Profit and Growth are the essentials in a business. The contribution of HR to the bottom-line has always been argued. The return on investment from HR practices is not quantified according to critics. The objective measurement is essential for the framework which is in place in the organization. HR has evolved into a line function is the observation made in various organizations. This article discusses if there in fact has been a paradigm shift.
What my business experience has taught me is that the key to competitiveness is innovation and the key to innovation is people. Taking care of people is therefore an essential way of taking care of business – Tobias Randall, Chairman of Eli Lilly
In today’s business scenario, there is one thing which remains constant and that is change. This ironical statement has been proved over and again and the ability to adapt to the new change is where the competence lies.
Human Resource management, perhaps the most challenging and the challenged subject has evolved from its inception. Human Resource and Human Capital are interchangeable terms is a myth. The sophistication of an organization will reveal or more so define Human Capital as a replacement to Human Resource. The cut-throat competition, ease in the availability of information, knowledgeable employees, business style and the drivers of the same have evolved over the time and are precisely the reason for this strategic shift from Human Resource to Human Capital. This shift is just the extension of HRM by aligning the workforce to attain more value. A clever manager will capitalize on the intersection of essential objectives, passions and the strengths of the people/workforce by hiring and retaining the people who fall in this area.
The shift in the dynamics can be visualized once we understand that human resources are not just the means for development but wealth in itself which will give rise to more earning, in other words, more wealth. I mention the word wealth here because any business exists with a sole purpose of earning profit. This is no rocket science as a simple definition of capital is “any form of wealth employed or capable of being employed in the production of more wealth.” The underlined word in the above definition is on the phrase- ‘any form of wealth’.
This strategic shift in the HR management studies compressed the four major factors of production into three. Labor which previously had its own importance separately became similar to or subset of the capital. This strategic shift leverages the fact that every individual or more definitively knowledge worker is capable of generation of wealth through effective contribution.
I feel few among many reasons for this paradigm shift are the growing dynamic nature of business, globalization, uncertainty-risk mitigation, the generation next and core competence.
1. Any organization no longer has a static or laid back attitude. The concentration is shifted to dynamic nature so the number one job is to be on the top amidst emerging markets and competition etc. Therefore HR needs to identify the workforce challenges and highlight capabilities that make the process fast, efficient and repeatable. A company which eyes development must tap in the higher valued skills like research and development, knowledge processing, advanced analytics and Human capital metrics.
2. Globalization is the emerging trend and its presence is already rampant in the Industry. A statement in the book The World is Flat explains how globalization affects the working and strategies. “The playing field has been leveled.” An organization cannot afford to be indifferent to the changes around; Organizations have to compete for the global knowledge work as never before. Questions will arise like, Where does my organization fit in the global competition? This phenomenon of globalization not only flattened the world figuratively but also pushed the employees to empower themselves which is reflected as Human Capital.
3. HR risk management used to revolve around compliance, avoidance of lawsuits etc. Nowadays the focus is expanding to include broad range of people related risks. Current events in the global economy are causing severe economic disruptions leading to corporate downsizings, restructurings. People create and maintain the intellectual capital within organizations that drives innovation and shapes products. The market may be an external factor, but it requires people to generate interest and deliver the market acceptance thus effectively making them the most significant asset.
4. Loyalty to a company is always posed as a question to the employees. If the employees feel under-invested or if the scope for growth is not seen, they look for opportunities elsewhere. Retaining the assets in the form of workforce aided in the shift to Human Capital.
5. Core competence is defined as an un-imitable value generation in the market which cannot be paralleled. The increase in competition, reduced entry barriers, power of consumers and increase in usage of technology and so on make the survival of an organization a struggle. Sometimes the customers drive the organization and its products. The core competence of innovation, skilled workforce sets the same organization a class apart.
Qualification and previous designation alone is no longer the foremost parameter though it does give visibility. The main objective of any organization is value and knowledge workers (which are complimentary) which takes precedence over strategy itself. That’s the importance of Human Capital and hence the shift.
For example-
–It is not surprising that Reliance group has two Nobel laureates of chemistry in its Board of Directors. The intention here was to add value to the board room.
–A basic organization structure like Educational Institutions which include many B-schools are more seen including highly knowledgeable civil service heavy weights in their Board of Governors.
–Accenture has formulated its own company specific Human Capital development framework and formulated objective metrics to assess the impact of HR programs on business results.
The conventional thought process of ‘right job for right people’ is long gone. It’s been overridden by ‘right people for right job’. Why? Every unit of capital spent must give a return. Even a small slack can lead to inconsistency. To avoid this inconsistency or to track the returns at every stage, organization should adopt objective measures. The whole discussion boils down to one aspect- focus on value. Talent is the key enabler of growth but it can also cause problems if not managed properly; here comes Talent management. Investment in the form of Human capital will provide the necessary breakthrough to get to the milestones which were set, get the stipulated value, get the wealth.
As mentioned earlier, the engagement of passion, strengths and business encompasses empowerment, involvement, leadership, strategy etc. The organizations which realize this fact have adopted and tuned themselves to the strategic shift. The HR function which was touted as a service function has transformed into a line function. After all, change and the ability to evolve is the essence of business.
[The article has been written by V. Sunil Babu. He is presently pursuing his PGDM from Xavier Institute of Management and Entrepreneurship.]
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