The Hindu Business Line : Leveraging the human capital

Some technological, economic, and social developments that are critical in nature have combined to make human capital a key element in making organisations more effective.

The ever-advancing growth in technological knowledge is a significant driver in upgrading the value of human capital. It has transformed the very nature of what organisations need to do, the type of products they need to make, and the manufacturing technology that they must adopt.

A good example of the rapid evolution of technology is the Internet. In just a few years, it has created a host of new businesses that serve customers in new and novel ways. It has created organisations that are very different in their structure, operation, and performance from anything the world has seen before. It is, now, more of knowledge work, than the manual and mind-numbing type. People deal with abstract concepts, they process information, and they are valued for their ability to think, analyse, and solve problems.

Second, the "decline and fall" of the totalitarian systems in the realpolitik around the world has opened the floodgates to free trade and competition. A number of new entrepreneurs have entered the fray. Monopolistic trade practices, such as cartels and syndicates, have been given the go-by. Thus, the combination of three forces — growth in scientific knowledge, changes in the nature of individual work, and the emergence of a highly competitive global economy — confront contemporary commercial organisations with a major challenge: The need to discover fresh sources of marketing advantage.

Fresh sources

Now, what are these fresh sources? Edward Lawler says that there are three major criteria, which acting in concert can create winning organisations, and they are human capital, organisational capabilities, and core competencies. All have a common thread in the sense that organisational capabilities, and core competencies, also, require the right kind of human capital, because they largely depend upon the skills and talents of individual employees in an organisation. In this context, perhaps, it is useful to understand the difference between core competencies and organisational capabilities, as defined and envisioned by management thinkers. Core competencies are the technical know-how and wherewithal, which enable an organisation to design and deliver such goods and services that propel an organisation to attain and retain a premier place in the market.

Organisational capabilities refer to the ability of an organisation to perform in ways that provide a definitive and distinctive value to the customer. The difference between the two is rather subtle and skin-deep; both are about skills aimed at achieving better performance; while core competency is relatively person-oriented, organisational capability is relatively institution-oriented.

Democracy, order of the day

Democracy is the order of the day everywhere including the workplace. But, hierarchical organisations are too inflexible to function effectively under an egalitarian environment. What are likely to work and win in the current context are lateral forms of organisation that rely more on teams, networks, shared leadership, and empowered employees.

These organisations will have flat and agile formats, transparent management, in which executive power migrates to expertise, irrespective of rank and position.

Job-based systems

The job-based approach of managing people is not relevant any more. It is essential to move closer to the knowledge- and skill-based approach. Jobs are the molecules in an organisation around which all other elements converge. Individual employees are assigned certain tasks and responsibilities. They are held accountable for performing them. Candidates are selected based on the nature of the jobs and compensated commensurate with how important the jobs are, and how effectively people perform in their jobs.

There are some difficulties with the job-based system. It is a legacy from the Scientific Management stream, propagated by Taylor and Fayol. Jobs were broken down to simple elements, such that skill and knowledge requirements were kept minimal. Whereas, given the need of modern organisations, the focus is on the knowledge and skill quotients of the incumbents. In place of job descriptions, the emphasis shifts to person specifications.

This switch in accent is a clear indicator that human capital has come of age. It has emerged as an essential criterion for the effectiveness of an organisation. In the new dispensation, employees own the methods of production. They write the process, develop the products, solve the problems, and deliver the services. When an employee leaves an organisation, it is not just a matter of locating another animal from the same stable to run a piece of equipment. It is a matter of identifying an individual of the same ilk, culture, and character who will mesh with the esprit de corps prevailing in the organisation. The employee is not a mere cog in the wheel, but the wheel itself. It is a radical change, wherein the employee blossoms into an icon and a logo.

How to check attrition

No wonder, therefore, that nowadays the rate of return on the human capital is pretty steep. Considering their easy mobility and value-adding propensity, the bargaining power of candidates has become incredibly higher. It is pertinent in this context to take into account another component contributing to a better "human bondage" between the employer and the employee — allocation of stock options to employees. It functions as an ideal retention device as it locks in employees for a longer tenure.

(The author is a Chennai-based freelance writer.)