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Investing in human capital

Companies need to make the investment in education, training and motivation necessary to convert labor into “human capital,” an asset that differentiates the winners from the also-rans.
By John M. Hill, Director, St. Onge Company
December 21, 2010

In recent years, the potential of labor and workforce management systems using engineered standards for warehouse productivity improvement has been widely heralded in the press and on the Web. New tools focus on integrating these systems with demand-based planning, scheduling and warehouse management systems (WMS) to improve customer service by better matching the workload to predictable workforce capacity.  I am excited by these developments and encourage you to learn more about them in the pages of Modern Materials Handling and at industry events, like the upcoming Promat Show in Chicago next March.  For this brief column, however, allow me to approach the subject from a different angle. 

In classic economics, three factors are traditionally cited as being critical to goods-producing enterprises – land (or natural resources), capital (or the means of production) and labor.  Codified by Adam Smith in 1776, Karl Marx referred to them as “the holy trinity” of political economics.  The variable in the equation toughest to manage, of course, has been labor (or as many call it “human capital”, although there is a world of difference between the two terms).  With equivalent “land” and “capital”, why is it that some companies so dramatically outperform others – even when using the latest tools for performance management?  I think that the answer boils down to management’s understanding of the distinction between labor and “human capital” and its willingness to make the investments necessary to turn the former into the latter.

Years ago, I took a summer job as a night shift turret lathe operator in a well-equipped automotive feeder plant.  Paid by the piece and trying to put away enough money for my sophomore year at college, I didn’t need rocket science to figure out how to set up a pair of lathes and nearly double my output.  Within a few weeks, I had three lathes going and was earning twice as much as my peers.  And then, the roof fell in!  As opposed to taking my offer to show them how to set up the line to match my performance, my fellow workers found my Beetle in the parking lot, slashed the tires and sunroof, and smashed the windshield.  The following day, I put on a white shirt and tie and reported to work as the newly appointed assistant supervisor of inventory control – and production numbers returned to status quo levels.

In my example, the company had the land, the capital and the labor, but had not made the investment in education, training and motivation necessary to convert that labor into “human capital,” an asset that differentiates the winners from the also-rans. The point is that tools and systems alone will not get the job done – indeed, they should be enablers that allow an engaged, motivated and well-managed workforce to meet or exceed collaboratively-established performance targets. 

About the Author

John M. Hill
Director, St. Onge Company

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