In considering sustainable corporate growth and value creation, the concept of "human capital management" has been attracting much attention in recent years. Human capital management is a management approach that treats employees not as mere costs but as "capital," and aims to maximize their abilities and value to improve medium- to long-term corporate value. This is the concept of viewing expenditures on talent as investments for the future and positioning employee growth and success as the company's growth engine, reconsidering personnel costs not as "costs to be managed" but as "investments toward future value creation."
Why Is Human Capital Management Important Now?
The biggest reason human capital management is being valued is that the source of corporate value is shifting from tangible assets to intangible assets. As of 2020, approximately 90% of the corporate value of S&P 500 companies was derived from intangible assets, a dramatic increase from about 17% in the 1970s.
Against this background, with the advancement of digitalization and DX, the transition to a decarbonized society, and the diversification of values, the quality of talent and its strategic utilization has become the determining factor for corporate competitiveness. The importance of "human capital" as the core of non-financial information is increasing, and talent capacity is coming to the forefront as an issue in management as well.
What Are the Institutional Movements Surrounding Human Capital Management?
In Japan, the shift to human capital management is being promoted by the government.
The Ministry of Economy, Trade and Industry's "Human Capital Version of the Ito Review" (published in 2020) proposed transformation to a talent strategy linked to business strategy for sustainable corporate value enhancement. Also, in the Corporate Governance Code revised in 2021, descriptions related to human capital were included, and voices demanding "management that values and utilizes people" from stakeholders including investors are growing.
What Effects Does Human Capital Management Bring to Companies?
The effects of human capital management appear both in the company's internal performance and in external evaluation.
Internal Effects
- Creation of innovation and improvement in productivity through employee capacity development
- Enhancement of customer satisfaction and brand strength through employees sympathizing with the corporate philosophy and working with high motivation
- Improvement of organizational cohesion through synergy with philosophy-based management
External Effects
- Appropriate corporate value evaluation from investors
- Strengthening of competitiveness through attracting and retaining excellent talent
Conversely, management that undervalues talent risks losing excellent talent and declining competitiveness, failing to be properly evaluated by investors, and damaging medium- to long-term corporate value.
What Is Needed to Practice Human Capital Management?
Human capital management is not merely an HR measure, but the sustainable growth strategy of the company itself. The following elements are important for practice:
- Linking business strategy and talent strategy: Developing talent development and placement plans aligned with business goals
- Visualizing investment in talent: Quantitatively grasping the investment effects of training, education, welfare, etc.
- Leadership of management: The management tier themselves communicating the belief that talent is the foundation of corporate value
- Improving employee engagement: Building systems that align employees' motivation for growth with the company's direction
By practicing human capital management, even in a rapidly changing business environment, a flexible and strong organization can be built, establishing long-term competitive advantage. A management attitude that values and utilizes talent is the key to improving corporate value going forward.
Conclusion
The concept of treating employees as a company's "asset" is becoming a practical necessity for future corporate management. Transforming the perspective on talent and strategically developing and utilizing people is the driving force that opens up the company's future. What is required of managers is the leadership to properly understand the importance of human capital management, incorporate it into the company's management strategy, and practice it.
FAQ
Q. What is human capital management?
Human capital management is a management approach that treats employees not as mere costs but as "capital," maximizing their abilities and value to improve medium- to long-term corporate value. Personnel costs are positioned as "investments for the future."
Q. Why is human capital management attracting attention now?
Because the share of intangible assets in corporate value has reached about 90%, and the era in which the quality of talent determines corporate competitiveness has arrived. The government's "Human Capital Version of the Ito Review" and the revision of the Corporate Governance Code are also driving this.
Q. What should you start with to begin human capital management?
It is important to first link business strategy and talent strategy. Visualize current talent investment and formulate development and placement plans aligned with business goals. It is also essential for managers themselves to send messages emphasizing the importance of talent.
Q. What is the difference between human capital management and traditional HR management?
Traditional HR management had the concept of minimizing personnel costs as "costs," but human capital management transforms this to maximizing expenditures on talent as "investments." It emphasizes medium- to long-term value creation.
