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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 itwilltaketimeandeffortanditmaybesometimebeforesustainedimprovementisseen.Whyisitnotdifficult?Itiswidelyrecognizedthatoptimumperformanceisachievedwhenwelearn through our job, combined with a strong sense of fulfillment. In other words,performancecanbeimprovedifanorganizationisfocusedonlearningandfulfillment.

    Unlikestructuralcapital,humancapitalisownedbytheindividual,anindividualwhocanwalkoutof thedoorunless it is recorded ina tangible formor is incorporated in theorganizationsprocedureandstructure.

    3.2HumanCapital AKeyDriverforBusinessProfitability

    Humancapitalisthecollectivevalueofanorganizationscompetencies,knowledgeandskills.Itis renewal source of creativity and innovation and imparts to an organization the ability tochange.Organizationalcapital includes intellectualpropertyandprocessdata.Executivesoftenlookatorganizationalcapitalfromaninternalownershipperspective.Thisisaprotectionistview,whichisnottotallybadbutiscertainlylimitingintermsofexploitingitspotential.Theywanttoknowhowtosecuretheintelligencecontainedwithintheirdocumentsandprocesses,aswellaswithin themindsof theiremployees.Intellectualcapacity is theabilityofacompany toextractvaluefromtheorganizationsintellectualcapital.Intellectualcapitaliscomposedoftwotypesof

  • ASIANJOURNALOFMANAGEMENTRESEARCH 194

    organizational capital: intellectual property and a complex intertwining of process and culture,plus relational capital and human capital. People are the catalyst that activates the intangible,inertformsofintellectualcapitalandtheequallypassiveformsoftangiblecapitalmaterialandequipmentto improve operational effectiveness. Human capital is the most vital asset in anorganization,andmanagingitisthegreatestchallenge.Foracompanytosucceeditisnecessaryto map the peoplecentric strategies with business strategies. Research has proved thatorganizationswithadvanced humancapitalmanagementprocesseshavemuchhigher levelsofproductivity than companieswith a nonfocused people approach. The truth however remainsthat human capital is often underrated, not because the value is not realized, but the fact thatorganizationsdonotknowthebestwaysandmeansofmanagingtheirpeopleresource.

    Humancapitalneedstobemanagedlikeanyotherresource,forinstancemoney,material,etc,togetthebestreturnoninvestment.Humancapitalmanagementisnotaluxury,itisanimperativefor success. Inasuccessful firm, it is themotivationandcreativityof the juniormost resourcethat is thekey toorganization renewaland sustainedsuccess.Thebasis behindany asset is toensurethedesiredproductionoutof it.Ifpeopleassetsdonotactandreactappropriately, thenmuchof thecapital (financial, technologyorknowledge) iswasted.Asa result strategy is notsuccessfullyexecuted,objectivesarenotmet,themissionisnotfulfilledandstakeholdersarenotsatisfied.HumanCapitalManagementincludesrecruitment,training,development,deploymentandperformancemanagement,workingonprocessesrelatedtoallthesecanleadtobetterhumancapitalmanagement.Humancapitalmanagementisdirectlylinkedwithproductivityasthepaceof an organizations growth is inseparable from the rate its people grow. Human capitalmanagement focuses on buildingmotivated, skilled, productive and innovative people. It alsohelps make people a source of competitive advantage in delivering superior customer value.Researchstudiesindicatedthatcompanieswithpositiveemployeeattitudesare50percentmorelikelytoachievecustomerloyalty,and44percentmorelikelytoachieveaboveaverageprofits.Additionally, the study finds firms that measure in the top quartile with regard to employeeengagementaveraged24percenthigherprofitability,29percentgreaterrevenueand10percentless employee turnover than businesses in the bottom quartile. The evidence is clear. Betterpeoplemanagementpracticesproducebetterbusinessresults.

    3.3HumanCapitalInvestmentParadigm

    The concept of investment on human capital refers to the education,onthe job training,andworkexperienceofthelabourforce.Itisanalogoustootherformsofcapitalinthatinvestmentsin human capital yieldincomeand other benefits over a long time. An investment in humancapitalmeansinvestingineducationorsomeformofonthejobtrainingtoimproveworkforcequality.Suchinvestmentsprovidereturnstotheindividualaswellastotheeconomyasawhole.Individuals benefit from higher earnings, and the economy as a whole benefits from higherproductivity. Investing in the best human assets is an absolute priority in the value creatingorganization.When human capital is managed effectively, the organization is never taken bysurprise. There are some fundamental means of ensuring that this is done well. It would becompletelywrongtopresumethatahumancapitalinvestmentisdirectandtangibleonly.Thereseemstobeinvestmentswhichneedtobemadetowardsnurturinghumancapitalwhichmaybecompletelyindirectorintangible.Fewofthetangibleandintangibleinvestmentsareasbelow:

    1. Recruitment

    http://www.referenceforbusiness.com/encyclopedia/Val-Z/Workforce.html

  • ASIANJOURNALOFMANAGEMENTRESEARCH 195

    Thecostsassociatedwithmanualrecruitmentcanbecomequiteexcessive,partlybecauseofthecandidatesthatareproduced.Onebadcandidatecancostacompanymorethantentimes that individuals salary. There are six basic elements of recruitment cost:advertising,agencyandsearchfirmfees,referralbonusespaidtoemployees,travelcostsincurredby both recruitersandapplicants, relocationcostsandcompany recruiter costs(including salary and benefits pror...

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