Preface to the
First Edition
The Missin g Pi ec e
The classic books of management have ignored, avoided, or
thrown platitudes at the question of human value in the
business environment. When and if the authors did give
passing attention to valuing the human contribution, their
comments were either gratuitous or simplistic. Nineteenth-
century capital theory claimed that wealth was leveraged
from investments in tangible assets such as plants and
equipment. It held that workers were entitled to compensa-
tion only for their labor, since the incremental values of the
business came from investment in capital equipment. This
type of thinking lit the fire under people like Karl Marx and
Samuel Gompers. From the early work of Fayol
and Bar-
which supported this thinking, to the more enlight-
ened insights of Drucker, Peters, Handy, and others, no one
has successfully taken on the challenge of detailing how to
demonstrate the relative value of the human element in the
profit equation. Invariably, writers attempting to do so have
opted out at the last minute with weak-kneed excuses for
not closing the loop with specific examples. The only excep-
tion has been some of the human resources accounting
work, and that has not been accepted as a practical manage-
ment tool.
The term human capital originated with Theodore
Schultz, an economist interested in the plight of the world’s
underdeveloped countries. He argued correctly that tradi-
tional economic concepts did not deal with this problem.
His claim was that improving the welfare of poor people did
not depend on land, equipment, or energy, but rather on
knowledge. He called this qualitative aspect of economics
‘‘human capital.’’ Schultz, who won the Nobel Prize in 1979,
offered this description:
Consider all human abilities to be either innate or acquired.
Every person is born with a particular set of genes, which de-
termines his innate ability. Attributes of acquired population
quality, which are valuable and can be augmented by appro-
priate investment, will be treated as human capital.
In business terms, we might describe human capital as a
combination of factors such as the following:
The traits one brings to the job—intelligence, energy, a
generally positive attitude, reliability, commitment
One’s ability to learn—aptitude, imagination, creativity,
and what is often called ‘‘street smarts,’’ savvy (or how
to get things done)
One’s motivation to share information and knowledge—
team spirit and goal orientation
The great irony is that the only economic component that
can add value in and by itself is the one that is the most
difficult to evaluate. This is the human component, which is
clearly the most vexatious of assets to manage. The almost
infinite variability and unpredictability of human beings
make them enormously more complex to evaluate than one
of the electromechanical components that comes with pre-
determined operating specifications. Nevertheless, people
are the only element with the inherent power to generate
value. All other variables—cash and its cousin credit, mate-
rials, plant and equipment, and energy—offer nothing but
inert potentials. By their nature, they add nothing, and they
cannot add anything until some human being, be it the
lowest-level laborer, the most ingenious professional, or the
loftiest executive, leverages that potential by putting it into
play. The good news is that measuring the value added of
human capital is possible. In fact, it has been going on in a
dozen countries since the early 1990s. Why this is known by
only a relatively few managers will be addressed later.
Viewed from either an economic or a philosophic per-
spective, the thing that matters most is not how productive
people are in organizations. That is a by-product of some-
thing more fundamental. The most important issue is how
fulfilled people are in their work. No amount of compensa-
tion can restore the soul of a person who has spent his or her
life in mindless toil. In fact, even a modicum of economic
comfort cannot overcome the bitterness of that experience.
Curiously, fulfilling work is truly its own reward for the indi-
vidual and the enterprise. In the final analysis, there is clear
and abundant evidence that an organization that makes
work as fulfilling as possible will develop and retain the
most productive workers and enjoy the most loyal cus-
One of the key drivers of fulfillment is knowledge. Know-
ing how well we have done leads directly to job satisfaction.
The only thing that is more satisfying than seeing data that
show our accomplishments is having our supervisor see the
results of our labor and compliment us on a job well done.

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