04 May 2021

Why Human Capital? A (Brief) Overview

For whatever reason, there appear to be few concepts in human experience more mystifying than that of Human Capital.  Is it “just” HR”? Is it HR-lite? Is it HR+? Is it Human Trafficking (actual question)? The list goes on and on.

I would say that Human Capital (Or HCM – Human Capital Management) is simply a useful term that broadens our typical views of Human Resources (with all its stereotypes, connotations, limitations), and applies a few important points; HCM is:

A discipline (i.e., practices, thoughts, approaches, and values) concerned with maximizing human potential in a workplace (or beyond)

Typically, these concern areas of Change Management, Communications, Diversity, Equity & Inclusion, Executive Assessment and Alignment, Executive Search/Recruiting, Learning & Development, Organizational Design, Talent Management, and so on

It is not limited to the HR function; a CEO, COO, Managing Partners, a CFO, Investors, associates, team members, paralegals should all be concerned with getting the most and best of their efforts

This is a definition; not the only one, but useful to get to the heart of the true question: Why does it matter…to you. This is “does” rather than “should” because much like physical health (nutrition, sleep, exercise, and mindfulness) is important to leading a healthy life whether you value it or not, the practices of HCM concern a healthy organization – an important end state whether you are aware of it or not. 

There are three implications for a healthy organization that will serve as a primary justification for HCM:  

  • improved employee engagement, 
  • enhanced productivity, and 
  • increased employee retention  

First, employee engagement is the degree to which employees are satisfied and motivated by their workplace experience. Engaged employees produce more and better and stay longer than unengaged ones.

The Gallup organization, a much storied researcher into organizational effectiveness, has developed  12 Moneyball questions, that help employers measure this engagement and therefore predicting if those employees will be able to focus on their work, produce more quality (and error-free) deliverables, and actually stay in the long- run.

These questions focus on a few important indicators:

Do I matter here? (as in my opinions and efforts or am I treated as a fungible resource)

Do I have clarity on what I should do and how I should behave?

Are my strengths valued and put to work?

Do I have relationships with people here who seem to care about me?

Am I set up for success?

Is the work I am doing here helping me grow or keeping me small?

Consider the following: 

Anyone serious about running an organization must consider these implications: What is the cost of each turnover in lost productivity, in time and resources spent trying to fill the position again, in added stress to those who otherwise would be focused on other items, on productivity?  In lost knowledge? Do you know the answer?  Chances are you would rather not be spending any of that if you didn’t have to - and keeping employees means you don't have to. 17% higher productivity on average? What would that mean to your bottom line? 21% profitability? 20% higher sales? Bottom line: caring about how employees feel at work matters and HCM supplies the research and strategic thinking to help with that. 

Second, the quantity and quality of work can be significantly enhanced simply by delivering a few important conditions.  This is the key to higher productivity and retention. 

Gallup is not the only organization tipping the research scales on how employees should be treated. In 2015, Google published significant findings that outlined five keys to successful teams.  They noted that fostering these five conditions on teams had demonstrable impact on their success:

1. Psychological safety: Can we take risks on this team without feeling insecure or embarrassed?

2. Dependability: Can we count on each other to do high quality work on time? 

3. Structure & clarity: Are goals, roles, and execution plans on our team clear? 

4. Meaning of work: Are we working on something that is personally important for each of us?

5. Impact of work: Do we fundamentally believe that the work we’re doing matters?

Here, Google (by using an HCM lens) has given each of us the means to make our organizations more productive – like with Gallup, apparently allowing people to feel safe when contributing ideas actually helps people contribute more and better ideas.  Apparently being clear and consistent with rules that fairly govern how work should be accomplished, leads people to spend less time wondering what is right and wrong and more time delivering quality. And connecting people to the meaning and impact of their work and why it truly matters makes people care more about it and perform better. 

This is only a brief overview of an entire discipline and its value. But if you take nothing more from this article it should be two simple concepts:

1. People matter in my organization and HCM as a practice helps me value and support them better.

2. Specifically, HCM helps my organization to maximize human potential through practices that satisfy and motivate employees (engage) to produce more and better (productivity) and do it longer (retention)

I look forward to your journey. 

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