1 .1 BACKGROUND OF STUDY
Today’s business environment is in the state of flux, where competition is the name of the game. Organizations that fail to change may be forced to change from existence to non-existence, hence survival is the panacea. To survive, companies must explore all available avenues that can bring about competitive advantage. To develop a competitive advantage, it is important that firms truly leverage on the workforce as a competitive weapon. A strategy for improving workforce productivity to drive higher value for the firms has become an important focus. Firms seek to optimize their workforce through comprehensive human capital development programmes not only to achieve business goals but most important is for the long term survival and sustainability of the organization. To accomplish this, firms will need to invest resources to ensure that employees have the knowledge, skills, and competencies they need to work effectively in a rapidly changing and complex environment (Marimuthu, Arokiasamy, and Ismail, 2009).
In response to the changes, most firms have embraced the notion of human capital has a good competitive advantage that will enhance higher performance. Human capital development becomes a part of an overall effort to achieve cost-effective and firm performance. Hence, firms need to understand human capital that would enhance employee satisfaction and improve performance. Although there is a broad assumption that human capital has positive effects on firms’ performance, the notion of performance for human capital remains largely untested.
Human capital management can contain different aspect, such as personal cost, performance of employee turnover or demography .Human capital management is an attempt to place a financial figure on the knowledge and skill of an organisation employees or human capital (Bnet 2008) but also includes the planning, controlling and analysing of all personnel management related procedures as far as they are quantifiable. The growing number of articles shows the increasing relevance of human capital management theory take the view that employees can be regarded as assets (Ordiorne 1984) They even believe that value can be put on them and that employees can be managed much as a portfolio of stocks in managing and maintain or enhance their value to the firm (ordiorne 1984).
Human capital generally refers to a repertoire of knowledge, competency, attitude and behavior embedded in an individual (Youndt et al., 2004; Rastogi, 2002). It has gained increasing recognition among organization and management scholars because of its promise to deliver competitive advantage (Gratton, 2000; Pfeffer, 1994), create value (Rastogi, 2002; Mayo, 2001) and secure long-term economic growth (Tomer, 2003; Chuang, 1999). The growing emphasis on human capital in organizations reflects a view that market values depend less on tangible resources and more on intangible resources, particularly human resources (HR) (Edström and Lorange, 1984).
The development of the resource-based view of the firm (Barney, 1991; Penrose, 1959), together with influence work in strategy on organizational core competencies (Hamel and Prahalad, 1994), has placed the role of human capital centre stage within organizations. People and people processes, it is claimed, create competitive advantage chiefly through the characteristics of being (potentially) valuable, rare, hard-to-imitate and non-substitutable (Wright et al., 1994). This means that a link between HR practices and the firm-specific nature of particular organizations can foster uniqueness and create high barriers to imitation (Becker et al., 2001; Wright et al., 2001). In order to build a competitive advantage, organizations need to define what human capital really means and how to deliver effective human capital development.
As some scholars state:“…HR leaders [need] to know that the work they’re doing is among the most important work that anybody can do. Human capital is, and should be, the centre of any business.” (Rosner, 1999: 41) “[Human capital is] generally understood to consist of the individual’s capabilities, knowledge, skills and experience of the company’s employees and managers, as they are relevant to the task at hand, as well as the capacity to add to this reservoir of knowledge, skills, and experience through individual learning.” (Dess and Picken, 1999: 8) Such a philosophy requires, it is argued, a strategic approach to managing people, implementing solutions for evaluating workforce capability, identifying skill gaps areas and improving employees’ productivity, performance and well-being (Mayo, 2001). Strategic issues such as increasing firm’s performance (Maruping, 2002), designing competencies (Nordhaug, 1998), human capital measurement (Critten, 1994), returns on investment of human capital (Fitz-enz, 2000), benchmarking (Huang et al., 2002) and resource allocation (Lepak and Snell, 1999). Hence, this paper attempts to look into the connection between human capital and firm’s performance.
1.2 STATEMENT OF THE PROBLEM
The productivity of workers is falling resulting to poor and low performance of the organization.