What is human capital management? Differences from conventional management and background of attention

In recent years, opportunities to hear the term “human capital management” have increased. It is a management method that is already becoming common overseas, but what is the difference compared to the conventional method? In this article, we will explain the basics of human capital management, the differences from conventional management methods, and the benefits of initiatives.

What is human capital management?

Human capital management is a management method that regards the experience, skills, know-how, etc. of human resources as capital that should be invested, leading to the improvement of corporate value and the growth of the organization . Traditionally, human resources have been considered as a type of resource in a company. For this reason, the time and money spent on developing human resources has been considered a “cost” rather than an “investment.”

Today, this way of thinking is changing. The environment surrounding companies is changing year by year, and in order to increase the value of an organization while responding to the rapidly changing external environment, it has come to be considered that a management method that promotes growth by investing in human resources is effective.

Capital invested by companies includes tangible capital such as financial capital and manufacturing capital, intellectual capital such as patents and copyrights, and intangible capital such as social and relationship capital. Human capital such as employee experience, ability, and motivation is classified as intangible capital.

Difference from conventional management

In conventional management, human resources were the mainstream view, but in human capital management, human resources are viewed as capital. The major difference is that it is viewed as capital to be invested rather than a resource that will be consumed, and the time and costs spent on developing human resources are viewed as strategic investments to achieve sustainable development and growth of the company. is.

Also, in the past, it was common to employ a management method that encloses human resources. Systems such as lifetime employment and seniority-based systems have resulted in the retention of human resources, but human capital management has created an equal relationship between both parties, changing to a relationship of choice and selection .

Initiatives for Human Capital Management in Japan and Overseas

In recent years, human capital management has been attracting attention in Japan as well, but it has been spreading in Europe and the United States at an earlier stage than in Japan. In Europe and the United States, disclosure of human capital information will become mandatory in 2020, and Japan will be required to include information in securities reports from 2023.

For Europe and America

In Europe and the United States, the movement to mandate disclosure of human capital information has accelerated since around 2018. In 2018, the International Organization for Standardization will formulate ISO30414, a guideline for human capital information disclosure, and some companies will begin to open information.

In August 2020, the SEC (U.S. Securities and Exchange Commission) approved the disclosure of information on human capital for listed companies in the United States. In April 2021, the SEC drafted amendments to the Nonfinancial Disclosure Directive, making more companies subject to disclosure.

in Japan’s case

Attention to human capital management is increasing in Japan as well. It was in 2020 that the importance of human capital information disclosure began to spread in Japan. Many companies have become aware of the importance of disclosing human capital information through the “Human Resources Edition Ito Report” published by the Ministry of Economy, Trade and Industry in September 2020.

In June 2021, the Tokyo Stock Exchange added disclosure and presentation on human capital to corporate governance, and in November of the same year, the Cabinet Secretariat mentioned strengthening human capital investment. Furthermore, discussions are underway at the Financial Services Agency, and it is possible that the inclusion of human capital information in securities reports will become mandatory from fiscal 2023.

The background to the focus on human capital management

The diversification of human resources and work styles is one of the reasons why human capital management is attracting attention . Another reason for the attention is that the importance of intangible assets has increased due to technological advances , and that interest in sustainability has increased .

Diversification of human resources and work styles

Due to the decline in the working population due to the declining birthrate and aging population, it has become difficult for companies to recruit human resources as they used to. As a result, companies are in a situation where they have to hire a variety of human resources, such as foreign workers, retired seniors, and people who can only work from home.

It is difficult to acquire diverse human resources and have them work in the same way as before. For example, it may be difficult for seniors to work full-time, so there will be a need to introduce shorter working hours. Also, if you are hiring someone who can only work from home, it is essential to develop a remote work environment.

As human resources and work styles diversify, companies need to create environments and systems in which individual human resources can demonstrate their abilities in order to achieve sustainable development and growth . We must also create an environment in which we can work according to the situation. In order to achieve this, the concept of human capital management is necessary.

Growing Importance of Intangible Assets

Due to the advancement of technology, it is becoming difficult for companies to differentiate themselves from other companies with conventional technological capabilities alone. Under these circumstances, it is important to have human resources who can create innovative ideas in order to stand out from the competition .

Technology has advanced, but there are still things that only humans can do. What is needed in this day and age is people who can come up with revolutionary ideas that can overturn power relationships in the market, innovative services and products that have never existed before.

Money can buy technology, but money cannot buy people who can create innovative ideas. It is believed that securing and training such human resources will lead to the superiority of a company .

Growing interest in sustainability

Sustainability is a word that means “sustainability” . Interest in sustainability has increased in recent years, and many companies have started working on SDGs and ESG.

Among the SDGs, the goal of “decent work and economic growth” is set. Our approach to human capital management is consistent with the goals set by the SDGs. In addition, since sustainability is also a factor that stakeholders place importance on when evaluating companies, companies must work on sustainability-conscious management in order to give a favorable impression to stakeholders .

Advantages of human capital management

One of the advantages of working on human capital management is the improvement of the probability of receiving investment. There are also benefits such as improving productivity and employee engagement, which leads to an improvement in the image of the company.

Increased probability of being invested by an investor

In recent years, ESG investment has become an investment trend. An increasing number of investors want to invest in companies that develop businesses that are considerate of the global environment and society, and that have appropriate governance. If you engage in human capital management, you will be highly evaluated by these ESG investors, and as a result, you will have the advantage of increasing the possibility of receiving investment.

Many ESG investors focus on a company’s human capital. Therefore, if you disclose your human capital information and receive a high evaluation, your chances of receiving investment will increase.

If we can receive investment from investors, it is not a dream to develop a bigger business. You can give shape to new business ideas, and you can expect a significant increase in sales and profits.

Improves corporate image

In human capital management, we invest generously in the development and value of our employees. Therefore, if you appeal to the outside that you are actively working on human capital management, many people will know that you are a company that cares about its employees.

Recognizing that you are an organization that truly cares about your employees will help improve your corporate image . If the corporate image improves, more people will purchase the company’s products and services, and positive reviews can be expected to spread through word of mouth.

It is also attractive that it is expected to strengthen its hiring capabilities . If the company spares no effort to invest in the growth of its employees, many people will want to work there. As a result, it will lead to the elimination of labor shortages and the acquisition of excellent human resources.

Improve productivity and engagement

Investing in human resources encourages employee growth. The advantage is that it leads to the acquisition of new knowledge and the improvement of skills, and increases work productivity .

Employee engagement also increases when companies invest in them . You can feel that the company expects you to be valued, and you will have a positive feeling to work harder. The result is lower turnover and a greater sense of belonging .

Approach to human capital management

If you want to work on human capital management, it is important to first know what human capital management is. Basically, we will proceed with initiatives based on the “three perspectives” and “five elements” described in the Human Resources Ito Report.

What is the Ito Report 2.0 for human resources?

In the first place, the Ito Report for Human Resources refers to the “Research Group Report on Sustainable Corporate Value Improvement and Human Capital” published by the Ministry of Economy, Trade and Industry in September 2020.

At first, the Ito Report for Human Resources stated that “three perspectives” and “five elements” were indispensable for future human resource strategies. However, it was a little difficult to understand with just this, so after repeated discussions at the “Study Group for Realizing Human Capital Management”, a collection of practical examples was added to make it easier for companies to work. The “Human Resource Version Ito Report 2.0” published in May 2022 was updated with the addition of specific examples.

Three Perspectives

The three perspectives are “coordination of management strategy and human resource strategy,” ” quantitative understanding of the As is-Tobe gap,” and “establishment in corporate culture . ” When working on human capital management, it is important to act with emphasis on these three perspectives.

Linking Management Strategy and Human Resource Strategy

It is important not to consider management strategy and human resources strategy separately, but to link them together. No matter how excellent a management strategy or business model may be, if there are no human resources who can realize it, it will be nothing more than a piece of cake.

Therefore, let’s formulate a human resources strategy that can realize management strategies and business models . Specifically, the organization of management issues, the setting of KPIs, and the establishment of a CHRO, etc., can be mentioned under the leadership of the management team.

By organizing management issues, you can clarify the issues that have become apparent, and you can formulate a human resource strategy with an awareness of the issues . In addition, by setting up a CHRO, who is the Chief Human Resources Officer, it is possible to formulate human resource strategies from a management perspective.

Quantitative understanding of the As is-To be gap

“As is” refers to the current situation, and “To be” refers to the company’s ideal state, ideal form, and goals. Once you set a goal, you must first understand how much gap there is with the current situation.

What you should do is to understand the current skills of your employees . After grasping the skills, let’s quantitatively grasp how much gap there is from the ideal shape as much as possible .

By grasping the gap between the current situation and the ideal form, you can decide the future training policy. Creating a skill map is an effective way to accurately grasp skills.

Establishment in corporate culture

Let’s promote the establishment of good strategies in the corporate culture by working on human capital management. On the other hand, in cases where the expected effects did not appear or the results were not good, it is necessary to review the strategy.

The important thing is to proceed with initiatives while rotating the PDCA cycle. If you implement a strategy to fill the gap and let it go, you will not be able to determine whether it is working or whether you are getting closer to achieving your goals.

It is important to periodically verify the effectiveness and make improvements while rotating the PDCA cycle . If you don’t get the results you expected, find out why, come up with a new plan, re-execute and analyze.

5 Common Factors

The five elements consist of “dynamic human resource portfolio,” “diversity and inclusion of knowledge and experience,” “re-skilling and re-learning,” “employee engagement,” and “work styles that are not bound by time or place.”

A dynamic talent portfolio

In order to maximize the abilities of individual human resources, it is important to understand and analyze the skills and experience of human resources and place them in positions where they can demonstrate their performance . No matter how excellent human resources you have, if they are not assigned to the appropriate positions, they will not be able to demonstrate their original performance and will become a waste of treasure.

It is also important to clarify the definition of what kind of human resources are capable of achieving sustainable improvements in corporate value . When hiring human resources, we will hire based on this definition.

We must not only focus on the skills and experience of our people today, but we must also think about the future. If there is a position you want to place a specific person in the future, you need to make a training plan based on that.

Diversity and inclusion of knowledge and experience

Diversity and inclusion means that employees with various backgrounds and skills recognize each other’s diversity and utilize it in corporate activities . As the times change, the needs of markets and customers are diversifying. Responding to this situation requires employees with diverse values ​​and perspectives.

Recruiting a diverse workforce brings many benefits to a company. For example, creating new innovations. If people with various viewpoints, values, experiences, and sensitivities gather and interact, the possibility of generating innovative ideas increases.

In order to accept employees with diverse values ​​and sensibilities and make use of them in business, it is necessary to create a suitable environment.

Re-skill/re-learn

Reskilling refers to learning new skills. By encouraging employees to acquire and relearn new skills, you can acquire the skills that enable you to realize your management strategy .

In order to respond flexibly to changes in the business environment, such as DX and GX, it is necessary to improve the skills of each employee. However, it is not very good to entrust the acquisition of new skills and re-learning to employees.

If employees are left to their own autonomy, it is thought that some will not properly reskill or relearn. It is important to explain to employees the importance of reskilling and re-learning, and to create an environment where employees can easily learn .

employee engagement

Companies are required to create an environment in which employees feel motivated and motivated to work and feel motivated to contribute to the organization . A workplace where employees feel unmotivated and unwilling to contribute leads to low employee engagement.

A decline in employee engagement increases the risk of job turnover, so caution is required. A workplace that does not feel rewarding will inevitably lead to turnover because motivation will not increase and you will not want to contribute to the organization.

If you can increase employee engagement, you will be able to make them think “I want to work more at this company” and “I want to contribute to the organization”, which can be expected to improve productivity and reduce the turnover rate. To that end, it is effective to create a work environment and systems that are comfortable for employees to work in, and to build an environment in which they can improve themselves .

Work style that is not bound by time and place

People’s work styles are diversifying due to the promotion of work style reforms. In recent years, the number of companies that allow working styles such as telework, mobile work, reduced working hours, and satellite office work is increasing.

A company that can choose from a variety of work styles can acquire excellent human resources . There are people out there who have great skills but can’t work outside of their homes. It is a great advantage to have more opportunities to acquire such personnel.

Let’s improve the environment so that employees can choose how to work according to their lifestyle. As a specific measure, it is effective to promote paperless and digitalization .

summary

Human capital management is a management method that regards human resources as capital, which should be invested in, and differs in many ways from conventional management methods that regard human resources as resources. Attention to human capital management is increasing in Japan, and it is thought that it will become the standard in the future.

If a company engages in human capital management, the probability of receiving investment from investors will increase, and there are benefits such as improving the image of the company and improving productivity, so there is no reason not to engage in it. Aiming for sustainable development and growth, why not start working on human capital management at an early stage?