HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 14 NO 4, 2004 21 Evaluating human capital: an exploratory study of management practice Juanita Elias, Manchester University Harry Scarbrough, Warwick Business School Human Resource Management Journal, Vol 14, no 4, 2004, pages 21-40 The article explores the development of systems of human capital evaluation in a number of large UK firms. Human capital is a much used term in business literature, and it is widely recognised that firms need to develop mechanisms to determine the value of their employee base. An extensive human capital literature has developed in which the authors propose elaborate systems for measuring a firm’s human assets. This article does not seek to offer yet another human capital model. Rather, the aim is to examine the management practices through which human capital evaluation is undertaken. The article is based on an exploratory study of such practices in 11 major firms in the UK. The findings are highlighted as follows. First, we note the preference for internal over external (static accountancy-based) reporting. Secondly, we highlight the diverse nature of human capital evaluation systems that exist across UK business. Thirdly, we explore the relationship between practices of evaluation and the role and position of the HR function within the firm. Finally, in conclusion, we address the implications of the human capital perspective for practitioners, arguing that there is no single formula that can be applied to its evaluation. We go on to suggest that the importance of the human capital concept and its measurement may lie in its ability to re-frame perceptions of the relationship between the contribution of employees and the competitive performance of the business. Contact: Juanita Elias, School of Social Sciences, The University of Manchester, Oxford Road, Manchester, UK M13 9PL. Email: juanita.elias@manchester.ac.uk T he recognition that much of the added value created by firms is becoming more dependent on assets other than physical capital has stimulated a vast literature in the area of intellectual capital and intangible assets (Berkowitz, 2001; Drake, 1998; Leadbeater, 2000; Mayo, 2001; Miller and Wurzburg, 1995; Roos et al, 1997; Sveiby, 1997). In particular, emphasis has been placed on the importance of a company’s human capital – the value-creating skills, competencies, talents and abilities of its workforce – as an essential component in gaining competitive advantage (Bontis and Dragonetti, 1999; Leadbeater, 2000). As a result, there have been calls for human assets to be incorporated into company accounts, thereby giving investors a much clearer picture of where company value lies (Drake, 1998). In the UK specifically, such calls – notably from the professional body for personnel/HR managers, the Chartered Institute of Personnel and Development (CIPD) – have begun to exert an influence on government policy. In response, a UK government taskforce was established, and this has recently published its report, ‘Accounting for people’. 1 Approaches to human capital have been widely debated over the 40-year period since the concept was first popularised by studies of the role of education in economic development (Schultz, 1961) and within accountancy circles (Hermanson, 1964; Sackman et al , 1989). Views of human capital tend to revolve around a core