Human Capital Management Essay Example for Free

Human Capital Management Essay â€Å"It is important for HR Management in managing the knowledge capital of an organization and aligning it with organization’s strategic plan†. Critically assess the strategic role of HCM and challenges of managing the knowledge capital in an organization that you are familiar. The organization that I would like to choose is Jabatan Pelajaran Negeri Terengganu (JPNT). JPNT consists of more than 400 workforce and this agency is responsible for administrative and policy executioner of Ministry of Education in the whole Terengganu. In JPNT, there is a small unit of Human Resource Department and this department has 20 staffs. However, until the last day of my service there, the HR department did not establish any single policy about human capital management. Therefore I will attempt to answer this question while recommending what should be done by JPNT to succeed in maximizing their human capital. Before we discuss further the strategic role of HCM and challenges that had to be overcome by HCM specialist, let us look at the technical definition of this question. Knowledge capital is defined by Business Dictionary as the â€Å"know how† that results from the experience, information, knowledge, learning, and skills of the employees of an organization. Of all the factors of production, knowledge capital creates the longest lasting competitive advantage. It may consist entirely of technical information or may reside in the actual experience or skills acquired by the individuals (BusinessDictionary. com 2012) . Knowledge capital is an essential component of human capital. Human Capital is defined by (Baron and Armstrong 2007) as the knowledge, skills, abilities and capacity to develop and innovate possessed by people in the organization. This is one of the attributes of the intellectual capital. Intellectual capital is defined by the same author as the stocks and flows of knowledge available to an organization. It is categorized into three categories namely human capital, social capital and organizational capital. These capitals are usually combined with the physical resources which are the financial and physical assets for the purpose of value creation to the firm. As cited by (Sveiby 1998)Tom Stewart who in his June 1991 article Brain Power How Intellectual Capital Is Becoming Americas Most Valuable Asset, proposed the importance of intellectual capital to the management agenda. He defined intellectual capital in his article as: the sum of everything everybody in your company knows that gives you a competitive edge in the market place. Knowledge Management consists of managerial activities that focus on the development and control of knowledge in an organization to fulfill organizational objectives. (Sveiby 1998) Therefore it means that the integration of all management activities that focus on development and control of knowledge is what we call as knowledge management. Challenges of managing knowledge capital in JPNT will be diffused together as I explained about the role of HCM in the organization. Knowledge management is defined as the process of storing and sharing the wisdom, understanding and expertise accumulated in an organization about its processes, techniques and operations (Baron and Armstrong 2007). Therefore, the data that should be synthesized and acquired should explain the organization’s activity for instance the achievement of the employees in knowledge sharing among them and ensure that the knowledge is maximized in terms of its usage. Everybody must share their skill, knowledge and experience without any malicious intentions for the purpose of maximizing the performance of JPNT. However, it brings challenges to HR specialist in JPNT as it is not a culture of sharing. Some of the staffs afraid to share their know how because they thought that by doing so, it might jeopardized their career envelopment in the future. HR specialist overcomes this by implementing a fair assessment indicator to measure their performance without favoritism, nepotism and biasness. In my opinion, the most important attributes that distinguish Human Resource (HR) with Human Capital Management is the element of the workers as assets. As discussed by (Baron and Armstrong 2007) human capital theory emphasized on regarding people as assets of the organization, and investment in people will generate long run return. Scarborough and Elias noted that human capital theory is similar to physical capital theory but they differ in terms of the reference for human capital theory is made to people and skills while in physical capital theory reference is made to plant and equipments. Both emphasized on value creations to firm. Thus by applying this theory, JPNT needs to redefine the cost associated with training and development and career progression as the investment that will create value for the agency. Staff that undergoes training must be ensured that the new skills matched with their job description and the staff is using that new knowledge in order to effectively execute their job. For instance, the weekly training is not supposed to be done by the JPNT if on the purpose of fulfilling the quotas of training hours. Remuneration is not under JPNT’s jurisdictions however JPNT can recommend the salary of their staff to PSD (Public Service Department). Accepting staff as the asset of the organization will be mutually benefit to both parties involved. On the employee’s part, they will be feeling more motivated, appreciated thus will contribute better in their performances. As for the organization, it will boost the overall organization’s performance, decrease turnover rate, absenteeism and other negative behavior of the staffs. However this theory is not agreed by some scholar for instance Davenport(1999). Davenport argued that worker must not be treated as assets because of three main reasons. The first reason is workers cannot be brought, sold and replaced by their owner. Secondly, the principle of this theory is unacceptable and inappropriate in practice is because workers cannot be owned by the firm as the firm owned plants and machines. Lastly, there is not absolute way of calculating human value-no convincing method of attaching financial value to human resources. Therefore, treating workers sorely based on assets can create drawback to the organization. The interpretation of this concept should be made carefully and it should match with the objective of the organization. It is also not an easy task to convince the top management since the culture of bureaucracy is very strong in JPNT. The next part, I will discuss about the strategic role of HCM. HCM’s role as stated in the book Human Capital Management by Baron and Armstrong, HCM acts as business partner of the firm. Secondly, they are also responsible in developing, analyzing and using business data. Thirdly, they are also responsible for enhancing job engagement and commitment, fourthly, they are responsible to build ‘Business Case’ and lastly, they are also responsible for engaging with the other function of the organization. (Baron and Armstrong 2007)These points will be elaborated one by one in below. For the first one HCM acts as the business partner with the top management of the organization. This concept was introduced by Ulrich in 1998 where the author proposed that HR specialist should be share responsibility with management people to run the business. They must have the ability to understand and exploit opportunities and HR specialist themselves must understand how their role could help in achieving the objective of the organizations. Ulrich suggested that in order for the organization to create value, HR professionals must carry out their responsibility as strategic partners, administrative experts, employees’ advocates and as driver of changes. This can be done through strategy execution, improved planning by thorough discussion on how the firm should be organized to carry out the strategies. HR engagement with operating and marketing function is essentials in ensuring that all of their initiatives will become successful by answering the following issues- whether the initiatives is best aligned with strategy implementations, they make selection based on priority, and lastly the evaluations of the initiatives should be indicate positive linkage to business result. HR specialist must act as employee advocate, human capital developer, functional expert, strategic partner and lastly as leader in terms of HR function. However, the premise â€Å"HCM act as business partner† did not agreed by all practitioners. Tim Miller and Alex Wilson reported by Smethurst(2005) and Pickard(2005) are the examples of the top management who disagree with this premise. Convincing the top management will not going to be easy. Still HCM emphasized on the importance of evaluation of what had been happen within the organization and it also provides basis for value adding strategist. Therefore, according to this theory, HCM in this case the HR specialist in the human resource department should work together with the top management of JPNT in ensuring the creation of value to the firm. The value that we meant here is creating competitive human capital that at the end of the day this human capital will be able to serve successfully to their customers thus deliver excellence business service for the organizations. Secondly, HR is responsible to develop, analyze and use human capital data. The measurements that must be developed by HR should be able to measure issues relating to workforce, capable of measuring the levels and trends in performance achieved by both individual and business, can measure the impact of HR policies and practices on business performance or what Mercer HR Consulting called as â€Å"Business Impact Modeling†. It is also expected that HR should be able in building an effective measurement to measure the effectiveness of line manager in applying HR policies and the measurement tools should be able to measure the effectiveness of HR function (Baron and Armstrong 2007). The workforce matrix should provide data which allows the business to measure the key characteristics of the people it employs. Understanding the relationship between workforce matrix and people management is very important because the workforce matrix focus on the influences business performance and show the business of what need to be done to improved the added value from human capital resources. Therefore, HR cannot simply gain data without proper implementations of specific procedures and standards because gaining accurate data will never be easy. The data accuracy will show the current situation and trends of human capital within the organizations. In JPNT, the typical tool to measure the human capital is Key Performance Indicator (KPI) in human resource department reflect the organizational goal. They matched the number of training and types of training according to the need of the staff. Therefore KPI’s adopt by Human Resource department is quantifiable; they are defined in terms of the feedback that they gain through exit training survey. This KPI however is not emphasized on skills retention that the staff gained on the training. They are not focus workers as the assets of an organization; therefore, I think there are a lot of improvement needs to be carried out to improve this measurement method. Next, is on the aspect of measuring the overall performance. Human Resource department use Balance Score Card that is developed by Beatty et. Al (2005) to measure them. Balance Score Card highlighted four important aspects which are customer perspectives, internal perspectives, innovations and learning perspectives and lastly the financial perspectives. This scorecard focuses on balanced representation and analysis of data. In HR, four dimensions are being highlighted which are HR competencies, its practices, systems and deliverables. On the aspect of financial performance, the HR department always runs cost benefit analysis to choose the best trainer to train their staff or just simply using the internal sources that they have. Productivity is measure when the training course that undergo by the staff is beneficial and the new knowledge are continuously used by the staff. The operational impact or effectiveness is measure for instance creation of successful training course to the staff and when the staff perceived such programs contribute to their career developments. Lastly, is in terms of customer service. Through continuous training programs, the staffs become more skillful in treating the customers thus more of them will be delighted. Measuring the impact of HR policies and practices are one of the toughest roles of HR specialist. This is because it is hard to determine â€Å"causation†-what actions or factors that are specially cause the performance (Baron and Armstrong 2007). Genome II is a model that was developed by National Building Society proved statistically that the more committed the employee, the happier the customer will. Genome project had focus on recruitment and retention, deeper understanding of the commitment of the employees, reward system that is more transparent and flexible, increase the effectiveness of the execution on the first line management, promotes recognitions, and develop a culture where both managers and their subordinates demonstrate right behaviors. Focus area of GenomeII could act as a benchmark to be applied in JPNT. Effectiveness of the line manager could be improved with the intervention HCM (Bohlander and Snell 2010). Guidance, help and further training is available in case where they need them. With this, it was hoped that line managers can carry out their people management responsibilities effectively. For instance if the line manager of JPNT encounter any unsolved problem or the problem is not routine, they can always refers to HCM specialist to guide them. Human resource should be measure to indicate whether they are executing their role and meet the target of their department. Tsui and Gomez-Mejia (1998) cited in (Baron and Armstrong 2007) had clarified the distinction between process criteria- how well things are done and output criteria- the effectiveness of the end result. To distinguish them, ‘utility approach’ by Boudreau(1998) can be applied. Beside this approach, HR performances can also be measured using points suggested by Likierman (2005) that the budget allocation is in line with HR objectives- means HR has a say in changes in implementing the strategy, analyze and interpret the reason behind it, comparing internal and external benchmarking, enhance the usage face to face discussion to gain the feedback, and lastly the measurement should not expect to measure something that is impossible, and they should be noted that many problems just being mitigated, instead of being solved, and this is harmful to the JPNT. Another important role of HCM is in the terms of promoting job engagement and commitment. Job engagement happens when people are willing to commit to their work and willing to perform excellently in their job. Hay Group defined engage performance as a result that is stimulated by employee’s enthusiasm for their work and direct it to the success of the organizations. On the other hand, organizational commitment is defined as the recognition of goals and values of the organization, a sense of belonging to the organization and willingness to contribute effort for the organization (Baron and Armstrong 2007). Organization commitment and job engagement can be created by JPNT if JPNT set a great place to work, HR people promotes positive discretionary behavior, create excellence total reward policy and constantly measure job engagement and commitments. JPNT should provide conductive working environment- comfortable in nature, ergonomics, make sure that the job prospect is parallel with training, appraisal, and the superior staff should take care of the welfare of their subordinates. JPNT can adopt the criteria suggested by The Sunday Times in identifying the best 100 companies which are leadership of senior management level, good relation with their superiors, have the opportunities of personal growth and developments, balanced work-life issues, cooperativeness between colleagues, my company- the way JPNT treats its staff and lastly the fair deal- pay and benefits are provided to all, without nepotism and biasness. The superior should also act in discretion manner; it means that not everything must be solved black and white. For instance, if one of the subordinates absent for their work with a concrete reason, the superior should not punish he or her. Reward is categorized into two which are transactional reward (tangible reward-the pay and benefits) and relational reward (intangible reward-learning and development and work environment). That is the responsibility of HR to create the best reward model that can motivate their employees in the future. The tangible reward is easily to be copied by the competitors as everyone have the capability to pay and gives benefit for instance dental plan, but the intangible reward it harder to be imitated thus increase the chances of sustaining the firm’s competitive advantages. Next, another role for HR professionals is as strategist. Strategist here means HR professional should be able to address long term issues related to management and development of people and the employment relationships. This role is clearly demonstrated when HR professional are being regarded as business partner- they have the persuasion power to influence the top managers to develop business strategies that are maximizing the potential of human capital. (Baron and Armstrong 2007) As we discussed earlier, people are the assets of the organizations, thus they are one of the resource to achieve and sustain competitive advantage of JPNT HCM is also responsible to develop a good business case. Baron and Armstrong 2007) As I discussed previously, HR specialist should be able to persuade top management, a good business case can act as one of the convincing evidences on why the top management should agree to HR specialist’s proposals. The case should show how the purposed course will add value in terms of income will exceed the cost or by executing the proposal, it will yield positive return on investments (Bohlander and Snell 2010). The business case should present on how the available human capital data will impact on key areas of organization’s operation, show how it will the proposal will increase the business competitive edge, or presenting a successful pilot projects to be implemented to the entire organization, the proposal can be implemented without much hassles, it will also able to enhance the employer’s brand by promoting JPNT as the best place to work and lastly the points, data are presented in neat manner, simple and easy to understand. Challenges for managing knowledge are knowledge acquisition, knowledge modeling, knowledge retrieval, knowledge reuse and knowledge maintenance. In JPNT it is hard to get the information needed and turn the information to become useable. For instance, it is hard to transform the tacit knowledge to become explicit knowledge, to identify the gaps in knowledge, and difficult to acquire and integrate the knowledge that is cross departmental and different expertise. Therefore, it is important for the HR specialist in JPNT to be able to create an approach that is able to integrate all knowledge in the organization so that it can be benefited to all. On the top of that, knowledge modeling is also can be another obstacle for HR specialist in managing knowledge capital in the organization. The challenge that is faced by JPNT HR specialist is how to use the knowledge available in solving problems because knowledge possessed by staffs are varies from one another (Bhojaraju 2005). To overcome this, HR departments had introduce mentor and protege program. As a conclusion, the roles that are played by HCM are indeed complex and requires HR specialists to be able to multitasking, possessed multidisciplinary of knowledge and wide range of skills to execute their roles perfectly thus enable them to overcome the challenges of managing knowledge capital in JPNT. Top managements should also give full cooperation in favor of HCM so that the utilization of knowledge capital in JPNT could be maximized.