Senior executives have been claiming for years that people are the organization's greatest asset. Chief executive officers typically state that their employees give the company its most competitive edge. Some people, on the other hand, state that individuals are replaceable, but is that really the case? Think about the situation where your leading expert will be retiring shortly and what you will do to replace his or her experience and expertise when this expert leaves. Or ponder how best the organization can leverage and share the knowledge of its employees and customers in order to stimulate innovation, promote a greater sense of belonging and community, and improve decision-making.
Organizations are rapidly realizing that their employees' brainpower is what distinguishes them from their competitors—and it's not the one or two shining stars in the organization; it's the collective synergy of the organization's employee workforce. There have been baseball teams that have made it to the World Series without having many named players. It's the knowledge sharing process and the ability to work well with each other that has contributed to the success of many ball clubs. The same is true of organizations. The collective talent of the employees (including management) can provide a powerful mechanism for ensuring organizational success. Their collective wisdom can be transformed into organizational intelligence whereby the organization can become an agile, adaptive learning organization. The key to making this happen comes back to "the people" or the organization's "human capital."
What do we mean by "human capital"? Brainmarket Corporation defines human capital as a loose catchall term for the practical knowledge, acquired skills, and learned abilities of an individual that make him or her potentially productive and thus equip him or her to earn income in exchange for labor. Josefek (University of Southern California) and Kauffman (University of Minnesota) define human capital as the stock of knowledge, skills, and abilities embedded in an individual that results from natural endowment and subsequent investment in education, training, and experience. NASA Goddard Space Flight Center refers to human capital as the entire talent pool (including civil servants, contractors, NASA HQ, NASA Centers, international partners, and universities) that contributes to Goddard's mission.
We define "human capital" as the collective experience, knowledge, and expertise of those contributing to an organization's mission. We are primarily interested in the organization's employees and the knowledge they hold, but we also take a broader view that human capital includes other constituencies that are central to the organization's mission (e.g., contractors, customers, international partners, universities, etc.). The focus, however, is on the organization's employees (or the Federal civil servants if referring to the U.S. government) and the brainpower they possess. Once their role is further identified, then supporting roles can be provided by the other important human capital groups.
The working human capital definition above is consistent with the knowledge management community's sense of human capital. In the knowledge management world, intellectual capital is the sum of human capital, structural capital, and customer capital. Human capital refers to the "brainpower" of the employees. Structural capital refers to what one can't easily take home from the office (e.g., intellectual property rights, certain databases, etc.). Customer capital, sometimes called social or relationship capital, is the knowledge learned from the organization's customers. In fact, according to the "State of Knowledge Management in 2001 Survey," as discussed in the May 2001 issue of Knowledge Management Magazine, the number one reason by far for adopting knowledge management is to retain the expertise of personnel (51.9 percent)—a human capital reason. Additionally, the same survey indicated that the top business use of knowledge management initiatives (77.7 percent) is to capture and share best practices. Again, the knowledge capture and sharing activities among the individuals in the organization indicate a human capital theme.
Why are organizations, especially the U.S. Government, concerned about their human capital situation? Why is the strategic management of human capital important enough to list as the top government-wide initiative as outlined in President Bush's "President's Management Agenda"? And why are most U.S. government agencies getting a "red" score in their strategic management of human capital efforts?
Let's take a look at some numbers. In the U.S. Government, about 53 percent of the federal civil servants are eligible to retire in the next five years. About 71 percent of these individuals are the senior executives in the U.S. Government. As an example, at NASA Goddard, about 28 percent of the 3,200 federal civil servants are eligible to retire in the next five years, with the current average age being 46. About 45 percent of the scientists at NASA Goddard (53 being the average current age) are eligible to retire in the next five years. Additionally, at NASA Goddard a preliminary survey indicated that about 112 areas were identified as potential "at risk" knowledge gaps whereby the expert would be retiring in one to three years with no backup expert to fill in. Out of these 112 areas, 64 were cited as being strategic to Goddard's mission. NASA Goddard, NASA as an agency, and most of the other U.S. Government agencies are experiencing similar (and more severe) human capital pangs.
Besides NASA, other government agencies are witnessing human capital shortage problems. According to the Health Physics Society, a critical shortage exists in the supply of qualified radiation safety professionals throughout a broad spectrum of activities within the United States, including medical practice and research, regulatory oversight, academic research, environmental protection, occupational safety, and the research and application of nuclear technologies. The July 2002 Corporate Training Monthly publication indicates that Canada, and Alberta in particular, is facing a human capital crisis—a shortage of highly skilled workers who are necessary to ensuring the country's growth and prosperity through the next decade and beyond.
The ensuing human capital crisis is not only in the U.S. Government; businesses and not-for-profit organizations are experiencing similar woes. For example, in September 2002, leading U.S. business executives met for the First Talent 10 Symposium to discuss the impact of the forecasted labor shortage. The U.S. Bureau of Labor Statistics indicated that the national shortage of workers in all occupations will reach the 35,000 mark by 2010. The impact of the labor shortage will be felt shortly in the transportation and agriculture industries.
According to Bill Sebra, CEO of Knowledge Workers, Inc., many factors have contributed to the growing importance of human capital management. With the shortage of qualified technology workers increasing as the "baby boom" generation retires and technology worker turnover rates average 20 percent or higher, companies must plan today for the people that will lead their businesses tomorrow. Giga Group reports that the total cost of replacing a technology worker can be as high as 2.5 times the salary of the departing employee. A Merrill Lynch study on human capital management noted that the average person entering the work force today will work for between eight and ten different employers versus four to six just two decades ago.
In order to help retain and attract employees, knowledge management should be a key pillar forming the foundation of an organization's human capital strategy. Some of the early corporate adopters of knowledge management include Chevron, Cap Gemini Ernst & Young, and Schlumberger, and they have realized the importance of knowledge management for improving collaboration, knowledge retention and sharing, and a sense of belonging for employee recruiting and retention. The American Productivity and Quality Center shows that these organizations used online communities of practice to share knowledge among their employees and customers. As a result, Chevron produced a $2 billion reduction in annual operating costs. Cap Gemini Ernst & Young produced a ten-fold growth in revenue with a five-fold increase in employees. Schlumberger, by using technical communities of practice by putting knowledge in the hands of employees and customers, generated a $75 million first-year savings and a projected $I00 million customer savings.