Confused About Human Capital vs. Human Resources? Seeking Practical Insights from HR Pros

Respected Seniors, I am presently working in an express cargo company that is in its inception phase. Right now, we are creating the organizational culture and our department with respect to it. Being a Human Resource Professional, I have heard the term "Human Capital." I am unable to understand the differences between Human Capital and Human Resources in a practical manner. It would be greatly appreciated if you could assist me with the above-mentioned matter.

Thanks & Warm Regards,
Alin

Understanding Human Resource and Human Capital

What do you think is capital and what is a resource? I shall say human resource and human capital are used interchangeably; not much difference is observed in usage. But technically speaking, human resource is the human stock, assets, raw material, or material in hand to use whenever the requirement arises. It is the property in hand for use, the resource, the potential to be used when needed.

On the other hand, human capital is that part of the human resource which has already been invested, already in use, the crucial part of the resource from which you are expecting your returns. It is the actual resource under production, utilization, and the conversion of potential into results.

I hope I have tried to make it clear.

I am working as an HR & ADMIN Executive in a retail manufacturing company based in Dubai. I have also heard the term "HUMAN CAPITAL," and some organizations have named their Human Resource Department as the "Human Capital Department."

I would appreciate it if anyone could provide clarification on the difference between HUMAN CAPITAL and HUMAN RESOURCE.

Thanks and Regards,
Sankar

Thank you for your valuable reply. I didn't notice the response you provided.

I have a small clarification. As you mentioned, Human Capital is part of Human Resources, which implies that Human Resources can be compared to new recruitment and Capital to existing employees. I hope the question is clear.

Regards,

I told you in the pragmatic sense, we hardly see any difference but use the terms alternately/synonymously.

Understanding the Process

But technically, yeah, it's like the process: Acquire, Utilize/invest (retaining), disposal...

Recruitment as Acquisition

And, yeah, new recruitment is the process of acquisition, acquiring human resources. That is why you search for a potential candidate expecting good returns in the future. So, you look for good raw material to come up with a standard finished good, right! Just like that, the right candidate, right job, right time (capitalization process). Once they start producing the expected results (they are converted into capital), and when the production is successful, you get the returns (return on investment).

Calculating Return on Investment

In fact, companies do calculate the return on investment of human resources. There is a formula for that (net Benefit divided by cost equals the return on investment, where net benefit is what you get when you deduct total benefit from total cost). Since this falls under the realm of potentiality and quality, it is preferred to be considered under training and development. Do not get confused; if you understand it well and good, otherwise, you will get it gradually. It's not very important.

Understanding Human Resource and Human Capital

Human Resource is simply human potential. It is potential with infinite capabilities and capacity, with the possibility of beneficial engagement. However, it must be noted that potential does not have to be productive, and an opportunity must be provided to translate potential into real value.

Human Capital

Human Capital is a well-employed human resource that is actively engaged in meaningful, worthwhile work and delivering some level of desired productivity. Human Capital involves factoring knowledge and application into physicality.

Human Investment

Human Investment is determined by the degree to which human capital is productive and producing dividends. It involves physicality, knowledge, and application channeled towards great returns on investment.

Definitions of Resources and Capital

"Resources" have been defined as "The total means available for economic and political development, such as mineral wealth, labor force, and armaments. An available supply that can be drawn on when needed."

"Capital" is defined as "Any form of wealth employed or capable of being employed in the production of more wealth."

Simply put, resources are finite. We can strip coal, gold, and iron mines until the supply is exhausted. Capital can be infinite, as it can be used to produce more and more capital.

Components of Human Capital

Human capital is partially comprised of skills, understanding, knowledge, and experience—some of which may be innate. From a broader perspective, human capital includes the character, ethics, personality, and creativity of a human being. Even if we are born with these attributes, it is often required that we spend time, effort, and money to retain or grow them, thereby increasing human capital.

Ways to Increase Human Capital

We may accumulate, maintain, and increase human capital in many ways: through education, job training, work experience, life experience, investment in health, etc. Time, money, and effort are spent acquiring human capital.

The Importance of Investing in Human Capital

Capital is capital—you spend something now in hopes of getting a return on your investment later. Many companies have come to recognize that their investment in human capital may be the most important investment they will ever make. When it comes to human capital, you are investing in people, and the "return" you receive most likely is much more than financial gain. You may also gain knowledge, a larger group of contacts, more productivity, increased happiness, and security.

Regards,
M.J. Subramanyam, Bangalore

Understanding Human Resource and Human Capital

Human resource refers to all the functions such as recruitment and selection, staffing, training and development, performance management and appraisal, career development, etc.

Human capital refers to the education, experience, knowledge, skills, certifications, and achievements that an employee holds for performing different jobs.