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Session outline

Human capital management defined

Human capital management and HRM The concept of Human Capital intellectual capital,

Social Capital and Organizational Capital

Human capital measurement and

Approaches to measurement

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Intellectual capital It consists of the stocks and flows of

knowledge available to an organization

Intangible resources, anything thatcontribute for value generating process

It includes the value of all relationships

inside and outside the organization

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Elements ofIntellectual capital Human capital

Social capital

Organizational capital

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The concept of intellectual capital

It defines the link is concerned with the added value

people provide for organizations

Its the differentiator for competitive advantage

It captures the set of skills rented out by the worker to

the employer

It is the most important element of the Intangible assets

It defines the link between the HR practices and

business performance in terms of an asset than as a

business process

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Human capital The knowledge, skills ,abilities and capacity to

develop and innovate possessed by people in

an organization Originated by SCHULTZ, 1961- human factor in

the organization , distinctive character to the

organization

Human capital theory, Elliot , 1991

Work is a two way exchange of value

- WORKERS AND EMPLOYERS INVEST IN

HUMAN CAPITAL

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Features of Human Capital- The human elements capable of learning,

changing, innovating which ensures sustenance

of organization for long run

It is not owned by the organizations but can besecured through the employment relationship

It can be developed by training and development

programmes.

Employees can make choices and decide when,

how and where they will contribute (exchange

value)

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How employees invest in HC? Workers rent out their skills, abilities,

behaviours and knowledge

Expected returns on HC investments =high earnings, greater job satisfaction,

career prospects, security, increasing

employability.

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Cost ofInvsts. Take 3 forms-

psychological costs

Social costs foregone market opportunities

Monetary- direct financial outlays and

foregone market opportunities

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When will employee invest inHC?

Benefits > cost

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WHE

N WILL

EMPLOY

ERS

INV

ESTM

ENT

INHUMAN CAPITAL?

ROI= IMPROVEMENTS IN performance,

productivity, knowledge, innate skills and

behaviours

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Social capital Putman, 1996 defines the features of

social life- networks, norms and trust- that

enable participants to act together moreeffectively to pursue shared objectives

World bank- horizontal associations

It is the knowledge tied up and developedby relationships among employees,

partners, customers and suppliers

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Organizational capital Owned by the organization

Embedded and institutionalized knowledge

The institutionalized knowledge possessed by an organization that

is stored in databases, manuals, etc (Youndt,2000). It is often calledstructural capital(Edvinson and Malone, 1997), but the term

organizational capital is preferred by Youndt because, he argues, it

conveys more clearly that this is the knowledge that the organization

actually owns.

It is retained with the help ofIT on readily accessible and easily

extended databases.

Explicit knowledge recorded and stored in databases, manuals, etc

Tacit knowledge that has been captured, exchanged as far as

codified.

Developed by Knowledge management processes

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Practical implications Human capital theory and HR practices- it

focuses on resourcing strategies,

development strategies and rewardstrategies.

Social capital theory- helps in usage of

multidisciplinary project teams and ODinterventions

Organizational capital theory- Developed byKnowledge management processes

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Human Capital Management(HCM) It is concerned with obtaining, analyzing and reporting

on data that informs the direction of value adding

strategic, investment and operational people

management decisions at corporate level and at thelevel of frontline managers

It involves the systematic analysis, measurement and evaluation of

how people policies and practices create value It provides a bridge between HR and Business strategy.

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Aim of HCM Determine the impact of people on the business and

contribution in shareholder value

Demonstrate that HR practices produce value for

money( E.g., ROI)

Provide guidance on future HR and Business Strategies

Provides diagnostic data that will inform strategies and

practices designed to improve the effectiveness of

people management in the organization

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Overview of HCM

obtain, analyze and report

on data that inform

the direction of HR

strategies and processes

Use metrics to prove that

superior HRM strategies

and processes deliver

superior results

Reinforce that HR strategies

and processes

create value through people

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HCM Drivers Identify the business needs/ drivers

Determine the process- resources and

people , factors that add value throughpeople

Measurements

Identify the outcomes of measures andrelate them to business drivers

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The process HCM Obtain data AND Taking measurements

Reporting

Drawing conclusions

Developing Future action

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PROCESS 1: Human capitalmeasurement

It is about finding links, correlations and

ideally causation between different sets Of

HR data, using statistical techniques.

Emphasis in actual experiences of the

employees and not on stated HRProgrammes and policies

It depends on data/ quantifiable HR

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DATA IS RAW MATERIAL

MEASURES ASSEMBLE AND ANALYSE

RAW MATERIAL.

Data comes first but you can establish the

metrics and may indicate the data

required, ie., look for causal links

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Types ofData used forMeasurement

Business performance data

CSR dataCustomer data

Demographic data

People development and performance data

Employee opinion /Perceptual data

Non-financial variables

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Reasons for measurement- Market worth estimated

- HR planning for monitoring

- Best use of human capital

- Achievement of strategic HR goals

- You cannot manage unless you measure

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Classification of measures Activity measures

Performance measures

Added value measures

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Approaches of measurement

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Analytical models

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The Mercer Organizational Performance Model

Business Design

Capital Assets

Organizational

architecture

Shareholder

ValueHuman Assets

PeopleWork Processes

Managerial Structure

Information & Knowledge

Decision-Making

Rewards

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The sears Roebuck modelAttitude

about the job

Attitude

About the

company

Employee

Behavior

Employee

Retention

Service

Helpfulness

Merchandise

Value

Customer

Recommendations

Customerimpression

Customer

Retention

Return on Assets

Operating margin

5 unit increase in

Employee Attitude1.3 unit increase in

Customer impression

0.5%

increase in

Revenue

growth

Drives Drives

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EFQMModel/ BEM

L

EA

D

E

R

S

H

I

P

People

Management

Resources

Policy and

Strategy

Processes

People

satisfaction

Customer

satisfaction

Impact on

society

Business

Results

ENABLERS results

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PROCESS 2: Human capital ReportingHuman Capital reporting is concerned with providing information

on how well the human capital of an organization Is managed.

There are two aspects

External reporting- represent the boards understanding of the linksbetween HCM policies and practices and its business strategy and

performance.

- Provides details on composition of workforce, employee retention and

motivation, skills, competencies and training, remuneration and fair

employment practice and leadership and succession planning.

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Human Capital External Reporting

framework

Human Capital Strategy

Acquisition and

retention

Learning and

Development

Human Capital Management

Management

Leadership

Human Capital Performance

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Internal reporting- it is linked to externalreporting framework but will focus more on

practical implications of the data that has

been assembled and analyzed.

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PROCESS 3: DRAWING CONCLUSIONSHR and business strategy

Improving the capability of line managers in

handling HR issues

Overall organisation of HR Effort

PROCESS 4: GETTING INTO ACTION

Results put in action