MAXIMIZING ROI IN KNOWLEDGE AND HUMAN CAPITAL Dr. Alan Burton-Jones Burton-Jones & Associates

21 st CENTURY HUMAN CAPITAL

Definition An investment of human resources with expectations of future returns e.g. a worker may invest part of his/her wages on a course of study rather than consume it on entertainment History 18 th century Adam Smith; early 20 th Century Arthur Pigou; 1950s-60s the Chicago School: Mincer, Schultz, Becker; 1970s-2000s: economists and management theorists e.g. Bell, Drucker, Reich Macro-economic and institutional perspectives Traditional view (e.g. Becker 1964) : Human capital at the macro /national level. Focus on theorizing the relationship between education and economic growth Later theories : Human capital at the level of the institution or firm. Differences between human capital and traditional forms of capital Inalienable – can only be owned by the individual, not an employer Non fungible – individuals are unique May deteriorate with age but use increases rather than depletes its value Only contributes to production when actively applied HUMAN CAPITAL

KNOWLEDGE & HUMAN CAPITAL IN ORGANIZATIONS Knowledge-based perspective Firm as an integrator of disparate knowledge resources Management’s role: control and coordination of integration processes Key activities: knowledge acquisition, transfer, application Focus: group and organization Human capital perspective Firm as an investor in disparate human resources Management’s role: maximizing returns from people Key activities: human capital development Focus : individual, group, organization

COMBINING KNOWLEDGE AND HUMAN CAPITAL PERSPECTIVES Need for effective strategies and techniques in three key areas: 1.Linking people to performance 2.Managing dependencies between human capital and other resources 3.Managing organizational knowledge

LINKING PEOPLE TO PERFORMANCE Accounting for human capital 1960’s – 1990s: Human asset accounting; human resource costing and accounting; human worth accounting 1990’s -2000’s: Human competencies accounted for as part of intellectual capital statements. Limitations of accounting approaches Non comparability- lack of common accounting standards for HC accounting Reliance on proxy measures e.g. training, access to technology Human capital depends on human knowledge which being transient and tacit is difficult to observe and measure other than through performance

MANAGING HUMAN CAPITAL INTERDEPENDENCIES “No man is an Iland, intire of itselfe; every man is a peece of the Continent, a part of the maine…” (John Donne, MEDITATION XVII.) “The knowledge economy is above all a relational economy.” (Janine Nahapiet, 2009.) “Human capital is about being smart, social capital is about being well connected”. (Anonymous.)

MANAGING KNOWLEDGE IN ORGANIZATIONS ‘Rational' planning and decision making What we know we know What we don’t know we know What we know we don’t know What we don’t know we don’t know Certainty Consciousness LowHigh Low High Formal learning ‘Gut feel’, intuition, Probing, sense- making, imagining

TOWARDS AN INTEGRATED MANAGEMENT FRAMEWORK