HRM T&C: Human Capital Theory (HR Efficiency)

What is the key idea of Human Capital Theory?

Individuals possess “capital” (knowledge, skills, attitudes, competencies) that increases productivity.

Does human capital only apply to individuals?

No, it also applies to groups and organizations.

List components of human capital.

Attitudes, knowledge, know-how, competencies, abilities.

Why is human capital considered “capital”?

Because it contributes to productive capacity and can generate future returns.

How does Human Capital Theory view HR expenses?

As investments rather than costs.

Why does an organization invest in human capital?

To improve future performance and better match workforce capabilities with organizational needs.

What is the expected benefit of human capital investments?

Increased performance and return on investment.

What does “fit between workforce potential and organizational needs” refer to?

Ensuring employees’ skills align with what the organization requires.

What are examples of skills development?

Training employees, developing competencies.

What are the costs of skills development?

Training costs.

Why recruit new trained profiles?

To acquire skills the organization lacks and reduce dependency on internal development.

What are the risks and costs of recruiting trained profiles?

Acquisition costs + uncertainty about performance fit.

What is the purpose of mechanization or automation?

To replace or complement human labor with technology.

What are the risks of mechanization/automation?

High change-management costs and uncertainty.

What is the first limitation of Human Capital Theory?

It assumes a mechanical cause-and-effect link between development and performance, but “human factor” is complex.

What is the second limitation of Human Capital Theory?

It is a utilitarian view of humans as economic resources.

How can the utilitarian view still be positive?

By encouraging investment in people and acknowledging their importance.