Human Resource Planning Chapter 5 - BSHR4102

Human Resource Planning BSHR4102 Chapter 5 Outcome 5 Analyze the key contents of Human Capital  Essential Reading and Recommended Reading Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to...

Human Resource Planning BSHR4102 Chapter 5 Outcome 5 Analyze the key contents of Human Capital  Essential Reading and Recommended Reading Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52), https://www.academia.edu/33492382/Human_resource_managment_practices Michael Armstrong and Stephen Taylor, Armstrong’s handbook of human resource management practice, 13th edition, (page no 67 to 74) https://e-uczelnia.uek.krakow.pl/pluginfile.php/604792/mod_folder/content/0/Armstrongs%20Handboo k%20of%20Human%20Resource%20Management%20Practice_1.pdf?forcedownload=1  Outcome 5 Analyze the key contents of Human Capital Contents 1.1 Introduction and Definition 1.2 Constituents of human capital 1.3 Importance of human capital management 1.4 Human capital management drivers 1.5 Human capital theory 1.6 Human capital measurement 1.7 Reasons for interest in human capital measurement 1.8 Approaches to human capital measurement 1.9 Human capital reporting  1.1 Introduction The word “Human Capital” was introduced by A. W. Lewis. Human capital consists of the knowledge, skills and abilities of the people employed in an organization. According to Lawrence Bossidy an American author and former CEO of Allied Signal, later Homewell. “I am convinced that nothing we do is more important than hiring and developing people. At the end of the day, you bet on people, not on strategies.” Reference: Sathyabama University, Course material Unit, (page no 11 -12 ) (https://sist.sathyabama.ac.in/sist_coursematerial/uploads/SBAA7018.pdf  1.1 Introduction Human capital represents the human factor in the organization; the combined intelligence, skills and expertise that gives the organization its distinctive character. The human elements of the organization are those that are capable of learning, changing, innovating and providing the creative thrust which if properly motivated can ensure the long-term survival of the organization. Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52),  1.1 Definition Human capital represents the human factor in the organization; the combined intelligence, skills and expertise that gives the organization its distinctive character. The human elements of the organization are those that are capable of learning, changing, innovating and providing the creative thrust which if properly motivated can ensure the long-term survival of the organization (Bontis et al, 1999) Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52),  1.2 Constituents of human capital Human capital consists of : 1. Intellectual capital 2. Social capital 3. Organizational capital Reference Michael Armstrong and Stephen Taylor, Armstrong’s handbook of human resource management practice, 13th edition, (page no 67 to 74)  1.2 Constituents of human capital 1. Intellectual capital: Intellectual capital is the value of a company's employee knowledge, skills, business training, or any proprietary information that may provide the company with a competitive advantage. 2. Social capital: Social capital consists of the knowledge derived from networks of relationships within and outside the organization 3. Organizational capital: Organizational capital is the institutionalized knowledge possessed by an organization that is stored in databases, manuals, patents etc. Reference Michael Armstrong and Stephen Taylor, Armstrong’s handbook of human resource management practice, 13th edition, (page no 67 to 74)  1.3 Meaning: Human capital management Human capital management (HCM) transforms the traditional administrative functions of human resources (HR) departments— recruiting, training, payroll, compensation, and performance management —into opportunities to drive engagement, productivity, and business value. Human capital management (HCM) is the set of practices an organization uses for recruiting, managing, developing, and optimizing employees to increase their value to the company. Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52),  1.3 Benefits of Human capital management Human capital management helps in extracting the best out of employees. Human Capital Management enables the human resource professionals to hire the right candidate for the right role. Human Capital management enables free flow of information between superiors and subordinates. Human Capital management makes an employee self sufficient by providing Training and skill development activities are essential for upgrading the existing knowledge of employees. Reference: Sathyabama University, Course material Unit, (page no 11 -12 ) (https://sist.sathyabama.ac.in/sist_coursematerial/uploads/SBAA7018.pdf  1.3 Benefits of Human capital management Human Capital Management highlights the importance of soft skills and personality development for employees. Human Capital management helps the employees to improve in areas where they feel they are lacking. Reference: Sathyabama University, Course material Unit, (page no 11 -12 ) (https://sist.sathyabama.ac.in/sist_coursematerial/uploads/SBAA7018.pdf  1.4 Human capital management drivers Driver 1 - Driver 2 - Driver 3 - Driver 4 - Driver 5 - Leadership Employee Knowledge Workforce Learning Practices Engagement Accessibility Optimization Capacity Key Responsibility Work processes Communication Information Innovation Areas Availability Working Conditions Inclusiveness Commitment Training Team Work Accountability Career Supervision Time management Development Hiring Information Leadership Evaluation Sharing Performance Learnings Management Reference: Sathyabama University, Course material Unit, (page no 11 -12 ) (https://sist.sathyabama.ac.in/sist_coursematerial/uploads/SBAA7018.pdf  1.4 Human capital management drivers Driver 1 - Leadership Practices Communication: Employees must be treated well for them to develop a feeling of attachment and loyalty towards the organization. Inclusiveness: Management ought to sit with employees on a common platform to invite suggestions and feedbacks from them. Supervision: Senior executives and management must reduce the various levels of hierarchy between them and employees. Management must interact and motivate the employees from time to time for them to give their level best. Leadership: Senior executives should support, lead and influence the workforce so that they contribute effectively towards the organization. Reference: Sathyabama University, Course material Unit, (page no 11 -12 ) (https://sist.sathyabama.ac.in/sist_coursematerial/uploads/SBAA7018.pdf  1.4 Human capital management drivers Driver 2 - Employee Engagement Key Responsibility Areas: Key responsibility areas of an individual should be designed in line with his education, skills, expertise, experience and also area of interest. This way, work never becomes a burden for him. Commitment: Outstanding efforts of employees must be acknowledged for them to feel motivated and work harder even next time. Employees performing well ought to be suitably rewarded and appreciated in front of others. Time: Time management ensures that no employee is overburdened. Responsibilities must be equally shared among employees. Evaluation: Employee engagement must be evaluated from time to time by the top management. Reference: Sathyabama University, Course material Unit, (page no 11 -12 ) (https://sist.sathyabama.ac.in/sist_coursematerial/uploads/SBAA7018.pdf  1.4 Human capital management drivers Driver 3 - Knowledge Accessibility Information Availability: Employees must have an easy access to all relevant information required to perform their duties. Organizations must organize various training programs (In house Trainings or Out sourced trainings) to constantly upgrade the existing skills of employees and acquaint them with new learnings. Team Work: Employees must be motivated to work in teams rather than working alone. Information Sharing: Encourage employees to share information with each other. Reference: Sathyabama University, Course material Unit, (page no 11 -12 ) (https://sist.sathyabama.ac.in/sist_coursematerial/uploads/SBAA7018.pdf  1.4 Human capital management drivers Driver 4 - Workforce Optimization Work processes: Senior management must define work processes of employees well for maximum productivity. Working Conditions: An organization needs to provide excellent working conditions to the employees to expect the best out of them. Accountability: Individuals must be held accountable for their work. Get a commitment from employees and nothing like it, if everything is in writing. Reference: Sathyabama University, Course material Unit, (page no 11 -12 ) (https://sist.sathyabama.ac.in/sist_coursematerial/uploads/SBAA7018.pdf  1.4 Human capital management drivers Driver 4 - Workforce Optimization Hiring: Individuals responsible for talent acquisition must ensure that they hire the right candidate for the right role. Design a strong induction program for all the newly joined employees. Performance Management: Employee’s performance needs to be strongly monitored and managed. Reference: Sathyabama University, Course material Unit, (page no 11 -12 ) (https://sist.sathyabama.ac.in/sist_coursematerial/uploads/SBAA7018.pdf  1.4 Human capital management drivers Driver 5 - Learning Capacity Innovation: New ideas should be welcome. Employees must be encouraged to come out with new and innovative ideas which might benefit the organization. Training: Trainings must be practical/relevant and designed to sharpen the skills of employees. Do not design training programs just for the sake of it. They must benefit the employees. Career Development: Employees must be aware of their growth plan in the organization. Learnings: New learnings should be valued by all in the organization. Reference: Sathyabama University, Course material Unit, (page no 11 -12 ) (https://sist.sathyabama.ac.in/sist_coursematerial/uploads/SBAA7018.pdf  1.5 Human capital theory Human capital theory regards people as assets and focus that investment by organizations in people will generate worthwhile returns Human capital theory propose that sustainable competitive advantage is attained when the firm has a human resource pool that cannot be imitated or substituted by its rivals. Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52),  1.5 Human capital theory Determine the impact of people on the business and their contribution to shareholder value; Demonstrate that HR practices produce value for money in terms, for example, of return on investment; Provide guidance on future HR and business strategies; Provide data that will inform strategies and practices designed to improve the effectiveness of people management in the organization. Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  1.6 Human capital measurement Human capital measurement has been defined by IDS (2004) as being ‘about finding links, correlations and, ideally, causation, between different sets of (HR) data, using statistical techniques’. The primary aim of HCM is to assess the impact of human resource management practices and the contribution made by people to organizational performance. Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  1.7 Reasons for interest in human capital measurement Human capital constitutes a key element of the market worth of a company People in organizations add value. Focus attention on what needs to be done to make the best use of human capital. Monitor progress in achieving strategic HR goals and evaluate HR practices. You cannot manage unless you measure. Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  1.8 Approaches to Human capital measurement 1. The human capital index – Watson Wyatt 2. The organizational performance model – Mercer HR Consulting 3. The human capital monitor – Andrew Mayo 4. The balanced scorecard 5. European Foundation for Quality Management (EFQM) model 6. The Sears Roebuck model Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  The human capital index (HCI) – Watson Wyatt The HCI is a methodology of Watson Wyatt used to calculate the correlation of human capital and shareholder value. Watson Wyatt identified four major categories of HR practice that could be linked to increases in shareholder value creation. HCI shows that better an organization is doing in managing its human capital, the better its return for shareholders Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  The human capital index (HCI) – Watson Wyatt Categories Percentage Total rewards and accountability 16.5 percent Collegial, flexible workforce 9.0 percent Recruiting and retention excellence 7.9 percent Communication integrity 7.1 percent Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  The human capital index (HCI) – Watson Wyatt The HCI is a methodology of Watson Wyatt used to calculate the correlation of human capital and shareholder value. Watson Wyatt identified four major categories of HR practice that could be linked to increases in shareholder value creation. HCI shows that better an organization is doing in managing its human capital, the better its return for shareholders Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  The organizational performance model – Mercer HR Consulting Organizational performance model developed by Mercer HR Consulting is based on the following elements: People Work processes Management Structure Information and knowledge Decision making Rewards Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  The organizational performance model – Mercer HR Consulting Each elements plays out differently within the context of the organization, creating a unique DNA. The statistical tool, ‘Internal Labour Market Analysis’ used by Mercer scrutinize the record of employee and labour market data to analyse the actual experience of employees rather than stated HR programmes and policies Thus gaps can be identified between what is required in the workforce to support business goals and what is actually being delivered. Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  The human capital monitor – Andrew Mayo Mayo has developed the ‘human capital monitor’ to identify the human value of the enterprise or ‘human asset worth’, which is equal to ‘employment cost × individual asset multiplier’. The individual asset multiplier is a weighted average assessment of capability, potential to grow, personal performance (contribution) and alignment to the organization’s values set in the context of the workforce environment (ie how leadership, culture, motivation and learning are driving success). He believes that value added per person is a good measure of the effectiveness of human capital Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  EFQM model of quality The European Foundation for Quality Management (EFQM) model indicates that customer satisfaction, people (employee) satisfaction and impact on society are achieved through leadership. This drives the policy and strategy, people management, resources and processes required to produce excellence in business results. Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  EFQM model of quality Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  EFQM model of quality 1. Leadership – how the behaviour and actions of the executive team and all other leaders inspire, support and promote a high performance culture. 2. Policy and strategy – how the organization formulates, deploys and reviews its policy and strategy and turns them into plans and actions. 3. People management – how the organization realizes the full potential of its people. 4. Resources – how the organization manages resources effectively and efficiently. 5. Processes – how the organization identifies, manages, reviews and improves its processes. Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  EFQM model of quality 7. People satisfaction – what the organization is achieving in relation to the satisfaction of its people. 8. Impact on society – what the organization is achieving in satisfying the needs and expectations of the local, national and international community at large. 9. Business results – what the organization is achieving in relation to its planned business objectives and in satisfying the needs and expectations of everyone with a financial interest or stake in the organization. Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  The Sears Roebuck model (Rucci et al, 1998) The Sears Roebuck model defines the employee-customer-profit chain. It is sometimes called the ‘engagement model’. It explains that if you keep employees satisfied in terms of their attitude to the company and their job you will create a ‘compelling place to work’, which will encourage retention and lead to service helpfulness and merchandize value, which leads to customer satisfaction, retention and recommendations, thus creating ‘a compelling place to shop’. This in turn creates ‘a compelling place to invest’, because of its impact on return on assets, operating margins and revenue growth Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  The Sears Roebuck model (Rucci et al, 1998) Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  The balanced scorecard A balanced scorecard (BSC) is defined as a management system that provides feedback on both internal business processes and external outcomes to continuously improve strategic performance and results. Reference Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52)  The balanced scorecard 1. The financial perspective Focuses on financial performances of an organization. It normally covers the revenue and profit targets of commercial companies as well as the budget and cost-saving targets of not-for-profit organisations. The financial health of an organisation is a critical perspective for managers to track. It is important to note that financial performance is usually the result of good performance in the other three scorecard perspectives. Reference: Robert S. Kaplan and David P. Norton. The Balanced Scorecard—Measures that Drive Performance https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2  The balanced scorecard 2. The customer perspective Focuses on performance targets as they relate to customers and the market. It usually covers customer growth and service targets as well as market share and branding objectives. Typical measures and KPIs in this perspective include customer satisfaction, service levels, net promoter scores, market share and brand awareness. Reference: Robert S. Kaplan and David P. Norton. The Balanced Scorecard—Measures that Drive Performance https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2  The balanced scorecard 3. The internal process perspective Focuses on internal operational goals and covers objectives as they relate to the key processes necessary to deliver the customer objectives. Here, companies outline the internal business processes goals and the things the organization has to do really well internally in order to push performance. Typical example measures and KPIs include process improvements, quality optimization and capacity utilization. Reference: Robert S. Kaplan and David P. Norton. The Balanced Scorecard—Measures that Drive Performance https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2  The balanced scorecard 4. The learning and growth perspective Focuses on the intangible drivers of future and is often broken down into the following components: Human Capital (skills, talent, and knowledge) Information Capital (databases, information systems, networks, and technology infrastructure) Organization Capital (culture, leadership, employee alignment, teamwork and knowledge management). Typical example measures and KPIs include staff engagement, skills assessment, performance management scores and corporate culture audits. Reference: Robert S. Kaplan and David P. Norton. The Balanced Scorecard—Measures that Drive Performance https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2  1.9 Human capital reporting Human capital reporting is concerned with providing information on how well the human capital of an organization is managed. There are two types of Human capital reporting 1. External reporting 2. Internal reporting Reference Michael Armstrong and Stephen Taylor, Armstrong’s handbook of human resource management practice, 13th edition, (page no 67 to 74)  Human capital internal reporting Analysing and reporting human capital data to top management and line managers will lead to better informed decision making about what kind of actions or practices will improve business results, increased ability to recognize problems and take rapid action to deal with them, and the scope to demonstrate the effectiveness of HR solutions and thus support the business case for greater investment in HR practices. Human capital information is usually reported internally in the form of management reports providing information for managers, often through the intranet and on dashboards Reference Michael Armstrong and Stephen Taylor, Armstrong’s handbook of human resource management practice, 13th edition, (page no 67 to 74)  Human capital external reporting The companies to prepare a business review. This has to disclose information that is necessary for the understanding of the development, performance or position of the business of the company including the analysis of key financial and other performance indicators, and information relating to environmental and employee matters, social and community issues, and any policies of the company in relation to these matters and their effectiveness. Reference Michael Armstrong and Stephen Taylor, Armstrong’s handbook of human resource management practice, 13th edition, (page no 67 to 74) Articles review Explore and find key articles related to Human Capital Theory. Comment your observations regarding human capital theory?  References Baron, A and Armstrong, M (2007) Human Capital Management: Achieving added value through people, Kogan Page, London Becker, B E, Huselid, M A and Ulrich, D (2001) The HR Score card: Linking people, strategy, and performance, Harvard Business School Press, Boston, MA CFO Research Services (2003) Human Capital Management: The CFO’s perspective, CFO Publishing, Boston, MA Donkin, R (2005) Human Capital Management: A management report, Croner, London Edvinson, L and Malone, M S (1997) Intellectual Capital: Realizing your company’s true value by finding its hidden brainpower, Harper Business, New York Michael Armstrong, A Handbook of Human Resource Management Practice, 10th edition, (page no 29 to 52) Michael Armstrong and Stephen Taylor, Armstrong’s handbook of human resource management practice, 13th edition, (page no 67 to 74) Robert S. Kaplan and David P. Norton (1992). The Balanced Scorecard—Measures that Drive Performance Schultz, T W (1981) Investing in People: The economics of population quality, University of California Press, CA Watson Wyatt Worldwide (2002) Human Capital Index: Human capital as a lead indicator of shareholder value, Watson Wyatt Worldwide, Washington DC  CONTACT INFORMATION: Name of the Staff :Dr. Chandra Sekhara Reddy K Office:: Bs043 Email: [email protected] VERSION HISTORY Version No Date Approved Changes incorporated 02 Sem (1) – 2024-25 University of Technology and Applied Sciences ‫ جامعة التقنية والعلوم التطبيقية‬-