How a knowledge-based approach might illuminate the notion of human capital and its measurement

Human capital measurement and accounting has been under discussion for years without any satisfactory methodology emerging. The economic significance of today’s knowledge-intensive organizations makes better HC measurement more pressing. We draw on insights from the knowledge-based theory of the firm and conclude we can only make sense of its human capital by looking in detail at its practices. Human capital is the value added at the level of the work practice—as traced by activity-base accounting. Overall the firm’s human capital totals into its goodwill. The human capital can be estimated and then managed by allocating the goodwill to the activities taking place, a complex distribution process but one precisely complementary to that of activity-base accounting. q 2005 Elsevier Ltd. All rights reserved.