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Human Capital Theory: The Most Important Lesson In Business

Written By

Jill Bromund

President and Senior Consultant of Coachability

Briefly Speaking

Learn what is the human capital theory and how it controls the rise and fall of businesses.
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The human capital theory states that human capital is your most valuable commodity. In business, coordinating human capital is essential because when several people work together, their output is greater than what they would produce individually. They are “more than the sum of their parts.”

From an organizational development standpoint, human resources is the first division you must establish in a company. This is necessary because if you do not have workers who are productive with high morale, which is HR’s job, a company cannot run efficiently.To support the human capital theory and develop a productive, experienced workforce, training is the first step.

Most companies have already experienced this need. They get a multitude of students out of college who know a lot of theories and have no idea how to operate a company. Therefore, the company has to spend time and money training their employees.

Many companies are resistant to training merely because it is expensive in the short term. However, more forward thinking companies have learned that training always pays back in large dividends for the company.

Companies with great training programs create more loyal employees who feel competent, stable, and more able to do their job. Also, employees with higher training can get paid more so it works out better for everyone.

If you are working in a company that does not actively support the human capital theory and does not invest in its employees, you must keep up the fight or find a new place to work. Companies who do not value their people do not know what they are doing. If you look at the Fortune’s list of the 100 best companies to work for, these are companies who are always doing well.

Most of the time, even in the most resistant companies, you can find some support in Human Resources or with your manager. Be proactive and take advantage of this support by communicating that you want to get training. Pitch the idea of training to your manager as beneficial to the company. You are not just getting extra coffee. You are engaging in training that will help you do your job better. It is a win for everybody if you think long term.

To support the human capital theory and invest in human capital as a manager, sit down with your group to find out what you need to produce and what you are trying to achieve on a daily basis. Then, figure out the sequence of actions required to achieve these goals and increase this sequence in volume.

Furthermore, find out what your group is missing in terms of skills and knowledge. Figure out what your group needs to learn in order to improve productivity and morale. Then, provide training in these areas.

It does not take a corporate giant to invest in human capital either. One mid-sized corporation Bromund works with has devoted a whole library to training materials of Powerpoint segments and video segments for literally any and all leadership development topics. These companies who understand the importance of the human capital theory will succeed the most down the road.

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1 Reader Comments Share your thoughts.

    Calla Gold 2 years ago
    I love the respect you are giving to HR here. The selection of a wonderful employee is important. So is ongoing training which some companies won't spend for.
    Your comment about how a team creates more than the individuals could is spot on.
    Thanks for articulating the Human Capitol Theory so understandably.