Organisations must convert human resources into human capital to achieve sustained competitive advantage

Organisations must convert human resources into human capital to achieve sustained competitive advantage

It is always said that human resources are the most important asset of any organisation, and indeed, academic research abound to support this widely acclaimed notion. Employees exist to transform organisational vision and objectives into actionable, demonstrable and achievable terms. Organisations are constantly engaging in activities and programmes to attract, develop and retain talents, and in the global world all over, human resources have assumed profound importance more than any other tangible resources in the organisation.

However, in order for organisations to experience sustained competitive advantage and to achieve organisational objectives, organisations must make conscious efforts to convert their human resources into human capital.

Human Capital

The concept of human capital dates back to the days of Adam Smith, when he wrote the book “Wealth of Nations” and indicated that the investment in physical capital made through expenditure on machines would have the same effects as investments made in human capital through the expenditure on education and training (Little, 2003).

The concept of human capital in economic theory was further advanced by economists such as Theodore Shultz and Gary Becker, who argued that “improving the welfare of poor people does not depend on the land, machinery or effort, but rather on knowledge” (Kurmanov et al., 2016, p. 28 ). Shultz’s description of human capital implies that all human capabilities are either congenital (nature) or acquired (nurture), and that everyone is born with a certain genetic inheritance which determines the individual’s innate human potential.

On this basis, human capital refers to the knowledge, skills and experiences of employees, and also their readiness to share these attributes with the organisation to create value. Furthermore, human capital is the aggregate accumulation of all the employees’ knowledge, skills and abilities, and the employees’ preparedness to dispense their knowledge and skills towards the achievement of corporate goals.

The level of creativity, knowledge, and idea development skills that are resident within employees, and are utilised to the advantage of the organisation define the construct of human capital. It therefore stands to reason that an organisation can have human resources but not human capital. A company many have employees who are highly trained, but if the employees are not dispensing their knowledge, skills and abilities towards the achievement of organisational objectives, then that company does not have human capital.

Human Capital and Organisational Performance

Research abundantly demonstrates that human capital has a positive impact on organisational performance. Human capital is a principal precursor to organisational performance, and it is the main reason why some organisations outperform others. Scholars and practitioners alike recognise that the knowledge and skills possessed by the employees of an organisation play very important roles in the performance competitiveness of the organisation.

The human capital philosophy, therefore, is of the view that the skills and qualifications of employees are central to organisational productivity or performance. Although the performance of employees in an organisation is dependent on many different factors, the most important factor is training and competency development, which enhance the capabilities of employees, and consequently, the achievement of organisational objectives.

Human Capital Development

Employee development leads to the accumulation of human capital. The performance or accomplishment of any organisation depends on its employees. Organisations must possess employees who are capable of maximising its fortunes, and training and development of employees fulfils this corporate requirement.

Therefore, the importance of training and development of employees has assumed increasing relevance in organisations, where such organisations are making huge investments in their employees to develop their competencies so they can in turn make the organisations relevant and competitive.

Human capital development is an integrated set of planned programmes, provided over a period of time, which includes training, education, and other professionally motivated initiatives, which tend to increase the knowledge, skills and abilities of employees to make them perform to their fullest potential in support of the organisation’s goals. It is an expensive endeavour for organisations to develop their employees, however, this investment is positive for the organizations to wield competitive power in the marketplace. 

The Way Forward

Human Resources professionals and Learning & Development practitioners should understand that the workplace is a strategic environment for training and learning by both organisations and employees.

  • Through day-to-day work and activities of employees, they learn in the process, thereby increasing their performance. Hence, Supervisors and Managers must utilise the unique environment of the workplace to provide learning to employees.
  • HR professionals must ensure that Supervisors and Managers delegate work assignments to employees, and provide commensurate authority and responsibility to employees to deliver.
  • Organisations must have in place a simple, clear and unambiguous training and development policy, and must be communicated to all employees. The policy must be favourable and give opportunity to every employee to attend training. However, all training must be in alignment with corporate strategic objectives.
  • HR and Learning & Development professionals must train experienced employees to serve as coaches to young and relatively inexperienced employees.
  • Organisations and corporate leaders must provide improved working conditions to facilitate transfer of learning. There must also be sufficient resources to advance training and development for maximum impact.
  • Organisations must provide blended and diversified training and development portfolios so that employees can acquire knowledge, skills, attitudes and abilities from different sources to catalyse learning.
  • Organisations must have in place a goal-oriented Performance Management System (PMS) to guide, manage and sustain consistent improvement of performance of employees. Many organisations and corporate leaders make a fundamental mistake of using rewards as the cornerstone of PMS. The purpose of PMS is to improve performance of employees and ensure that employees and their departments are working together to achieve the broader organisational strategic objectives.
  • HR and Learning & Development professionals must ensure that there is a solid training evaluation system in place. Training evaluation is profoundly critical in ascertaining if training has yielded the intended outcomes, and also helps to make decisions about future training. Training evaluation helps Supervisors and Managers to provide effective post training feedback to employees to help employees target areas to improve performance.

There is abundance of research findings attesting to the fact that training and development are positively correlated with employee productivity and consequent organisational performance. Human capital is therefore a strategic force for organisations to experience sustained competitive advantage. Organisations must make conscious effort to possess human capital to achieve their vision and mission. 

Edward is a Human Resources Professional with the Petroleum Commission, and a Doctoral Candidate at Royal Roads University, Victoria, BC, Canada.


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