Strategic human capital and the performance of public sector organizations

Organization scientists have long considered human capital as a strategic asset that contributes to organizational effectiveness. Whereas the strategic importance of human capital has been widely studied in the case of for-profit organizations, measurement difficulties and the role of human capital in the public sector have received little attention. The present study attempts to bridge this gap by suggesting a behavioral approach to measuring organization-specific human capital and examining its impact on the financial performance of local government authorities in Israel. The results confirm the strategic importance of human capital. Local government authorities that possess strategic human capital - namely, a workforce that is highly educated, that exhibits organization -specific competencies and experience, and that is valuable, unique, and imperfectly imitable - exhibited a better financial performance, as measured by a three-financial ratio scale over 2 fiscal years.