Accounting for Human Capital and Organizational Effectiveness

In modern times, developed nations have seen a distinguishable movement in terms of the important economic activities that constitute gross domestic product (GDP). Today, these nations are far less reliant upon either traditional primary (resource-based) commodities or even secondary (low value-added) commodities, such as manufactured goods. In these economies the emphasis is on service activities and intangible-based outputs (petty and Guthrie, 200). Moreover, with the rise of economics driven by knowledge, information, and changing patterns of impersonal activities, intellectual capital is of Greater importance. The development of knowledge-based economy requires management to approach its resources from different perspective, especially with respect to human capital. Human capital has been shown to contribute to an organization's performance and competitive advantage, and therefore to provide evidence of future organizational value and sustainability. However, research indicates that managerial awareness of the importance of human capital is still low, although there has been a shift from the traditional perception of work environments as cost centers towards a situation where the knowledge and skills of employees are considered as key elements of an organization (Roslender, 2008). In the future, organizations may depend more heavily on the human dimension, and therefore it is likely that human capital and its management, measurement and reporting will be critical to the success of all public and private organizations. Accounting for human capital has developed over the past forty-five years from a focus on cost and investment in individuals and education (Becker, 1965) to a broader approach (Roslender, 2008). Such an approach involves Accounting for knowledge, information, culture, values, skills, links to the community, practices to improve the environment, and customer service (Morgan, 2006).