distinguish between human capital and physical capital
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Simply put, the human capital of any given venture is the economic value that its employees add to it (1).Physical capital, on the other hand, refers to all tangible, non-human, and man-made resources utilized in the production processes of goods and services.
Human capital refers to the capabilities, experience, and skill-sets that employees bring to a business organization. These capabilities, skill-sets, and experience contribute to the productivity of the employee. Simply put, the human capital of any given venture is the economic value that its employees add to it (1).
Physical capital, on the other hand, refers to all tangible, non-human, and man-made resources utilized in the production processes of goods and services. Examples of physical capital include business buildings and plants, vehicles and machines. Past educational background, ongoing professional related training, certifications, and employees’ networks make up human capital.
In people-driven business contexts, particularly the service industry, such as food and hospitality firms, the significance of human capital as a factor of production cannot be overemphasized. Hiring the right chef, for example, is crucial to the success of a restaurant. However, for manufacturing firms, there might need to invest more in physical capital such as advanced equipment and machinery for production of high quality and quantities of goods.
Therefore, it is important to consider your business context and operating environment, for informed decision making when it comes to the combination of physical and human capital. This will, in turn, enhance productivity, effectiveness, market relevance, and efficiency in business operations, and lead to profitability.
Distinction between Human and Physical Capital
The differences between human and physical capital can be looked at from various angles. In this article, the following factors are used to distinguish between the two forms of capital:-
Composition
As defined previously, human capital refers to the combined value of an entity’s human component, in particular, the work force; whereas physical capital is comprised of all non-human resources utilized in the production of other goods and services. The former comprises all the employees’ academic and professional credentials, experience, abilities, skills, and circle of networks relevant to the business (2). The latter on its part includes all material assets belonging to a business entity such as buildings, vehicles, and equipment.
Management
Whereas management of physical capital is mostly non-personal and generic, that of human capital is personal and customized in nature. For example, equipment and tools undergo routine checks and repairs to ensure they are in the right form and shape for their intended use. Employees on their part require well thought out and tailor made management initiatives such as team building activities and trainings to ensure morale and productivity at the work place. When managing your staff creativity and spontaneity is essential, on the other hand managing working tools is relatively standard and follows a set out protocol.
Utility and Depreciation
Generally, the use of human and physical capital is complementary. Ideally, the combination of technically superior machines and qualified staff results in the production of high-quality goods and services leading to profit making by the business. However, the utility value of employees is noted to improve as time progresses, while most physical assets depreciate with time, due to wear and tear even with regular maintenance. This is because human capital has the potential to evolve and self-augment, while physical capital lacks a similar capability (2).An organization’s human capital improves when more opportunities for training are availed to staff.
Human capital refers to the capabilities, experience, and skill-sets that employees bring to a business organization. These capabilities, skill-sets, and experience contribute to the productivity of the employee. Simply put, the human capital of any given venture is the economic value that its employees add to it (1).
Physical capital, on the other hand, refers to all tangible, non-human, and man-made resources utilized in the production processes of goods and services. Examples of physical capital include business buildings and plants, vehicles and machines. Past educational background, ongoing professional related training, certifications, and employees’ networks make up human capital.
In people-driven business contexts, particularly the service industry, such as food and hospitality firms, the significance of human capital as a factor of production cannot be overemphasized. Hiring the right chef, for example, is crucial to the success of a restaurant. However, for manufacturing firms, there might need to invest more in physical capital such as advanced equipment and machinery for production of high quality and quantities of goods.
Therefore, it is important to consider your business context and operating environment, for informed decision making when it comes to the combination of physical and human capital. This will, in turn, enhance productivity, effectiveness, market relevance, and efficiency in business operations, and lead to profitability.
Distinction between Human and Physical Capital
The differences between human and physical capital can be looked at from various angles. In this article, the following factors are used to distinguish between the two forms of capital:-
Composition
As defined previously, human capital refers to the combined value of an entity’s human component, in particular, the work force; whereas physical capital is comprised of all non-human resources utilized in the production of other goods and services. The former comprises all the employees’ academic and professional credentials, experience, abilities, skills, and circle of networks relevant to the business (2). The latter on its part includes all material assets belonging to a business entity such as buildings, vehicles, and equipment.
Management
Whereas management of physical capital is mostly non-personal and generic, that of human capital is personal and customized in nature. For example, equipment and tools undergo routine checks and repairs to ensure they are in the right form and shape for their intended use. Employees on their part require well thought out and tailor made management initiatives such as team building activities and trainings to ensure morale and productivity at the work place. When managing your staff creativity and spontaneity is essential, on the other hand managing working tools is relatively standard and follows a set out protocol.
Utility and Depreciation
Generally, the use of human and physical capital is complementary. Ideally, the combination of technically superior machines and qualified staff results in the production of high-quality goods and services leading to profit making by the business. However, the utility value of employees is noted to improve as time progresses, while most physical assets depreciate with time, due to wear and tear even with regular maintenance. This is because human capital has the potential to evolve and self-augment, while physical capital lacks a similar capability (2).An organization’s human capital improves when more opportunities for training are availed to staff.
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