Human Capital Management and Its Benefits

Abstract

People comprise the most important resources that are available to an organisation, which upon their proper utilisation result in organisational success. The main challenge is normally how to utilise people optimally. In the current paper, human capital management is considered as one of the mechanisms of ensuring that an organisation obtains the optimal output from its human capital resources. This position is arrived at upon consideration and analysis of Erskine’s (2012) article titled Human Capital Management in the context of the literature on the purpose of human resources and human resource capital management in an organisation that seeks to gain a competitive advantage. Erskine defines human capital management as the holistic approach to contracting, coupled with optimising employees’ time.

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Erskine considers the implementation of human capital management strategies to have the advantage of enabling an organisation to achieve more results in terms of attainment of organisational goals and objectives without necessarily increasing the number of employees. This attempt makes human resources that are available in an organisation more effective and efficient in the accomplishment of the organisational chores. According to Erskine, human capital management strategies require collaboration among organisational stakeholders. In the absence of this collaboration, human capital investment inconveniences an organisation in that it ends up having an effective mechanism of attaining success without knowledge on how the mechanisms can be used to realise this endeavour. These challenges underline the difference between profitable and non-profitable organisations since the inability to manage human capital properly results in increased costs as this study reveals.

Introduction

People form an important asset to an organisation. Recognition of their value in an organisation prompts organisations to invest in human capital management with the chief objective of “responsibly attracting, developing and managing a firm’s biggest asset: people” (Bowles & Gintis 2005, p.75). Investments in human capital are particularly significant in an organisation whose success is driven by the capacity to change various operational approaches to meet new changes in the business environments (Seymour 2003). Upon consideration of the importance of people who are also driven by multiple motivators and various diversity factors that influence their performance, the concept of capital management attracts different scholarly views on how people need to be managed to realise optimal outputs from them. There is also a disagreement on the best single universally accepted definition of human capital management.

Amid valid theoretical approaches to the concepts of human capital management, Alan Erskine, a management consultant, argues that an organisation cannot implement human capital management without collaboration between IT, human resource, and operations management arms of an organisation (Erskine 2012, p.12). According to him, human capital management entails the mechanisms for ensuring that organisational workforce remains motivated and productive in the effort to realise organisational goals (Erskine 2012, p.12). According to Erskine (2012), human capital management can simply be defined as “the holistic approach to contracting and optimising the time of employees” (Erskine 2012, p.12). From the basis of this definition, human capital management can be argued as constituting an essential component of achieving the goals and objectives of the organisation through people as a component of the capital base that is possessed by an organisation.

Achieving the concerns of human capital management is not an easy task for an organisation. Erskine (2012) also holds this position by further maintaining that, in the due process of implementing best practices in human capital management, difficulties in balancing the acts of management of human capital are experienced (Erskine 2012, p.12). However, to him, this argument is mainly a challenge that is experienced by public service. The problem manifests itself in terms of balancing the needs of customers and those of the employees. For instance, Erskine (2012) argues that, despite demand in the UK, “there are more police officers on duty on a Monday morning than Friday night” (p.12). The irony here is on scheduling the needs to be done such that more police officers are on duty on Friday night than on Monday morning since more crimes are most likely to be committed then.

Consequently, the balancing act produces problems in the scheduling of human capital in the public service sector. However, he also argues that, across industries, “one of the main problems has been in scheduling hundreds and sometimes thousands of staff” (Erskine 2012, p.12). Despite the existence of this problem, Erskine (2012) says that there are workforce management applications currently, which help organisations to ease the problem. These systems aid in the allocation and scheduling of staff to eliminate contingency costs, which serve to raise the costs of running organisations. The value of software applications as a replacement of paper-based system for allocation and scheduling of work is realised by enabling successful allocation of complex tasks. This strategy is a holistic approach to human capital management.

According to Erskine (2012), human capital management has an advantage in that employees are provided with performance anticipations, which are clearly defined and consistently communicated to them. The most effective way of accomplishing this goal is through designing and implementing software application systems for rewarding, allocating, and scheduling of the various tasks in an optimal manner such that all employees are motivated and at ease with tasks. Erskine (2012) believes that many organisations can implement such systems though failing to take full advantage of the capacity due to issues articulated to poor internal collaborations (p.12). Indeed, a poor collaboration of major stakeholders is a major challenge that afflicts human capital management systems. A typical example is a case presented by Erskine (2012), where the human capital management system is developed and investments made in payroll systems and human resource management systems. Despite this strategy being a major milestone in the creation of better means of managing human capital, such a project is left in the hands of finance officers and or the human resource officer without paying attention for these two crucial arms of an organisation to execute the project jointly with the operations.

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Alternatively, a project may realise its full objectives but run out of money hence resulting in “an extremely valuable but underutilised asset” (Erskine 2012, p.12). However, in case such drawbacks are checked, human capital management approaches are advantageous in that the case becomes possible to check on the labour costs coupled with maintaining labour supply and demand balanced and under control (12). Approaching human capital management from a holistic approach is also advantageous since it helps to eliminate some probable ways of managing labour, which may turn out to be ineffective. In this light, Erskine (2012) argues, “if your organisation is still using budget variance reports, you have a problem just because a department is below budget does not mean that the workforce is being managed as effectively as possible” (p.13). This argument means that human capital management has the advantage of rendering an organisation’s labour efficient.

Erskine’s article also attempts to distinguish between profits and losses because of miscalculation of investments in human capital management. The distinction between the ability to make profits and losses is a function of the ability of an organisation to make cost savings in labour utilisations, according to Erskine (2012). Concerning Erskine (2012), organisations have been able to make savings of 1 to 2 per cent in labour costs using effective human capital management approaches. From an organisational economics perspective, low costs mean higher profits since costs and profits are in an inverse relationship.

Literature Review

The growing body of literature discusses the importance and value of cute management of human capital within organisations. Borrowing from the theoretical arguments from scholarly findings, various organisations deploy dramatic changes in human resources management, including the incorporation of IT in HR management. According to Jackson, Hitt, and DeNisi (2003), such changes “have created a growing consensus that effective human capital management is critical to an organisation’s success” (p.78). Therefore, it intrigues to think of how the management of human capital should be conducted with particular concerns on how HR should function about human capital management coupled with how the management of HR should be carried out if it has to add value to human capital and an organisation

Erskine (2012) is concerned that a lack of collaboration by various organisational arms in the implementation of human capital management strategies may result in disadvantaging an organisation in terms of increasing labour costs and hence low profits. In the same line of thought, Jackson, Hitt, and DeNisi (2003) argue, “the HR function can increasingly aid in making significant contributions to building an organisation that is staffed by the right human capital to effectively carry out the work of the firm and to enable the accomplishment of business strategy” (p.92). Organisations achieve this goal through staffing, human capital recruitment, and through the development of individuals through mentorship, and creation of the right project structures. All these functions are tied within the discipline of HR, which has a plausible opportunity to create value to human capital (Sveiby 2007, p.69). The underlining argument here is that any successful capital management endeavour cannot be achieved without collaboration and participation of all organs of an organisation dealing with employees’ affairs.

Human capital management is focused on improving conditions and welfares of employees to make them productive in their work for optimal outputs in terms of realisation of the goals of an organisation. This noble aim can only be realised when HR is incorporated into the development of human capital management strategies. HR can have a significant role during strategy formulation “by making explicit the human capital resources that are required to support various strategies and strategic initiatives for human capital management” (Brockbank 1999, p.348). Now, it is crucial to note that human capital management does not only focus on rewards, job allocation, and remuneration. It also includes programs for adding value to human capital in the strategic decision incorporating mentorship programs and project structures within HR.

Many scholars claim that mentoring involves a crucial professional development strategy of immense influence in both the private and public sector. About Young and Perrewé, mentoring constitutes “a formal or informal relationship between two people—a senior mentor (usually outside the protégé’s chain of supervision) and a junior protégé” (2004, p.113). Many and valid reasons prompt organisations to incorporate mentoring programs in their human capital management approaches. These reasons range from “increased morale to increased organisational productivity and career development” (Smith et al. 2005, p.5). Scrutiny of these reasons reveals that many of them cut across the areas of HR approach interests. Formal mentoring programs that are highly effective are predominantly structured. This means that they reflect specific and clear the firm’s goals. Coincidentally, human capital management approaches are implemented within an organisation to ensure that organisational goals are realised through people in the most optimal manner.

For the success of human capital management programs, the programs must be reflective of organisational goals. In this regard, human capital management is beneficial in an organisation to the extent that it helps in the utilisation of people to attain pre-constituted desired end goals, aims, and objectives of an organisation. In this context, Bowles and Gintis (2005) argue that human capital management is an integral facet for enterprise resource planning, which essentially deals with the keeping of records of employees. Records are crucial in helping managers to make informed decisions of how employees as the most important capital resource available to an organisation can be utilised effectively from the basis of the available data within an organisation. It is in this regard that software applications discussed by Erskine (2012) as constituting a holistic approach to the management of labour resources within an organisation become paramount. From the paradigm of the importance of software applications for the management of human capital, Crook et al. Argue, “HCM software streamlines and automates many of the day-to-day record-keeping processes besides providing a framework for HR staff to manage benefits administration and payroll management” (2011, p.445).

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Arguably, from this assertion, human capital management is essential in helping to make HR functions within an organisation more effective. Hence, employees’ organisational conflicts that often truncate into labour turn over are also mitigated in a large extent when employees realise that their affairs within an organisation are handled in the most positive, efficient, and effective manner. Effective human capital management using advanced tools available today is also beneficial for an organisation since the tools help in the creation and “mapping out succession planning and documentation for such things as personnel actions and compliance with industry and or government regulations” (Crook et al. 2011, p.444). This strategy ensures that operations of an organisation comply with the set-out labour laws. Such compliance is essential in ensuring that labour unions and movements do not curtail the operations of an organisation through calling for strikes (Behara 2011). Consequently, cute management of human capital is prevention, rather than a cure for risky situations that may result in organisational operation downturns.

The global trend for organisations seeking to gain competitive advantage is focused on enhancing organisational creativity and innovation through people working in the organisations. At an individual level, innovation and creativity may emanate from the existence of a conducive social environment that may make people innovative and creative (Mauzy & Harriman 2003, p.19), and hence creativity development in people’s life span (Nickerson1998, p.25). At an organisational level, innovation and creativity can emanate from the interaction of various components. According to Blanton, these factors include knowledge, creative thinking, and motivation (2009, p.57). Knowledge refers to the understandings that people bring into the table of creativity and innovations. Creative thinking refers to how people approach various problems. It depends on their working style and personality, coupled with the way they think (Blanton 2009, p.59). For creativity and innovation to thrive at an organisational level, it is crucial for innovation and creativity culture to be created.

With regard to Teresa (1998), motivation is a key a resourceful production methodology (p.383). Some theorists also attribute creativity to experimentation. For instance, Drunker (1999) argues that experimentation gives rise to creativity (p.76). For people to engage in experimentation, freedom of utilisation of organisational resources must be guaranteed. People should also be motivated to be creative. This goal cannot be achieved without paramount knowledge of the unique characteristics of one’s employees, which are achievable through human capital management.

Human capital management planning permits organisations to put in place mechanisms that shape the pool of resources available in an organisation so that the strategic objectives of an organisation can be achieved. Gartner (2006) supports this assertion by further retaliating that human capital management is beneficial in an organisation since it fosters “effective and efficient use of resources” (p.98). This outcome is perhaps one of the essential benefits of human capital management for organisations, which want to accomplish the same set of tasks through fewer employees. HCM also provides viable and accurate projections for staffing needs in an organisation coupled with the projection of necessary budgetary requirements to meet the needs. Also, with regard to Behara (2011), HCM “provides a clear rationale for linking expenditures for training and retraining, development, career counselling, and recruiting efforts” (205). This effort goes far in aiding to maintain, improve, and retain a diverse human capital.

Conclusion

Theoretical paradigms on human capital management developed in the paper are essential for application in any organisation that seeks to maximise its human capital resources. This inference is reached upon consideration of the benefits of human capital management such as helping to foster effectiveness and efficiency of the employees coupled with keeping them motivated and oriented towards the goals and objectives of an organisation.

At my place of work, repeated cases for labour turn over are evident with employees complaining over instances by which their efforts to make the organisation competitive through the retention of clientele by the undying effort to ensure cute customer service have gone unrewarded. From the organisation’s perspective, human resource management accepts that there is a challenge of identifying all talents of all employees because the company is too large since it employs a large number of people from diverse backgrounds. Considering the impacts of the failure to manage human capital, it is evident that, in my organisation, the company losses an incredible opportunity of gaining optimal profitability through fine utilisations of the talents and innovative abilities of workers. However, this case can be offset by the implementation of human capital management strategies.

Human capital is one of the forms of capital available at my organisation’s disposal to boost the process of economic development at the organisation. However, the productivity of this resource is dependent on the capacity to address various personal and professional concerns since opposed to other forms of capital such as land. Human capital cannot be optimised using theoretical economic approaches. This goal can be accomplished by putting in place mechanisms of workforce motivations, rewarding systems, scheduling of various organisation chores to meet the potential of employees, and available employee capacity within the organisations. All these endeavours underline the contribution of implementation of goods human capital management strategies and practices.

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Investments made in human capital development in the organisations will be intended to increase competitiveness as well as the quality of the lives of the workers. For an organisation attempting to gain a competitive advantage concerning the industry competitors, such as the organisation I work for, investment in human capital management software is not an option. This case is necessary for the effort to build a stabilised organisation so that employees can contribute to higher profitability and hence trigger a higher outcome from the organisation. Investments in human capital are vital in my organisation since, in the process of improving the conditions of the employees, the organisation also gains in terms of reduction of cost. Erskine (2012) argues that the capacity to reduce costs determines the extent of the profitability of an organisation. It is only through making such investments in human capital development that organisations such as my company can achieve competitiveness in the global arena. In conclusion, investments in human capital management strategies in the organisation I work for an incredible aid in scheduling and allocating employees. This strategy is substantive in helping to lower the costs of the organisation, which are essential in increasing the profitability of the organisation and hence its competitive advantage.

References

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Blanton, G 2009, Creativity, Innovation and Quality, McGraw Hill, New York.

Bowles, S & Gintis, H 2005, ‘The Problem with Human Capital Theory–A Marxian Critique’, American Economic Review, vol. 65 no. 2, pp. 74–82.

Brockbank, W 1999, ‘If HR Were Really Strategically Proactive: Present and Future Directions in HR’s Contribution to Competitive Advantage’, Human resource management, vol. 38 no. 4, pp. 337-352.

Crook, T, Todd, S, Combs, G, Woehr, D, & Ketchen, J 2011, ‘Does human capital matter? A meta-analysis of the relationship between human capital and firm performance’, Journal of Applied Psychology, vol. 96 no. 3, pp. 443-456.

Drunker, P 1999, The discipline of innovation: Harvard business review on break through, Harvard Business School Press, Harvard.

Erskine, A 2012, ‘Human capital management’, Management Services, vol. 1 no.1, pp. 12-13.

Gartner, M 2006, Managing Human Capital in the New Economy Enterprise, University Press, Oxford.

Jackson, S, Hitt, M, & DeNisi, A 2003, Managing knowledge for sustained competitive advantage: Designing strategies for effective human resource management, Jossey-Bass, San Francisco.

Mauzy, J & Harriman, R 2003, Creativity Inc.: Building an Inventive Organisation, Harvard Business School Press, Harvard.

Nickerson, R 1998, Enhancing Creativity in Robert Sternberg’s Handbook of Creativity, Cambridge University Press, Cambridge.

Seymour, W 2003, Intellectual Capital in Twenty-First-Century Politics, Paideia, , Ashfield, MA.

Smith, W, Howard, J, & Harrington, V 2005, ‘Essential Formal Mentoring Characteristics and Functions in Governmental and Non-governmental Organisations from the Program Administrator’s and Mentor’s Perspective’, Public Personnel Management, vol. 34 no. 1, pp. 1-28.

Sveiby, K 2007, ‘The Intangible Asset Monitor’, Journal of Human Resource Casting and Accounting, vol. 2 no.1, pp. 67-71.

Teresa, A 1998, ‘How to kill creativity’, Harvard business review, vol. 3 no. 1, pp. 381-393.

Young, M & Perrewé, L 2004, ‘An Analysis of Mentor and Protégé Expectations in Relation to Perceived Support’, Journal of Managerial Issues, vol. 16 no .4, pp. 103-126.

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