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  • ASIANJOURNALOFMANAGEMENTRESEARCHOnlineOpenAccesspublishingplatformforManagementResearch

    Copyright2010AllrightsreservedIntegratedPublishingassociation

    ResearchArticle ISSN2229 3795

    ASIAN JOURNAL OF MANAGEMENT RESEARCH 190

    Investingon HumanCapital:Safebetoragamble?TapatiNandy1,RamchandraMahapatra2

    1Faculty,InstituteofBusiness&ComputerStudies,SOAUniversity,Bhubaneswar.2Prof.RamchandraMahapatraFaculty,InstituteofBusiness&ComputerStudies,

    SOAUniversity,Bhubaneswar.tapati.nandy@gmail.com

    ABSTRACT

    Thedevelopmentofhumancapitalhasbeenrecognizedbyeconomists tobeakeyprerequisitefor a countrys socioeconomic and political transformation. Capital and natural resources arepassive factors of production human beings are the active agents who accumulate capital,exploitnaturalresources,buildsocial,economic,andpoliticalorganizations,andcarry forwardnational development. People are often spoken of as assets but are generally treated as costs,becausethere isnocrediblesystemofvaluingthem.Intodaysknowledgebasedorganizationsvalue is drivenmoreby people than by any other factor.Aswidely recognized, investment inhuman capital is subject to a considerable risk. Organizations do employ some who indeedshould be seen as investments rather than costs but the vast majorities are value adding.Intellectualcapital includesa broad rangeofpeople,knowledgeand relationshipassets.Theseintangibleassetsare thekey tothecompanysgrowth, innovation,andcompetitiveadvantage.Though global competition, market volatility and declining labour pools make investing inpeople a high risk gamble, still future success is dependent primarily on the ability to attract,retain and productively manage this shrinking pool of talented andmotivated people. This inreturnhelps togainastrategiccompetitiveadvantage, innovate faster andevolveasa strongerorganization.Thepurposeof thispaper is toprovideasimple theoreticalperspective inwhichthevariousuncertaintiesassociatedwithhumancapitalarediscussed.Thepaperalsointendstostudyandfindanexplanationforbusinesscorporationstoconsiderinvestingonhumancapitalasaprofitableoptionandsuggestwaystopracticethesame.

    KeyWords:risk,humancapital,profit,investment,strategy,intangibles.

    1.Introduction

    Competition and change exists side by side in this fast paced world. Any competitive edgegained by the introduction of new processes or technology is shortlived if competitors alsoadoptthesametechnology.Buttoimplementchange,theirpeoplemusthavethesameorbetterskillsandabilities.Hencecorporations,especiallytheserviceorganizations,arerecognizingtheimportanceofinvestingintheiremployeesnowmorethaneverbefore.Companiesarebeginningtounderstandthattostayontoptheyneedtoplacemoreandmoreemphasisondevelopingandretainingtheirpeople.

  • ASIANJOURNALOFMANAGEMENTRESEARCH 191

    NobelPrizewinningeconomistGaryS.Becker,whocoinedthetermhumancapital,saysthatthebasicresourceinanycompanyisthepeople.Themostsuccessfulcompaniesandthemostsuccessfulcountrieswillbethosethatmanagehumancapital inthemosteffectiveandefficientmanner.Humancapitalisavaluableconceptbecauseitrecognizesthatpeopleshouldbetreatedas assets, rather than as an expense.In business terms we might describe human capital as acombinationoffactorssuchasthefollowing:

    1. The traits, one brings to the job: intelligence, energy, a generally positive attitude,reliability,commitment

    2. Onesability to learn:aptitude, imagination,creativity, andwhat isoftencalled streetsmarts,savvy(orhowtogetthingsdone)

    3. Onesmotivationtoshareinformationandknowledge:team spiritandgoalorientation

    The fourfactorspeople,market,products,andfinancialsarecritical inensuringthesuccessofanenterpriseovertime.Thehumancomponentisclearlythemostvexatiousofassetstomanage.The almost infinite variability and unpredictability of human beings make them enormouslymore complex to evaluate than one of the electromechanical components that comes withpredetermined operating specifications. Nevertheless, people are the only element with theinherentpowertogeneratevalue.Allothervariablescashanditscousincredit,materials,plantandequipment,andenergyoffernothingbutinertpotentials.Bytheirnature,theyaddnothing,and theycannotaddanythinguntil somehumanbeing,be it the lowestlevel laborer, themostingenious professional, or the loftiest executive, leverages that potential by putting it intoplay.Thus understanding the value potential of human capital is of immense importance tounderstandtherisksinvolvedininvestingandthereturnstheygenerate(tangibleorintangible).Thispaperisaneffortinthatdirection.Thepaperintendsto

    1. discussthevariousuncertaintiesassociatedwithhumancapital

    2. studyand findanexplanation forbusinesscorporationstoconsider investingonhumancapitalasaprofitableoptionand

    3. suggestwaystoinvestintheintellectualcapital

    2.Design&Method ofStudy

    The paper is conceptual and review paper in nature.Data collected for this paper is basicallyfromsecondarysources.Thispapercriticallyexaminesthevariousuncertainties theemployeesposeforanorganizationandthewayanorganizationneedstotacklethem.Arangeofrecentlypublished (19902010) works, which aim to provide practical advice are examined to aid theresearch.After reviewing around fifteen numbers of research articles it has been thought thatinvestmentinhumancapitalisthecallofthehourandtheseintangibleassetscarryalotofworthin transforming the future of an organization. Specific cases of organizations in differentcountriesarestudiedthroughthepublishedresearchpapersretrievedfromsecondarysourceslikebooks,ejournals,businessmagazines,etc. foranalyzingthe importanceof investing inhumancapitalanditsvariouscontributionsfororganizationalgrowthandsuccess.

  • ASIANJOURNALOFMANAGEMENTRESEARCH 192

    3.Discussion

    Humanassetsarevaluabletothefirm,buttheirreturnsmaynotremainstableovertimeduetochanges inbusinessconditions,changeswithinthefirmorchanges in individualswhoowntheknowledge, skill andabilities thatcomprisehumancapital.Theseuncertaintiesassociatedwithhuman assets and the role that certain human resource practices play in managing theseuncertaintiesisimportanttobediscussed.

    3.1RisksofHumancapital

    Economist intelligenceUnit Survey 2007 identifiesHuman capital risk as themost significantthreatfacingtheglobalbusinessoperations.Inthiscontextitbecomesessentialforanyresearchworktoconcentrateonvariousareasofwhereanorganizationisfacedwithrisktotheirhumancapital.Wediscussfewoftheminthissection.

    1. Turnover/lossofkeystaff

    Humancapitalismobile,butoncewehaveacquireditandmaybeinvestedinit,wewantto hang on to it. As the value of human capital has come to be more appreciated,strategiesforretentionarenowhighonmostorganizationsagendas.Withtheemployeeacquisition age becoming lower by the day, it is giving rise tomore intuitive decisionmakingfromemployeesultimatelyresultinginhighemployeeturnover.Industryspecificproblemsalsoaddtothewoesofhumanresourceadministrators.Companiescomingoutwith offers like joining bonuses, onsite placements, hefty pay packets, yearly holidayplans,assetsloansetc.,havemadethewaterevenmurkierforemployers.

    2. Employeeengagement

    Itsbeennotedthattheprimaryreasonofemployeeturnoverordiscontentmenthasbeeneitheremployeesuperiorrelationshiportheemployee feelingnotwanted.Employeesof companies, with the passage of time in the organization, develop some sort ofexpectations from the employers in terms of their involvement in various projects orassignments.Whenthatdoesnthappenorthingsarenotconsultedduetothefactthatamoreskilledpersonforthatjobhasbeenincluded,employeestendtoretract.Thisbringsabout a fall in their performance levels and finally the employee exits. The employershavetobecautiousof takingemployeesforgrantedandhaveclearengagementplansindiscussionwiththeemployees.

    3. Ineffectivehiringpractices

    Campus recruitments, poaching, referral recruitments have yielded much less thandesiredintermsofhiring.Labourintensiveindustriesareconstantlyfacingthechallengeof keeping up pace in terms of staffingwith the growth in capacity building. Therebyrenderingavacuumbetweennumberhiredandnumbersrequired.

    4. Talentmanagement

  • ASIANJOURNALOFMANAGEMENTRESEARCH 193

    AcquiringgoodtalentisnotjustsufficientforOrganizations.Makingthemkeepustheirgood work towards organizational success is a big challenge. Talent managementprocesses give organizations valuable measurements, performance motivators andinsightsintoworkforceskills,competenciesandemergingleaders.Thisvisionempowersorganizationstobecomemorestrategicinhowtheyselect,train,develop,retain,rewardand help employees.Talent management includes recruitment, induction, goalsetting,performance management, assessment, compensation management, learning, careerplanningandsuccessionplanningprocesses.

    Theseprocessesaimtoretainemployeesandfostertheircontinuingdevelopmentofskillsandcompetencies toachieve theorganizations immediateperformancegoalsand longtermstrategicobjectives.

    5. Poaching

    Inmarkets that are competitive for scarce skills, people and teamswill be courted andtempted.Inacommercial firm, losingakeyasset toacompetitor isadouble lossnotonlydowenothavethebenefit,butitmightactivelyworkagainstus.Somesaythatthemorecompetitorsaretemptedtohire yourpeople, thehigher theexternal viewof yourhuman capital worth. This may be true, but it can also be a signal of other negativefactorslikeyourinabilitytoprovideattractiveopportunities.

    6. Performancestagnancy

    Firstofall,itneedstobefoundoutastowhytheemployeeshavebecomestagnant.Onecouldreasonablyassumethatthepersonsperformancewasbelowparandhasbeen forsome time. Why not then focus on improving their performance? If the personsperformanceimproves,itishighlylikelythattheywillbemuchhappierandwillbemorelikely to stayput. Improvingperformance is notparticularlydifficult, albeit that itwilltaketimeandeffortanditmaybesometimebefo