Workplace transformation

Human Capital vs. Human Resources – A word and a world of difference

Often when I introduce my company, I’ve been asked, “Do you mean human resources?”

Actually. Not. Fundamentally, there is a philosophical difference in the 2 concepts, thus a huge difference in the type of services and solutions. Without getting too technical, conceptually, the difference lies in the word “capital” and “resources”. While we may think it is just semantics, after all, a rose by any other name smell as sweet, we forget the psychological impact of what a good name conjures. And in this case, the association and attitude can be very different by just 1 word.

Here are some fundamental differences.

Capital can be grown, resources deplete
An organization is made up of a workforce and the resulting output with or without the help of machines. When this workforce is treated like a form a resource, the organization finds the best way to exploit it and use it for its purposes. These resources are used and depleted so more are acquired and use. And since it is a form of resource, when they are no longer useful, the remuneration stops and they are replaced.

When a workforce is looked upon as a form of capital the company is acquired, the incentive is the get the best return from investment. An organization will regard a capital as down payment to work towards future returns. A capital also grows over time with productive use. In human capital, competences, knowledge and creativity grow over time and multiply in value.

Capital is invested, resources are maintained
When an organization looked upon the workforce as a form of resource or worse a “seat warmer” and other derogatory terms such as “bodies”, then the attitude is just the function they provide. Like any machines we buy for a purpose, it is maintained at best for the purpose they serve.

When a workforce is treated as a form of capital, then people are looked upon as an acquisition for the value it can bring if properly invested. Each person’s value is based on the potential of the investment that requires sound judgment on placement and development potential. If we extract the most from the workforce, the return is no longer linear such as machines. In this case, output when well invested can bring forth multiple times the initial capital purchase.

Different psychology, Different policies
With the fundamental departure on psychology, it will also be reflected in the policies. While there are many ways to breakdown human resource management, broadly, it consists of 5 key areas: Recruitment & Retention, Compensation & Benefits, Training & Development, Sustainability & Mobility and Employee Relationship & Compliance.

From a resource point of view, the key focus is making sure employees are paid and employment laws are complied including health and safety and relationships with unions. Often it is also the 2 key areas retained by a company in the HR department while all other areas suffer due to cost cutting measures or lack of vision. After all, if there are lack of jobs and plenty of candidates, when a “resource” is unhappy or unsuitable, they can be replaced by another. HR departments tend to degenerate to payroll administration and point of contact for labour unions and compliance.

Whilst the above is an extreme view of situation, it is not uncommon where HR is dysfunctional. If we insist that workforce is a form of capital, then the key focus of management may well be very different.

The relevance of high potential?
When the workforce is considered a form of capital, then the view is everyone has potential for a return. But the level of investment will depend on the level of return and impact to organization. Often this can be governed by the role and function in the organization.

The main pitfall of a high potential program is the tendency for an organization to focus large amounts of energy and efforts in a small group of identified talents while ignoring the rest. It’s like betting on a racehorse, you win big if the horse is the first to cross the line, if it comes even a second behind, the investment is lost. That happens when high potential leaves before realizing their potential or fails in their development.

It is much more logical and motivational to consider that everyone has access to development opportunities relevant to their role and earned based on performance (the return).

The idea of “right fit” in recruitment
If we think about work as a production line, with an empty seat, the best thing is to find someone who already knows the work to fill the seat. With lower propensity to risk, most companies have behaved as such in hiring. The person they seek is someone who fits perfectly and thus presents no obvious risk in bad hiring. It also means paying the same or higher salary to attract someone to leave the existing position to fill the new role.

From a long term planning perspective when a resource is looked upon as a form of capital, then recruitment criteria will change. The focus will be the potential of the candidate and the return he or she will bring. The “right fit” is someone who will grow in the role.

The outcome is greater incentive for someone to move. The compensation will be lower than trying to attract someone who already fulfills the same role somewhere. And in effect, a cheaper option than a seemingly low risk hire. The truth is performance on the job and the future is just as unpredictable in either cases since no 2 companies are exactly the same.

The true purpose of human resource management?
Whilst we cannot do away with compensation & benefits or employee relationship & compliance, it cannot be the only focus. In effect, these areas are probably better suited in finance and legal departments.

Then people management can focus on 1 or 2 key areas while engaging suitable partners and supplies to complement the others. As businesses change, the human capital in the company needs correspond to these changes.

Human resource management will then act as the protector of the human capital and investments of the company. Their role will include finding and maintaining the right vendors to acquire, manage and develop the human capital in the company.

Should we start changing all HR titles to HC?
Human resources is still the global function that looks after the well being of the workforce in the organization. The dysfunction today is due to a narrow vision of the workforce as a form of resource. For a forward moving company, treating their employees as a form of capital changes the resulting HR policies and attitudes both at management and HR level. That is an important shift in mindset.

To do this, many companies have started using terminologies such as “People Officer”, “Talent Management” etc. Regardless, a complete view of HR is important and neither can we ignore compensation, legal and compliance. But HR can do better to focus on the other aspects either by in-house capabilities or external service providers. And companies can benefit from a workforce that is motivated and energized.

The Death of a Recruiter

I had a flash thought the other day that recruitment is a dying profession. Or maybe it is not the profession but the professionals themselves. I have a doubt.The world has gone through many changes. From the industrial revolution to the technological revolution, these changes have affected all industries including the recruitment industry.

Recruitment started in an era where people were employing people they knew through their family and connections. Recruitment companies offered a greater range of people and skills to feel the roles, especially for female employees who had started entering the work force when the men we’re still at war.

With the Internet, it changes the way people look for jobs. Recruitment companies could gather more candidates in their database and forward relevant resumes to employers. Companies no longer need to rely on distant relations and connections to hire. It also meant that recruiters spend more time managing resumes and responses.

It is this transformation that I thought recruiters had succumbed to the temptation of “mass attack”. Instead of careful selection and hand picking the right candidate, it may seem easier to just send a mass of suitable resumes to the hiring party or send a good resume to a mass of companies who may recruit. It seemed to have worked for a while particularly for more junior positions. The art of client and candidate intimacy was lost in the passage of time that transformed the practice.

However, the complexities of work has also increased. A rose by any other name is no longer a rose. The variety of jobs has changed to such an extent that few professions are homogenous even if they are called the same. 2 accountants in the same company could be performing very different tasks. So can an accountant in 2 different companies. In addition, education may not have evolved at the same paced of work place transformation. Both trends meant that the likelihood of finding someone with the exact fit to the job is low. In such a climate, it is even more important for recruiters to understand the requirements and demands of the job and find the person most likely to succeed by extrapolating their competences and knowledge into the future.

Does this mean that sourcing is dead? I imagine it is more alive than ever with heightened selection. It can no longer satisfy a client with extensive databases and extravagant sourcing methodologies. The client expects that. What may blow them away is the knowledge in the field and communicating a convincing argument why a talent whilst not having the exact profile can do the job and be very good at it. And on top of it, they don’t have to pay a higher salary to attract them from a close competitor and risk losing them a few months later to another competitor.

It is a dying breed of recruiters who would spend time with job seekers, understanding them and advising them. The whole candidate experience is very different when he/she is talking to a recruiter who knows what they are talking about and add value to them to another who is just a “cv pusher”. The correlation of loyalty to time invested is a linear one. Many of my friends who had been introduced to good recruiters will always return to them for their job change or when they are in the position to hire.

It will be a mistake to say that recruiters do not understand this concept. Many do. Then why are there so few doing it or seem to do it well? We need to look no further than the people in-charge. If the performance indicators and reward systems do not encourage it, the the message is “do what you can to get money”. A crude but understandably common message in times of crisis.
Contrary to belief that crunch time is doom time, it is rather the best time to save the death of recruiters. When clients and candidates become more and more selective as they prowl over every decision that has a monetary impact, it is survival of the fittest. In hay times, the mediocre can ride on the wave of growth. In a tempest, recruiters will have to review their profession and be better at what they do. There is incentive to be more knowledgeable, hold on to a lead stronger and be more resourceful.

Every good recruiter I know has said this, nothing rewards more than the thrill of finding the right person for a difficult role and have both the candidate and client congratulate them for a great match.

That is also why recruitment will always run in my blood. Let us not be the dying race.