measurements provide information for decision making;
• analyze and evaluate trends rather than just fixing the facts - compare the current state of affairs with your goals;
• focus on easily accessible and reliable quantitative information; however, although quantitative processing is desirable, it should not be based on cumbersome and unsubstantiated assumptions;
• Remember that measurement is a means to an end, not an end. Don't be hypnotized by the process of collecting data - remember that this data should be used to make better decisions and take action.


Human capital reports should provide information on how well the organization's human capital is being managed. There are two aspects of reporting. The first is external reporting to pressure groups through the United Kingdom's mandated Operating and Financial Review (OFR). The second is internal reporting, which also informs management and pressure groups about the progress of the human capital management process, but these statements are complemented by how this information will be used further as a guide to action. The goal is to inform decision makers about human capital management, not just to present numbers.