Human ResourceHuman Resource Development

Human Capital Management

1. Introduction:

Human Capital Management is essential for the effective management of any organization in this era of Globalization and Modernization. Recent techniques and technologies have not only been the magnetic power in IT Sector but also in the management of Human Resource Management. It is very necessary to study new concepts and techniques in People management. People Management is of primary importance always. Even for the implementation of a brand new and highly influential technology human beings are the only source. Investment in Human Capital is necessary for any nation to reap the benefits from information technology (Bassey Benjamin Esu, 2012). Sound Human Management is the need of the hour. To cope with high competition and achieve a competitive edge in a scenario of high advancements equipping, guiding, molding and refining an employee is the duty of the organization. Hence, organizations cannot be stagnant with their management techniques. A new boon to people management is Human Capital Management. Updating Human Resource Management to Human Capital Management is a call for acquiring world-class Human Capital. Implementing Human Capital Management in Banks is planting stronger roots for future financial success in the country. Implementing Human Capital Management in Banks in Chennai is a necessity. Human Capital Management

2. What is Human Capital?

The concept of Human Capital was initially coined by Nobel Prize winner and economist Theodore Schultz, defined Human Capital as “skill, knowledge, and similar attributes that affect particular human capabilities to do productive work” (Schultz 1961). He proved that the returns on Human Capital investment through education and training in the United States was larger than Investments made on Physical Capital.

This concept was further elaborated in 1981. All human beings possess abilities. For few abilities could be what they have acquired over experience or time. These abilities or attributes when nurtured and augmented by investing in them will spring forth as Human Capital. Any individual who invests in himself will be able to enlarge his boundaries for choices.

Economists such as Elliott (1991) developed the theory of Human Capital. This theory clearly establishes the fact that individuals invest in themselves only if they are benefited from the investment made. A firm’s Human Capital is believed to be an important source of sustained competitive advantage (Barney, 1991).

There are a variety of definitions and ideas associated with the Human Capital concept. Human Capital is understood as “the sum of all value-creating behavior and qualities of the employees” (Smart 1998, 157). According to the definition given by (Bontis, 2003). Human Capital represents human factors in the organization, the combination of intelligence, skills, and expertise that gives the organization its distinctive character. The Human Capital elements of the Organization are those that are capable to learn, change, innovate, and provide creative thrust which if effectively motivated can assure the long term survival of the organizations.

In terms of organizations, Human Capital is also defined as ” An approach to people management that treats it as a high-level strategic issue and seeks systematically to analyze, measure and evaluate how people policies and practices create value”.(Accounting for people, 2003, p3, UK Department of Trade and Industry, Nov).

Besides knowledge and experience, this definition also includes motivational and socio-interactive dimensions (Hasebrook/Zawacki-Richter/Erpenbeck, 2004).

The Chartered Institute of Personnel Development (CIPD, 2006) in the United Kingdom states that “Human Capital is the skills, experience, and capacity to develop and innovate, that is owned by individuals”. Altogether, Human Capital is defined as the employee’s competencies and commitment that help create a company’s competitive advantage.

The capital value of a man is the stock of capital embodied in people: These are investments that human beings make in themselves or by their organization or its combination to increase the essence of the organization (Marlena, 2008). Human Capital should be equipped for any organization to flourish. Human Capital of the organization should be geared up to perform. It is very important to enhance Human Capital of the organization (Mansur, Kogid and Madais, 2010; Ogunade, 2011; Vadim 2011).

Human Capital is a consolidation of an employees’ attributes. Human Capital also includes the Intellectual Skills possessed by employees. Thus creativity is also an outcome of Human Capital. Human Capital can be defined as health, knowledge, motivation, and skills. Attainment of these is regarded as an end by itself because they provide fulfillment and satisfaction to the possessor. Human Capital also refers to employee competence in creating tangible and intangible assets and continuously contributing to the generation of knowledge and ideas (Pavkovic et al, 2014).

Human Capital is what individuals possess. They have the choice to decide when and where they need to employ this capital they possess. Human Capital can be acquired by assuring private benefits. It can be done only in a Win-Win Environment. For an employee return on Human, Capital investment mean Increased Earnings, Job Satisfaction, Career Development, and Opportunities and Job Security.

For an employer return on Human, Capital investment means higher performance, increased productivity, profits, competitive advantage, increased skill base and knowledge. With reference to Human Capital, investments in human assets can be compared to the premium that is paid in order to receive the option to respond flexibly to future contingent events (Bhattacharya/Wright 2005, 938; Kogut/Kulatilaka 2001, 745). Thus investments made in Human Capital must meet the need of the employer and the employee. In order to invest in Human Capital, the areas that require investment should be clearly identified and strategically analyzed.

The need for analyzing and identifying areas for investment, project the need for an’ Effective Human Capital Management’. Only when an effective Human Capital Management is in place, the elements of Human Capital that need investments can be identified. Human Capital Management is the first and foremost step in molding Human Capital. The latter step would be to gauge the value of these areas identified. This further leads to measurements and metrics to calculate return on investments made. Investments made in the right area would definitely yield good returns. Hence Human Capital Management is the key to generate, mould, exhibit, employ and evaluate or measure Human Capital.

3. Human Capital Management:

Human Capital is often one of the most important assets within a commercial organization and Human Capital Management (HCM) is the way you manage that asset. HCM can and should be more than HR with a new name. HCM is a C-suite business discipline that develops Human Capital strategies and ensures the Human Capital portfolio is effectively managed. (Sujata Priyambada Dash et al, 2012).

Organizational productivity depends largely on Human Capital Management. There is a significant positive relationship between Human Capital Management and organizational productivity. Organizational productivity is a vast and complex phenomenon. If organizations are to achieve it, Human Capital Management becomes imperative (Olalekan, 2012). Organizational productivity can possibly be attained through the efficient mobilization of resources. Mobilization is a managerial function which is premised on Human Capital. (Perez and De Pablos, 2003). Human Capital rather than physical or financial capital that distinguishes the leaders in the market. For this reason, having strategic management of this capital now has greater importance than ever (Sofian, Tayles &Pike, 2005). Human Capital which although is an intangible item on the balance sheet underscores its reservoir of ability, capability, skills, and competencies to be of high input into the production process. Human Capital Management is a qualitative approach to peoples’ management, getting the best and desired commitment from the workforce.

Human Capital is a complete or total development of human potentials for creating organizational value. Human Capital Management is about creating value through people and it is a people oriented philosophy aiming at the development of people. People development can be considered as the development of Human Capital only when it is interpreted or translated into value (Kearns 2005).

Human Capital Management is about managing human beings to achieve greater self -development and acquire competencies. Employees are gold mines which need to be discovered and carefully obtained. They hold Human Capital that is base for any organization. Unlike any other capital management, Human Capital Management is very delicate as they can react to every input they receive. It is argued that to increase competitiveness, lower costs provide better service require to the knowledge of the Human Capital (Perez et al, 2003). Human Capital Management is bought into the picture because every individual is now treated as capital. Capital that demands investment. The investment made upon Human Capital is the key. Just like any business requires financial capital investment in order to run, every business needs or demands investments in human beings or the workforce. Any organization that fails to invest in its employees can no longer survive.

Human Capital has been researched by many types of research on different angles. Most of them speak about managing, Investing, measuring and ROI of Human Capital. Of these the Human Capital Management is the first and the foremost step. In order to measure, manage or expect returns, it needs to be effectively managed. Human Capital Management analyses the past present and future Human Capital Statistics (Pavkovic et al, 2014). Human Capital needs to systematically maintained and recorded by organizations in order to own it if not organizations cannot demand Human Capital. Through Human Capital Management the organization can identify the need or gap, the deficit or surplus, the pros and corns, the implementations and deployments of Human Capital. Records of Human Capital achieved, at both the individual and the organizational level, will be the result of efficient potential Human Capital Management

Employees should be given what they want if organizations need to get what they want. Human Capital Management is the link or agent that communicates this demand and mediates between employees and employers to cultivate overall development. Investments into Human Capital should be carefully planned and invested. Investments need not necessarily be only confined to monetary terms. Money is, of course, the major investment but investment in time, space and thought are also vital.

Human Capital Management is identifying and developing areas that require investments. HCM is an investment which increases employee satisfaction level to a great extent and develops full potentials of people and attaches the financial value (Sujata Dash et al, 2012). Investment in an area that is already equipped would mean wastage of resources. Any organization that desires to obtain High returns on Human Capital must efficiently manage Human Capital in order to identify the aspects which require investments, then construct measures or metrics to evaluate investments, and only then expect Returns on their Investments.

Human Capital Management is driven by values and hence strives to create dedication, commitment and motivation among employees (Michael Armstrong, 2012). The first step to achieving dedication, commitment and motivation among employees is to identify the composition of factors that form Human Capital Management. Then the identified factors should be analyzed to find out the gaps and shortfalls in managing Human Capital.

4. Items of Human Capital Management Identified:

The skillset of delivering HCM is not present in the market while one has to create it (Sujata Priyambada Dash et al, 2012)28. To deliver efficient Human Capital Management the elements or components of HCM should be tapped. Intense research on Human Capital Management has revealed twenty Human Capital factors that are most reported and used by companies in Human Capital Management. There are countable reviews that focus on the elements of Human Capital Management. Reviewing these reviews show that there are supporting reviews for most of the twenty Human Capital items identified. A study conducted in Bangladesh companies has confined that these twenty HC Items listed below are the most recorded and reported Human Capital Items (Md Habib-Uz Zaman Khan et al, 2010).

  • Employee Training
  • Educational Qualification
  • Employee Participation in Training
  • Number of Employees
  • Employee Benefits
  • Employee involvement in the Community Activities
  • Employee Compensation Plan
  • Establishment of own Training Institute
  • Employees Incentive Program
  • Employees Safety and Health
  • Employee Value
  • Employee Recruitment Policies
  • Employee leadership
  • Entrepreneurial Spirit
  • Employee Turnover
  • Employee Job Rotation
  • Employee skills and Competencies
  • HC Statistics
  • Employee Career Development and Opportunities
  • Intellectual Skills

Article Collected From:

  • Imtiyaz, S. (2015). Human capital management in banking sector in india a comparative study of public and private sector banks.
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