problem solving of human capital

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• How to Solve These 8 Human Capital Management Challenges

HR Insights for Professionals The latest thought leadership for HR pros

Optimizing human capital management can make a big contribution to business success, so it's a good idea to prepare for some of the challenges you're likely to encounter in this space.

• Talent Management

Human capital management (HCM) is a vital element in the success of any business. Finding the right methods and strategies in this space can drive you to greater results thanks to an efficient, productive and engaged workforce.

But as well as focusing on the benefits and opportunities of HCM, you need to be prepared to overcome the common challenges that today's businesses face in this area.

8 common human capital management challenges

1. talent acquisition and onboarding.

Identifying and acquiring the right talent is a constant priority for many businesses, particularly those that are feeling the effects of growing skills shortages .

Devising an effective HCM strategy can help you improve your talent acquisition in various ways. Dedicated software can offer benefits like:

• Automatic filtering of applications based on certain criteria, such as skills and experience
• Identification of the recruitment and hiring process channels most likely to provide engagement with valuable candidates
• Tools to measure and analyze candidate and employee engagement

Onboarding is another essential step in successful talent acquisition, since you want new arrivals to make a positive start to their role and become loyal, productive employees.

One of the most valuable steps you can take in improving the onboarding process is to collect feedback from employees, which will give you a frontline view of procedures that work well and ones that need to improve.

2. Strategic workforce planning

It's important to incorporate a strategic element into your workforce planning. The HR department needs to track metrics such as turnover, time-to-hire and headcount, but it should also take a long-term view to help the business prepare for potential future challenges and opportunities.

You can improve your strategic workforce planning by looking at your human capital in the context of the long-term goals of the organization as a whole. Is the labor force designed and equipped to help the business reach these objectives?

It can also prove highly beneficial to visualize, anticipate and prepare for certain scenarios before they become a reality. Analyzing data and studying trends in your industry will help you make informed forecasts and get your workforce ready for the future.

3. Leveraging workforce analytics

Effective workforce analytics is a critical part of HCM that can significantly contribute to the company's understanding of its human resources. However, for many businesses - particularly smaller firms with limited budget and time to dedicate to these sorts of activities - getting to grips with complex data sets is a daunting challenge.

Introducing specialist HCM software will put you in a stronger position to realize the many benefits of analytics, which can range from quicker hiring times to a more detailed understanding of how your people are performing and where additional training is required.

To get the best out of analytics, first you need to have a clear idea of what data is available to you and whether the information is accurate and up to date. A data audit can help you make these conclusions with maximum speed and efficiency.

4. Training and development

There are various advantages to be gained from ensuring your training and development programs are fit for purpose.

Employees who are constantly learning new things and expanding their skill sets will feel more engaged and committed to their employer, which supports productivity and reduces turnover. The business, meanwhile, benefits from a more diverse talent pool and could also save money by upskilling existing staff rather than recruiting.

Like many aspects of HCM, training and skills development can pose a big challenge to the HR department, which needs to show that investment in this area is delivering returns.

One of the key success factors is a data-driven, targeted approach to training, taking into account:

• The skills that already exist in the workforce
• Staff interests and the things people want to learn
• Where the business has the greatest need for additional skills and expertise

It's also vital to have metrics and follow-up procedures in place to gauge the effectiveness of your development and training programs.

5. Change management

Mismanagement of change is a common hazard that HR teams and business leaders need to be particularly wary of, seeing as the individuals that make up the workforce are often the ones most affected by decisions and strategy changes dictated by the C-Suite.

If a new HCM platform is introduced, for example, preparing people for the impact this change will have on them and their day-to-day work should be one of the key priorities of the project management team.

There are many other types of organizational change that can have a big impact on the workforce and its productivity, particularly where new technologies and concepts like automation are concerned.

Being proactive and anticipating change, rather than simply reacting to it, is an invaluable quality that can raise your HCM standards to the next level.

6. Multi-generational workforces

Catering to a multi-generational workforce has emerged as one of the biggest challenges in human capital management. The diverse needs, expectations, and work styles of employees across different generations make it increasingly difficult for organizations to strike the right balance in terms of employee retention, engagement and turnover.

One key reason why managing a multi-generational workforce is challenging lies in the vastly different work experiences and perspectives held by employees belonging to different age groups. For instance, baby boomers may value job security and a traditional work hierarchy, while millennials and Generation Z employees often prioritize flexibility, work-life balance and opportunities for growth. Consequently, organizations must develop tailored employee engagement and retention strategies that cater to the unique needs of each generation, ensuring that all employees feel valued and supported.

Additionally, navigating the inherent communication and collaboration challenges that arise within a diverse workforce can prove to be quite complex. Each generation tends to have its own preferred communication style, ranging from face-to-face interactions, emails or instant messaging. Creating a cohesive work environment where everyone can effectively communicate and collaborate requires organizations to invest in training and development programs that promote intergenerational understanding and bridge generational gaps.

Furthermore, employee turnover rates can be significantly impacted by an organization's ability to create an inclusive workplace culture that fosters mutual respect, understanding and appreciation for each generation's unique strengths and contributions.

7. The skills gap and training issues

Addressing training issues and skills gaps is undeniably one of the key challenges in human capital management today. Today, the need for continuous development and improvement of employee skills is paramount to ensuring both superior employee performance and organizational success. By proactively identifying and addressing these gaps, organizations can unlock new opportunities for growth, development, and overall employee satisfaction.

One major aspect of this challenge is the ever-changing nature of technology and industry dynamics. Companies must keep pace with these changes and ensure that their employees are equipped with the necessary knowledge and competencies to thrive in the modern workplace. This requires a robust learning and development strategy that not only addresses current needs but also anticipates future requirements, keeping employees engaged and motivated to learn.

Another critical element is understanding the unique skill sets and leadership development needs of each individual within the organization. By adopting a personalized approach to training and development, companies can ensure that employees receive targeted support and resources that align with their career goals and aspirations. This keeps employees happy and loyal, as they feel valued and supported in their pursuit of professional growth.

Moreover, addressing skills gaps and training issues can also have a significant impact on an organization's bottom line. A well-trained workforce is more likely to deliver high-quality work, leading to increased productivity and profitability. Additionally, investing in employee development can help companies attract and retain top talent, as professionals are increasingly seeking out development opportunities that offer personal and professional growth.

8. Fostering a culture of high-performance

Fostering a high-performance organizational culture is undeniably one of the key challenges in human capital management. The reason behind this is the intricate interplay of various factors, such as performance management, job roles and employee morale, which contribute to the overall success of an organization. To establish a culture of excellence, organizations need to focus on continuous improvement and adapt to evolving market demands while ensuring that their workforce remains motivated and committed.

Performance management plays a crucial role in driving a high-performance culture. It involves setting clear expectations, providing timely feedback, recognizing achievements and investing in employee development. A robust performance management system helps align individual goals with organizational objectives, ensuring that everyone is working towards a common vision. This alignment not only boosts productivity but also fosters a sense of ownership and responsibility among employees, making them feel valued and engaged in their job roles.

Job roles, on the other hand, need to be well-defined and aligned with the organization's strategic objectives. Ensuring that employees are placed in roles that match their skills, interests and aspirations is vital for maintaining high-performance standards.

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Further Reading

A Step-by-Step Guide to Creating a Winning Talent Management Strategy

Employees Come First: 8 Top Tips to Improve Your Human Capital

8 Talent Development Strategies that will Futureproof your Business

The Ultimate Guide to Talent Management (+ 7 Best Practices)

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Human capital: why it matters and 5 tips to improve it

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What is human capital?

How does human capital affect organizations, the types of human capital, how to increase human capital, prioritize human capital in your organization.

What is the value of your workforce? 

Your company holds many assets. But some of them are easier to quantify than others.

For example, you can easily pull up a balance sheet to determine your economic assets. There’s a simple number to showcase how much you have.

What these balance sheets don’t tell you is how much your employees are worth.

It’s difficult to put a number on intangible values like leadership , education, creativity, and past work experience. But it’s clear that these have value for any company.

These assets allow employees to perform and thrive.

That’s why it’s crucial to the health of any organization to be aware of this value — so they can improve it.

The term used to describe the value of these assets is human capital.

Let’s explore what human capital means and how you can develop human capital in your own organization to achieve economic growth.

The human capital definition can be explained as an intangible asset stemming from a person’s talent and experience.

Human capital isn’t an official asset you can quantify on a balance sheet. But it’s still considered an economic value for a company.

That’s because human capital empowers a company to service its clients, create its products, and innovate for new offers.

Human capital can be made up of several factors, including:

• Hard skills  and soft skills
• Higher education and training
• Intelligence and emotional intelligence
• Personality
• Work experience
• Employee well-being  
• Loyalty to the company

For the human capital of an entire economy, people calculate it a bit differently.

The Human Capital Index  breaks down human capital scores (for an entire economy) between 0 and 1. It uses the following as indicators:

• Probability of survival to age five
• Expected years of school
• Harmonized test scores
• Survival rate from age 15–60
• Fraction of children under five not stunted

With better human capital management , companies — and entire countries — can increase their productivity  and profitability.

Every company is what it is because of its employees. Individuals who make up a company’s workforce are responsible for its success or failure.

Think of it this way. If your organization employs people who have more education, more developed skills, and more work experience, it’ll be able to accomplish much more.

A higher human capital means employees are more capable of doing their job. But it also means they can innovate and find creative ways to solve a crisis .

They’ll also be able to do their job more efficiently if they have higher human capital.

That’s because they probably have more experience doing the job. But they can also achieve efficiency because of their rich life experience. This experience gives them a wider perspective on their problems.

Keep in mind that human capital can migrate from one place to another. Companies that don’t do what it takes to retain human capital can experience a "brain drain."

Brain drain describes the phenomenon that occurs when human capital migrates from developing areas to urban and developed areas.

The same can happen to companies if they don’t value their employees. Data from an MRI network study shows that   25% of employees leave their job to seek more compensation .

You can also lose human capital if you don’t give advancement opportunities. 30% of employees leave their job due to a lack of career advancement, according to the same survey.

Furthermore, human capital has a huge impact on the success of not just an individual company, but also the economy.

For example, according to the Human Capital Index, 80% of the world’s poor live in economies with a human capital index under 0.5.

You can separate human capital into three types: knowledge capital, social capital, and emotional capital.

Let’s look at some examples of each:

Knowledge capital

• Trade school education
• College degree
• Hard skills
• Situational knowledge
• Intelligence

Social capital

• Relationships
• Social status
• Professional network

Emotional capital

• Emotional intelligence
• Problem-solving
• Personal resilience
• Critical thinking
• Leadership  behaviors
• Other soft skills

An obvious way to increase human capital is to hire more people.

But human capital isn’t static. You can perform actions to improve it within your existing workforce.

Here are five ways that you can increase the human capital in your organization:

1. Improve education for your workforce

A highly educated workforce will be capable of achieving more.

You can provide training related to your industry. You can also sponsor employees to get college degrees or additional certifications. Leading companies also make sure they are providing ample opportunities for learning and professional development within the work itself. That might mean giving more decision-making authority, enabling people to pursue side initiatives, or pairing people with others they can learn from on collaborative projects. All of these options will help prepare them to take on more advanced roles in your organization.

People can always learn more. A company that invests in its employees’ continued learning will keep growing its human capital without having to change anything else.

You’ll also experience more employee productivity if your workforce sees that you value them. You will also see an increase in employee retention .

2. Provide a work culture that encourages creativity

Make some room for your employees to be creative. Creative thinking can lead people to innovate more . It can also lead to better employee engagement .

They can think outside the box and have better potential to solve problems in new ways.

Compare this to a culture that stifles creativity — such a culture limits what each person can achieve. The overall human capital suffers as a result.

3. Divide labor into specialized niches

Structure your company in a way that encourages specialized skill development.

The more someone specializes, the more they can focus on their zone of genius.

Instead of spending their resources learning several jobs, they can maximize their potential in one area of specialization.

By doing this, you get a workforce that’s highly specialized and talented in several fields.

This is often better than a generalist workforce that does everything in a mediocre way (although many people and organizations have found successful ways to allow generalists to rotate through multiple specialties).

4. Hire a diverse workforce

A diverse workforce  is made up of people from a variety of backgrounds.

When more people have different life experiences, they bring different competencies and points of view to the table.

According to a recent McKinsey study, executive teams with gender diversity are 25% more likely to achieve financial outperformance . The case for ethnic diversity is even better at 36%.

This is why embedding diversity, equity, and inclusion in your organization’s DNA can help you increase your human capital. And that means paying attention to employee experience across the full recruiting cycle .

5. Provide ongoing coaching

Education doesn’t have to come in the form of traditional training or formal education.

You can also coach your workforce  to:

• Identify their strengths
• Improve their leadership behaviors
• Increase employee performance

With the right coaching, you can help more individuals in your organization reach their full potential.

Imagine running a business with people at their top potential. This is what it means to maximize human capital.

Without human capital, a company is just objects and bank accounts. The true value of a company stems from its workforce.

That’s why it’s worth investing in your people to increase your human capital.

Even if it temporarily decreases your bottom line, this investment will allow your employees to efficiently produce more revenue and profit for your company in the long run.

They’ll also stick around for the long term if they know you care about their development.

BetterUp can help you increase your human capital by providing high-performance coaching, improving leadership skills, and building inclusive workforces.

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Develop your leadership and strategic management skills with the help of an expert Coach.

Elizabeth Perry, ACC

Elizabeth Perry is a Coach Community Manager at BetterUp. She uses strategic engagement strategies to cultivate a learning community across a global network of Coaches through in-person and virtual experiences, technology-enabled platforms, and strategic coaching industry partnerships. With over 3 years of coaching experience and a certification in transformative leadership and life coaching from Sofia University, Elizabeth leverages transpersonal psychology expertise to help coaches and clients gain awareness of their behavioral and thought patterns, discover their purpose and passions, and elevate their potential. She is a lifelong student of psychology, personal growth, and human potential as well as an ICF-certified ACC transpersonal life and leadership Coach.

Examples of human capital: driving growth and innovation

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Human capital at work: The value of experience

The most important resource in any economy or organization is its human capital—that is, the collective knowledge, attributes, skills, experience, and health of the workforce. While human capital development starts in early childhood and continues through formal education, the McKinsey Global Institute and McKinsey’s People & Organizational Performance Practice have focused new research on the next stage, which spans the full working life.

Human capital is much more than a macroeconomic abstraction. Each person has a unique, living, breathing set of capabilities. Those capabilities belong to the individual, who decides where to put them to work. The degree of choice is not limitless, of course. People are the products of geography, family, and education; their starting points matter. Having career options also depends on an individual’s abilities and attributes, their networks, their family obligations, the health of the broader labor market, and societal factors.

While we recognize these constraints, career moves are nevertheless an important mechanism for expanding skills and increasing earnings. The patterns within our data set show that moving into a new role pays off—and even more so when someone lands a new position that stretches their capabilities or represents a match that better utilizes their skills.

Individuals can’t make bold moves that represent a real leap unless an employer sees their potential and takes a chance on hiring them.

In our data sample, roughly a third of US, German, and UK workers, and almost a quarter of Indian workers, are on a path to move up one or more quintiles in estimated lifetime earnings from their career starting points. This upwardly mobile group stands out for making more frequent and bolder role moves. For people without educational credentials who start out in low-paying positions in particular, movement is critical to boosting their earnings.

Role moves help individuals continuously upgrade their skills, raise their income, and build track records that translate into value. However, individuals can’t make bold moves that represent a real leap unless an employer sees their potential and takes a chance on hiring them. The most effective way for an individual to maximize the “experience effect” is to join an organization that prioritizes and strengthens their development.

Watch the replay: Leading voices discuss implications of human capital at work research

Stephanie Flanders of Bloomberg moderates a conversation with Birgit Bohle, Beth Cobert, and Sir Christopher Pissarides on navigating the challenges and opportunities ahead.

Work experience adds to the value of human capital

Our research focuses on how work experience builds on the foundation of formal education and enhances the value of human capital (see Sidebar, “How we model the link between role moves and the addition of skills to lifetime earnings”). We define work experience holistically as the accumulated knowledge that workers gain by being in the labor market. This can occur through doing the work itself, formal employer-provided learning and development programs, and job changes that better match someone’s existing skills or enable that person to add new skills.

How we model the link between role moves and the addition of skills to lifetime earnings

We track the new skills associated with role changes and make assumptions about how the salaries for each role link to new versus entry-level skills. We do this over the course of the entire observed work history to estimate the share of lifetime earnings that can be attributed to skills gained through work experience.

We use a detailed data set covering all of the job moves made by about a million workers in each of four focus countries: the United States, Germany, the United Kingdom, and India. We look at each individual’s career trajectory, starting with the first job listed after the latest educational degree obtained and including all role moves made over the observed work history. For each role change, we glean information from job postings to quantify the “skill distance,” or the share of new or nonoverlapping skills associated with the new job. This reflects someone’s opportunity to acquire or deploy additional skills in the new role.

We measure outcomes by looking at lifetime earnings, estimated as the sum total of nominal salaries received over a 30-year working life. This combines salaries associated with roles during an individual’s observed work history plus projections for the remaining years of that person’s working life.

We attribute the entirety of the entry-level salary to entry-level skills. Then, throughout the observed work history, we attribute a share of each new role’s salary to work experience in proportion to the share of new or nonoverlapping skills that role introduces, relative to entry-level skills. We make this assumption because work experience is one of the main mechanisms through which individuals are able to acquire and deploy new skills after formal education. Although education and personal attributes have an enduring impact, including teaching someone how to learn, we make a simplifying assumption in the way we attribute salary to capture the scope and direction of the experience effect.

For the length of time someone stays in a given role, we attribute standard yearly salary increases to work experience in order to capture the effect of deepening existing skills. Similarly, to calculate projected earnings beyond the work history, we apply historical rates of wage growth to the final observed role, attributing all future projected wage growth to work experience. We assume no additional role moves.

Finally, we pool results for all workers in each of our four focus countries, reweighting the sample to reflect workforce composition, and consider the implications for the average lifetime earnings of a typical worker in the workforce.

Organizations set up their working environments with systems and practices that help employees become more productive. When people enter these settings, value is created. In addition to earning wages, workers gain knowledge and new capabilities that they carry with them for the remainder of their careers. Many roles require employees to become proficient with new types of software or equipment. Employees benefit from structured learning programs and daily coaching on the job. There are insights to be gained from watching colleagues handle tricky situations gracefully (or not) and seeing how managers motivate their teams (or do not).

Someone who starts out taking orders in a fast-food restaurant learns the art of handling difficult customers and staying cool under pressure. Someone who starts in IT by answering questions on a help desk absorbs technical knowledge that they continue to use when they become a network administrator. An inventory clerk who watches his manager solve logistical logjams can apply those approaches in a future role as a warehouse manager or procurement agent.

Work experience contributes 40 to 60 percent of a worker’s human capital

By our estimates, the value of human capital represents roughly two-thirds of an individual’s total wealth. Skills acquired or deployed through work experience contribute an average of 46 percent of this value over a typical working life. However, this is an average for the four focus countries, and it contains a wide range of variations (Exhibit 1).

The experience effect looks strikingly similar across the advanced economies we studied. Our analysis finds that work experience contributes 40 percent of the average individual’s lifetime earnings in the United States, and 43 percent in both Germany and the United Kingdom.

By contrast, work experience contributes 58 percent of average lifetime earnings in India. Access to education remains a key challenge in India—and with only 12 percent of the population having tertiary education as of 2020, work experience will be a more important driver of income for the workforce as a whole by default. In other emerging economies that have similarly low levels of educational attainment plus high productivity and wage growth from a low baseline, lifetime earnings are likely to exhibit similar patterns.

Work experience is a bigger determinant for people who start in occupations without significant credentialing barriers

People who start out in occupations with higher educational and credentialing barriers (such as lawyers and dentists) earn more than other workers over their lifetimes. For most of them, entry-level skills contribute a larger share of those earnings than acquired skills.

The reverse is generally true for people who start out in occupations with lower educational requirements. They typically earn less over a lifetime, with the greater share driven by work experience. The income growth of a dishwasher who becomes a food prep cook, then a line cook, and eventually a sous chef is almost entirely fueled by techniques and tricks of the trade learned on the job. In addition to enabling someone to acquire skills, work experience gives that person a track record, which is valuable in and of itself for the signal it sends to potential future employers.

In the United States, for example, the size of the experience effect varies substantially across starting occupations. At the low end are chiropractors. Before treating patients, they must complete a doctor of chiropractic degree program that can take three to five years, then pass a series of licensing exams. Their entry-level skills account for 85 percent of their lifetime earnings. At the other end of the spectrum are food batchmakers, who operate equipment that blends ingredients for manufacture. People who start in this type of factory job are less likely to have higher education; the experience they amass over time determines 90 percent of their lifetime earnings.

While greater educational attainment generally correlates to higher lifetime earnings, some people defy the odds

Someone who attended poor-quality schools and lacks any postsecondary education or training is starting from behind in the labor market. Many employers rely on college degrees as a well-established signal of a candidate’s employability.

Yet educational disadvantage does not have to lock in destiny—at least not for everyone. In the United States, for example, our lifetime earnings projections show a subset of people who overcome the odds. Of particular note, 28 percent of high school graduates have higher earnings potential than the median holders of associate degrees, and 37 percent of associate degree holders could earn more than median bachelor’s degree holders over their lifetimes.

Educational disadvantage does not have to lock in lifetime earnings—at least not for everyone.

In all the countries we studied, a sizable cohort is on a path to move up one or more earning quintiles from their career starting point. This applies to roughly one-third of workers in advanced economies (30 percent in the United States, 32 percent in Germany, and 34 percent in the United Kingdom) and to 23 percent of workers in India. In the United States, some 6.1 percent are on track to move from the bottom to the top quintile in earnings.

The upwardly mobile group appears to be amassing work experience in an effective way that yields real benefits. In our worker sample, experience accounts for 60 to 80 percent of lifetime earnings for the cohort that moved up but only 35 to 55 percent for those who stayed flat or dropped down. However, many people are unable to make these leaps because of structural and social barriers, such as biases, the lasting effects of unequal education, and the lack of professional networks.

Role moves bring new skills and can unlock higher earnings—and in most cases, people are moving to new organizations

Movement is an inherent feature of labor markets. Across the entire data set, the average person switched roles every two to four years, with a median skill distance of 25 to 45 percent, depending on the country. This matters because role moves enable individuals to build or demonstrate their skills.

Moves can involve workers assuming new roles within their current company, moving to a different employer, changing specialties or occupations, or pursuing a combination of these strategies. At any given time, a significant proportion of role moves are triggered by firings and layoffs in addition to voluntary job changes.

In our data set, each move increased wages by 6 to 10 percent on average. However, this includes people who moved into lower-paying roles, whether by choice or out of necessity.

Forty to 50 percent of the role moves observed in the decade involved pay increases. The workers who made these moves managed to boost their earnings by 30 to 45 percent on average each time.

More than 80 percent of role moves involve people moving from one employer to another.

More than 80 percent of the role moves observed in our data set involved someone moving from one employer to another. Far fewer moves involved people being promoted into more senior roles or branching into different specializations within their existing organizations. This high level of external movement holds true across all cohorts. This seems to indicate that many employers do not have internal advancement tracks that are wide enough to keep most people growing and working toward higher rewards over time. Individuals who want to reinvent themselves and take on more senior roles often have to go to a new environment to do so.

The bolder the move, the bigger the boost

Those who take new roles involving bigger changes or challenges receive bigger rewards. We look at each individual’s career trajectory, paying particular attention to their role moves. When someone changes jobs, their new position typically has some distinctly new skill requirements that were not present in their previous position, based on our review of job postings. The nonoverlapping share is the “skill distance” between the two roles—and the higher the share, the “bolder” we consider a role move to be.

The illustrative example in Exhibit 2, below, shows a German worker who started as a welder, then changed jobs twice. When he became a maintenance supervisor, the move involved a skill distance of 33 percent; when he later became a production manager, the move involved a skill distance of 47 percent. His average skill distance is therefore 40 percent, which is representative of the typical German worker.

In our data set, salary-increasing moves involved a median skill distance of 35 to 50 percent across countries, higher than the range of 25 to 45 percent for all moves across countries. In other words, when someone made a move for higher pay, their new job typically involved a more significant share of skills and responsibilities that were not part of their previous job.

This kind of movement requires an employer to take a chance on someone’s potential, even if they have not been performing exactly the same tasks in their previous role. The new role may be a major learning opportunity, or it may be a better match that enables someone to deploy existing skills that they have not been utilizing. Incremental moves with largely overlapping requirements do not pack the same punch.

The most upwardly mobile cohorts in the sample make both frequent moves and bold moves.

The most upwardly mobile cohorts in the sample make both frequent moves and bold moves (Exhibit 3). 1 We describe moves involving high skill distances as “bold.” This term describes only the distinctiveness of the skill requirements in the new role; it is not a comment on the nature of the role itself or of the risk-taking involved in making the move. An incremental move is one in which skill distance is in the bottom quartile of the sample; a bolder move is one in the top quartile. In the United States, for example, people who moved into higher earning quintiles averaged 4.6 moves during the observed period, while those who stayed flat averaged 3.7 moves. The upwardly mobile in the US and India made moves with an average skill distance of 30 to 40 percent; those who stayed flat averaged only 20 to 30 percent. This growth in skills compounds with each move, resulting in a far bigger shift in capabilities and responsibilities over the entirety of a working life.

‘Experience seekers’ and ‘early movers’ boost their earnings through effective career moves

From our data set, we looked at a smaller universe of people with more than ten years of work history. Within it, four distinct archetypes emerge. They are not meant to convey individuals’ circumstances or motivation; they describe movement patterns and outcomes, with illustrative examples.

• Experience seekers start with lower-than-average wages but propel themselves upward by moving roles more frequently than their peers and stretching their capabilities substantially each time. The cumulative effect gives them stronger wage growth than any other archetype. Consider someone who starts as an administrative assistant at one nonprofit before landing a job cultivating donors in the development department of another. From there, she joins a research hospital as a grant writer before stepping into a broader communications role. Eventually she becomes head of media relations for a major university. Our experience seeker has managed to cross over into new industries and functions.
• Early movers make bigger leaps in the first part of their career. Someone may start in one field, quickly realize that their passion lies elsewhere, and then get a break that enables them to follow it. A graphic designer who makes print ads, for example, might become a user-experience designer early in her career.
• Late movers stay put or make more incremental moves in the early stage of their career but eventually take a bolder step. Think of a seasoned journalist who goes into corporate communications, or a real estate agent who becomes a mortgage loan officer in a bank. This is by far the largest group in the sample.
• Lock-ins change jobs less frequently, and when they do move, they do not make dramatic changes. This is not necessarily because someone is timid or stuck; they could also follow this strategy because they pursued what suited them from the start. Teachers, for example, have invested in specialized education and may have found their calling. Furthermore, our data does not indicate if someone tried to make bolder moves but was unsuccessful. However, lock-ins have the slowest wage growth, whether they start near the bottom or near the top. Doctors start at a very high salary but do not tend to make many role moves. While work experience accounts for 60 to 70 percent of lifetime earnings for experience seekers and early movers, that share is only about 30 percent for lock-ins.

Employers can attract and retain talent by recognizing potential, embracing mobility, and strengthening learning

Not all companies are equally good at developing people. Size is not the differentiator, as we find that small companies can be just as adept as their larger counterparts in this area. But companies with the strongest organizational health, those that offer more structured training for their employees, and those that provide more opportunities for internal advancement seem to stand out. People join these companies to build knowledge and networks, understanding that their experience will provide a valuable signal to other employers for the remainder of their careers. Early career experience at these companies helps employees go on to become more upwardly mobile.

Companies can help individuals grow—and establish themselves as great learning organizations and magnets for talent in the process. Three priorities stand out:

• Understand the potential in people as well as their current knowledge and skills. Most employers can benefit from challenging the status quo of how they select people for open roles. Instead of searching for “holy grail” external candidates whose prior experience precisely matches the responsibilities in an open role, leading organizations create systems for evaluating candidates based on their capacity to learn, their intrinsic capabilities, and their transferable skills. This requires designing assessments that are fit for purpose, focusing on the few core skills that matter for success in the role. It also involves removing biases that pigeonhole people into the roles they are already performing; this point is particularly important when it comes to existing employees. In our sample, more than half of all role moves undertaken by individuals involved a skill distance of more than 25 percent—and this implies that people often have latent capabilities that are not recognized by their current employers. If someone’s track record shows the acquisition of new skills over time, it probably means that person is capable of learning more. Employers should be less constrained about recruiting candidates from traditional sources and backgrounds and more open to people who have taken unconventional career paths.
• Embrace mobility. Within our data set, more than 80 percent of all the role moves individuals made involved changing employers. Since there is no fighting the fact that talented people will move, the key for employers is becoming part of this flow. Employers can aim to beat the odds on both sides of this 80-20 dynamic. On one end, they can attract the best candidates among the big talent pool that is always searching. On the other, they can boost the productivity and engagement of valued employees who stay. To ensure that proven employees don’t have to go elsewhere to advance, organizations should set the expectation that part of a manager’s job is developing people who will go on to other things. Each role should have clear paths toward future roles, with skill requirements delineated at each stage. One way to do this in a large organization is to create an internal digital platform where employees can access learning modules and find their next opportunity. Mobility is experience, not just upward progression. Lateral movement is a neglected opportunity for many organizations. When talented employees do move on, celebrate them as success stories—and don’t close the door on welcoming them back in a different capacity in the future.
• Strengthen coaching, particularly early in an employee’s tenure. A great deal of skills development happens day to day on the job. Coaching and apprenticeship can maximize this effect. Our research suggests that the first few years of a career are foundational, and the same is true for the first year in any new job. Formal onboarding is not just an orientation session but a six-month to one-year period that should involve a thoughtfully created journey. Organizations can provide the tools for a running start, including a manager committed to delivering coaching and facilitating connections. Even after hitting their stride, employees need ongoing opportunities to learn; this can pay off in the form of higher morale and reduced attrition. In a June 2021 Gallup survey, 65 percent of US workers said that learning new skills is an extremely or very important factor in deciding whether to take a new job, and 61 percent said it was extremely or very important in deciding whether to stay at their current job. Formal learning and development programs that prepare employees for future roles are part of this, but it is difficult to make them effective. Companies that are true learning organizations build their own formulas, customized to their needs.

Anu Madgavkar is an MGI partner based in New Jersey. Bill Schaninger is a McKinsey senior partner in Philadelphia. Sven Smit , MGI’s chair, is based in Amsterdam, while MGI director Lola Woetzel and MGI partner Jeongmin Seong are in Shanghai. Hamid Samandari is a McKinsey senior partner in New York, where Davis Carlin is a McKinsey partner. Kanmani Chockalingam , an engagement manager in Bengaluru, led the working team.

This article was edited by Lisa Renaud, an MGI executive editor in Los Angeles.

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5 strategies in Mastering Human Capital: A best HR Guide

Author by : charvi salian.

• Uncategorized

Human capital has emerged as a crucial resource for businesses looking to succeed in today’s quickly evolving and cutthroat corporate environment. 

The skills, knowledge, and talents that people possess and provide businesses and the economy as a whole are referred to as human capital. 

It includes every aspect, including formal education, training, work experience, and competence.

The value of human capital has greatly increased in recent years as a result of factors including technological development, globalisation, and demographic shifts. 

Businesses that invest in their human capital are better equipped to draw and keep top personnel, provide higher-quality goods and services, and increase productivity and efficiency. 

By encouraging creativity, innovation, and a culture of continual learning, they may also acquire a competitive edge.

Yet managing human resources is not without difficulties. 

The changing nature of work, generational disparities, and the significance of building an inclusive and diverse workforce are all issues that HR professionals must address. 

In this blog article, we’ll look at the elements of human capital, the advantages of investing in it, and management techniques. 

We’ll also look at some of the dangers and difficulties that come with developing human capital, and we’ll offer helpful advice for companies that want to make the most of their workforce’s potential.

What is Human Capital? 

The knowledge, abilities, and skills that people possess and provide to businesses and the economy as a whole are referred to as human capital. 

It includes every aspect, including formal education, training, work experience, and competence. There are several parts that make up human capital, including:

1. Education and training: By giving people specialised information and skills that they can use in the workplace, formal education and training programmes like college degrees, career training, and professional certifications help people build their human capital.

2. Skills and experience: By giving people transferable skills and hands-on experience in their fields, on-the-job training, apprenticeships, and internships help people build their human capital.

3. Creativity and innovation: People with a high level of creativity and innovation may improve an organization’s human capital by coming up with fresh concepts and solutions to issues.

4. Soft talents: Soft skills, such as teamwork, leadership, and communication, are a crucial part of human capital. 

These abilities allow people to collaborate with colleagues productively and support a healthy corporate culture.

By helping businesses to recruit and keep top personnel, offer higher-quality goods and services, and increase productivity and efficiency, investing in human capital can help businesses succeed. 

A culture of continual learning, innovation, and creativity are also fostered through human capital, which are crucial for long-term success in today’s quickly shifting corporate environment.

The role of HR in Human capital management

By maximising the value of employees as a crucial resource for the company, human capital management (HCM) aims to manage people strategically in the workplace. 

Although HCM is a shared duty between managers and employees, HR plays a crucial role in creating and putting HCM plans into action.

Some of the most important HR positions in human capital management are listed below:

Developing HCM strategies: Creating HCM strategies that support the organization’s overarching goals and objectives is the responsibility of HR. 

This entails examining the organization’s human resource requirements, spotting talent shortages, and creating strategies to fill them.

Recruitment and onboarding: HR is essential in finding and choosing the best individuals for open positions. 

Creating job descriptions, advertising job opportunities, reviewing applicants, holding interviews, and extending job offers are all part of this process. 

Onboarding new employees, which entails introducing them to the organization’s culture, rules, and processes, falls under the purview of HR.

Training and development: HR is in charge of determining and taking care of the training and development needs of employees. 

This include creating training materials, leading seminars, and offering coaching and mentoring.

Performance management: HR is in charge of creating and putting into place performance management systems that are in line with the aims and objectives of the company. 

This include establishing performance standards, giving feedback, and carrying out performance reviews.

Compensation and benefits: HR is responsible for establishing and administering salary and benefits plans that attract and retain top people. 

This include creating pay scales, overseeing benefit plans for employees, and making sure labour rules and regulations are followed.

Employee retention: HR is in charge of creating and putting into place strategies that increase employee retention. 

This include performing surveys on employee happiness, creating recognition and incentive systems, and offering chances for professional advancement.

Ultimately, efficient human capital management depends heavily on HR. 

By designing and executing HCM strategies that connect with the business’s goals and objectives, HR may help to guarantee that the firm has the trained and engaged workforce it needs to thrive.

The benefits of investing in human capital

Organisations can get various advantages by investing in their human resources, including:

Increased productivity and efficiency: Companies that support the training and development of their staff members can increase their output and effectiveness. 

Employees who have received proper training are better able to carry out their duties and positively impact the firm.

Increased employee commitment and retention: Workers are more likely to be engaged and devoted to their work if they feel valued and supported by their employer. 

Employee morale may be raised through human capital investment, increasing retention rates and reducing turnover expenses.

Improved organisational performance and competitiveness: Human capital may provide firms with a major competitive edge. 

A workforce that is more competent, motivated, and capable of fostering economic success may be developed by companies that invest in the growth and training of their personnel.

Improved ability to innovate and solve problems: Investment in human capital may encourage innovation, creativity, and problem-solving skills among workers. 

Workers are more likely to develop original ideas and solutions to problems if they can access continual learning and development opportunities.

Investing in human capital is a strategic move that may provide firms with real advantages. 

Organisations may increase productivity, boost competitiveness, and achieve long-term success by building competent and motivated staff.

The challenges of managing human capital

Managing human capital may be difficult in today’s quickly evolving corporate environment. Among the major difficulties that organisations encounter are:

Workplace change and the requirement for continuous learning and development: The knowledge and abilities needed to excel in the job are always changing. 

Organisations must invest in chances for workers’ continual learning and development if they want to stay competitive. 

Due to the speed of technology advancement and the necessity to combine training with daily obligations, this might be difficult.

Generational disparities’ effects on managing human capital: The workforce of today is more diversified than ever, with workers from different generations coexisting. 

It may be difficult to manage these generational disparities, especially when it comes to communication preferences, job preferences, and career aspirations.

The significance of developing a diverse and inclusive workforce: The advantages that diversity may provide, such as increased creativity and problem-solving, risk being lost on organisations that fail to build an inclusive and varied workforce. 

Yet attaining diversity and inclusion may be difficult, especially when it comes to dealing with unconscious prejudices and fostering a climate that appreciates and encourages variety.

Notwithstanding these difficulties, firms that wish to succeed over the long run must manage their people resources properly. 

Organisations may cultivate a competent and motivated workforce that can propel corporate success by investing in continual learning and development, building an inclusive and diverse workforce, and successfully navigating generational divides.

Strategies for managing human capital effectively

Effective human capital management necessitates a comprehensive strategy that includes funding employee growth, promoting a culture of ongoing learning and feedback, and building a diverse and inclusive workforce. 

Organizations can employ a variety of techniques to efficiently manage their human resources, such as:

Investing in employee learning and development opportunities: Giving workers access to continual learning and development opportunities is crucial for maintaining their skills and expertise. 

This can involve coaching, mentoring, and other professional development opportunities.

Create a culture of continuous learning and feedback:  Encourage employees to continually learn and enhance their abilities in order to retain a competitive workforce by fostering a culture of feedback and continuous learning. 

By giving employees frequent feedback, mentoring, and chances for skill improvement, organisations may promote a learning culture.

Provide competitive pay and benefits: Providing competitive pay and benefits is crucial for drawing in and keeping top employees. 

These can include pay, incentives, benefits like health insurance and retirement, as well as other perks.

Embrace diversity and inclusivity in the workplace: The key to maximising the advantages that diversity may offer, such as increased creativity and problem-solving skills, is to embrace diversity and inclusion in the workplace. 

By addressing unconscious prejudices, developing a culture that appreciates and promotes diversity, and putting rules and practises that encourage inclusion into place, organisations may accomplish this.

Give employees the chance to enhance their careers: Giving workers the chance to advance their careers can increase engagement and retention. 

This may involve chances for advancement, skill improvement, and leadership development.

By putting these methods into practise, firms may successfully manage their human capital, create a knowledgeable and enthusiastic staff, and achieve long-term success.

Bottom line 

In conclusion, investing in human capital may result in increased productivity, better employee engagement and retention, improved organisational performance, and better creativity and problem-solving skills. 

Human capital is a major driver of company success. Yet, managing human capital may be difficult, especially given the quickly shifting nature of the corporate world today.

Organizations must invest in learning and development opportunities for staff members, promote a culture of ongoing learning and feedback, provide competitive pay and benefits packages, value diversity and inclusivity at work, and offer opportunities for career growth and advancement if they want to manage human capital effectively.

Consider enrolling in a professional certification programme, such as the Certified Human Resource Management Professional (CHRMP) course, if you’re seeking for methods to improve your knowledge and abilities in human resource management. 

You may realise your professional objectives in the field of HR by taking the CHRMP course to help you gain the information and skills you need to manage human capital efficiently.

Hence, to give yourself a competitive edge in the job market, start improving your human resource management abilities right away by enrolling in the CHRMP course.

Frequently asked question s

What part do employees play in managing human capital?

Management of human resources is a joint obligation of managers and workers. 

Employees have a part to play in growing their knowledge, skills, and talents even if HR is in charge of creating and implementing HCM initiatives. 

By looking for learning opportunities, getting feedback, and accepting demanding tasks, employees may take charge of their own growth.

How can businesses assess the success of their human capital management plans?

Organizations can use a variety of indicators, including as employee turnover rates, employee engagement levels, productivity, and the calibre of the work generated, to assess the success of their HCM strategy. 

Having a definite plan in place can help you avoid a lot of the pitfalls that might occur while implementing a new strategy.

How can businesses handle generational variations in their human resource management?

Because various generations may have different expectations, attitudes, and communication styles, managing a multigenerational workforce may be difficult.

Organizations can offer training and development opportunities that are tailored to the needs and preferences of various generations, provide flexible work schedules that take into account various work styles and life stages, and promote cross-generational mentoring and collaboration to address generational differences in HCM.

Charvi Salian

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4 challenges of Human Capital Management

• Last Updated : March 25, 2024

Over the years, more emphasis has been placed on developing stronger human capital management (HCM) strategies, especially considering their impact on employee experience , productivity , and satisfaction . With HCM, employees are treated as the most valuable assets an organization can have, so HCM strategies tend to focus on supporting your workforce and allowing each individual to bring their best selves in the work they do for your organization. Every aspect of an employee's journey with your business, starting from recruitment, is optimized and simplified to provide a better working experience. This experience then motivates employees to make higher-quality contributions to your organization, allowing you to grow and provide more resources toward your Human Capital Management strategies. One system feeds into the other.

However, between COVID-19, remote work, and " The Great Resignation ," human capital management has become increasingly challenging for organizations—and these challenges strike at a time when these organizations need quality HCM most. If you are among the many HR professionals struggling with this, then understanding and addressing some specific problems of human capital management can help you devise a better overall people management strategy that benefits both your employees and the organization immensely. Here are four challenges that hinder human capital management:

 Attracting and retaining top talent   

At a time when employees are quitting their jobs at record rates, finding candidates with specialized skills and retaining your top performers can be super challenging.  According to the Bureau of Labor Statistics, about 4.3 million Americans quit their jobs in August 2021 . The competition for top talent is growing stronger every day, which means you'll need an impressive talent acquisition and retention strategy to improve your quality of hire and make sure you have employees whose skills, values, and passions match those of your organization. Only then will your organization's HCM strategies align with your workforce in an effective way.

In order to attract top talent with specialized skills, it's necessary to strengthen two major aspects of your talent acquisition process: your employer brand and candidate experience. Focus on identifying and improving the different aspects that make your organization worth working for. This includes providing employees with career advancement opportunities, offering work that truly makes a difference, supporting employee well-being , providing competitive pay and benefits , allowing flexibility at work , and so much more.

Also Read: What attracts human capital?

 Catering to a multi-generational workforce   

The people-first approach of HCM makes it necessary for organizations to cater to the needs of their employees in precise and specific ways. However, with many organizations trying to manage a multi-generational workforce where employees often have varying backgrounds, interests, and work habits, identifying and catering to their needs in a meaningful way can be very challenging.

In order to be able to understand the needs of every employee and unlock their full potential, it's important to stop generalizing them. Feedback is the most efficient tool that you have for identifying employee needs, understanding how they prefer to be managed, and including these insights in your management strategies. People Analytics can also be of great help in providing insights about your workforce. To learn more, check out our blog on how to manage a multi-generational workforce efficiently.

 Addressing training issues and skills gaps   

In order to help employees thrive, it's essential to keep them updated on the latest trends and skills that are ruling your organization's industry or sector. Otherwise, the effort you spend trying to optimize employee performance and increase productivity will not be targeted enough, and you'll end up wasting a lot of resources on developing training programs that aren't efficient.

Not to mention that there are other obstacles to creating great training programs. Some employees may not find the time to participate. Others may not think they are relevant to their day-to-day work. Even if you are able to get employees to participate, will they remain attentive during the sessions? From conducting a skill gap analysis and choosing the right learning management system (LMS) to conducting assessments and measuring their impact on performance, every step has to be targeted and deliberate. It might be worth establishing a dedicated team within your HR department to spearhead your organization's training initiatives, so you can rest assured knowing all of these details will be accounted for as your workforce expands. Check out our blog on tips for creating successful learning and development programs that truly impact employee performance .

 Fostering a high-performance work culture   

Establishing a high-performance culture is crucial to ensure the success of your HCM strategies. In this case, "high-performance" doesn't refer to prioritizing productivity above all else. Instead, it's about creating an environment that allows employees to work at their best without compromising work-life balance , satisfaction , engagement , and morale . It's a hard balance to strike, especially if you are just starting out as a business.

The success of a high-performance culture depends on how well you understand its characteristics and align your workplace practices accordingly, and this includes everything from performance and training to employee health and well-being. Employees at no point in time should be made to work to their fullest capabilities at the cost of their work-life balance. Otherwise, they will burn themselves out and lose the zest for their work. Read more about the major characteristics that define a high-performance culture.

Final thoughts   

Establishing Human Capital Management strategies at your organization is a huge investment of effort, time, and money for your entire team. It's important to analyze the HCM challenges to make sure you are prepared with the right set of tools and strategies to get the most out of it. We hope this blog gave you a fair idea on the different challenges of effective human capital management.

What is HCM?

What is HCM software?

What is the aim of Human Capital Management?

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How to build successful human capital management strategies

In an agile business environment, HR leaders and senior management are becoming ever more resourceful when planning flexible strategies for attracting, retaining, and developing the best talent.

At the heart of these approaches lie human capital management strategies. These days, HR’s responsibilities have expanded significantly. Whereas in the past, HR teams might have focused on employee issues, pension plans, and timesheets, these days, they cover so much more. From work culture and benefits to performance management and learning and development programs, HR leaders and managers are now responsible for the success of their people.

Although times have changed, with modern leaders preferring to focus on a positive work culture , an open and supportive environment, and flexible approaches to work, human capital strategies remain an important part of planning for the future.

But how exactly have these strategies evolved? What are they, and why might you need them? Let’s take a detailed look at everything you need to know to build your own strategic human capital management plan that’s fit for the modern age.

What is human capital?

The HR world moves fast, and the term “human capital” already feels a little outdated. In the traditional sense, human capital refers to your workforce—the people who power your organization and carry out the day-to-day running of your business. It also refers to the combined balance of their skills, experience, and knowledge and how you can utilize these assets to create value for your business and its customers.

Human capital is your company’s most valuable asset. Without your people solving problems, performing their jobs, and serving your clients, you would simply cease to exist.

So, it’s hugely important that you take care of your human capital and find ways to help your people develop their skills and feel fulfilled, happy, and satisfied at work . This will increase their loyalty to your organization and help you retain the brightest and best in a competitive recruiting environment.

What is strategic human capital management?

Strategic human capital management (HCM) refers to your overall approach to looking after your people. It refers to how you invest in your people’s development and skills to increase engagement and achieve your business goals.

It’s a people-focused approach that combines recruitment, onboarding, payroll, benefits, and performance management into one strategy, helping you drive a more efficient and effective HR process.

If it’s done right, you are treating your people as, well, people. Strategic human capital management considers every part of their relationship with your business, finding every opportunity to improve their learning and support your success. It acknowledges your people’s critical role within the organization, encouraging your company to provide valuable training and development opportunities in exchange for their contribution to human capital.

As part of a modern HR function, HCM is an essential way to create a positive and supportive work environment for your people, supporting your recruitment and retention efforts . HCM strategies have become crucial in recent years as businesses and HR leaders seek to remain agile in their structures, processes, and approaches.

An effective strategic human capital management approach focuses on your teams’ skill sets alongside the company’s needs. It helps everyone grow and learn, makes individuals feel comfortable, engaged, and empowered, and aligns your resources with the broader goals of your business.

Recommended for further reading:

• Navigating the workforce planning process

The differences between HCM and HR

At a fundamental level, HCM and HR describe the same aspect of your business: managing your people. Traditionally, HR referred to the more practical aspects of team management, such as employee issues and basic training budgets, whereas HCM perhaps captured a wider strategic workforce planning approach.

As HR processes have evolved, however, and HR leaders have taken on more significant roles in strategic business planning, the meanings of these terms have become more similar. Today, when we refer to next-generation HCM powered by a modern human resource information system (HRIS), we’re also referencing the function of the HR team as a whole.

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• Human capital management software

Why you need strategic HCM

In today’s changeable world, HR leaders must also be agile. By preparing a range of strategies and upskilling your people, you can lay the groundwork for future success. That means keeping your teams engaged and connected and listening to their needs in an openly communicative culture.

But to build an effective strategy, you need accurate and up-to-date information on the status of your teams and their skill sets and experiences. You also need to provide relevant training and development programs—as well as make the right hires—to be sure that your teams have the right people and tools to serve the needs of your business. 

Strategic HCM is a tried and tested way of shaping an effective approach that captures all of these considerations.

Components of human capital management strategies

Human capital management strategies can encompass a wide range of elements right across your business. These include:

• Payroll, benefit plans (from healthcare to leave policies and social security), and other compensation schemes.
• Recruitment and onboarding processes.
• Workforce planning.
• Career development opportunities, such as promotions and lateral moves.
• Mentoring programs.
• Performance management.
• Training and development throughout your organization.
• Wellness policies and culture-building efforts.

An effective HCM plan includes every element of your HR operation. In a large organization, this will involve bringing together a vast amount of information and knowledge to effectively build your strategy. So it’s no surprise that HR leaders all over the world are turning to HR tech to help out.

Implementing HCM strategies with HR tech

Modern software is an essential part of next-generation human capital management, even for small and medium-sized organizations. There’s simply too much information and too many parts of your HR function to operate them manually. For example, you will need to bring together:

• Recruitment strategies 
• Onboarding processes
• Training plans
• Strategic workforce planning
• Compensation planning
• Time, attendance, and performance management
• Offboarding
• Workflow management
• Reporting and analytics
• Regulatory compliance
• Self-service functions for your people

In recent years, this final area of HCM has become even more pronounced. In fact, today’s tools are primarily focused on employee engagement and experience, with back-office HR functions becoming a secondary benefit of the software. These platforms are built on flexibility and customization, allowing you and your teams to adapt and adjust as and when needed, without the need for a complicated, time-consuming, and expensive process.

By capturing the full spectrum of your business intelligence in a human resource information system (HRIS) , you can take advantage of powerful tools that help you navigate the complicated process of recruiting, onboarding, managing, and offboarding your people. These tools allow you to identify the precise impact of your everyday operations on the bigger picture, enabling you to align your work with the wider strategic objectives of the company.

There are a few key things to look out for in an HR platform built to cope with modern HCM:

• Organizational agility features that support “liquid teams” and the regular restructuring of workforces that boast a complex mix of full-time employees, contingent workers, contractors, and remote workers, across different parts of the world.
• Employee experience tools that incorporate features for feedback, goal setting, easy communication with colleagues, and culture building.
• AI enablement that pulls out powerful insights to drive your workforce planning, learning and development programs, and skills matching.
• Scalability that can easily adjust to agile teams who might be experiencing periods of sudden growth or change.

Today, it’s people first

“Human capital” might be a somewhat outdated way of describing the people that power a business, but planning a strategy that focuses on their experience and development within the company remains a crucial consideration for modern HR leaders.As recruitment remains highly competitive, attracting, retaining, and developing the best talent out there is not only a way of gaining a competitive advantage, but is also an essential move if you are to keep pace in the marketplace. With professionals able to demand more and more from their employers in terms of training, flexible working , and progression opportunities, streamlining and optimizing your HR function with next-generation human capital management is the best way to attract and retain talent.

At HiBob, we’ve built a modern HR platform designed for modern business needs—today and beyond.

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Journal of Economic Perspectives

• Summer 2022

Four Facts about Human Capital

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

• Editorial Policy
• Annual Report of the Editor
• Research Highlights
• Reading Recommendations
• JEP in the Classroom
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• David J. Deming
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JEL Classification

• M54 Personnel Economics: Labor Management

Your Complete Guide to Human Capital Management—How HCM Can Transform Your Workforce

Companies that win best places to work awards year after year have one thing in common—they put their people first by empowering employees, emphasizing learning and development, encouraging collaboration, and making their people’s well-being a priority. Those initiatives are all part of Human Capital Management, which puts people at the center of decisions made in the workplace and creates a winning strategy for employees and organizations.

What is Human Capital?

Human Capital is what makes organizations tick. In the context of the workplace, it’s the collective skills, abilities, and knowledge of your employees and how they use those resources to create value for your organization. Human Capital is the most important asset of any company—without your people’s abilities, you would cease to exist. Human Capital can include people management, communication, and problem-solving skills—every employee in an organization provides some form of Human Capital to their company at any given time.

What is Human Capital Management?

Human Capital Management (HCM) is a term used to describe the act of strategically investing in the development of your people and their skills to drive engagement and business value. It’s an advanced approach to Human Resource Management (HRM) that focuses on your employees’ skill sets, competencies, and training needs. HCM fills the gap in traditional people management strategies by viewing employees as stakeholders who invest their Human Capital into a company to generate more wins for the company. This philosophy results in a more equitable balance between employees and employers. HCM allows organizations to invest in their people through training and development, and in return, employees use their Human Capital to drive more revenue and fulfill company goals and objectives. With HCM, employees aren’t viewed as an administrative speed bump for employers—they’re an essential investment that drives personal, team, and organizational growth. A well-executed HCM strategy will align your employees’ skills and effort with your larger business goals while creating an environment where individual employees feel comfortable, engaged, and have confidence they can grow. HCM generally includes the following functions:

• Payroll and compensation
• Recruiting , hiring, and onboarding
• Workforce planning
• Career development
• Performance management
• Training and development

The differences between HCM and HR

Traditional Human Resource Management tactics are no longer enough to generate the best returns for your company. HRM was originally designed to handle personnel management administrative tasks, but HR’s role in managing people has significantly grown to include the strategic management of employees. The line between HRM and HCM has become a bit blurry in recent years because the future of work demands that companies create the best possible employee experience . HCM’s functions overlap with traditional HR duties—they’re both tasked with supporting operations like recruiting, headcount planning , and creating strategic goals, but HRM systems mainly handle records management, compliance, and policies and procedures. In contrast, HCM goes beyond traditional HRM by factoring in business goals and working within HR systems and processes to address the needs of employees so they can reach their fullest potential.

How HCM can transform your workforce

HCM has become a crucial part of building a competitive workforce in an economy that has become highly dependent on advanced skills. When employees are better prepared, they deliver more successful results, so it’s probably no surprise that HCM’s equitable approach results in multiple benefits for both employees and your organization.

Having an HCM strategy in place can benefit your company in the following ways:

Improves communication

HCM will create stronger, more collaborative relationships across your entire organization. When employees know what is expected of them and what they should expect from your company, the flow of communication significantly improves.

Achieves your business goals faster

By aligning your mission and goals with everyone inside your organization, you reduce unnecessary effort because employees can easily see what needs to be done to advance your company’s goals.

Enhances employee engagement

One of HCM’s top priorities is ensuring everyone in your organization is driving toward the same goals. When your people feel their purpose is aligned with your company’s vision, your employees will be more engaged .

Boosts employee satisfaction and retention

When you take the time to understand your people’s needs and career goals and put energy into giving them the tools and learning opportunities they need to excel, your employees will be happier and stay with your company for more extended periods.

Improves recruiting efforts

HCM creates an atmosphere that’s very attractive to potential employees. When it’s obvious your company genuinely cares about its employees, you’ll attract top talent.

Forges a stronger culture

Company culture is dynamic and requires constant nurturing. HCM can help define and steer your culture by being the source of truth for your company’s mission and values by setting up a structure where everyone operates a shared set of beliefs.

The right way to nurture your Human Capital

Becoming a people-first organization may require some significant shifts in your processes, but operating without a strategic plan for managing your Human Capital could leave you with high turnover rates, unhappy employees, missed revenue goals, or worse.

If your HCM strategy is half-heartedly executed, it’s going to fall flat. Instead, you will need to walk the walk by making noticeable changes that show your commitment to putting your employees first. For example, Zappos gives new employees four weeks to decide if it’s a good fit after putting them through a new-hire training onboarding process. If the new employee doesn’t think Zappos is a good fit after those four weeks, they can quit their job with a month’s pay. This may seem like a risky strategy, but Zappos’ head of HR credits this policy with helping them save money and hire fantastic people.

If you’re serious about developing an HCM strategy, you can start with these high-impact initiatives:

Make training the star of your HCM strategy

The two core tenants of HCM are investing in your employees and aligning your employees’ skills and efforts with business goals. Training is the key to accomplishing both. Developing your existing talent is one of the most important investments you can make. It drives growth and enables employees to achieve their goals, which will ultimately positively affect your business goals. In addition, your employees are likely looking for more training opportunities—94% of employees in one study said they would stay at a company longer if it invested in their learning efforts . Your HCM strategy should include a plan for shifting to an active and continuous learning model. By creating a continuous learning culture where employees are always improving their knowledge, your people will adapt faster to changing needs, and you’ll see a rise in employee engagement . Then, once you’ve created a good foundation, work toward becoming a Learning Organization by prioritizing learning at all times—you can learn more about how to transform into a Learning Organization in our dedicated ebook :

To start things off right, your Learning and Development and HR departments or teams need to come together to find the knowledge gaps inside your organization and discover what your high-performing teams are doing differently . When the research phase is complete, they can collaborate to create courses that align with the skills your employees need and relevant courses employees want to take. Related: 4 Reasons Why L&D Is Crucial for Your Talent Management Strategy

Use HCM software to make more time for employee development

HCM software can go a long way toward giving your HR department the time to connect with employees to find out what they need to be more effective and satisfied with their job. One study shows that HR spends 73% of its time on administrative tasks , which means your HR people aren’t spending enough time nurturing your Human Capital. HCM software automates time-consuming processes, which paves the way for implementing an HCM strategy. You can simplify your software systems by switching to an HCM platform or suite that can combine HR and HCM data to manage HR items like hiring and payroll and HCM areas like employee engagement and productivity. It’s important to do your homework before choosing a new system so you know upfront what you want and need it to accomplish. Josh Bersin, Human Resources Advisor, notes, “ Think about a new HCM system like moving into a new house. ” When looking at new houses, you home in on new features you don’t currently have, like a bigger yard or fancier kitchen. But there are always trade-offs, and once you move in , it takes some effort to make the house look and feel like your own. Make sure your HCM software includes the following features:

• Integration with your current systems and software, including payroll, taxes, and benefits administration
• Analytics and reporting features
• Secures data encryption for privacy and compliance
• Recruitment and compensation management capabilities
• Talent life cycle management, including sourcing and onboarding
• Goal management

Integrate well-being into your workplace

Your people’s well-being can have an outsized impact on your business—if your employee’s well-being is in decline, they’re at greater risk of burning out . Well-being initiatives are designed to create happier and more resilient employees by offering programs that can positively impact mental and emotional health. Addressing your people’s well-being by offering benefits like Employee Assistance Programs EAPs and meditation apps is a big step in the right direction, but their impact can leave a lot to be desired. For instance, less than 10% of employees will ever use their EAP benefit . Your employees want you to prioritize their well-being , and they want you to help them while they’re at work. For example, one study notes that 85% of employees who have well-being benefit options feel more positive about their employer . Integrating well-being into the workplace sounds like a big task, but there are a lot of ways your company can get started:

• Forming Employee Resource Groups (ERGs) can make employees feel seen and heard and facilitate mentorship opportunities by bringing people with similar experiences together.
• Seeking out and removing processes and policies that make it harder for people to do their job. For example, getting rid of outdated policies or complicated processes.
• Reduce the number of meetings and encourage written communication like email or Slack messages as an alternative.
• Promote asynchronous work to reduce context switching, which slows down productivity.
• Encourage employees to take time off to recharge their mental health, offer unlimited paid time off, or take collective time off. Companies like Bumble, Mailchimp, and LinkedIn are implementing collective time off to get ahead of burnout risks .

HCM is the answer to HR’s biggest challenges

According to PwC’s 2020 HR Technology Survey, some of HR’s most common challenges are finding, attracting, and retaining talent, helping employees reach their full potential, and creating a collaborative workplace. These are the same challenges HCM strategy solves. Therefore, the more strategic and people-first your approach to HCM, the happier and more productive your workforce will be.

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Developing Human Capital to Support U.S. Innovation Capacity: Proceedings of a Workshop—in Brief (2023)

Chapter: developing human capital to support u.s. innovation capacity: proceedings of a workshop - in brief.

Developing Human Capital to Support U.S. Innovation Capacity

Proceedings of a workshop—in brief.

Domestic and international competition for STEM talent is driving institutions across the research and innovation landscape to consider new policies and partnerships for building and managing STEM knowledge and skills. New levels of investment in human capital to increase U.S. innovation capacity and competitiveness will require coordination and collaboration among academic institutions, workforce development programs, labor organizations, companies, and funders of research and education. The CHIPS and Science Act offers new opportunities for enhancing U.S. human capital; among its many goals, the bill codifies into law the intention of broadening the base of Americans engaged in STEM—from an early age, through formal and informal education and training, and supported by networks of institutions around the country. 1

On October 18–19, 2022, the Government-University-Industry Research Roundtable (GUIRR) convened a workshop for its membership and invited guests to consider the strategic priority of human capital investment in preparing the future workforce and supporting national innovation capacity. “In the modern era of technological competitiveness, people and, more specifically, their knowledge, skills, education, motivations, and well-being are arguably the most important national security resource. Strategic, long-term investments in human capital are critical to the U.S. economy and a dynamic research enterprise,” said GUIRR co-chair Darryl Pines (University of Maryland) in opening the workshop. The workshop’s discussions examined the state of U.S. workforce preparation and considered trends in supply and demand for human capital to meet the needs of a transforming research enterprise. 2

INNOVATION ANYWHERE, OPPORTUNITIES EVERYWHERE

In a keynote address, Director Sethuraman Panchanathan (National Science Foundation [NSF]) noted three developments that show “it is a potentially transformative moment in the nation for science, technology, and engineering.” First, global competition is at an unprecedented level, which he posited motivates the United States to position itself with more intensity and intentionality. Second, the COVID-19 pandemic showed how innovations can meet the moment and deliver solutions. The lag in adoption of some outcomes

__________________

1 H.R. 4346, “The CHIPS and Science Act of 2022,” https://science.house.gov/imo/media/doc/the_chips_and_science_act.pdf .

2 For more information about the workshop, including the agenda, speaker biographies, and presentation slides, see https://www.nationalacademies.org/event/10-18-2022/guirr-meeting-developing-human-capital-to-support-us-innovation-capacity .

demonstrated the importance of collaborations between the sciences and other disciplines to address pressing challenges, such as climate change. Third, he noted that support for science, technology, and innovation to advance the nation’s prosperity and security is bipartisan.

“Innovation can and should be anywhere, and opportunities should and can be everywhere,” Panchanathan stated. He stressed the need “to lift every ounce of talent across the rich diversity of the nation.” He reminded the group that the NSF mission articulated by Vannevar Bush 72 years ago still holds true: to promote the progress of science; advance the national health, prosperity, and welfare; and secure the national defense. To fulfill that mission, NSF has three major priorities: strengthening established NSF programs at speed and scale, inspiring the “missing millions that have been left behind,” and accelerating technology and innovation progress. “The DNA of the National Science Foundation is symbiosis,” he underscored. “The two strands of curiosity-driven discovery and use-inspired applications feed into each other. This is not one versus the other, but one and the other.”

Panchanathan highlighted NSF activities in technology areas prioritized in the CHIPS and Science Act. In artificial intelligence (AI), for example, a goal is to “bring out the AI everywhere,” such as in agriculture, and with a diverse set of partners in every state and territory. He explained NSF investments in high-performance computing have led to many successful spinoffs—the two founders of Google, for example, received NSF fellowships in 1994. The software company Databricks received critical NSF investments and now has $1 billion in annual revenue and is used by 7,000 organizations. In quantum, NSF is collaborating with the Department of Defense, the Department of Energy, and others to expand accessibility, increase research capacity, and excite people about the quantum revolution.

Advances in robotics include collaborative robots in health care. Using Diligent Robotics as an example, Panchanathan explained that NSF supports a range of efforts, from basic research to the skills needed to launch and sustain a commercial venture. Related to disaster prevention and mitigation, NSF and National Institute of Standards and Technology (NIST) are partnering on Disaster Resilience Research Grants. Programs for advanced communications and wireless technology are investing in the development of new devices, techniques, and networks; enhancing resiliency and performance; and connecting underserved populations.

NSF is investing in talent to strengthen the nation’s cybersecurity capabilities, such as through the National CyberCorps Scholarship Program and the National Cybersecurity Training and Education Center (NCyTE), an NSF Advanced Technical Education center at Whatcom Community College in Washington, in partnership with six universities and colleges. In discussing biotechnology, Panchanathan referred to the work of a graduate research fellow funded by NSF in the mid-2000s who received Small Business Innovation Research (SBIR) funding in the 2010s—his company now has $5 billion in funding. “This is the imprint of what NSF makes possible,” Panchanathan said, “and there are thousands of examples.”

In terms of advanced energy and advanced material science, NSF collaborates with multiple agencies and industrial partners, including its support for the Center for Atomically Thin Multifunctional Coatings (ATOMIC), an Industry/University Cooperative Research Center. NSF has research centers across the nation, including four recently launched Engineering Research Centers. “They are finding solutions to grand challenge problems, societal problems, local, regional, and global problems,” he said. “They are funding fundamental research and training the talent of the future, working in partnership with industry.”

Panchanathan explained that NSF’s new Directorate for Technology, Innovation and Partnerships (TIP) will accelerate partnerships and co-investments with industry and other agencies and enable more pathways to entrepreneurship. He called for the inclusion of businesses and institutions of all sizes and in all parts of the country in this effort. For those without the infrastructure to compete for NSF funding, a new

opportunity called Growing Research Access for National Transformative Equity and Diversity (GRANTED) has been created as a virtual research office to help in writing proposals, finding partnerships, and budgeting. “If we are serious about expanding diversity, it cannot be done with the existing structure,” he stressed.

In discussion, Panchanathan explained that NSF has the responsibility to identify future priority technologies like the ones he covered in his remarks. To do this, NSF is developing a process to gather and synthesize information from industry partners, agency leaders, global trends, and other sources. In discussing how to prevent the “valley of death” in which companies often fall, Panchanathan said NSF works with the Department of Commerce, industry, and the venture capital community. He acknowledged that NSF used to be “pillars of directorates” with little industry collaboration. However, he said, the pandemic created new opportunities for him to engage industry leaders on how to work in partnership with the foundation. Panchanathan concluded by repeating his original message: “Innovation is anywhere, opportunities are everywhere. How can universities, industry, communities, and local governments all come together? How can we unleash the potential of our nation everywhere?” It can be done, he asserted, and invited participants to partner with NSF.

THE STATE OF U.S. STEM TALENT AND WORKFORCE

The first panel, moderated by GUIRR Council member Zachary Lemnios (ZJL Consulting), provided an overview of human capital trends across the STEM ecosystem.

Overview of U.S. STEM Workforce Trends

Amy Burke (NSF) drew from recent analytical work conducted by the National Center for Science and Engineering Statistics (NCSES) to highlight five trends related to the state of U.S. STEM talent: (1) U.S. STEM educational trends; (2) foreign-born science and engineering (S&E) doctoral students in the United States; (3) the U.S. STEM labor market; (4) demographic composition of the STEM workforce; and (5) the geographical distribution of that workforce. 3

First, she said, elementary and secondary STEM education is the foundation for overall STEM knowledge. The data show persistent gaps between racial and ethnic groups in K–12 math assessments, with scores for Hispanic, Black, American Indian or Alaska Native, and Native Hawaiian or Pacific Islander students below those of their White and Asian peers. Moreover, for most groups, the scores in mathematics have remained relatively stagnant for at least the last decade. To understand why, Burke noted that access to experienced STEM teachers (those with at least three years of experience) is an important factor in student performance. The data show schools with high minority or poverty rates and schools in the southern and western United States have less experienced middle school and high school math and science teachers. This disparity carries into post-secondary education when looking at trends in S&E degree recipients by degree level and race or ethnicity. Compared to their presence in the U.S. population, Black degree recipients are underrepresented at all degree levels, and Hispanics, American Indians, and Alaska Natives are underrepresented in all but the associate degree level.

Burke noted the United States awards the most S&E doctoral degrees compared to other countries. In some fields—particularly computer science, engineering, math, and statistics—more than half of U.S. doctoral recipients are foreign-born and on temporary visas, mostly from China and India. Foreign-born workers comprise nearly 50 percent of all workers with doctorates who are in S&E occupations in the United States. Among what she termed “early-career stayers,” most are in S&E fields, although she pointed out that a large proportion are not working in the specific area of their doctorates. 4

NCSES now takes a broader look at the S&E labor market than it used to, Burke said. Traditionally, data were tracked for occupations that require at least a bachelor’s degree, such as engineers, physical scientists, or computer scientists, as well as S&E-related occupations in health, education, and management. More recently,

3 For more information and data, see NCSES.nsf.gov or follow @NCSESgov.

4 NSF considers early-career stayers as foreign-born, U.S.-trained S&E doctorate holders who had a temporary visa at graduation (2006–2015) and who reside in the United States after graduation. For more information see https://ncses.nsf.gov/pubs/nsf21336 .

NCSES has looked at “middle-skill occupations.” Burke explained these are occupations that require high levels of S&E knowledge and technical expertise, but not necessarily a bachelor’s degree for entry. This expanded set of occupations provides a much more comprehensive definition of the STEM workforce and shows that the workforce is comprised of over 36 million people and constitutes 23 percent of the total U.S. workforce (see Figure 1 ). “This reflects how innovation and technology have permeated the economy, for example in clean energy,” she commented. “To leave out these occupations was skewing our ability to get a full picture of the STEM workforce.”

Analysis of the demographic composition of the workforce indicates participation by women and underrepresented minorities (URMs) increased from 2010 to 2019. Looking at the skilled technical workforce, Black workers represented about 10 percent of the workforce in 2019, and Hispanic workers represented about 20 percent. Women represented only about 26 percent of the skilled technical workforce in both 2010 and 2019. About 45 percent of workers with a bachelor’s or higher degrees were women, though the distribution is uneven among different STEM occupations. 5

Looking at geographic differences within the U.S. S&E enterprise to identify areas of capacity building, Burke noted that states with high concentrations of STEM workers with a bachelor’s degree tend to cluster in the Northwest and Northeast and in Midwest states with large metropolitan areas. The states with high concentrations of skilled technical workers tend to cluster in the Central, Midwest, and Southern areas of the United States and in Alaska. Within these areas, certain industries dominate, such as motor vehicle production in the Midwest.

Burke concluded that using a variety of indicators provides a more comprehensive view of distribution and concentration of regional innovative capacity. For example, measuring production of output by knowledge- and technology-intensive industries (industries that globally have high R&D intensities like information technology services or car manufacturing) can be used to identify opportunities for broadening and diversifying S&E capacity across the United States. 6

Sub-Bachelor’s Degree STEM Workforce

Harry Holzer (Georgetown University) focused on the STEM workforce without bachelor’s degrees. He opened by positing that the long-standing problems in developing a technical workforce—including labor shortages and lack of diversity, and slow implementation and diffusion of technological innovation—hurt the quality of implementation, generate inequality, and limit upward mobility. He noted that among occupations that do not require a bachelor’s degree, STEM jobs are often the best compensated.

Concurring with Burke, Holzer said that limitations in K–12 math and science result in fewer students choosing STEM at community colleges. With the exception of health care, these programs are underenrolled. For example, the City Colleges of Chicago recently created a number of workforce programs, including one on advanced manufacturing, but students are not choosing to enroll. Perceptions persist that these occupations have race and class issues, he opined.

5 For more on the demographic composition of the STEM workforce see NSB Science and Engineering Indicators 2022 report on U.S. and Global STEM Education and Labor Force: https://ncses.nsf.gov/pubs/nsb20221/u-s-and-global-stem-education-and-labor-force .

6 See NSB Science and Engineering Indicators 2022 report on U.S. and Global Science and Technology Capabilities: https://ncses.nsf.gov/pubs/nsb20221/u-s-and-global-science-and-technology-capabilities .

Holzer said workplace learning is weak in the United States—there is no apprentice system as in Europe, and career and technical education (CTE) tends to be stigmatized. “There has been progress, but enrollment is low and quality uneven,” he said. In addition, community college completion rates are low and many students get degrees in fields that are “low value” as a terminal degree (e.g., an associate’s degree in a humanities field compared to a STEM field). The overall amount of debt taken on by students at community colleges is generally lower than the debt amounts of bachelor’s degree–seeking students, but small debt loads can lead to high default rates, if students go into low-compensation fields or do not finish their degrees.

Several reasons account for this mismatch, according to Holzer. Community colleges are underfinanced, underincentivized to boost completion rates, understructured (e.g., to provide adequate counseling to students), and undersupported (e.g., to provide mentoring or child care assistance). Noncredit programs are nimble but often not well funded. He said some do not want to work with community colleges because they perceive the community colleges move too slowly. The outcomes at for-profit colleges are not as good on average, he added. The Workforce Innovation and Opportunity Act (WIOA), signed into law in 2014, has had little funding and thus weak results, which creates a cycle in which the lack of results means little funding. The pandemic, he added, saw a decline in students’ academic performance, rising inequality for children, dropping enrollment in higher education, and tight labor markets that exacerbate worker shortages in certain fields. 7

Holzer offered some new developments that—in his view—seem promising. First, several CTE models have been evaluated and show impact, including career academies and technical/hybrid high schools such as the Pathways in Technology Early College High School (P-Tech) in New York City. Second, apprenticeship programs are on the rise. Third, research in community colleges shows the benefits of strong support programs. Fourth, sector-based programs, while too small, are effective, including Project Quest, Per Scholas, Year Up, and the Wisconsin Regional Training Partnership.

Holzer concluded with policy suggestions, including improving math and science teaching by increasing the quantity of well-trained teachers; supporting effective work-based learning models; providing financial aid to community colleges (and their students), and scaling sector-based training. He also urged resources to remediate losses from the pandemic.

Understanding and Addressing the STEM Talent Shortage

Matt Sigelman (Burning Glass Institute) offered data that he suggested may explain the STEM talent shortage. To start, he agreed with Holzer’s discussion of a “misaligned pipeline” related to community college and CTE pathways. Only 18 percent of credentials earned in CTE programs are in demand by industry, while many needed certifications are undersupplied by higher education institutions. In many fields, such as logistics, supply is not keeping up with rising demand. He urged looking at the data behind the increases in STEM talent. While engineering conferrals have grown over the past 50 years, virtually all the increase is attributed to computer science. “Computer science has swallowed up engineering,” he said. “We need engineering talent in other fields.”

Although he agreed with broadening definition of STEM occupations discussed by Burke, he noted an “artificial constraint” related to the rise in the percentage of computer/math occupations that require a bachelor’s degree. “This runs counter to a broader market embrace of skills-based hiring,” he said. Overall, the percentage of job postings requiring a bachelor’s degree declined by 27 percent between 2012 and 2021, but it increased by 17 percent in STEM fields. “Degree inflation is on the rise, leaving no path for non-degreed workers,” he said.

Emerging technologies are feeding rapid growth in some areas, such as AI, machine learning, cloud computing, and product management, but people are not being trained in these areas. “Emerging sectors demand a curriculum rethink,” he suggested. It is not so much a “talent shortage” as a “skills

7 For more information on the impacts of the pandemic on children and their families see National Academies of Sciences, Engineering, and Medicine. 2023. Addressing the Long-Term Effects of the COVID-19 Pandemic on Children and Families . Washington, DC: The National Academies Press. https://doi.org/10.17226/26809 .

shortage.” Even those in long-standing occupations, such as mechanical engineers, need new skills to stay relevant and valuable. In addition, jobs across sectors increasingly demand STEM skills, such as data analysis. “STEM skills are foundational for economic opportunity,” he concluded.

DEMANDS FOR HUMAN CAPITAL: THE PRESENT AND FUTURE OF STEM WORK

In the next panel, moderated by Pines, three engineering professionals shared how their organizations are focusing on the human needs to build talent and improve U.S. competitiveness.

The End of “Unskilled, Un-STEMed Labor”

Stephen Welby (Institute of Electrical and Electronics Engineers [IEEE]) recounted that when he served as chief technology officer at the Department of Defense, it became clear that to achieve technological objectives, “it had to start with talent.” In his role at IEEE, he engages globally on the changing nature of work. He welcomed NSF’s inclusion of “middle skill” STEM occupations in its analysis, but suggested an even broader view. “There is no such thing as unskilled or un-STEMed labor,” he stated. Increasingly, he added, even “non-STEM” employers expect their workers to have numeracy, systems thinking, comfort with computing devices and automated systems, mechanical reasoning, and ability to achieve competency with complex tools. So-called “unskilled labor” must, in fact, be highly skilled in STEM applications, he asserted. However, looking at OECD data, the digital skills of the U.S. workforce do not line up with demand, and the gap is broadening.

Among the degreed workforce, the model of a STEM career is also changing, Welby continued. Because of shorter tenure with individual employers, accelerated introduction of white-collar automation, and a shorter half-life of technical skills, individuals must take ownership of and accountability for their personal career trajectories. The average tenure in engineering roles is 5.7 years, or half of what it was 20 years ago. At the same time, engineers will have extended careers and retire later in life.

Welby noted the three current models to develop skills have limitations. While traditional degrees provide a base of knowledge and critical thinking, they are expensive and slow to change. Continuing education does not adapt quickly enough to industry needs. Certifications are primarily motivated by safety compliance requirements or are product-specific. Thus, he suggested a role for engineering societies to deliver lifelong learning. He noted, “learning throughout professional life is no longer optional; it’s necessary to sustain because of the changing nature of job-relevant knowledge.” He summarized what he sees as four implications for the STEM workforce. First, changing the way STEM careers are framed and conceptualized—with new markers, measures, and milestones for career progression. Second, providing professional career support for the STEM workforce independent of one’s employer. Third, new models to support refreshed skills. Fourth, accommodations for the impacts of human-machine learning and transformation on STEM professions and the research enterprise.

Manufacturing and STEM

Jeannine Kunz (Society of Manufacturing Engineers [SME]) reported that SME, an association impacting over 750,000 manufacturing professionals, educators, and students, wants to increase partnerships to advance its core belief that manufacturing is key to economic growth and prosperity. Reflecting on the theme of the workshop, she stressed, “we need to advance people—not just technology—for innovation. We need to remember the people.” To illustrate this point, she referenced the Global Competitiveness Index, which considers access to talented workers as the top indicator of a country’s competitiveness, followed by a country’s trade, financial and tax system, and cost of labor and materials. 8

When SME partnered with CESMII, the Smart Manufacturing Institute, to survey the top challenges to achieve smart manufacturing, lack of skilled talent was

8 2016 Global Manufacturing Competitiveness Index, Deloitte Touche Tohmatsu Limited (DTTL) Global Consumer & Industrial Products Industry Group and the Council on Competitiveness, https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Manufacturing/gx-global-mfg-competitiveness-index-2016.pdf .

identified as the top challenge. 9 Despite this recognized need, 76 percent of companies surveyed said their company does not have a talent development strategy for their manufacturing employees. 10 Only 41 percent said their company trains people to develop the right knowledge and skills, 51 percent evaluate critical job tasks with structured evaluations, and 28 percent provide employees with training that meets the organization’s needs for the future. She commented that one of the reasons behind this gap is that companies face multiple other pressures.

Technology and the work environment are changing, Kunz continued, with 40 percent of current skills projected to change within five years. 11 Because it is not possible to provide all the skills needed beforehand, training is required when onboarding new employees—but it does not all have to happen in a traditional classroom. Digital training incorporating eLearning and virtual reality are improving scalability and on-demand availability. Kunz noted the top 10 skills needed in 2025 as identified by the World Economic Forum: analytical thinking and innovation; active learning and learning strategies; complex problem-solving; critical thinking and analysis; creativity, originality, and initiative; leadership and social influence; technology use, monitoring, and control; technology design and programming; resilience, stress tolerance, and flexibility; and reasoning, problem-solving, and ideation. 12

Kunz suggested considering the whole ecosystem of roles, education institutions, and communities, setting clear specifications on what knowledge and skills are needed, and ensuring the ecosystem can support those specifications. Through innovation and collaboration, she urged, “Think nationally, act locally, and scale aggressively.”

Space Workforce 2030

Ed Bolton (Aerospace Corporation) reported on an effort called the Space Workforce 2030 (SWF2030) Executive Leadership Pledge, to broaden participation in the U.S. space industry. In April 2022, executives from 25 leading space companies signed a pledge to advance diversity through action in four areas: (1) significantly increase the number of women and employees from underrepresented groups in their collective technical workforce; (2) significantly increase the number of women and employees from underrepresented groups who hold senior leadership positions in their collective technical workforce; (3) work with universities to increase the percentages of women and students from underrepresented groups receiving aerospace engineering degrees to levels commensurate with overall engineering programs; and (4) sponsor K–12 programs that collectively reach over 5 million underrepresented students annually. 13

“Why space and why now?” Bolton posed. In addition to the inspirational aspects of space exploration, he identified pragmatic reasons. Globally, the industry is expected to generate revenue of $1 trillion or more in 2040, up from $350 billion in 2021. Demand for employees is high. Average salaries in aerospace are more than double the average salary for all U.S. private-sector jobs and 27.3 percent higher than for other STEM occupations. At the same time, he said, “the current state of diversity is abysmal, but also an opportunity.” According to Bolton, only 28 percent of aerospace and defense industry executives are female and only 9 percent are Black or Hispanic. The numbers of underrepresented minority students have grown, but a large percentage switch majors or leave higher education entirely.

A current focus is an SWF2030 internship program, developed with the White House Office of Science and Technology Policy and announced by Vice President Harris. 14 It is based on data that a person who has at least two internships is more than two times more likely

9 For the full survey, see https://www.cesmii.org/smart-manufacturing-sustainability-study/ .

10 For the full report, see https://learn.toolingu.com/globalassets/tooling-u-sme/resources/white-papers/cost_of_turnover_report_v3.pdf . For further analysis, see https://www.toolingu.com/images/pdf/ToolingU-SME-Manufacturing-Insights-Report.pdf .

11 The Future of Jobs Report 2020, World Economic Forum, https://www.weforum.org/reports/the-future-of-jobs-report-2020/in-full .

12 See https://www.weforum.org/reports/the-future-of-jobs-report2020/in-full .

13 To read the full pledge see https://swf2030.org/read-the-pledge/ .

14 “FACT SHEET: Vice President Harris Announces Commitments to Inspire, Prepare, and Employ the Space Workforce,” U.S. White House, September 9, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/09/fact-sheet-vice-president-harris-announces-commitments-to-inspire-prepare-and-employ-the-space-workforce/ .

to graduate, Bolton related. A university partnership program and social media accounts have been created, and SWF2030 seeks like-minded organizations to join the effort. He emphasized that annual reporting of workforce data, promotion of shared success at the annual Space Symposium, and strengthened diversity, equity, and inclusion (DEI) efforts will support accountability.

During the discussion an attendee asked about why people leave the STEM workforce. Bolton posited one common reason people leave is they report not feeling respected, which points to the importance of supervisors. Kunz suggested better ways to onboard and to “put humans in the center of all we do.” She added that younger people in particular need to understand the connection between their jobs and societal priorities. One attendee noted that the statistics from the first panel about representation in engineering and other STEM fields might suggest a challenge around communicating the value of a STEM degree—for some students, high-salaried careers might be the more motivating value proposition, and for others the motivation might be in the societal impact and problem-solving capabilities that a STEM degree can enable.

SUPPORTING THE SUPPLY OF HUMAN CAPITAL BY BROADENING PARTICIPATION IN STEM EDUCATION AND WORK

Looking at promising ways to build capacity for the STEM workforce, three presenters discussed efforts to broaden participation through regional STEM ecosystems, at Historically Black Colleges and Universities (HBCUs), and at community colleges.

Connecting the STEM Ecosystem

Before describing programs in northeast Ohio, Kirsten Ellenbogen (Great Lakes Science Center [GLSC]) urged participants to learn about existing STEM learning ecosystems in their locations. 15 She explained that formal STEM ecosystems connect schools, higher education, nonprofits, libraries, businesses, science centers, and many other organizations in a city or region to harness the unique contributions of each to work in symbiosis. GLSC is part of the Northeast Ohio STEM ecosystem to broaden the supply of local human capital, particularly in manufacturing and aerospace. GLSC houses the NASA Glenn Visitor Center; a project-based, year-round school; and a digital fabrication lab, among other resources.

Ellenbogen shared ideas about what has made the STEM ecosystem in northeast Ohio work. Alignment is key, she stressed—each partner has had to be willing to set aside some things it was working on that others were doing more efficiently. Industries in the area are eager to provide funding, staff time, and feedback. For example, she related a comment from one industry partner who said to deal with complex systems, they need “problem identifiers,” not just problem solvers.

In a collaboration with the Cleveland Metro School District, GLSC agreed to guidelines to integrate its programming with the district’s needs. “The field trip of time-gone-by is no longer acceptable,” Ellenbogen described. “We are integrated into the curriculum.” GLSC participates in teacher training, principals’ meetings, and even has access to the district’s software to schedule school busses to transport students to GLSC. Based on results from national test scores, the school district identified areas of needed curricular support (in energy science, alternative energy, and emerging technology) and a target age group (middle school) and worked with GLSC to facilitate the programming.

She called attention to a National Academies report that described how science learning can take place in science centers and other informal environments, including helping young people develop a science identity. 16 Coaches, ministers, athletes, and other influential adults are involved, along with parents and caregivers. She also stressed the power of giving youth authentic tasks to perform, such as when students learned skills for their robotics club by creating prosthetics for other students.

Broadening Participation in Data Science

Diversity among data scientists is critical to prevent bias, said Talitha Washington (Atlanta University Center [AUC] Data Science Initiative), who reported that only 3 percent of data and analytics professionals are Black. The AUC encompasses four co-located HBCUs in Atlanta with 9,000 students in total: Clark Atlanta University, Spelman

15 See https://stemecosystems.org/ .

16 National Research Council. 2009. Learning Science in Informal Environments: People, Places, and Pursuits. Washington, DC: The National Academies Press. https://doi.org/10.17226/12190 .

College, Morehouse College, and Morehouse School of Medicine. Nationwide, she added, the approximately 101 HBCUs make up 3 percent of all U.S. higher education institutions and enroll 10 percent of Black students. They graduate 24 percent of Black students with STEM degrees, and HBCUs are the institutions of origin of almost 30 percent of Black students in STEM doctorate programs. Thus, the initiative hopes to leverage this production of Black STEM professionals at HBCUs to enhance data science across all disciplines.

The specific goals of the AUC Data Science Initiative are to develop new talent and create new knowledge through curriculum development, research, and engagement. Industry partners help build the talent pipeline by co-developing programs, providing guest lecturers, and designing real-world applications. Faculty undertake research, expand pathways, and develop curriculum. Students participate in research, training, and workforce development. UnitedHealth Group was the initial sponsor, and other companies have since become sponsors to create opportunities across the curriculum.

Washington stressed the need to build sustainable institutional capacity with faculty and staff with training, small grants, and workshops. A Data Science and Analytics minor framework was developed that can prepare students to obtain, process, analyze, and present complex data, including data related to the African diaspora. Workshops on using data have been offered to students from AUC and other HBCUs, such as on using data to drive reform related to the legal system and to health equity. A data science course for all students, data science club, a one-week summer experience for entering students, and several symposia and seminar series further empower and connect students, faculty, and researchers. Clark Atlanta, in collaboration with the AUC Data Science Initiative, has an NSF Research Experience for Undergraduates (REU) site that offers a supported summer program on the interface between chemistry and data science.

Washington said the initiative is now expanding its work across HBCUs. She shared examples of current efforts at HBCUs, including a six-school Data Science Consortium led by Florida A&M University, a Data Science and Cybersecurity Center at Howard University, and a Center for Applied Data Science at Winston-Salem University. The NSF INCLUDES program also recently funded the establishment of a National Data Science Alliance, led by Washington, to build a national network of HBCUs to advocate for the building of institutional data science capacity “to transform data science discoveries into tangible societal benefits that advance equity for all.”

Praising programs like the AUC Data Science Initiative, a participant observed that Black S&E students at Predominately White Institutions (PWIs) also can benefit from these programs and asked how they can participate. Washington commented that some opportunities come to HBCUs because a sponsor or funder has a “diversity box to check.” She underscored partnerships must be mutually beneficial, including institution-to-institution relations with PWIs that facilitate open communication and exchange of ideas.

Advanced Technical Education Program

Celeste Carter (NSF) described the Advanced Technological Education (ATE) program within NSF’s Directorate for STEM Education as another resource to prepare a skilled technical workforce to improve U.S. competitiveness. As noted by her NSF colleague Burke earlier in the day, when NCSES started to collect data on this segment of the workforce, also known as “middle-skills” occupations or “blue-collar STEM,” it showed that the country’s STEM workforce was twice as large as previously thought. Nearly 20 million people without a bachelor’s degree are in the STEM workforce.

Citing data from the American Association of Community Colleges, Carter said community and technical colleges represent a way to educate these future workers and broaden participation. Two-year institutions enroll 10.3 million students, 60 percent of whom are women. They enroll a large number of underrepresented minorities (27 percent Hispanic, 12 percent African American), many of whom are first-generation students. The average age is 27. 17

17 For more Fast Facts from the American Association of Community Colleges, see https://www.aacc.nche.edu/research-trends/fast-facts/ .

The ATE workforce readiness program puts two-year institutions at the forefront. Public–private partnerships are developed with industry to keep pace with real-world industry needs. Career pathways are forged with high schools and four-year institutions. Carter referred participants to several publications on building the skilled technical workforce, including a National Academies consensus study, 18 a National Science Board report, 19 an NSF-CORD report on cross-disciplinary STEM skills, 20 and the ATE Impacts Report. 21 She also suggested CareerOneStop at the Department of Labor as a resource. 22

There are 389 active ATE Projects, 27 Centers, and 6,408 resources archived on an ATE central repository, many related to advanced manufacturing. 23 Examples include the National Center for Autonomous Technologies and the National Electric Vehicle Consortium. Industry partners have provided monetary and in-kind support. Referring to the earlier discussion about the time lag for educational institutions to change curriculum offerings, Carter countered with the example of the Convergence Tech Center in Texas that can change and roll out curriculum to 80 programs across the United States quickly. She also noted 50 ATE projects have developed or maintained articulation agreements that have allowed 640 students to matriculate to higher-level institutions. Carter called attention to an NSF “Dear Colleague” letter from ATE and Industry-University Cooperative Research Centers (IUCRC) on supplemental funding for Skills Training in Advanced Research & Technology (START) to support training in hyperspectral sensing for community college students and faculty.

Carter reflected on some “take-homes.” First, given their demographic composition, two-year institutions can support DEI. Quoting recently retired Portland Community College President Mark Mitsui, she stressed, “Talent is universal, opportunity is not.” Second, Carter noted the education of the skilled technical workforce relies on use-inspired research developed in authentic, mutually beneficial partnerships with industry. Third, she said hands-on training is critical in developing skills and competencies, with augmented and virtual reality training as a way to introduce students to new skills and competencies. And lastly, Carter emphasized that lifelong learning is also critical for up- and reskilling. “We have to change the narrative on what these jobs look like,” she said. Carter noted that NSF supports development of the STEM workforce in other ways, such as a new solicitation through the Improving Undergraduate STEM Education (IUSE) program aimed at improving pathways between two-year and four-year engineering programs.

EMPOWERING THE INNOVATIONS OF TOMORROW TO ENHANCE U.S. INNOVATION CAPACITY

The final panel focused on the role of entrepreneurship and innovation throughout STEM educational and career pathways.

Building a Technology Ecosystem in Higher Education

Lance Collins (Virginia Tech) explained how investing in technology to foster innovation through higher education, pioneered by Mayor Michael Bloomberg through Cornell Tech in New York City, is envisioned at Virginia Tech’s new Innovation Campus in northern Virginia. “In the digital economy, talent and technology are the drivers of national and global competitiveness,” he stated. “Universities are well positioned, because we contribute to both.” In its bid to serve as an Amazon headquarters, Virginia included plans to invest in housing, transportation, and higher education to grow tech talent that Amazon will need.

The Innovation Campus, which is under construction, is envisioned as “both a place and a culture that unlocks the power of diverse people and ideas,” Collins said. He stressed that in building something new, “getting the culture right is 99 percent of the game.” In this respect, the Innovation Campus’s defining culture is bold, outward-facing, and committed to living up to the term

18 National Academies of Sciences, Engineering, and Medicine. 2017. Building America’s Skilled Technical Workforce . Washington, DC: The National Academies Press. https://doi.org/10.17226/23472 .

19 National Science Board. 2019. The Skilled Technical Workforce: Crafting America’s Science & Engineering Enterprise; NSF and Center for Occupational Research and Development. 2021. https://www.nsf.gov/nsb/publications/2019/nsb201923.pdf .

20 A Framework for a Cross-Disciplinary STEM Core , https://www.preparingtechnicians.org/wp-content/uploads/A-Framework-for-a-Cross-Disciplinary-STEM-Core.pdf .

21 Advanced Technological Education Impacts 2022-2023: Strengthening the Skilled Technical Workforce, https://ateimpacts.net/flipbook/#p=1 .

22 For more information, see https://www.careeronestop.org .

23 For a full list of ATE centers, projects, and resources, see www.atecentral.net .

“innovation” along every dimension, he said. “If there is a better way of doing things—we are starting something new, and we can do the work to do it that better way.” It also has a commitment to be the most diverse graduate tech program in the nation. He noted this commitment is measurable and galvanizing to everyone working on the campus.

The program focus is on computer science and computer engineering. The Master of Engineering will be the largest degree, built around project-based education sourced from industry. PhD/MS programs will operate in a “use-inspired environment” and post-doc appointments will also be on campus. At full build, enrollment will be 750 students undertaking 100 or more projects a year to solve problems for industry, government agencies, education, and others. Purpose-driven research is organized around two main areas: advancing the art of the possible and improving the human experience. Twelve initial faculty who worked elsewhere at Virginia Tech have been named to the Innovation Campus, with a goal of 50 faculty at full build. Companies are providing a tiered system of support. He noted there is also an increase in computer S&E enrollment at the Blacksburg campus.

The schedule to grow is aggressive, with a lot of hard work to increase enrollment of women and underrepresented minorities. The goal at full build is that women comprise 50 percent of the student body and underrepresented minorities 30 percent.

New Priorities in the Economic Development Administration

The Department of Commerce is invested in the importance of a skilled workforce, said Eric Smith (Economic Development Administration [EDA]) in explaining EDA’s mission and programs to achieve it. With a mission to lead the federal economic development agenda, EDA programs increase America’s global competitiveness, support community-led economic development, and help communities develop resilient and agile local economies. Workforce development ties together infrastructure and community needs. Smith agreed with previous speakers’ emphasis on win-win collaboration and “hyper-partnerships” to enhance competitiveness. EDA has seven investment priorities: (1) equity, (2) recovery and resilience, (3) workforce development, (4) manufacturing, (5) technology-based economic development, (6) environmentally sustainable economic development, and (7) exports and foreign direct investment. 24

Smith highlighted several EDA programs. Technology-based economic development and workforce development tie into several EDA efforts. They include regional programs to support entrepreneurs and build STEM talent pipelines, support to University Centers, Public Works and Economic Adjustment Assistance to improve infrastructure, and Communities of Practice. One Community of Practice focuses on workforce development. The premier program within the Office of Innovation and Entrepreneurship is a Build to Scale Challenge. It is comprised of a Venture Challenge to support regional innovation systems and a Capital Challenge to increase access to capital, particularly in communities with limited access to equity capital. 25

EDA’s cross-agency collaborations, such as with the Department of Energy and NIST, align investments that strengthen entrepreneurial ecosystems related to particular missions. A new EDA program, the STEM Talent Challenge, funds projects to establish or grow training systems that align with STEM worker demand in a given region. Governance is important, he stressed, to ensure that partnerships are durable. STEM workforce development underlies all EDA priorities, he concluded.

Labor Implications of Technology Change

Moving from specific programs to insights on labor and technology, Christophe Combemale (Allegheny County Department of Human Services) summarized research he and others conducted at Carnegie Mellon University on how technological characteristics map to workforce implications, and how technology change impacts inequality. 26 He noted previous presenters discussed

24 To learn more about EDA’s Investment Priorities, see https://eda.gov/about/investment-priorities/ .

25 For more information on Build to Scale, see http://eda.gov/oie/buildtoscale .

26 The presentation was based on two papers: Combemale, Ales, Fuchs, and Whitefoot. 2022. “How it’s made: A general theory of the labor implications of technology;” and Combemale, C. 2022. “New technology, new hierarchy.”

building STEM pipelines and meeting the demand for specific skills, and expressed hope that his work connects these two areas in a strategic way to inform technology innovation and adaptation.

“Technological changes in the last 100 years have been multidimensional,” he stated. He called attention to the literature on skill-based technological change, including findings related to different levels of skills required and the wages that result. His research tries to answer the question, “What characteristics of technology lead to different effects on labor demand, and what choices do we get to make about those effects?”

Combemale presented a general theory of how technology changes work. First, the effect of technology is mediated by two tradeoffs: (1) rate versus complexity, and (2) division of labor. Technology changes the characteristics of performers (humans or machines) and production by changing how sensitive the performers are to the rate of production, their sensitivity to complexity, the cost of reassigning them to utilize full capacity, and the cost of fragmenting production.

Combemale highlighted his research modeling the rate-complexity tradeoff, specifically in the area of automotive welding. In that research, tasks are broken up into steps and performers are assigned to each step. In this model, longer steps involve higher complexity, and fragmentation costs depend on the tasks. The differences in ability demand come from steps of different lengths. Working faster requires a higher level of ability to complete the steps successfully. A firm can apply this theory to determine whether a human or a machine is best suited to perform each step. A machine may be able to perform a task quicker than a human, but it does not have the flexibility of a human to be “reassigned” when a task is completed.

Combemale called attention to the “cone of automation” in the model. An upper bound of automation is driven by complexity. “Humans are better at handling complexity than machines, and are cheaper than machines in these situations,” he explained. With simple tasks, the lower bound is driven by underutilization of inflexible machines. Empirical data from the 1890s, when decisions about human versus machine production were made, back up this theory, he said. Today, he continued, the constraint on automation drives a polarizing effect on skill demand, as shown in the semiconductor industry. People with the highest and lowest skill levels are less affected by automation than those in the middle.

Combemale then applied the theory to another application: the consolidation of parts. In many industries, parts that had been discretely fabricated and assembled are consolidated into one piece. “While the consolidation of parts is key to U.S. competitiveness, it merges many short, simple steps and shifts demand away from the lowest-wage workers toward the middle,” he explained. At the same time, the overall complexity of the process is reduced, and skills converge toward the middle. Thus, he said, not all technological change needs to result in inequality.

Combemale suggested this model as a map of the labor implications of technology. He reiterated that the division of labor realizes gains from this rate-complexity tradeoff. Technology change acts on skill demand by shifting this tradeoff. This theoretical approach, grounded in empirics, supports a taxonomy to explain and plan for the effects of new technology, and an integration between technology development and the STEM workforce pipeline, he concluded.

CONCLUDING REMARKS

GUIRR co-chair Pines closed the workshop by summarizing points that emerged from the presentations and discussions. He noted the dire statistics about the U.S. STEM enterprise related to the workforce and to diversity in the STEM pipeline, including the lack of growth in traditional engineering disciplines. Workers with “middle skills” are increasingly needed by industry, he continued, and he welcomed the attention to this priority. He also called attention to the efforts to broaden participation, with science centers, two-year institutions, and HBCUs among the places where innovation is happening. Turning to the final panel, he noted the role

of the broader innovation ecosystem to grow talent. Undergirding these ideas, Pines recalled NSF director Panchanathan’s motivating remarks showing how advances across STEM fields can occur at speed and at scale.

DISCLAIMER This Proceedings of a Workshop—in Brief was prepared by Paula Whitacre as a factual summary of what occurred at the workshop. The statements made are those of the rapporteur or individual workshop participants and do not necessarily represent the views of all workshop participants; the planning committee; or the National Academies of Sciences, Engineering, and Medicine.

PLANNING COMMITTEE Corinna Lathan , Anthrotronix; Zachary Lemnios , ZJL Consulting, LLC; Victor McCrary , University of the District of Columbia

REVIEWERS To ensure that it meets institutional standards for quality and objectivity, this Proceedings of a Workshop—in Brief was reviewed by Bryant Moore , University of North Carolina at Chapel Hill, and Pamela Norris , The George Washington University. Marilyn Baker , National Academies of Sciences, Engineering, and Medicine, served as the review coordinator.

STAFF Michael Nestor , Director; Megan Nicholson , Senior Program Officer; Komal Syed , Program Officer; Christa Nairn , Senior Program Assistant; Clara Savage , Senior Finance Business Partner; Cyril Lee , Financial Assistant.

SPONSORS This workshop was supported by the Government-University-Industry Research Roundtable membership, National Institutes of Health (HHSN263201800029I/75N98021F00017), Office of Naval Research, and the United States Department of Agriculture.

For additional information regarding the workshop, visit http://www.nas.edu/guirr .

SUGGESTED CITATION National Academies of Sciences, Engineering, and Medicine. 2023. Developing Human Capital to Support U.S. Innovation Capacity: Proceedings of a Workshop—in Brief. Washington, DC: The National Academies Press. https://doi.org/10.17226/27042 .

Domestic and international competition for STEM talent is driving institutions across the research and innovation landscape to consider new policies and partnerships for building and managing STEM knowledge and skills. New levels of investment in human capital to increase U.S. innovation capacity and competitiveness will require coordination and collaboration among academic institutions, workforce development programs, labor organizations, companies, and funders of research and education.

On October 18-19, 2022, the Government-University-Industry Research Roundtable convened a workshop for its membership and invited guests to consider the strategic priority of human capital investment in preparing the future workforce and supporting national innovation capacity. The workshop discussions examined the state of U.S. workforce preparation and considered trends in supply and demand for human capital to meet the needs of a transforming research enterprise. This publication summarizes the presentation and discussion of the workshop.

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What Is Human Capital?

Understanding human capital, special considerations.

• Human Capital FAQs

The Bottom Line

Human capital definition: types, examples, and relationship to the economy.

Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.

Investopedia / Ellen Lindner

The term human capital refers to the economic value of a worker's experience and skills. Human capital includes assets like education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality.

As such, it is an intangible asset or quality that isn't (and can't be) listed on a company's balance sheet . Human capital is perceived to increase productivity and thus profitability. The more investment a company makes in its employees, the chances of its productivity and success become higher.

Key Takeaways

• Human capital is an intangible asset not listed on a company's balance sheet.
• Human capital is said to include qualities like an employee's experience and skills.
• Since all labor is not considered equal, employers can improve human capital by investing in the training, education, and benefits of their employees.
• Human capital is perceived to have a relationship with economic growth, productivity, and profitability.
• Like any other asset, human capital has the ability to depreciate through long periods of unemployment, and the inability to keep up with technology and innovation.

An organization is often said to only be as good as its people from the top down, which is why human capital is so important to a company. It is typically managed by an organization's human resources (HR) department, which oversees workforce acquisition, management, and optimization. Its other directives include workforce planning and strategy, recruitment , employee training and development, and reporting and analytics.

The concept of human capital recognizes that not all labor is equal. But employers can improve the quality of that capital by investing in employees. This can be done through the education, experience, and abilities of employees. All of this has great economic value for employers and for the economy as a whole.

Since human capital is based on the investment of employee skills and knowledge through education, these investments in human capital can be easily calculated. HR managers can calculate the total profits before and after any investments are made. Any return on investment (ROI) of human capital can be calculated by dividing the company’s total profits by its overall investments in human capital.

For example, if Company X invests $2 million into its human capital and has a total profit of $15 million, managers can compare the ROI of its human capital year-over-year (YOY) in order to track how profit is improving and whether it has a relationship to the human capital investments.

Human capital tends to migrate, especially in global economies. That's why there is often a shift from developing places or rural areas to more developed and urban areas. Some economists have dubbed this a brain drain or human capital flight. This describes the process that keeps certain areas underdeveloped while others become even more developed.

Human Capital and Economic Growth

There is a strong relationship between human capital and economic growth , which is why it can help boost the economy. That's because people come with a diverse set of skills and knowledge. This relationship can be measured by how much investment goes into people’s education.

Some governments recognize that this relationship between human capital and the economy exists, and so they provide higher education at little or no cost. People who participate in the workforce with higher education will often have larger salaries, which means they can spend more.

Does Human Capital Depreciate?

Like anything else, human capital is not immune to depreciation . This is often measured in wages or the ability to stay in the workforce. The most common ways human capital can depreciate are through unemployment, injury, mental decline, or the inability to keep up with innovation.

Consider an employee who has a specialized skill. If they go through a long period of unemployment , they may be unable to keep these levels of specialization. That's because their skills may no longer be in demand when they finally reenter the workforce.

An individual's human capital may depreciate if they can't or won't adopt new technology or techniques. Conversely, the human capital of someone who does adopt them will.

History of Human Capital

The idea of human capital can be traced back to the 18th century. Adam Smith referred to the concept in his book "An Inquiry into the Nature and Causes of the Wealth of Nations ," in which he explored the wealth , knowledge, training, talents, and experiences of a nation. Adams suggested that improving human capital through training and education leads to a more profitable enterprise, which adds to the collective wealth of society. According to Smith, that makes it a win for everyone.

In more recent times, the term was used to describe the labor required to produce manufactured goods. But the most modern theory was used by several different economists including Gary Becker and Theodore Schultz , who invented the term in the 1960s to reflect the value of human capacities.

Schultz believed human capital was like any other form of capital to improve the quality and level of production . This would require an investment in the education, training, and enhanced benefits of an organization's employees.

Criticism of Human Capital Theories

The theory of human capital has received a lot of criticism from many people who work in education and training. In the 1960s, the theory was attacked primarily because it legitimized bourgeois individualism, which was seen as selfish and exploitative. The bourgeois class of people included those of the middle class who were believed to exploit those of the working class. The theory was also believed to blame people for any defects that happened in the system and of making capitalists out of workers.

What Are Examples of Human Capital?

Examples of human capital include communication skills, education, technical skills, creativity, experience, problem-solving skills, mental health, and personal resilience.

What Is the Relationship Between Human Capital and the Economy?

Human capital allows an economy to grow. When human capital increases in areas such as science, education, and management, it leads to increases in innovation, social well-being, equality, increased productivity, improved rates of participation, all of which contribute to economic growth. Increases in economic growth tend to improve the quality of life for a population.

How Can I Increase My Human Capital?

Ways to increase your own human capital include more education, automating finances to improve efficiency, expanding your horizons outside of your social and workplaces, obtaining more experience, increasing participation in a multitude of activities or organizations, improving your communication skills, improving your health, and expanding your network.

What Is Human Capital Risk?

Human capital risk refers to the gap between the human capital requirements of a company or organization and the existing human capital of its workforce. This gap can lead a company towards inefficiencies, inability to achieve its goals, a poor reputation, fraud, financial loss, and eventual closure. To reduce and eliminate human capital risk, an organization should train, foster, and support its workforce.

Human capital refers to the economic value of a worker's abilities and skills. Companies can enhance their human capital through recruitment or training, as well as by implementing management techniques that optimize the productivity of their existing workers. Maintaining and improving the value of human capital is usually the role of a company's HR department.

World Bank. " Building Human Capital ."

Scholars at Harvard. " Human Capital ," Page 1.

Schultz, Theodore W. " Investment in Human Capital ." The American Economic Review, vol. 51, no. 1, 1961, pp. 1-17.

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What Is Human Capital?

Definition of Human Capital

Examples of human capital.

• Human Capital & Education
• Human Capital & Economic Mobility

Ariel Skelley / Getty Images 

Human capital is the economic value of the abilities and qualities of labor that influence productivity, such as education.

Human capital recognizes the intangible assets and qualities that improve worker performance and benefit the economy. These qualities cannot be separated from the people who receive or possess them.

In the 1950s and early 1960s, Nobel Prize winners and University of Chicago economists Gary Becker and Theodore Schultz were among those primarily responsible for the development of the theory of human capital. Becker realized the investment in workers was no different than investing in capital equipment , which is another factor of production . Both are assets that yield income and other outputs.

Becker differentiated between general and specific human capital.

• Specific human capital : Training or education that benefits only one company
• General human capital : Training or qualities that benefit the individual at any company

Becker found that companies were more likely to pay for specific human capital while individuals paid for general human capital investments. Firms were less interested in investing in workers who might then be poached by competitors.

Human capital includes any human quality or value that can improve economic output and productivity.

Because these are intangible assets that cannot be separated from individual workers, quantifying them can be difficult. However, they consistently lead to increased economic performance.

Human capital can include qualities like:

• Technical or on-the-job training
• Mental and emotional well-being
• Punctuality
• Problem-solving
• People management
• Communication skills

Investment in these qualities improves the abilities of the labor force . The result is greater output for the economy and higher income for the individual.

Human Capital and Education

Becker's research focused on education. Becker pointed out that the cost of education is an investment that introduced issues of opportunity cost in terms of time and money.

Pursuing an education means that students lost the opportunity to work, travel, or have children. People only pursued an education if the potential income gain was greater than the cost.

Becker's research was limited in that it focused much on the education of white men, rather than diverse groups of people.

Becker’s theory explained how investing in education benefited people, companies, and countries. The majority of the states that spend the most on education also have median household incomes that are higher than the national median, which was $67,521 in 2020, a decrease of 2.9% from the 2019 median of $69,560.

As a region, the Northeast spends by far the most on education. Average per-student spending totaled $21,123 in 2020, compared to $13,535 in the Midwest, $12,802 in the West, and $10,954 in the South.

States with higher education scores generally have higher incomes, although that isn't always the case.

Human Capital and Economic Mobility

Investment in human capital benefits individual workers as well as the economy in which they participate, creating greater earning potential and an increased ability to build wealth. This is particularly true of education.

The average worker with a bachelor's degree earned $1,334 per week in 2021. Weekly income dropped to just $809 for those with just a high school diploma, and it rose to $1,909 for those with a doctoral degree. Those with higher levels of education have a better chance of earning enough income to save and acquire wealth, which is key to  economic mobility .

Improved Childhood Education

Families headed by educated parents earn more than those without college degrees. They are likely to either live in wealthier neighborhoods with better schools or can afford private schools.

These children then receive a better education than children of lower-earning parents. As a result, children of better-educated parents have greater earning potential and economic mobility.

The Familial Effect of College

The pursuit of higher education can influence future generations, according to research from the Federal Reserve. While a first-generation college graduate experiences an economic boost, it isn't enough to offset the economic advantage of having a college graduate as a parent.

The Fed study found that an individual's education is strongly related to their parents' education, meaning the more familiar and successful the parents are with higher education, the more likely it is that the adult child has a four-year degree. The Fed, in turn, found that a continuing generation of college graduates is significantly higher for younger generations.

Key Takeaways

• Human capital is the economic value of a person's abilities and the qualities of their labor that influence productivity.
• Examples of human capital include the education, technical training, or problem-solving skills that a person offers to a business.
• Education is one of the most important elements of human capital, as it often leads to increased economic output, higher individual income, and increased economic mobility for families.

University of Chicago Chronicle. " Theodore Schultz ."

Oxford Handbooks Online. " The Oxford Handbook of Human Capital ."

Journal of Political Economy. " Firm-Specific Human Capital: A Skill-Weights Approach ."

The Library of Economics and Liberty. " Gary Stanley Becker ."

Census Bureau. " Income and Poverty in the United States: 2020 ."

Census Bureau. " U.S. School System Current Spending Per Pupil by Region: Fiscal Year 2020 ."

Federal Reserve Bank of St. Louis. " Real Median Household Income by State, Annual ."

Bureau of Labor Statistics. " Earnings and Unemployment Rates by Educational Attainment, 2021 ."

Federal Reserve Bank of St. Louis. " First-Generation College Graduates Get a Financial Boost, but Don’t Catch Up ."

The people dilemma: How human capital is driving or constraining the achievement of national AI strategies

Subscribe to the center for technology innovation newsletter, samar fatima , samar fatima ph.d. student, qut business school - queensland university of technology gregory s. dawson , gregory s. dawson clinical professor, the w. p. carey school of business - arizona state university kevin c. desouza , and kevin c. desouza nonresident senior fellow - governance studies , center for technology innovation @kevdesouza james s. denford james s. denford professor, management department - royal military college of canada.

November 10, 2021

In the early days of the COVID-19 pandemic (June 2020), LinkedIn released a report showing that the demand for AI skills had cooled down—but by October 2020, demand had already come roaring back . This is not surprising: according to the 2020 RELX Emerging Tech Executive Report , AI adoption soared during the pandemic, and a staggering 68% of companies increased their AI investment during the year. Further, 81% of companies now report using AI technologies, up 33 percentage points since 2018.

Companies are increasingly using AI technologies on mission-critical applications, which has led to an explosion in the need for data scientists and technologists to build and support these applications. Not surprisingly, 39% of companies now cite a lack of technology expertise as a leading stumbling block to AI usage and adoption.

Despite the value of machine learning, much of AI development is still predicated on two pillars: technologies and human capital availability. Our prior reports for Brookings, “ How different countries view artificial intelligence ” and “ Analyzing artificial intelligence plans in 34 countries ,” detailed how countries are approaching national AI plans, and how to interpret those plans. In our most recent follow-up piece, “ Winners and losers in the fulfillment of national artificial intelligence aspirations ,” we discussed how different countries were fulfilling their aspirations along technology-oriented and people-oriented dimensions. In this, our first follow-up analysis, we dive more deeply into the people dimension of our typology, paying close attention to skills gap and attainment.

Development of human capital factors

We followed the same strategy in examining the people dimension of AI strategic plan fulfillment as we did with our prior post. In this case, we had three data elements that comprised our people dimension: Relative Skill Penetration (the prevalence of AI skills for the average occupation in the country), AI Hiring Index (the percentage of LinkedIn members within a given country that had AI skills reflect in their profile), and STEM graduates (the number of graduates with STEM degrees in any given country). The first two data elements were from Stanford’s Human Center Artificial Intelligence work while the STEM graduate information was from the World Bank .

Rather than attempting to interpret three data elements in isolation from each other, we conducted a factor analysis to determine if any of the three data elements were closely related. Closely related items were mathematically combined into a single composite factor which contains both data elements to aid in the interpretation of the data.

Our factor analysis showed Relative Skill Penetration and AI Hiring Index were closely related to each other and formed a single composite factor. Our other data element, STEM graduates, was not mathematically related to the other data elements, and so our interpretation is based on these two factors. The first factor reflects the current job market for AI, since it is based on professionals and job postings that currently exist.

The second factor is based around STEM students within each country, which reflects future additions to the job market. As these STEM students graduate, they will change the state of the job market. Using the two factors, we can interpret the people dimension within two distinct sub-dimensions: Present Market and Future Market.

Figure 1 shows where a select group of countries sit along these sub-dimensions.

We interpret and name the quadrants as follows. The countries that are in the upper right-hand corner we dub “ Leaders ”; they have both a robust current market (factor 1) and a strong incoming supply of qualified STEM students (factor 2). Countries in the lower right quadrant we dub “ Future Prepared ” and these are countries that have an incoming supply of qualified STEM students, but their current job market is weaker. The countries in the upper left quadrant – we dub the “ Present Prepared ” and are those countries that have a robust current job market, but they lack a strong supply of incoming talent. Finally, the lower left quadrant – we dub the “ Unprepared ” quadrant and these reflect countries that neither have a robust current job market, nor do they have a strong supply of incoming talent.

India, Germany, and Singapore

India (94th percentile in current market and 92nd percentile in future market), Germany (73rd percentile in current market and 98th percentile in future market), and Singapore (82nd percentile in current job market and 94th percentile in future market) are all ideally positioned for meet the human capital demands of AI work. All three countries have a robust current market of technically skilled people, and are positioned to generate even more with their current educational path. We see no people-centric issues that are likely to hinder them.

China and South Korea

Both China (48th percentile in current market and 96th percentile in future market) and South Korea (50th percentile in current market and 86th percentile in future market) are in the same position. While they do not currently have a robust market for AI technologists, they are pushing an impressive number of college students into the STEM fields; over time, this will shift them into the Leaders quadrant. For these countries, the question is how quickly they can convert their incoming swell of STEM graduates into the job market, and how many—if any—of their graduates leave for other countries.

US, Canada, Australia, and Sweden

All four of these countries face a similar problem. While they currently have a strong market for skilled technologists, they are about to drop off a cliff without a strong incoming set of STEM-skilled students. While Canada (80th percentile in current market and 38th percentile in future market) is in a marginally better position than the other three countries, all four countries need to push harder to encourage more residents to enter STEM fields. For the US (80th percentile in current market and 18th percentile in future market), this problem is likely to get worse: the majority of their current STEM students are from other countries and are likely to return to their home countries upon graduation. As such, we believe that the US position may be artificially optimistic, since our data does not distinguish the citizenship of current STEM students within the country.

The U.S. ranks poorly

At present, India, Singapore, and Germany are in a strong position and are also developing sufficient human capital to achieve their national AI strategies. All our analyses indicate that their current markets are good, and their future markets are also strong. China and South Korea are playing catch-up to India, Singapore, and Germany, as their current job market is weak but they have a very strong base of incoming talent.

There is no way around the bad news for the US, Canada, Australia (62nd percentile in current market and 20th percentile in future market), and Sweden (48th percentile in current market and 72nd percentile in future market). All four countries are going to be in trouble with a lack of AI talent unless they immediately and dramatically improve the number of STEM graduates in their colleges and universities. While they are surviving based on the number and talent that currently exists, the future appears bleak unless strong measures are taken.

In our next post, we will dive more deeply into the technology dimension of the fulfillment of national AI strategic plans. But, unmistakably, these findings are a clarion call to the U.S. to make dramatic changes in STEM education now or be soon relegated to second-tier status.

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TRIZ (THEORY OF SOLVING INVENTIVE PROBLEMS) IN HUMAN CAPITAL MANAGEMENT

tmt.unze.ba

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Abstract: In the process of organizational adaptation to environmental demands, primarily through the anticipated outputs, human resources play a key role. The procuring of necessary human resources, their working commitment and development, are the basic assignments of the management of human resources. The appliance of a contemporary concept of management of human resources, based on theoretical and practical cognizance of successful organizations, contributes to a successful execution of these and other assignments. In order to develop such a concept it is necessary to provide, in addition to the relevant basics, a whole chain of professional and managerial activities.

IJSRP Journal

Human capital is just one of an organization’s intangible assets. It is basically all of the competencies and commitment of the people within an organization i.e. their skills, experience, potential and capacity. Human capital management is a reciprocal relationship between supply and demand: employees, contractors and consultants invest their own human capital into business enterprises and the business enterprises need to manage the supplier. Any organization interested in its performance will naturally ask how well they are managing this asset to ensure maximum return on their investment. In the same way, all employees, contractors, consultants and providers of human capital want to ensure they are getting the appropriate return for their own human capital investing through salary, bonuses, benefits, and so on. The aim of this paper is to study of nature of human capital management and its strategic role in achieving of competitive advantage for the organization and it is a review paper. The results of this study show the strategic importance of human capital and managing them in organizations.

IJAR Indexing

This descriptive paper looks into the impact of human capital strategy on organizational performance. To better understand the role of human capital strategy to human resource management as a function, the distinction between human resource and human capital are viewed in the context of human resource management (HRM) and human capital management (HCM) respectively. An in-depth literature review was conducted to examine both the convergent and divergent elements between HCM and HRM. Various literatures suggest that both HCM and HRM aim to help the organization achieve its objectives and gain competitive advantage. However, HCM is more strategic in nature for it takes into account the present needs of the company at the same time the effects of present actions to the future of the organization. This is not to say, however, that HCM should replace HRM. HCM complements, supports, and strengthens HRM. Both are concerned with the process of people management. In HCS, human resource management practices are still necessary. These practices, however, become more strategic in HCM. It can be said then that HCM compensates for what HRM lacks to guarantee that the organization can fully harness its competitive advantage. Consequently, human resource management as a function will remain relevant even upon the execution of a human capital strategy.

khalida parveen

Today in the world, global competition is the basic element to define firms' strategies as a result industrial economy has been experienced to pass toward to knowledge economy. At an age where total quality is of primary importance, efficiency can only be achieved by the successful utilization of human resources. Human resource management is one of the necessary needs of today's business. Human resource management department has a very important role for supply of the human being to main resources of companies. Human resource management department has fundamental role for personnel recruiting, orientation and performance appraisal and so on. Human resource management issues to be addressed at the highest level in the organization and management of strategic decisions are required. This research will inform human resource management, scope and affecting factors on human resource management, human resource management functions and relationship between organizational effectiveness and human resources management.

Human Resource Management

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Business strategy is based upon a knowledge of markets and needs, an understanding of the strengths and weaknesses of an organization, and an awareness of the political, social, and cultural factors that shape strategy implementation.† As managers adopt a strategic perspective toward human resources, they need to be sensitive to their labor market and employee's attitudes and needs, to the profile of jobs in their companies and jobholder's training and skills, and to key factors that will affect strategic management in their own firms. This paper identifies the factors companies need to consider when formulating human resource strategy and describes the implementation and monitoring of such strategies in two U. S. corporations: Caterpillar and Graphic Controls.

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Core Competencies - Organizational

Problem solving, definition:.

Accurately assesses problems and effectively and efficiently arrives at excellent solutions.

Key Behaviors

• Proactively identifies the root causes of problems
• Identifies and evaluates many possible causes for a problem
• Notices discrepancies and inconsistencies in information related to problems
• Asks meaningful and relevant questions to understand problems and potential causes
• Breaks down complex problems into their fundamental parts
• Analyzes costs, benefits, risks, and chances for success of potential solutions
• Creatively comes at problems in new and different ways that lead to innovative solutions
• Uses logical, systematic approaches to break down and solve problems

Proficiency Levels

• Expert: Models, leads, trains, and motivates multiple levels of personnel to be excellent at problem solving.
• Advanced: Even in the most complex situations, breaks down problems into their fundamental parts, identifies their root causes, analyzes costs, benefits, risks, and chances for success of potential solutions, and creatively attacks problems in ways that lead to innovative solutions.
• Intermediate: Often breaks down problems into their fundamental parts, identifies their root causes, analyzes costs, benefits, risks, and chances for success of potential solutions, and creatively attacks problems in ways that lead to innovative solutions.
• Basic: Sometimes breaks down problems into their fundamental parts, identifies their root causes, analyzes costs, benefits, risks, and chances for success of potential solutions, and creatively attacks problems in ways that lead to innovative solutions.
• Awareness: Occasionally solves problems effectively and efficiently, but often fails to do so because key steps in the problem solving process are not done well.

Effective Problem-Solving Techniques in Business

Problem solving is an increasingly important soft skill for those in business. The Future of Jobs Survey by the World Economic Forum drives this point home. According to this report, complex problem solving is identified as one of the top 15 skills that will be sought by employers in 2025, along with other soft skills such as analytical thinking, creativity and leadership.

Dr. Amy David , clinical associate professor of management for supply chain and operations management, spoke about business problem-solving methods and how the Purdue University Online MBA program prepares students to be business decision-makers.

Why Are Problem-Solving Skills Essential in Leadership Roles?

Every business will face challenges at some point. Those that are successful will have people in place who can identify and solve problems before the damage is done.

“The business world is constantly changing, and companies need to be able to adapt well in order to produce good results and meet the needs of their customers,” David says. “They also need to keep in mind the triple bottom line of ‘people, profit and planet.’ And these priorities are constantly evolving.”

To that end, David says people in management or leadership need to be able to handle new situations, something that may be outside the scope of their everyday work.

“The name of the game these days is change—and the speed of change—and that means solving new problems on a daily basis,” she says.

The pace of information and technology has also empowered the customer in a new way that provides challenges—or opportunities—for businesses to respond.

“Our customers have a lot more information and a lot more power,” she says. “If you think about somebody having an unhappy experience and tweeting about it, that’s very different from maybe 15 years ago. Back then, if you had a bad experience with a product, you might grumble about it to one or two people.”

David says that this reality changes how quickly organizations need to react and respond to their customers. And taking prompt and decisive action requires solid problem-solving skills.

What Are Some of the Most Effective Problem-Solving Methods?

David says there are a few things to consider when encountering a challenge in business.

“When faced with a problem, are we talking about something that is broad and affects a lot of people? Or is it something that affects a select few? Depending on the issue and situation, you’ll need to use different types of problem-solving strategies,” she says.

Using Techniques

There are a number of techniques that businesses use to problem solve. These can include:

• Five Whys : This approach is helpful when the problem at hand is clear but the underlying causes are less so. By asking “Why?” five times, the final answer should get at the potential root of the problem and perhaps yield a solution.
• Gap Analysis : Companies use gap analyses to compare current performance with expected or desired performance, which will help a company determine how to use its resources differently or adjust expectations.
• Gemba Walk : The name, which is derived from a Japanese word meaning “the real place,” refers to a commonly used technique that allows managers to see what works (and what doesn’t) from the ground up. This is an opportunity for managers to focus on the fundamental elements of the process, identify where the value stream is and determine areas that could use improvement.
• Porter’s Five Forces : Developed by Harvard Business School professor Michael E. Porter, applying the Five Forces is a way for companies to identify competitors for their business or services, and determine how the organization can adjust to stay ahead of the game.
• Six Thinking Hats : In his book of the same name, Dr. Edward de Bono details this method that encourages parallel thinking and attempting to solve a problem by trying on different “thinking hats.” Each color hat signifies a different approach that can be utilized in the problem-solving process, ranging from logic to feelings to creativity and beyond. This method allows organizations to view problems from different angles and perspectives.
• SWOT Analysis : This common strategic planning and management tool helps businesses identify strengths, weaknesses, opportunities and threats (SWOT).

“We have a lot of these different tools,” David says. “Which one to use when is going to be dependent on the problem itself, the level of the stakeholders, the number of different stakeholder groups and so on.”

Each of the techniques outlined above uses the same core steps of problem solving:

• Identify and define the problem
• Consider possible solutions
• Evaluate options
• Choose the best solution
• Implement the solution
• Evaluate the outcome

Data drives a lot of daily decisions in business and beyond. Analytics have also been deployed to problem solve.

“We have specific classes around storytelling with data and how you convince your audience to understand what the data is,” David says. “Your audience has to trust the data, and only then can you use it for real decision-making.”

Data can be a powerful tool for identifying larger trends and making informed decisions when it’s clearly understood and communicated. It’s also vital for performance monitoring and optimization.

How Is Problem Solving Prioritized in Purdue’s Online MBA?

The courses in the Purdue Online MBA program teach problem-solving methods to students, keeping them up to date with the latest techniques and allowing them to apply their knowledge to business-related scenarios.

“I can give you a model or a tool, but most of the time, a real-world situation is going to be a lot messier and more valuable than what we’ve seen in a textbook,” David says. “Asking students to take what they know and apply it to a case where there’s not one single correct answer is a big part of the learning experience.”

Make Your Own Decision to Further Your Career

An online MBA from Purdue University can help advance your career by teaching you problem-solving skills, decision-making strategies and more. Reach out today to learn more about earning an online MBA with Purdue University .

If you would like to receive more information about pursuing a business master’s at the Mitchell E. Daniels, Jr. School of Business, please fill out the form and a program specialist will be in touch!

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Problem Solving

Identifies problems and uses logic, judgment, and data to evaluate alternatives and recommend solutions to achieve the desired organizational goal or outcome.

• Uses a logical method for organizing and analyzing information.
• Coordinates with others within his/her network, subject-matter experts and /or additional senior staff to interpret administrative policies, offer advice and solve related problems.
• Identifies and evaluates problems and possible causes to determine root causes and impacts.
• Generates solutions, taking into consideration political, organizational and individual realities.
• Identifies options for solving a problem and evaluates the relative strengths and weaknesses of each option.
• Uses expertise in policies and procedures to identify problems, and makes recommendations for addressing these via communication, job aids, training, etc.
• Researches issues thoroughly. Does not jump to quick conclusions or formulate opinions based on incorrect assumptions, or inaccurate/incomplete information.

Developmental opportunities for this competency are available from the NIH Training Center .

Contact us to ask a question, provide feedback, or report a problem.

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Stumped five ways to hone your problem-solving skills.

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Respect the worth of other people's insights

Problems continuously arise in organizational life, making problem-solving an essential skill for leaders. Leaders who are good at tackling conundrums are likely to be more effective at overcoming obstacles and guiding their teams to achieve their goals. So, what’s the secret to better problem-solving skills?

1. Understand the root cause of the problem

“Too often, people fail because they haven’t correctly defined what the problem is,” says David Ross, an international strategist, founder of consultancy Phoenix Strategic Management and author of Confronting the Storm: Regenerating Leadership and Hope in the Age of Uncertainty .

Ross explains that as teams grapple with “wicked” problems – those where there can be several root causes for why a problem exists – there can often be disagreement on the initial assumptions made. As a result, their chances of successfully solving the problem are low.

“Before commencing the process of solving the problem, it is worthwhile identifying who your key stakeholders are and talking to them about the issue,” Ross recommends. “Who could be affected by the issue? What is the problem – and why? How are people affected?”

He argues that if leaders treat people with dignity, respecting the worth of their insights, they are more likely to successfully solve problems.

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Best 5% interest savings accounts of 2024, 2. unfocus the mind.

“To solve problems, we need to commit to making time to face a problem in its full complexity, which also requires that we take back control of our thinking,” says Chris Griffiths, an expert on creativity and innovative thinking skills, founder and CEO of software provider OpenGenius, and co-author of The Focus Fix: Finding Clarity, Creativity and Resilience in an Overwhelming World .

To do this, it’s necessary to harness the power of the unfocused mind, according to Griffiths. “It might sound oxymoronic, but just like our devices, our brain needs time to recharge,” he says. “ A plethora of research has shown that daydreaming allows us to make creative connections and see abstract solutions that are not obvious when we’re engaged in direct work.”

To make use of the unfocused mind in problem solving, you must begin by getting to know the problem from all angles. “At this stage, don’t worry about actually solving the problem,” says Griffiths. “You’re simply giving your subconscious mind the information it needs to get creative with when you zone out. From here, pick a monotonous or rhythmic activity that will help you to activate the daydreaming state – that might be a walk, some doodling, or even some chores.”

Do this regularly, argues Griffiths, and you’ll soon find that flashes of inspiration and novel solutions naturally present themselves while you’re ostensibly thinking of other things. He says: “By allowing you to access the fullest creative potential of your own brain, daydreaming acts as a skeleton key for a wide range of problems.”

3. Be comfortable making judgment calls

“Admitting to not knowing the future takes courage,” says Professor Stephen Wyatt, founder and lead consultant at consultancy Corporate Rebirth and author of Antidote to the Crisis of Leadership: Opportunity in Complexity . “Leaders are worried our teams won’t respect us and our boards will lose faith in us, but what doesn’t work is drawing up plans and forecasts and holding yourself or others rigidly to them.”

Wyatt advises leaders to heighten their situational awareness – to look broadly, integrate more perspectives and be able to connect the dots. “We need to be comfortable in making judgment calls as the future is unknown,” he says. “There is no data on it. But equally, very few initiatives cannot be adjusted, refined or reviewed while in motion.”

Leaders need to stay vigilant, according to Wyatt, create the capacity of the enterprise to adapt and maintain the support of stakeholders. “The concept of the infallible leader needs to be updated,” he concludes.

4. Be prepared to fail and learn

“Organisations, and arguably society more widely, are obsessed with problems and the notion of problems,” says Steve Hearsum, founder of organizational change consultancy Edge + Stretch and author of No Silver Bullet: Bursting the Bubble of the Organisational Quick Fix .

Hearsum argues that this tendency is complicated by the myth of fixability, namely the idea that all problems, however complex, have a solution. “Our need for certainty, to minimize and dampen the anxiety of ‘not knowing,’ leads us to oversimplify and ignore or filter out anything that challenges the idea that there is a solution,” he says.

Leaders need to shift their mindset to cultivate their comfort with not knowing and couple that with being OK with being wrong, sometimes, notes Hearsum. He adds: “That means developing reflexivity to understand your own beliefs and judgments, and what influences these, asking questions and experimenting.”

5. Unleash the power of empathy

Leaders must be able to communicate problems in order to find solutions to them. But they should avoid bombarding their teams with complex, technical details since these can overwhelm their people’s cognitive load, says Dr Jessica Barker MBE , author of Hacked: The Secrets Behind Cyber Attacks .

Instead, she recommends that leaders frame their messages in ways that cut through jargon and ensure that their advice is relevant, accessible and actionable. “An essential leadership skill for this is empathy,” Barker explains. “When you’re trying to build a positive culture, it is crucial to understand why people are not practicing the behaviors you want rather than trying to force that behavioral change with fear, uncertainty and doubt.”

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Knowledge-guided parallel hybrid local search algorithm for solving time-dependent agile satellite scheduling problems.

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Shan, Y.; Wang, X.; Cheng, S.; Zhang, M.; Xing, L. Knowledge-Guided Parallel Hybrid Local Search Algorithm for Solving Time-Dependent Agile Satellite Scheduling Problems. Symmetry 2024 , 16 , 813. https://doi.org/10.3390/sym16070813

Shan Y, Wang X, Cheng S, Zhang M, Xing L. Knowledge-Guided Parallel Hybrid Local Search Algorithm for Solving Time-Dependent Agile Satellite Scheduling Problems. Symmetry . 2024; 16(7):813. https://doi.org/10.3390/sym16070813

Shan, Yuyuan, Xueping Wang, Shi Cheng, Mingming Zhang, and Lining Xing. 2024. "Knowledge-Guided Parallel Hybrid Local Search Algorithm for Solving Time-Dependent Agile Satellite Scheduling Problems" Symmetry 16, no. 7: 813. https://doi.org/10.3390/sym16070813

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