Human Resources & Human Capital: The differences and interdependencies (and why companies need both)

Kim Putens, Senior Director of Human Capital & Marissa Levin, CEO Information Experts and Successful Culture

Often the terms human resources and human capital are mentioned together. But are they really different? If so, how? Simplistically, a human resources professional is usually an individual who manages the transactional activities of a company (e.g., payroll, benefits, compliance operations, and reporting). Human capital professionals, however, serve a strategic function in an organization. Strategic activities often managed by human capital professionals include performance management, professional development, and human resources planning and measurement.

Human Resources and Human Capital Defined

Increasingly, companies are investing in human capital and elevating the role of the human capital professional to a seat at the board room table. Why is this? Well, let’s first start with a look at the terms human resources and human capital to better understand. As defined, resources are the total means available or an available supply that can be drawn on when needed. Resources, quite simply, can be drawn on until exhausted. Capital, however, is defined as any form of wealth employed or capable of being employed in the production of more wealth. Capital can grow with investment to produce more capital.

Trends in Human Capital and Human Resources

Trends in human capital are likely consistent with economic and labor trends. Consider that it takes more resources (time and money) to hire and train people then to retain them. With tightening budgets and greater demand for efficiency, losing a high performing employee can significantly impact the bottom line. When an organization loses an employee, resources are spent to find a replacement, time is transferred away from other activities to train him or her, and productivity is lost while he or she ‘gets up to speed.’ It takes, on average, 6 months for a new employee to be fully ingrained in his or her new position.

Given the costs associated with losing a high performing employee, it makes better sense to invest in human capital than to expend human resources.

Another important trend is the labor market. It is a fact that the labor market in the United States is getting old. According to a Population Bulletin published by the Population Reference Bureau, “the aging of baby boomers and the fact that women’s labor force participation has already peaked are expected to slow labor force growth in the near future.” Additionally, “over the next 50 years, the labor force is projected to grow even more slowly (at about 0.6 percent per year) as baby boomers retire.”

Compounding this scenario are the changes occurring in “solopreneurship.” According to the Kauffman Foundation for Entrepreneurship, solo entrepreneurship (in which an individual starts his/her own business but does not bring on any employees) is thriving in virtually all population groups. Four generations of professionals are increasingly choosing self-employment over traditional employment, which directly impacts the available labor pool.

Thus, fewer resources to replace aging workers mean a growing importance on retaining an organization’s capital…its people.

The Interdependency of Both Disciplines

So, while it is important to manage the important human resources activities necessary in an organization, it is increasingly necessary to consider the strategic management of human capital to survive and thrive in today’s competitive environment.

The two disciplines, while starkly different, are both essential components to a growing organization and have important interdependencies. A company should not dismiss the importance of one discipline and invest in the other. For human capital strategies to be implemented and executed, an organization requires a strong human resources infrastructure. The importance of a well-oiled machine often becomes apparent when it stops working. This is the case with a solid human resources infrastructure. Issues surrounding compliance, employment and unemployment, payroll, and more must be kept at a minimum so that the company can move its people strategies forward.

Conversely, an organization that only focuses on its systems and processes and does not create a long-term strategy for employee development, recruitment, and retention will lose its best people.

Ideally, human resources and human capital will be tightly integrated, and the executive team will see the intrinsic value of both and will invest in both accordingly.

In a recent Harvard Business Review blog, human capital expert Ron Ashkenas also explores the interdependency between human resources and human capital, and discusses the strategic evolution of the human resources function.

How does your organization integrate its human capital and human resources functions? Let us know your strategies and success stories for optimal integration.

A collaboration between Marissa Levin and Kim Putens

Marissa is the Founder and CEO of Information Experts. She leads the effort to define and shape the organization’s values, mission, vision, growth strategy, brand, and corporate culture. Kim Putens, Senior Director of Human Capital has been serving the human capital needs of federal government clients for the past 3 years.