Moving from a "HR" to "HC" mindset
What is the difference between Human Resources and Human Capital? Sara Moulton suggests two key ones and how the HR profession can make the shift.
On 7 February 2018, Second Minister for Minister, Ms Josephine Teo, gave a speech at Singapore National Employers Federation (SNEF)'s Beyond SG50 Forum, where she spoke about the importance of shifting from a "human resources" mindset to a "human capital" mindset. She said, "Many [Human Capital Partnership (HCP) companies] support a inclusive workforce by reskilling and deploying at-risk workers into new growth areas, as well as hiring and re-employing mature workers. Others have built a pipeline of local talent with global exposure for senior leadership roles. They have also facilitated the transfer of new skills, capabilities and knowledge from foreign employees to their local colleagues.
They demonstrate the essence of moving from a 'HR' (human resources) to a 'HC' (human capital) mindset, which is key for Singapore in our new phase of growth."
What is the difference between Human Resources and Human Capital?
First, let us define what the word 'organisation' stands for. In McKinsey on Organization, they define an organisation as "like a colony of bees – a well-structured entity with clear processes and talented contributors who work effectively together". How do Human Resources and Human Capital fit in with this definition?
In an article for Human Capital Insights titled, "The HR Mindset that Wins Friends and Influences CEOs," Ben Baran, Assistant Professor of Management at Cleveland State University, writes that HR is traditionally focused on compliance, administration, and process.
He shared that when speaking with a contact, she described the HR department in her organisation as tending "to always be about forcing compliance, hindering processes and creating administrative obstacles". It was almost, from her perspective, that the HR department was so focused on justifying its own existence that it had institutionalised a 'gate-keeper' mindset.
In contrast, a focus on human capital means developing talent and subsequently, tracking how that talent contributes to a business' success. "Human capital is how people contribute to growth. It is about allowing the individual to influence more," states Glenn Lopis, a Forbes contributor. In his article, "HR Departments must Urgently Become Human Capital Departments", Lopis descries what currently is not working in HR:
"HR can't just be a compliance cop protecting the company from those pesky employees. It must empower employees who want to help grow the company and evolve to achieve their goals, too."
He continues, "In addition, HR can't just be about data either. Not everything human can be optimised through data – and looking at the data is no replacement for having insight and listening to people."
Hence, there are two ways in which Human Resources and Human Capital differ. They are:
- From ensuring process adherence to investing in talent. A focus on human capital means moving away from ensuring compliance and administration to investing in people, for the present as well as their future.
Two examples of companies that are investing in talent are Aviva and CXA Group. Aviva took a holistic approach when it came to employee engagement and investing in talent. They created a framework based on the company's values for decision-making. This was coupled with an employee recognition programme called "Caught in the Act", which recognised employees who were living the Aviva values. CXA Group, "Asia's first flex & wellness marketplace" and a start-up, created an academy of its employees. Employees are given opportunities for technical training, both from internal and external subject-matter experts.
- From gatekeeper to service provider. The HR team's clients are internal. HR needs to shift focus towards assisting and enabling a business' talent rather than attempting to protect the organisation from its people.
Of course, HR teams will still need to focus on compliance, administration, and supporting colleagues. However, HR will also need to focus on developing and adopting a 'service provider' mindset when interacting with talent.
How the HR profession can make the shift
- Reflect and adopt a service mindset towards employees. For instance, this may mean HR will seek feedback from employees about how they like to learn and if certain skill gaps are more prevalent than others. By seeking feedback and incorporating it into the process, the HR team becomes a service provider.
- Facilitate knowledge or skills transfer beyond the conventional. Tap on the varied talents in the organisation, and give them opportunities to contribute to the business' growth beyond their formal roles. Allow them to bring their whole selves to work and grow personally too. Begin by speaking with colleagues about whether they have hidden talents that do not typically get brought into the work environment. Perhaps a colleague knows sign language (new diversity initiative?), is good with crafts (additional help for events), or is even a weekend chef (teambuilding beckons!).
- Finally, take action. It is smart to reflect and think, but do not forget to implement - consistently!