In recent years, organizations have increasingly implemented ways measured to preserve human capital. They have established that it is a vital resource, and the conversations around it are evolving and growing more pertinent to organizational success, sustenance, and overall national development. Human capital refers to collective “knowledge, skills, attitudes, aptitudes" along with other characteristics that facilitate creation (Ali et al., 2018) . It encompasses learning garnered from formal education as well as informal competencies.
The Human Capital Theory
It was developed in the 18 th century and grew popular upon revision by Becker and Schultz in 1962. Initially, it was connected to the theory of macroeconomics that purported that the multiplication of production's physical factors ensures economic success (Houghton, 2017). The tenets of the theory were challenged in the 1960s as the growth in the United States economy could not be attributed to production's physical factors like land.
Delegate your assignment to our experts and they will do the rest.
The human capital theory underpins the idea that an individual’s assimilation potential is of corresponding value to other materials used in manufacturing and presenting goods and services (Houghton, 2017). People who finance and support continuous coaching and enlightenment improve their skill level and yield more than less skilled individuals. Therefore, the higher revenue that the experienced individuals attain can be attributed to the investment in training. The theory supports the evidence from the business environment, where learning organizations perform better, experience high yields, and experience low labor turnovers. Becker posits that implementing employee training increases productivity, which benefits the firm.
The Relevance of Human Capital in Organizations
Organization Competitiveness
The world has migrated from an agriculturally based economy to one where the knowledge is used to develop and efficiently deliver goods and services. An organization that desires to be successful in the knowledge-based economy should invest in its invisible benefits (Manuti et al., 2017). Human capital is a resource of great value as it encompasses the unseen skills, competencies, and information that organization employees hold, which increases its competitive advantage.
Employees assimilate knowledge from each other while working in an organization that actively supports learning through training and incentives to further education. They share information and develop ways to perform tasks unique to the company (Manuti et al., 2017). In this creative space, they also develop innovative ideas that save expenses for the company or increase its revenue. The value of human capital for organizations also lies in the fact that it is difficult to replicate (Kim et al., 2016). It is proportional to the organization's particular employees, the company structure, and systems, all of which take long periods to build. When a firm’s employees generate a higher revenue than their competitors, they improve their economic value.
Customer Satisfaction
An organization’s employees are a valuable resource in offering service to its customers. They have to be dedicated and believe in your vision to handle customers according to your core values (Pasban, & Nojedeh, 2016). Companies should use strategies like transparency, creating opportunities for employees to participate, and including them when considering change is an excellent way to buy them into your vision. Great service increases customer loyalty to the organization translating to financial rewards (Pasban & Nojedeh, 2016). How employees handle customers determines whether or not they stay loyal to your organization.
Role and Function of Human Resources Relating to Human Capital
Organizations play a role in establishing and supporting beneficial human capital by creating a conducive learning environment. The human resources department is an integral component in ensuring such a climate as it is directly mandated to observe employees' welfare.
A Mediating Role
Human resources' practices directly impact organizational performance that is realized through the utilization of human capital, among other resources. Human resources are the bridge between accomplishing organizational goals and employee fulfillment (Appelbaum et al., 2018). They conduct this duty by applying various procedures such as teaching evaluations and facilitating training for employees.
Employee training accords individuals with additional competencies to build a unique system that is beneficial for the organization (Kim et al., 2016). In return, human resources offer incentives by impacting the career progression of their employees. Practices like training, acknowledging employee career goals, empowering employees to make autonomous decisions, and building an atmosphere where individuals can be innovative are all functions of human resources for preserving human capital. The preservation and growth of human capital then translate to adding economic value for the business.
Functions of Human Resources
Recruitment and Training
Human resources in organizations evaluate the job performance of their workforce. A major component of improving the performance of an organization is practicing keenness while hiring new talent. Human resources apply various techniques to evaluate the best candidates for open positions, including diversity and the candidates' traits that would befit the company culture. Moreover, human resources make decisions on the best ways to motivate the incoming workforce by acknowledging achievements and appropriate compensation.
Performance Management
Successful organizations have a system of evaluating the productivity of employees concerning achieving organizational objectives. Organizations that respond by creating avenues to develop their workforce's talent are rewarded by experiencing minimal labor turnovers. They can adjust employee behavior through positive reinforcements. Likewise, an organization is privy to redundant positions that they can do away with. Performance management aims to highlight problem areas, either in the organization's structure or employees, and rectify them.
Strategies to Effectively Manage Human Capital from Human Resource Professionals
Involving Top Leadership
Organizations are comfortable with leaving workforce planning issues to their human resource departments. However, as Wandler cites, top leadership is vital in successfully managing human capital talent (Wandler, 2020). The human resource department and the organization’s leadership should formulate a mission-specific to human capital management goals, which is also tied to the overall organizational plan. It is imperative to ensure that the goals of human capital management and other operational goals align. Together, they determine the organizations' future needs, identify labor gaps, and specific skills human resource professionals should look for while recruiting.
Human resource professionals play a mediating role by bridging management goals and employee goals. They seek employee feedback and create career maps using this information. They can then develop job enlargement and enhancement measures that enrich employees as well as improve organizational performance.
Competency Mapping for Succession
Looking to the future is a crucial aspect of human capital management. The human professional should suggest to the organization to go beyond period performance measurements for employees. Instead, they should review them in terms of the future determined needs of the organization. It is a useful technique for human capital management as it involves many aspects, including the assessment of leader requirements and traits (Wandler, 2020). The attributes are then used to construct a competency map, and organizations utilize this to create focused progression activities for their workforce.
Organizations, particularly family businesses, struggle to sustain the company after the founders' exit. The use of competency mapping would address this problem by identifying employees who possess required leadership skills and pairing with senior workforce employees to gain in-depth knowledge about the organization and work methods, thereby closing the rifts caused by skill gaps.
A human resource professional is a crucial factor in the accomplishment of this plan. They would be utilized in the formulation of assessment tests, including behavior evaluation. They would be further tasked with determining the placement of identified leaders in inappropriate job rotation centers and developing suitable development opportunities to retain the firm's talent.
Fostering Organizational Learning
An article by the Strategic Human Resource Management organization stresses that human resource professionals can help top management view employees as the organization's resources rather than solely that of the managers (Shrm, 2020). Once managers realize this, they initiate development platforms and remove barriers to learning.
Additionally, when managers view employees as part of the organization's resources, they create a culture of autonomy, allowing employees to take safe risks, make mistakes, and learn from them. Part of a supportive culture is seen through how organizations handle employees who make mistakes. They should implement a system that fosters learning from making mistakes and discourages such repetition.
Databases and Codification for Knowledge Management
The article has illustrated the various benefits of supporting the acquisition and retention of skills for an organization’s workforce. The organization should additionally invest in systems that acquire, monitor, recover, and share this information as needed by organization employees (Shrm, 2020). Organizations can retain valuable information that comes in handy during knowledge transfer in succession plans. The role of human resource professionals here is the chronological organization of data for ease of accessibility.
References
Ali, M., Egbetokun, A., & Memon, M. H. (2018). Human capital, social capabilities, and economic growth. Economies , 6 (1), 2.
Appelbaum, S. H., Oulbacha, Z., & Shapiro, B. T. (2018). Enhancing Organizational Performance: The Mediating Role of Human Resource Management. International Journal of Business and Applied Social Science (IJBASS) , 4 (9).
Boon, C., Eckardt, R., Lepak, D. P., & Boselie, P. (2018). Integrating strategic human capital and strategic human resource management. The International Journal of Human Resource Management , 29 (1), 34-67.
Fleming, P. (2017). The human capital hoax: Work, debt, and insecurity in the era of Uberization. Organization Studies , 38 (5), 691-709.
Houghton, E. (2017). Human capital theory: assessing the evidence for the value and importance of people to organizational success. Research Adviser, Human Capital Metrics and Standards, CIPD , 1-93.
Kim, K. Y., Atwater, L., Patel, P. C., & Smither, J. W. (2016). Multisource feedback, human capital, and the financial performance of organizations. Journal of Applied Psychology , 101 (11), 1569.
Manuti, A., Impedovo, M. A., & De Palma, P. D. (2017). Managing social and human capital in organizations. Journal of Workplace Learning .
Pasban, M., & Nojedeh, S. H. (2016). A Review of the Role of Human Capital in the Organization. Procedia-social and behavioral sciences , 230 , 249-253.
Shrm. (, 2020). Developing Employee Career Paths and Ladders . https://www.shrm.org/resourcesandtools/tools-and-samples/toolkits/pages/developingemployeecareerpathsandladders.aspx.
Wandler, D. A. (2020). A Mission-Centric View of Human Capital Management . https://www.td.org/magazines/the-public-manager/a-mission-centric-view-of-human-capital-management.
