Various studies demonstrate a positive linkage between intellectual capital and organization performance. Similarly, large and growing bodies of evidence indicate a positive correlation between good human resources management practices and increased organizational performance. In fact, developing intellectual capital is one of the human resources management practices that are geared towards enhancing the performance of the organization. Currently, organizations are focusing on intellectual capital that adds value to the firm. The process of recruitment and eventual retention of employees is part of the wider equation.
The review examines the linkage between human capital and organizational performance. Besides, the review assesses the correlation of good Human Resources Management (HRM) practices and organizational performance. The paper then explores the manner in which the Al Hilal bank applies its HRM as well as human capital to increase its performance. In addition, the paper discusses the human resource planning process the organization has undertaken within the short-term, medium-term, and long-term as well as questions pertaining to different HR functions.
The linkage between human capital and organization performance is direct and positive. In fact, the studies indications on the correlation between the human capital and the organizational performance are convincing (Maruping, 2012; Gratton & Ghoshal, 2013; Smith, Yaarit & Lajtha, 2010; Terpstra & Rozell, 2013; Nerdrum & Erikson, 2011). The empirical studies on this relationship have become more complicated, ranging from a single measure of HRM to a combination of bundles of HRM practices that enhances organizational performance. Specifically, Terpstra and Rozell’s (2013) study on the relationship between human capital development and the organization performances indicated a positive correlation.
Moreover, the study indicated that employees with increased skills and the required competencies have higher productivity (Terpstra & Rozell, 2013). In addition, organizations that have invested in human capital development have increased the chances of augmenting their productivity (Terpstra & Rozell, 2013).
Various scholars have utilized such results to support the human resources best practices approach, which has positive effects on the firm’s performance (Gratton & Ghoshal, 2013). However, the view is not shared universally. Certain scholars argue that the problems in identifying the constituents of the set best practices, as well as the absolute number of exigencies experienced by the organization, make the best practices tactic implausible (Maruping, 2012; Gratton & Ghoshal, 2013; Smith et al., 2010).
Nevertheless, the general view among the practitioners and the scholars is that the approaches are converging and complementary. Practitioners perceive the best practices approach as architectural design with dimensions that has generalizable effects within the organization, given the set of practices applied by the HRM (Terpstra & Rozell, 2013; Nerdrum & Erikson, 2011). Even though there is a growing consensus on the convergence of these approaches, human capital development remains critical human resources management practice that singly contributes to increased performance of the organization (Gratton & Ghoshal, 2013; Smith et al., 2010; Nerdrum & Erikson, 2011).
HRM and Organizational Performance
Most organizations are constantly advancing their management of human resources to attain and sustain competitive advantage as well as increase their returns. Studies indicate that adopting good human resources practices leads to sustainable competitive advantage and increased returns to the organization (Philip & Kulvisaechana, 2010; Terpstra & Rozell, 2013). The best human resources practices that have been identified as critical to the long-term sustainability of profits and competitive advantage to the firm include employee training and empowerment, compensation and reward systems as well as employee benefits (Terpstra & Rozell, 2013; Hewlett, 2012; Wagner, 2004).
Moreover, human management resources practices relating to compensation including job design, improvement of workers’ skills as well as increasing employees’ motivation and attitudes has an impact on the general performance of the organization (Gratton & Ghoshal, 2013; Smith et al., 2010; Hewlett, 2012; Wagner, 2004).
Studies postulate that human resource management practices including recruitment and selection along with training programs and performance evaluation as well as compensation and benefits are linked to the output of personnel and the general performance of firms (Hewlett, 2012; Wagner, 2004; Philip & Kulvisaechana, 2010; Youndt, Snell, Dean & Lepak, 2006). Besides, available data indicates that higher productivity and proceeds in corporations are attributed to the utilization of high-performance HRM instruments such as participation and empowerment, incentive pay, employment security, promotion from within the firm as well as training and skill development of the firms’ personnel (Philip & Kulvisaechana, 2010; Youndt et al., 2006).
Existing evidence has linked compensation and reward systems to enhanced attainment of the organizations’ objectives and goals (Gratton & Ghoshal, 2013; Smith et al., 2010; Hewlett, 2012; Youndt et al., 2006). Indeed, the major aim of a compensation strategy is to build the required wok culture that is geared towards attaining the organization’s success. In this regard, an appropriate compensation strategy is one of the ways through which the competitive advantage of the company can be achieved (Philip & Kulvisaechana, 2010). In fact, the decisions involving compensations are often incorporated within the business processes. The business processes of organizations determine the levels in which the firm’s goals and objectives are attained (Gratton & Ghoshal, 2013; Smith et al., 2010).
Undeniably, appropriate remunerations of workers increase the level of their participation that, in effect, increases their productivity (Maruping, 2012; Smith et al., 2010; Hewlett, 2012). Further, suitable levels of employees’ participation strengthen the principles and ideals of an organization. Essentially, the standards set by the organization directly correlates to the value created (Hewlett, 2012). As a result, the competitive advantage and high performance are attained through the values created by the organization (Hewlett, 2012; Maruping, 2012; Smith et al., 2010; Youndt et al., 2006).
Actually, most modern organizations recognize employee compensation as one of the significant HRM practices that increase benefits to the organization (Youndt et al., 2006). Studies indicate that not only the employees that benefit from such practices but also the organizations (Philip & Kulvisaechana, 2010; Maruping, 2012; Smith et al., 2010; Hewlett, 2012. On the contrary, most organizations perceive employees’ compensation as being costly. However, the benefits surpass the costs involved. In essence, proper compensation ensures a continuous flow of qualified staff with required skills and technical competence to keep organizations at the competitive edge (Philip & Kulvisaechana, 2010; Maruping, 2012; Youndt et al., 2006; Gratton & Ghoshal, 2013).
In principle, such organizations recognize the fact that the qualified staff with required skills and technical competence is the key driver for growth and development (Gratton & Ghoshal, 2013). With the current competitive environment, organizations find it necessary to keep such qualified staff within their workforce to augment performance due to the satisfaction received from such benefits. Generally, through better compensation systems, employees are motivated to attain greater output. Good remunerations increase the worker’s motivation and job commitment that are translated into high performances (Gratton & Ghoshal, 2013; Philip & Kulvisaechana, 2010; Smith et al., 2010; Hewlett, 2012).
Another significant HRM practice linked to organizational performance is performance appraisal. Actually, performance appraisals motivate and enhance the workers’ performances towards the attainment of the organization’s goals (Youndt et al., 2006; Hewlett, 2012; Wagner, 2004). In essence, there is a direct relationship between increased productivity and increased workers’ performances. In other words, the assessment of the employees’ performances helps the organizations improve on their efficiency and effectiveness in attaining its objectives (Philip & Kulvisaechana, 2010; Maruping, 2012; Youndt et al., 2006).
In addition, effective employees’ performance appraisals help organizations set goals for their workers. Further, proper assessment of the employees’ appraisal help managers of the organization make decisions relating to employing, job design, reassignments, and termination of employees, relegation along with improvement of skills (Gratton & Ghoshal, 2013; Wagner, 2004; Philip & Kulvisaechana, 2010; Maruping, 2012; Youndt et al., 2006).
Recruitment systems applied by organizations are also associated with organizational performance. For instance, for success to be realized in organizations, the diverse labor force is critical in the workplace to increase production, better problem-solving abilities, and for innovation purposes (Wagner, 2004; Philip & Kulvisaechana, 2010). There is a need, therefore, to appoint personnel from any race given that the retail influence is bestowed in the hands of individuals and groups from diversified settings (Gratton & Ghoshal, 2013; Smith et al., 2010). In this regard, it has become progressively more imperative for corporations to replicate the frameworks of their consumers’ base via utilizing diverse personnel (Smith et al., 2010; Hewlett, 2012).
At present, within the international markets, customers have become more cautious and have acknowledged the need for a more diverse approach in providing services and goods (Smith et al., 2010; Wagner, 2004; Philip & Kulvisaechana, 2010; Hewlett, 2012). In other words, employing diversity in corporations enables superior assemblage personnel, thereby augmenting organizational performance.
Researches indicate that the current labor market is more competitive, and getting the right employee with the right skills is not easy (Wagner, 2004; Philip & Kulvisaechana, 2010; Smith et al., 2010; Hewlett, 2012; Youndt et al., 2006). The greatest challenge that organizations face is how to make potential employees acknowledge that such businesses are the best places to work. In addition, the organizations’ human resources management faces difficulties in bringing the best interviewee through appointment and employment process (Youndt et al., 2006; Rastogi, 2010). However, ensuring that best employees that understand the goals of the firm are retained in the corporation is critical in augmenting the yield of such establishments (Youndt et al., 2006; Philip & Kulvisaechana, 2010; Hewlett, 2012).
The human resource management function in organizations is a vital element of administration that handles the acquisition, development, and deployment of employees in businesses (Smith et al., 2010; Hewlett, 2012). In most cases, human resource managers are faced with huge challenges of balancing between the achievement of organizational goals and the fulfillment of the employee’s needs (Wagner, 2004; Philip & Kulvisaechana, 2010). The conflicts can be attributed to a deficiency of clear plans as well as strategies that take care of the entire intellectual resource capital dimensions of the business right from the top to line management (Gratton & Ghoshal, 2013; Wagner, 2004).
In reality, good human resource plans should help an organization in acquiring, retaining along with developing the right pool of employees as well as creating a favorable workforce environment (Philip & Kulvisaechana, 2010; Maruping, 2012). Besides, the dimensions in the intellectual resource capital of an organization play a major role in formulating competition strategies of corporations in the market. Consequently, intellectual resource capital aids the organizations in benchmarking the short-term decisions against the organization’s long-term goals as well as objectives (Youndt et al., 2006). Concisely, a good intellectual resource capital strategy is important in helping the organization meet its immediate needs while ensuring that the firm remains competitive enough to fulfill its long-term goal and objectives(Gratton & Ghoshal, 2013; Wagner, 2004; Philip & Kulvisaechana, 2010; Maruping, 2012; Youndt et al., 2006).
Due to the changing nature of competition, companies are currently embracing innovative programs to sustain their market share through augmenting investments in intellectual resource capital. In fact, precise undertakings in terms of proper strategies must be put in place to ensure that firms out rightly achieve goals and objectives (Wagner, 2004; Philip & Kulvisaechana, 2010; Smith et al., 2010; Hewlett, 2012; Youndt et al., 2006). In this aspect, hiring, developing, and retaining the best pool of employees, as well as superior intellectual capital, plays a key role in ensuring the efficiency and success of organizations (Smith et al., 2010; Hewlett, 2012). On the same note, firms are obligated to equip the personnel with good leadership qualities, encouraging working environments and consistent corporate cultures (Gratton & Ghoshal, 2013; Wagner, 2004; Philip & Kulvisaechana, 2010; Maruping, 2012; Youndt et al., 2006).
The Link between Intellectual Capital and Organizational Performance
The intellectual resource capital can generally be defined as a laid down distinctiveness, knowledge as well as skills that are uniquely associated with a company’s workforce (Smith et al., 2010; Wagner, 2004). In this regard, intellectual capital combines the economic value of the organizational, social, and human capital of an organization (Philip & Kulvisaechana, 2010; Smith et al., 2010; Hewlett, 2012). On the same note, organizational intellectual capital includes the procedures along with the schedules of the organization whilst the social, intellectual capital encompasses the valuable social relations among the employees (Maruping, 2012; Youndt et al., 2006). On this note, the development of intellectual resource capital calls for the incorporation of human, social and organizational capitals into the business strategy of the organization (Smith et al., 2010; Hewlett, 2012).
The conviction of the existence of a positive association between the development of intellectual capital and organizational performance is overwhelming (Smith et al., 2010; Wagner, 2004; Philip & Kulvisaechana, 2010). Actually, available research data shows that the current market value depends significantly on the nature of intellectual resource capital within organizations (Hewlett, 2012; Youndt et al., 2006). Coincidentally, studies have also argued that internal forces such as the intellectual resource capital, within corporations, are crucial in positioning organizations for competition in the market against external market forces (Philip & Kulvisaechana, 2010; Smith et al., 2010; Hewlett, 2012; Youndt et al., 2006).
Actually, there exist two theories that explain the connection existing between the development of intellectual resource capital and organizational performance. In this regard, the first theory highlights the significant contribution of the motivation of employees towards the output and efficiency within businesses (Youndt et al., 2006; Philip & Kulvisaechana, 2010; Hewlett, 2012). In essence, the supposition has elements encompassing the value of the reward system in an organization and the anticipation of earning a reward after attaining a certain level of performance. Besides, the theory entails the certainty of achieving the performance levels required (Philip & Kulvisaechana, 2010). The second theory explaining the relationship existing between the development of intellectual resource capital development and organizational performance focuses on the resources of the firm.
More interestingly, various economists have written significant amounts of literature on the economic benefits of intellectual capital development programs in organizations (Gratton & Ghoshal, 2013; Wagner, 2004; Philip & Kulvisaechana, 2010). In principle, such empirical studies have stressed the belief that intellectual resource development enhances an organization’s productivity as well as economic growth (Philip & Kulvisaechana, 2010; Maruping, 2012).
Besides, the development of intellectual resource capital has been a core factor in the explanation of varied earning structures within establishments (Maruping, 2012; Youndt et al., 2006). For instance, training and education raise the level of skills of employees, thereby improving the productivity of personnel, which translates to higher payment and output (Philip & Kulvisaechana, 2010; Maruping, 2012).
Numerous studies have tried to establish a relationship between intellectual resource capital development and the productivity growth and financial development of an organization (Philip & Kulvisaechana, 2010; Smith et al., 2010). Indeed, such studies have proved that human resource practices such as training programs, incentive compensation schemes, recruitments, and performance evaluation have contributed immensely to the financial performance of organizations (Gratton & Ghoshal, 2013; Philip & Kulvisaechana, 2010; Smith et al., 2010). On the contrary, critics have argued that focusing on a single human resource practice cannot be relied on when predicting performance outcomes as most human resource practices produce specific results in a combination (Philip & Kulvisaechana, 2010; Smith et al., 2010; Hewlett, 2012).
As such, available statistics indicate that human resource practices that improve employees’ commitments to organizations are likely to enhance performance while practices that focus on control and efficiency have the likelihood of increasing the turnover of firms but reduce the manufacturing performance (Hewlett, 2012; Wagner, 2004). Moreover, investments in practices such as incentive compensations, employee participation, and selective staffing techniques also lead to increased productivity and greater organizational performance (Youndt et al., 2006; Hewlett, 2012; Wagner, 2004). Conversely, such practices reduce corporations’ turnover (Youndt et al., 2006).
Difficulties with the Link between Human capital and Performance
Even though numerous scholars have established a strong link between intellectual capital and performance, there are a number of problems faced in linking intellectual capital, human resource practices, and performance (Wagner, 2004; Philip & Kulvisaechana, 2010; Smith et al., 2010; Hewlett, 2012). For example, critics have raised questions on whether human resource practices increase performance or vice versa. In most cases, firms making huge profits do not invest in superior intellectual capital (Wagner, 2004; Philip & Kulvisaechana, 2010).
Intellectual Capital Development in Al Hilal Bank
Human resources management recognizes the importance of intellectual capital in the improvement of the firm’s performance. Since its establishment, the firm has put in place various programs that have ensured consistent improvement of the skills required for the attainment of the firm’s goals. In fact, human capital development plans of the firm include the continuous improvement of the workforce skills and knowledge in particular areas of competencies. The knowledge and skills improvements are in line with the needs of the market. Moreover, the firm ensures that the required competencies are geared towards attaining the goals and objectives of the firm, which is critical in augmenting the competitive advantage.
How the Firm Develop and Applies Intellectual Capital to Improve Performance
The creation and implementation of human resource capital strategy within the firm involve the establishment of a set of programs that cover at least four key workstreams in different stages. In fact, workstreams include talent, leadership, culture, and organization. The workstreams also identify areas in which the performance of the firm is improved. While the firm continues to develop its intellectual capital, it ensures the developed skills are utilized to improve the performance.
Talent development and utilization
Improving talent within the organization involves the identification of individual capabilities critical in fulfilling the organization’s strategies. In other words, individual talents significant in attaining the required objectives are identified and developed. Essentially, the firm’s executives assess the business strategy, determine the necessary talents from the workforce, and establish the plans in which such talents can be developed and sustained to increase the performance of the organization. Besides, the assessment helps the human resources executives identify the impacts of their decisions on the employees’ performance. At this point, reviewing the employment strategy of the organization could be recommended in case the current stream of employees do not have the talents that conform to the business strategy.
Subsequently, the human resources management plans on how identified talents can be developed and utilized to improve the general performance of the organization. Planning will involve the identification of skills and competencies needed for a particular task in the organization. Further, the HR executives evaluate the available workforce and the required number to complete a particular task successfully. Good workforce planning will definitely ensure that the organization achieves its goals effectively by hiring and retaining the right talent skills and competencies (Philip & Kulvisaechana, 2010).
Leadership development and utilization
The firm acknowledges leadership capabilities to be critical in sustaining its competitive advantage. The leadership aspects of the workforce focus on three key areas that include expected values, capabilities, and behaviors, as well as the competitiveness of the employees. In fact, developing these attributes will increase the performance of the employees. The linkage between employees’ improved performances and leadership skills is positive (Youndt et al., 2006).
The organization has put in place leadership development programs to improve the employees’ performances. Besides, the firm has used leadership development strategies as a tool to improve competitiveness. The leadership development program design is consistent with the business strategy. Moreover, the design is oriented towards achieving the goals and objectives of the organization.
The human resources manager acknowledges how corporate culture plays an important role in creating a human resource capital strategy. In fact, linking the intellectual development strategy to corporate culture is critical in attaining the set objectives and goals of the firm (Smith et al., 2010). The human resources management executives have aligned the corporate cultures to the business strategies by strengthening the attributes that contribute to the improvement of employees’ skills, competencies, and improved performances. In addition, the human resources management executives also facilitate specific programs that influence the corporate culture towards attaining the overall goals and objectives of the firm.
The structure and operating model is critical for the success of the organization. The performances of the workforce depend on the organizational structure, which determines its operations (Youndt et al., 2006). The human resources management executives always align the needed competencies to the operations and structure of the organization to ensure optimal work output. For instance, areas such as finance and reporting have to be made effective to ensure proper management of resources.
An intellectual capital development plan in Al Hilal Bank
According to the human resources management of the Al Hilal bank, the development of a human capital plan begins by aligning human capital strategies with the goals of the organization. In fact, the organization acknowledges the fact that the strategic management of intellectual capital is central to the realization of organizational goals and increased performance. As such, the organization aligns its human capital development strategies with goals, mission, and objectives. Orienting the human capital development strategies is conducted through proper analysis of the needed skills of the organization both in the short-term and long-term. The strategies are then achieved through appropriate planning, investments, and management of human capital development programs.
Essentially, human capital planning is the procedures through which firms design policies, programs, and practices as well as a coherent framework that would enable it to achieve the shared vision, which is integrated within the overall strategies (Philip & Kulvisaechana, 2010). In fact, establishing and executing the strategic human capital plan is a significant step in the firm’s improvement to develop a highly efficient and performance-based organization (Youndt et al., 2006).
In Al Hilal bank, effectiveness and increased performances are achieved through appropriate recruitments, acquiring, motivating as well as a reward system that recognizes the performances of a top-quality workforce. The organization utilizes the human capital development plan to support the required transformation, particularly corporate culture and operations. In addition, the human capital development plan is used by the organization to map out the continuous development of employees’ skills and competencies that lead to increased competitive advantage.
However, the human capital development plan of the firm varies with the time required for the change to be effected. In other words, the short-term, medium-term, and long-term human capital development plans of the organization differ. The differences are due to the objective that is to be attained. Nevertheless, the human capital development strategic plans are based on general elements that include a clearly understood strategic direction by all stakeholders, customer outcomes, implementation plans, change management plans, as well as accountability systems. The attainments of goals, strategies, executions, as well as communication plans, are considered as accountability measures.
According to the human resources manager, it is critical to understand the overall strategies of the organization, performance requirements, and budgetary constraints. Besides, while implementing the plans, it is critical to understand the internal and external drivers that influence human capital development needs, the current workforce makeup, and the organizational need relating to the human capital.
The human resources manager alluded that the long-term plan for developing intellectual capital starts with the evaluation of workforce information. Data are also collected from supervisors, clients, as well as other stakeholders. The analysis is conducted on demographics, performances, and challenges. The information is then aligned with the long-term vision of the workforce needed. The long-term intellectual capital development procedure results in the type of workforce with desired skills critical for the attainment of the strategic goals of the organization.
The short-term human capital development strategy normally focuses on identifying significant areas related to the gap between the current workforce competencies and the desired skills as well as capabilities. In fact, in the short term, the firm focuses on the skills that improve customer outcomes. The firm will always tend to develop the skills that are geared towards attaining the desired customer outcomes. However, the developments of short-term skills are always expensive and proactive, particularly in new development areas.
In terms of medium-term human development plans, the firm focuses on enhancing the current employee’s skills and talents. Besides, the medium-term goals of the firm inform the manner in which the skills and the knowledge are developed. In fact, the overall strategic direction of the firm is critical in identifying the broad areas in human capital development goals (Philip & Kulvisaechana, 2010). The broad areas in human capital development goals form the basis in which the medium-term plans are developed. Essentially, the long-term and medium-term plans will always revolve around the improvement of talents, performance management, and leadership development.
The long-term strategies in human capital development plans of the firm focus on attraction and retention of high performing workforce with increased technical skills and professional capabilities that are required. Besides, the long-term plans focus on the continuous development of skills according to the long-term goals and strategies of the firm. The highly skilled workforce is then allocated across the organizational components to react to changing workload requirements effectively.
Essentially, the process of human capital development of the firm begins by acknowledging the firm’s strategic direction. The understanding of the strategic direction involves considering the performance plans of the organization, budgetary plans, as well as information collected from various stakeholders. The first process involves aligning human development plans and the firms’ strategies and expectations. Besides, the course of action undertaken by the firm ensures the development of sustainable competencies for future realization of tactical aspirations.
The broader human capital goals are then identified, depending on the strategic direction of the firm. As indicated, the plan is based on strategic human capital development goals. In fact, the strategic objectives identify the manner in which the goals are achieved. The implementation plan of the organization provides a framework in which actions needed to attain the objectives are based. Besides, the implementation plan describes the activities, the responsible departments, the needed resources as well as the period in which such actions are implemented. The final process involved in the organization’s human capital development plan is accountability. The accountability system is critical in establishing the manner in which the objectives are measured and tracked. In addition, the accountability system describes the level of performance and the required rate of improvements.
The increased demand for organizations to acquire and retain customers, be innovative, and increase productivity has put pressure on the organization to improve its human capital, specifically the intellectual capital, to improve performance. The review concurs with the findings of various studies indicating a positive correlation between good human resources management practices and improved performance. Besides, the linkage between intellectual capital and improved organization performance is also positive.
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