Sunday, January 3, 2010

Human Capital vs. Relational Capital

Starting a new year many leaders are thinking about how to help their organizations grow. And as I look at the contributions of the human resource management field, one area that continues to attract attention is the work on HR metrics and human capital. I get the interest in measurement, but I am starting to think that there's something terribly wrong with a core assumption of much of this work.

Human capital assumes that people are a source of 'capital' that can be controlled and manipulated. We then start to use models from accounting and finance (as well as other fields that focus on products) to think about managing people. What if that leads us down a dark alley? In other words, what if the whole notion of controlling people is fundamentally flawed?

There is quite a bit of research on relational capital, and I've been doing some work comparing human capital vs. relational capital. In addition to getting numbers and statistics on this topic, I've been talking to leaders. When you ask leaders what makes a difference to their organizations, they point to things that represent relational capital. Those would be the relationships managers have with employees, relationships with customers who are helpful in recommending the company, and relationships with vendors who customize work for them. The list goes on and on.

This is because relationships are not managed or controlled. They are constantly renegotiated. Think about family relationships. You don't control your children or spouse. You enter into ongoing constant negotiations and communications with them, where you always show your affection, your love, and you continue to grow the relationship. Anyone who has tried to control a loved one would tell stories of the many ways in which that effort is dysfunctional and does not work.

So I worry that thinking about employees as capital is not good for business. I'm concerned we are setting ourselves up for suboptimal performance.

I go back to the entrepreneurial firms I have worked with for a very long time. They thrive and are successful until they start putting in so much bureaucracy they drain the life out of their organizations.

There are lessons to be learned here, and the importance of relational capital is only beginning to surface. Here are three tips for anyone interested in doing more to build relational rather than human capital in 2010:

1. Measure relational capital. You can make it simple. Ask employees to tell you with whom they have relationships (who they interact with), and are they positive or negative. Use pictures, and draw plus and minus signs. Use focus groups and have a discussion. Use surveys and obtain data that can be tracked over time. Use social networking tools to learn even more.

2. Where you see negative relationships, make changes. This is particularly important with clients.

3. Where you see only one employee with an important relationship, make some changes. Team people up so that you cover all critical relationships with at least two people (e.g. key clients, vendors, employees, etc.).

That's a start. In my next blog I'm going to focus on tips for changing talent management if relational capital really mattered.

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