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136 MANAGING KNOWLEDGE WORK AND INNOVATION

knowledge workers in this way can provide a more strategic approach because
it highlights the links between the way people are recruited and managed and
long-term organizational performance. It also helps organizations identify the
distinctive contribution which its employees make to performance compared to
other sources of intellectual capital.
The concept of human capital itself derives originally from work by economists
seeking to explain the impact of learning and education on economic growth
(Becker, 1975). More recently, it has been used to explain the employee contribu-
tion to organizational performance. In this context, researchers have suggested
that the formation of human capital within an organization may be a source of
competitive advantage because it is difficult to replicate in other firms. Studies have
also emphasized that human capital is about more than the expertise possessed by
individuals. It also has to do with the organization’s ability to motivate those
individuals to apply their expertise to organizational goals. For example, Ulrich
defines human capital simply as ‘competence x commitment’ (Ulrich, 1998).
In recent years, there have been efforts to measure the human capital of the
firm in the same way that other assets are measured. However, they often fail
because of what has been termed the ‘paradox’ of human capital (Scarbrough
and Elias, 2002). In other words, human capital is valuable to the organization
because it is developed and applied according to the needs of a particular con-
text. Much of the most important human capital, for instance, accrues through
learning by doing and is closely related to successful performance by individu-
als. The value which this creates encourages organizations to try to measure
human capital so that it can be managed more effectively. The paradox, how-
ever, arises because the very same qualities – dynamic, context-dependent and
so on – which make human capital valuable also make it hard to measure.
Because managers are driven by their own performance targets to focus on
things which can be measured (often the financial numbers of the firm), one
outward sign of this paradox is managers paying more attention to measurable,
but short-term, financial targets than to the long-run value of human capital.
This tendency to marginalize human capital is particularly risky where its
contribution to organizational performance is ambiguous or hard to identify.
This is often the case in complex, knowledge-intensive organizations where
human capital is more about teams than a few outstanding individuals, and where
its impact on performance is longer term rather than immediate. If managers in
these settings take decisions on business strategy, as they often do, which overlook
the human capital of their knowledge workers, they risk damaging or destroying
their firm’s major competitive asset. This risk is enhanced because human capital
is also a fragile asset. Organizations do not ‘own’ their human capital in the same
way they do other assets. Knowledge workers, in particular, are highly mobile,
and can move to other employers, so any major change in strategy can result in
the rapid exit of highly valued expertise. A good example is when takeovers of
high-tech and professional service firms are followed by the departure of many of
the highly skilled staff who made the company valuable in the first place.
Even though measures of human capital are always likely to be imprecise
and context-dependent, the risk of losing this asset has prompted some firms

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