The importance of human capital to a firm

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Human capitals points out to the stock of competences, knowledge and personality attributes personified in the capability to perform labor so as to fabricate economic value. It is the attributes gained by a worker through education and experience. The set of skills which an employee obtains on the job, in the course of training and experience, and which increase that employee's value in the marketplace. In older times the human capital is easily replaceable but now the concept has changed the visualized as the assets for the company, the trained ones.

Human capital is for the company to be able to raise individual worker productivity. For workers, deals in human capital involve both direct costs, and costs in foregone earnings. Workers making the investment decisions compare the attractiveness of alternative future income and consumption streams, some of which offer enhanced future income, in exchange for higher present training costs and deferred consumption.

Future income and the central idea of human capital, not all investments in education guarantee a progress in productivity as judged by employers or the market. In particular, there is the problem of measuring both worker productivity and the future income attached to career openings. Empirical studies have suggested that, though some of the observed variation in earnings is likely to be due to skills learned, the proportion of unexplained variance is still high, and must be an attribute of the imperfect structure and functioning of the labor-market, rather than of the productivities of the individuals constituting the labor supply.

The perception of human capital can be infinitely elastic and some variables that have been recognized include, gender and nativity wage differentials, discrimination in the work place, and socioeconomic status can make the difference in the development. Educated individuals often migrate from poor countries to rich countries seeking opportunity. This movement has positive effects for both countries: capital rich countries gain an influx in labor, and labor rich countries receive capital when migrants remit money home. The loss of labor in the old country also increases the wage rate for those who do not emigrate. When workers migrate, their early care and education generally benefit the country where they move to work. And, when they have health problems or retire, their care and retirement pension will typically be paid in the new country.

The examples are there how the companies worked hard on the human capital and changed the destination for themselves and the company.


Marriott is the renowned name in the hotel industry; they have the chain of hotels almost all over the world. They worked out on their goal and the management identified the measurement of three intangibles employee engagement, communication and company culture in it. Brendan Keegan, executive vice president of human resources, defines engagement as the extent to which an employee knows and understands the company's mission, has an emotional attachment to that vision and is energized to carry it out. Marriott has determined that more than 80 percent of its associates are engaged or highly engaged in their jobs. This figure is much higher than that for other lodging companies, according to Marriott's benchmarking research. Moreover, the company is able to establish a direct link between engagement and house profit, guest satisfaction and the frequency of guest returns. Chief Financial Officer Arne Sorenson has the view about the human capital as it's a never-ending process to make sure we're getting a straight read from our customers about what they thought about service. Senior executives are now able to draw on that data to push for change, rather than having to rely on their intuition. Performance service line and a leading authority on leadership and transformational change lead the company with the maximizing profits and the constant training of the employees.

This new strategic vision also drew heavily on an existing service oriented corporate culture that had been essential to the company's success in the past and that still guides Marriott. The culture is grounded in two very important beliefs. First, everyone managers and employees alike contribute to the quality of a guest's experience; this is reinforced by the oft-repeated maxim: "If management takes care of associates, associates will take care of guests."

The belief of Bill Marriott's legendary, in his view, rigorous adherence to standard operating procedures will lead to flawless execution. The culture also links process execution to strategic goals: Employees have been able to use the standard operating procedures to benchmark, and then progress guest satisfaction ratings. CFO Sorenson: Active management of three key intangible assets employee engagement, communication and company culture combined with careful measurement sets Marriott apart from the competitors.

The financial results suggest that the employees claims have reduced and the management invested on the employees with the different in house trainings and constant development of the view that Marriott employees have for the guest. Finding and keeping employees has never been easy according to Marriott team leader. But now, full employment has converged with a service and information economy making recruitment and retention the most pressing challenge facing business today.

Marriot employees know the value of the customer and the customers know that value transcends price, now we must offer our employees value beyond just compensation. Labor markets expand and contract. It is now the central ingredient of economic output. Workers' minds and attitudes are as important to satisfied customers .And thus recruitment and retention are now indispensable skills across every industry, from hospitality to high-tech. Hospitality industry doesn't manufacture anything our people and the service they give defines the competitiveness of our product. That guest's room may be our product, but our associate's caring attitude is our value. We can't measure it with statistics, and we can't manufacture it. We can deliver that value only if we can attract, retain and inspire the best people--with what we call "The Spirit to Serve". To invest in the human capital is the constant business, as the view of hospitality from the management gets to the customer the revenues are there to increase the financial statements are there.

Can observe the how much the company spent of the employees and customer by keeping the profit at the lowest level as customers and the employees the assets to them

South-West Airline

South west airlines are from the service sector industry where the customers are like God and they are treated at the fullest of the company potential. The employees representing the company ideology of the customer care embedded in them after a continuous training and development.

Southwest Airlines in the Fortune magazine named as the best company to work for in America in 1998. The company has been very successful with the purpose, process, and people leadership philosophy. The beliefs are easier to implement in a service industry than the traditional manufacturing industry, which makes the philosophy very attractive to the healthcare industry. Southwest Airlines has been in business for 35 years and has remained one of the few profitable airlines during that time. Certainly part of that success is attributable to the strategic thinking of cofounder and board chairman Herb Kelleher, whom Texas Monthly named CEO of the 20th century. The original and continuing purpose of Southwest Airlines is to offer a no-frills airline with low fares and point-to-point service while maintaining great passenger satisfaction.

Trends businesses affluence in the global market, which has resulted in financial capital no longer being viewed as the scarce resource it once was. With the changing demographics of the work force, the scarce resources today are knowledge, entrepreneurship, and more generally human capital. This shift from an emphasis on financial capital to human capital has significant implications for leadership philosophies. Strategy, structure, and systems thinking will be replaced with purpose, process, and people thinking--getting people to help define and then align with purpose, developing the processes to accomplish the purpose, and then attracting and maintaining the people to push the processes.

The processes Southwest found necessary in order to offer low fares based on low costs are legendary and include using inner-city airports that had been abandoned by larger, established airlines; using an all Boeing 737 fleet, which standardizes training, supply, and maintenance costs; and developing an electronic, ticket less reservation system that eliminated travel agents' handwriting and charging for paper tickets. But much of the success of Southwest Airlines relates to how Southwest treats its employees in know as "culture of commitment." to them.

In the beginning, Southwest Airlines set these priorities: employees' first, customers second and shareholders third. Southwest President Colleen Barrett of the view, "If our employees don't feel good about their work environment and don't feel they have the tools to do their jobs, what kind of exchange are they going to have with our passengers" (Southwest Airlines, June 2006,) Southwest has ranked at the top of the Department of Transportation customer satisfaction ratings for 13 consecutive years. And Southwest emphasizes that the low-cost fares are not the result of low wages. Southwest CEO Gary Kelly is vigorous: "Southwest has remained profitable during all this time because we had low costs to support what customers wanted in low fares. But we also have the best pay rates for our employees. We don't get our low cost by paying poor wages to our employees.

The financial results shows the operating cost have the large portion on the employment salaries and other benefits. There are low employees claim losses and after charging the low fare the company still in profits.

You can see the how much the company spent of the employees and customer by keeping the profit at the lowest level.


The Service sector is very prone to the policy to look after the employees as much for the customers to which they are serving. The human capital development is the constant and the continuing process as the recruiting the employee right for the job so the company can give the philosophy of its own company for looking after the customers. It's the future benefit investment and in today's world companies are well aware of its benefits.