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Center for Effective Organizations

Working Paper

Make Human Capital a Source of Competitive Advantage

Edward E. Lawler III, 2008

For at least the last decade, it has been hard to pick up a business book, article, or corporate annual report without seeing statements that stress the importance of human capital. Surveys of executives confirm that many believe that finding and developing the right people should be one of their top priorities. However, it is one thing to stress the importance of human capital; it is another for organizations to be designed to reflect the importance of human capital.

This article looks at four areas where human capital should have a major impact on design: corporate boards, leadership, the human resource department, and information practices. In all of these areas there is a large gap between how most organizations operate and how they should operate in an organization that is built for human capital.

Corporate boards should have both the expertise and the information needed in order to understand and advise on talent issues at all levels of the organization. They should focus on developing managers who can provide leadership.

The HR Department should be the most important staff group. HR should have the best talent, the best information technology resources, and it should be a valued expert resource to the firm when it comes to strategy, change management, organization design, and talent management.

There is an old saying that what gets measured gets attended to. The implication of this for human capital is very straightforward. It will be a central focus of an organization only if the organization has measures that are as relevant, rigorous, and comprehensive as the measures of its financial assets and physical capital.

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