Human Capital Management, What Does it Really Mean?

The use of the term human capital management (HCM) is quiet frequent today among scholars and practitioners. In many schools of business the human resource management (HRM) course has been replaced with human capital management and many companies have adopted the title chief human capital officer (CHCO) as a replacement or in supplement of the vice president of HRM. In sum, HCM seems to be replacing HRM or, at the best, is used with it interchangeably. What have triggered this change are the proponents of the knowledge-based view, inspired by the characteristics of our global, information and knowledge based-economy that consider people with their knowledge, experience, education, personality and behavior as a source of competitive advantage. However, despite the increasing use of the term HCM, there is some conceptual confusion as to what constitutes human capital (HC), and a greater confusion as to how to manage it. When I was first asked by one of my students what was the difference between HCM and HRM, I had a hard time giving him a convincing answer. It is well known that the roots of human capital lie in economics rather than management theory. The concept of human capital was initially formulated by Nobel prizewinner and economist Theodore Schultz in the early 1960s when it was used as a way of explaining the advantages of investing in education on a national scale. During the last 50 years, other economists have taken up Schultz's definition of human capital many times and extended it in various ways, including measuring criteria, which led to the concept's greater heterogeneity. Currently, there are a variety of definitions and ideas associated with the human capital concept in a variety of disciplines, which leads to an even greater confusion as to what human capital management really means. Thus, the purpose of this paper is to review the HC literature since its inception, examine the various economic and managerial definitions of HC, and propose our own HC definition in an attempt to clarify the human capital management concept.