In his 1910 annual report, the then Public Service Commissioner observed five key responsibilities for public service leaders at all levels: stewardship; efficiency and economy; merit; accountability; and centralisation and decentralisation.1 In their stewardship role, Australian Public Service (APS) leaders and managers are fundamentally responsible for the vitality of the APS as a critical asset. They are also accountable for this asset to the Australian Government and the Australian people. As a service-based organisation, human capital is a vital component of APS productivity. As such, the ability of the APS to effectively manage its human capital is fundamental to meeting the growing demands of government and the population.
There are many definitions of human capital2 but central to all is the idea that human capital is the sum of the knowledge, skills, and abilities of all the people who contribute to an organisation. Like other forms of capital, human capital must first be secured and then managed effectively so it is optimally employed to meet organisational outcomes. Building human capital occurs through recruitment (or in the lexicon of the APS, engagement) and investment in learning and development. The effective use of human capital is complicated and requires an understanding of the complex interactions between the workplace and the workforce that best produce workforce capability (what the workforce can do) and workforce capacity (how much it can do).
Human capital is one contributor to organisational performance (others include financial and physical capital). It is by definition, however, ‘inseparably embedded in a specific individual’3, which has three important implications for organisations. First, while investment in human capital is a cost, it does not create an asset for the organisation in an accounting sense (that is, it cannot be traded like physical capital). Second, and relatedly, if an employee leaves an organisation, any investment made in that employee may be perceived as leaving the organisation, even though the investment may ‘pay off’ in other ways. For example, the employee may exercise new skills and behaviours that are emulated by others, or may introduce changes to systems or culture that endure and, in effect, leverage the investment made in their development for the enduring benefit of the agency. Also, the benefit of an investment in an employee may not be lost to the APS if that employee moves from one APS agency to another. Third, the effective use of human capital depends not only on the knowledge, skills and abilities of the employee (that is, their ability to do the job) but their motivation to perform their job effectively. More than a century of research on work motivation suggests that many factors contribute to this.4
This chapter reports on human capital management in the APS. It identifies the contribution of human capital to organisational performance and proposes a method for evaluating this. Specifically, the chapter uses the APS Human Capital Framework5 (the Framework) to propose a human capital index designed to help measure and evaluate human capital and its management in the APS. Human capital is supported by organisational processes and systems, such as performance management systems, diversity strategies, cultural change programmes, and risk management processes (to name a few). While not the focus of this chapter, these systems and processes are key to developing and maintaining effective human capital.
1 McLachlan, DC 1910, Public Service Commissioners Annual Report 1910, Commonwealth of Australia, Canberra, p. 7.
2 See, for example, Stroombergen, A, Rose, D, & Nana, G 2002, Review of the Statistical Measurement of Human Capital, Statistics New Zealand, Wellington, New Zealand, viewed 9 October 2014, http://www.stats.govt.nz/browse_for_stats/education_and_training/Tertiary%20education/review-statistical-measurement-of-human-capital.aspx.
3 Foong, K & Yorsten, R 2003, Human Capital Measurement and Reporting: A British Perspective, London Business School, London, p. 14.
4 For example, Vroom, VH 1995, Work and Motivation, Jossey-Bass, San Francisco.