Human Asset Management - The Significance and Challenges of investing in Human Resources

Studienarbeit, 2011

33 Seiten, Note: 1,0


Table of contents

List of Abbreviations

1 Introduction and methodological approach

2 Definition and delimitation of relevant terminology
2.1 Managing human capital
2.2 Knowledge workers and Skill Management

3 The significance of intangibles and Human Resources
3.1 Human capital: people as an asset
3.2 Tasks and challenges of Human Resource Management

4 Skill Management and its main application areas
4.1 Main fields of application and improvements by Skill Management
4.2 Problems and limitations of Skill Management

5 Managing knowledge workers
5.1 Employing the older workforce
5.2 Career development program
5.3 Employment benefits

6 Summary




List of Abbreviations

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1 Introduction and methodological approach

N. R. Narayana Murthy, chairman and chief mentor of Infosys Technologies Ltd., stat- ed, “Our core corporate assets walk out every evening. It is our duty to make sure that these assets return the next morning, mentally and physically enthusiastic and energetic” (Infosys Technologies, 2008, p. 1). In a rapidly changing business environment organi- zations are increasingly realizing that people are the most critical contributors to success (Mello, 2002, p. 4). Many organizations in developing countries are now highly de- pendent on their intangible assets, such as human capital, knowledge, and organizational capabilities, for their competitive advantage (Lawler, 2004). Thus, Human Resource Management (HRM) has become a significant factor for a firm’s success. In order to compete in the twenty-first century, Human Resources (HR) professionals have to focus on various tasks and challenges. Managing knowledge workers becomes a new chal- lenge. In the face of this challenge, the role of HRM needs to be adapted. The critical role of HRM is to examine their specific needs and identify the motivational factors (Wang & Amed, 2003, p. 10). Companies that want to cope with the challenges have to invest in the development of the skills of their employees. The tools and methods for identification and transfer of knowledge can be grouped under the term of “Skill Man- agement” (Gronau & Uslar, 2004a). But can Skill Management (SM) actually contribute to the entrepreneurial success? What are the tasks and challenges that have to be faced by a modern HRM? Why are people the most important asset of an organization, and what are currently important requirements to attract, engage, and retain knowledge workers?

This paper aims to answer these questions and is therefore structured as follows. Chapter 2 defines and delineates the central terms human capital, HRM und SM and serves as a basis for the following approach. Chapter 3 demonstrates the importance of people as an intangible asset and highlights the tasks and challenges of modern HRM. Chapter 4 illustrates the effects of SM within an organization, but also suggests the problems and limitations related to it. Of the several issues currently being discussed that relate to managing knowledge workers and meeting their demands, the three re- viewed in Chapter 5 are: employing the older workforce, career development program, and employee benefits. Finally, Chapter 6 summarizes the findings and proposes to an- swer the question, “under what conditions can HR contribute to business success?”

2 Definition and delimitation of relevant terminology

2.1 Managing human capital

The term “human capital” expresses “the economic value of employees’ knowledge, skills, and capabilities” (Bohlander & Snell, 2010, p.13). Human capital has a signifi- cant impact on an organization’s performance. However, it is an intangible asset and cannot be owned by an organization. The term isn’t about depicting people as economic units, but a way of viewing employees as crucial contributors to business success (Bohlander & Snell, 2010). Intangible human assets1 comprise such things as reputation as the depth of employee talent and loyalty, an employer-of-choice, and the firm’s abil- ity to change and innovate (Wong, 2000). There exists a reciprocal relationship between supply and demand in managing human capital: “employees, contractors and consult- ants invest their own human capital into business enterprises and the business enterpris- es need to manage the supplier” (Ceridian Corporation, 2007, p. 1). Human capital must be managed wisely and with humanity. Organizations need to understand how and why people contribute to firm’s success, in order to manage human capital effectively (Ceridian Corporation, 2007).

Due to the importance of human capital as a source of competitive advantage, HRM plays a key role in ensuring the promotion of business success. There is still no universally agreed definition of the term HRM.2 HRM specifies any approach to manag- ing people, in its broadest sense. Buchanan and Hucyzinski (2004, p. 679) put the em- phasis on the strategic nature of HRM and define it “as a managerial perspective which argues the need to establish an integrated series of personnel policies to support organi- sational strategy”. The term “HR” includes all people with current contribution to doing work of the organization, as well as those people who have contributed in the recent past and those who potentially could contribute in the future (Jackson, Schuler, & Wer- ner, 2009, p. 14). The idea of engaging the commitment of people with the aims of the organization is a central feature of HRM. The terms personal management and HRM are frequently used interchangeably, but the two denote different aspects. HRM puts an emphasis on the creation and maintenance of organizational culture, which allows em- ployees to identify their success with that of the firm and stands in contrast to the regu- latory view of personnel management. Personnel management is reactive and has shortterm perspectives.3 HRM has a strategic dimension and includes the total deployment of HR within the organization (Consortium Research Program, 2006).

2.2 Knowledge workers and Skill Management

Developing knowledge, skills, and experience within the organization’s workforce is necessary, in order to build human capital in a corporation. Due to technical inventions and modern development, the variety and number of jobs requiring advanced knowledge and considerable skills have increased. There has been a shift from “touch labor to knowledge workers” (Bohlander & Snell, 2010, p. 7). Drucker introduced the term “knowledge worker” in 1959. Among the various definitions available of the “knowledge worker”, it is Drucker’s (1999) that best captures the essence of the con- cept:

They are the kind of workers who are enabled by Information to do their jobs. The worker for whom information is a key resource and which increasingly creates the link to their fellow workers, and to the organisation and their network. They are the kind of workers who convert data into information and organise information so that it becomes their key to effective action. (p. 124)

In a sense, it emphasizes the significance of knowledge in knowledge workers’ careers. They differ from manual workers in extracting information from data to be applied at work through analysis. Manual workers’ “knowledge” is often simple data not requiring any specific analysis.4 Nevertheless, making a distinction between knowledge workers and manual workers is not without trouble. One the one hand, manual workers within one profession might vary widely according to the portion of their work that qualifies as knowledge work. On the other hand, all human work presupposes some kind of knowledge work (Maier, 2007, p. 47).5

The need for knowledge workers requires knowledge-based management sys- tems like SM. According to Holmann (2000, p. 958), “Skills can be broadly defined as personal abilities which have the potential to enable a person to act effectively”. SM supports the distribution and inquest of knowledge within companies (Gronau & Uslar, 2004a). SM is not just about tracking the skills of the firm’s employees, but also a com- bination of HRM and knowledge management.6 It aims at the best use of the employ- ees’ skills for the benefit of the organization (Nonaka & Takeuchi, 1995, as cited in Gronau & Uslar, 2004b). It encompasses an information system in which skill profiles are made accessible. Learning paths are defined and updated together with skill profiles for each employee. SM systems contain information about skills, their holders, and their skill levels. But they also include information about job positions, projects and training measures (Maier, 2007).

3 The significance of intangibles and Human Resources

3.1 Human capital: people as an asset

The term human capital indicates that people are now perceived as assets, but not as costs. People being treated as assets are protected, invested in, and their state is im- portant to the organization. Whereas when people are managed as costs, they are ex- pandable. And the aim is to minimize costs (Burud & Tumolo, 2004). However, the term human asset has evoked criticism and authors argue against treating people as as- sets on ethical grounds. People are clearly not controlled by the company, but an asset is, in accounting terms. The term has the connotation of ownership (Johanson et al., 1999, as cited in Andriesen, 2004, p. 65).

The evolution of the developed world into a service and information economy has led to dramatic changes in the workforce and the workplace. In a service economy, many more outputs are intangible, and people are the crucial asset in an information economy. The competitiveness of an organization derives from people’s knowledge, skills, and competency.7 Thus, the access to financial capital is no longer a source of competitive advantage. Moreover, Collins (2001) stresses that there is more than just having people with appropriate skills and capabilities:

The old adage “People are your most important asset” is wrong. People are not your most important asset. The right people are …. Whether someone is the “right person” has more to do with character traits and innate capabilities than with specific knowledge, background or skills. (p. 63)

Therefore, the human capital asset cannot be easily replicated by competitors. Organiza- tions have realized that they need people to deliver value in new and different ways. But the labour force they depend on has also changed. The population is aging and more diverse. More women are entering the workforce, and the number of double-earner cou- ples has increased. It can no longer be taken for granted that employees want to invest their own human capital in a company. In order to attract and retain top talent, other elements than traditional pay and job security need to be offered (Ceridian Corporation, 2007).

3.2 Tasks and challenges of Human Resource Management

According to DeCenzo and Robbins (2005), HRM consists of four basic functions: Staffing, training and development, motivation, and maintenance. Each of these func- tions is directly, or indirectly, affected by external influences. Bohlander and Snell (2010) identified competitive challenges of HRM: competing, recruiting, and staffing globally, embracing new technology, managing change, managing talent, or human cap- ital, responding to the market, and containing costs. Organizations are aware that coop- eration and competition with foreign companies have become important focal points for business. “Going global” implies to balance a complicated set of issues related to di- verse geographies, including different cultures, business practices, and laws. Further- more, being able to manage change has become paramount to the firm’s success. In a continuously changing environment, organizations cannot stand still for long. Change requires people to modify ways of working that have been familiar to them. Managing change successfully implies that executives and managers “have to envision the future, communicate this vision to employees, set clear expectations for performance, and de- velop the capability to execute by reorganizing people and reallocating assets” (p. 13).

Besides, it is essential to meet customer requirements of quality, innovation, variety, and responsiveness. Approaches to responding to customers, such as total quali- ty management and reengineering, have direct implications for HR. HR professionals have also to show managers the financial results, and labor costs are one of the largest expenditures in service- and knowledge intensive organizations. In order to reduce labor related costs, companies are downsizing, outsourcing, offshoring, and engaging in em- ployee leasing. Using these approaches as simple solutions to complex performance problems the results of these pure cost-cutting efforts can be disappointing. Productivity enhancements have to come from the enhanced ability of employees, their motivation, and their work environment―areas related to HRM. HR professionals need to be also concerned about demographic changes―in employee background, age, gender, and education (Bohlander & Snell, 2010, pp. 5-22).

One of the most critical tasks of HR professionals will be to demonstrate HR function’s value to the firm (Ulrich, 1997). During the era of business downsizing and outsourcing, line executives do not share HR practitioners’ belief that HRM is crucial to firm’s success. HR executives need therefore first develop human capital analytics for becoming fully recognized as strategic business partner (Magau & Roodt, 2010).

4 Skill Management and its main application areas

4.1 Main fields of application and improvements by Skill Management

SM is concerned with employees’ knowledge on different levels. The qualifications and skills that are important for production and surplus are main issues. Business infor- mation systems are used to track the skills, in order to keep the latest profiles with the rated skills in hand. SM is based on cultural and organizational change within the firm, and no IT-based approach. The main application areas are expert finding, personnel recruitment, personnel development, and project management. Employees with appro- priate skills can be searched and found by expert finding. The functionality “recruiting personnel” enables to look for certain skills, and to compare these skills with the needs of certain job opportunities. Thus, it creates the possibility to start internal promotion (Kreitmeier & Krauter, 2000, as cited in Gronau & Uslar, 2004a). The qualifications and skills of each employee become transparent by the system. Thus, the personnel de- velopment department can also benefit (Blandin, 2003, as cited in Gronau & Uslar, 2004a).

SM simplifies the search for experts. The correct employee can be found to dis- cuss problems faster. The project management is supported by the system. Appropriate tasks can be assigned to experts, and wasting valuable work time can be prevented. Moreover, the adjustment of the staff to the market’s requirements can be improved (Faix, Buchwald, & Wetzler, 1991, as cited in Gronau & Uslar, 2004a). Furthermore, expensive, redundant training courses do not occur, because the employees’ training can be directed to the correct knowledge topics. Large improvement potentials lie in the saved costs of the employee procurement. The transport of internal employees over in- ternal recruitment saves enormous amounts. It should be mentioned here that internal procurement is not only favorable for working climate, but the costs are lower than those for external recruitment (Kreitmeier & Krauter, 2000, as cited in Gronau & Uslar, 2004a).

4.2 Problems and limitations of Skill Management

SM will fail, if the system is not accepted. If the management, the personnel department and the staff do not feel enough represented, the respective group can bring the project to failure. If the data, on which expert information is based, are several years old, the SM system will be not useful. The data must be continuously updated (Gronau & Uslar, 2004a). The enterprise needs to have a meaningful model for the system introduction and must get slowly accustomed to the pertinent techniques. It must be remarked that much time cannot be invested apart from the daily business (Gebert & Kultsch, 2003, as cited in Gronau & Uslar, 2004a).

SM systems primary encompass an operational respectively executive charac- ter, but not a strategic one. The more complex knowledge structures become the less effective is the application of SM systems. Other methods are necessary, e. g. compe- tency management, in order to surmount the strategic lack in the application of skill management methods, and to align employees’ skills with the strategic aims of the or- ganization for sustaining the company’s competitiveness (Reinhart & Biesalski, 2006, p. 427).

5 Managing knowledge workers

5.1 Employing the older workforce

Organizations have realized the importance of SM systems, and that the knowledge of their employees is a decisive competitive factor. A loss of knowledge is implied by measures like old-age pension. The older employees8 own a high level of knowledge. And this fact is dangerous. Organization could get a problem out of the demographic change, because they are not able to meet their recruitment requirements (Biesalski & Abecker, 2005). In most developed countries, the population is ageing due to increased longevity and proportionally lower birth rates (Kanfer & Ackermann, 2004). By the year 2050, it is anticipated that the proportion of people in Europe aged 60 or over will increase from 20 per cent to 35 per cent (Taylor, 2008, p. 7). These demographic trends have also a considerable impact on the profile of the workforce. By the year 2018, the group of workers aged 55 years and older is expected to reach more than 39 million in number, composing nearly a quarter of the U.S. labor force (Toossi, 2009).9 Managers are discomposed that the expertise of employees nearing retirement is likely to be “drained” too rapidly from the enterprise (Bohlander & Snell, 2010, p. 25). Further- more, alternatives to early retirement might include part-time working, job-shares, sab- baticals, outplacements and packages within company joint ventures (Career Develop- ment, 2003). Employers need to make efforts to attract and retain older workers, and to utilize them to their value in providing mentoring relationships, affecting increased productivity, requiring less training, and increasing overall levels of customer service, loyalty, and retention (Institute of Management and Administration, 2004). Even if re- cruiting older employees implicates higher health care costs, older workers have fewer dependents and offer other cost savings-lower turnover costs (Bohlander & Snell, 2010). Organizations’ recruiting approaches not scanning the demographics of the mix- ture of generations in the workforce will lack in terms of results (Giordani, 2004). Some companies have already started to realize the importance of investing in human re- sources and sharing knowledge.10

In addition, HRM executives need to be able to manage the employment relationship, particularly between younger managers and older workers (Bridgers & Johnson, 2005, as cited in Tonks, Dickenson, & Nelson, 2009). There are various benefits associated with the incorporation of a mix of generations. The advantages of older workers comprise occupational stability, quality work processes and outputs, and organizational loyalty. Younger workers offer flexibility, the ability to learn new skills, willingness to change, technological skills and faster training (Hill, 2004). Transferring knowledge between the different generations of the workforce is of the essence. This process has to be well-planned and effective. For this purpose, an organizational culture is needed which fosters the older workers (Slagter, 2007).11


Ende der Leseprobe aus 33 Seiten


Human Asset Management - The Significance and Challenges of investing in Human Resources
AKAD University, ehem. AKAD Fachhochschule Stuttgart
Issues in International Human Resources Management (PER10)
ISBN (eBook)
ISBN (Buch)
979 KB
Gemäß dem Gutachten des betreuenden Prof.: Inhaltliche sehr gute und detaillierte Auseinandersetzung. Sehr gute Analysen und Vergleiche! Formal: gutes Layout, ausführliche Literaturrecherche, keine formalen Mängel.
AKAD, PER10, Leadership, Issues in HRM, Human asset management, knowledge workers, human capital, skill management, tasks and challenges, Master of Arts, Assignment
Arbeit zitieren
Bachelor of Arts Philipp Schmieja (Autor:in), 2011, Human Asset Management - The Significance and Challenges of investing in Human Resources, München, GRIN Verlag,


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