[LEFT]Competency Approach to Human Resources Management: Outcomes and Contributions in a Turkish Cultural Context
This article examines the competency approach to human resources management (HRM) in organizations through a review of literature and theories on the competency perspective. Building on previous theory and some empirical evidence, a new competency framework is developed. The main purpose of the article is to examine the effectiveness of the competency approach as a human resources strategy for promoting expected roles, skills, and behaviors in organizations. The article also examines potential challenges to implementing a competency approach to HRM in a special cultural context. This is provided by a case study in a multinational, fast-moving, consumer goods company in Turkey. One of the findings of the study is that there are challenges to implementing the competency approach due to the cultural differences between home and host countries. If properly designed, however, the competency approach can enhance selection, development, promotion, and reward processes to meet both individual and organizational needs
Human capital and performance: A literature review
Dr Philip Stiles and Somboon Kulvisaechana
Judge Institute of Management, University of Cambridge, Trumpington Street, Cambridge CB2 1AG
Human capital and performance 1
Human capital and performance: A literature review
Human capital in context: the resource based view of the firm
Human capital and complementary capitals
Human capital and performance
Contingency or ‘fit’ approaches
Universal or ‘best practice’ approaches
Indirect links; commitment and performance
Difficulties with the link between human capital and performance
Measuring human capital
Reporting human capital measures
Appendix: Selected studies on HR practices & performance link
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Human capital and performance: A literature review
There is a large and growing body of evidence that demonstrates a positive linkage between the development of human capital and organisational performance. The emphasis on human capital in organisations reflects the view that market value depends less on tangible resources, but rather on intangible ones, particularly human resources. Recruiting and retaining the best employees, however, is only part of the equation. The organisation also has to leverage the skills and capabilities of its employees by encouraging individual and organisational learning and creating a supportive environment in which knowledge can be created, shared and applied. In this review, we will assess the context in which human capital is being discussed and identify the key elements of the concept, and its linkage to other complementary forms of capital, notably intellectual, social, and organisational. We will then examine the case for human capital making an impact on performance, for which evidence is now growing, and explore mechanisms for measuring human capital. Our belief is that, on the evidence of this review, the link between human capital and organisational performance is convincing. Empirical work has become more sophisticated, moving from single measures of HR to embrace combinations or bundles of HR practices and in this tradition, the findings are powerful. Such results have led some scholars to support a ‘best practices' approach, arguing that there is a set of identifiable practices that have a universal, positive effect on company performance. Other scholars argue that difficulties in specifying the constituents of a best practices set, and the sheer number of contingencies that organisations experience, make a best practice approach problematic. A general and growing trend in this debate is to see these approaches as complementary rather than in opposition, with best practice viewed as an architectural dimension that has generalisable effects, but within each organisation, the bundles of practices will be aligned differently to reflect the context and contingencies faced by the firm. Though there appears to be a growing convergence on this issue, the measurement of human capital remains rather ad hoc, and more needs to be done to develop robust methods of valuing the human contribution.
Human capital in context: the resource-based view of the firm
The issue of what contributes to competitive advantage has seen, within the strategy literature, a shift in emphasis away from external positioning in the industry and the relative balance of competitive forces, towards an acknowledgement that internal resources be viewed as crucial to sustained effectiveness (Wright et al 2001). The work of Penrose (1959) represents the beginning of the resource-based view of the firm (RBV), later articulated by Rumelt (1984), Barney (1991, 1996) and Dierickx & Cool (1989). The RBV established the
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importance for an organisation of building a valuable set of resources and bundling them together in unique and dynamic ways to develop firm success. Competitive advantage is dependent not, as traditionally assumed, on such bases as natural resources, technology, or economies of scale, since these are increasingly easy to imitate. Rather, competitive advantage is, according to the RBV, dependent on the valuable, rare, and hard-to-imitate resources that reside within an organisation. Human capital in a real sense is an ‘invisible asset’ (Itami 1987). The importance to the strategic aims of the organisation of the human capital pool (the collection of employee capabilities), and how it is managed through HR processes, then becomes apparent. In terms of rarity:
‘If the types and levels of skills are not equally distributed, such that some firms can acquire the talent they need and others cannot, then (ceteris paribus) that form of human capital can be a source of sustained competitive advantage’ (Snell et al 1996:65).
And in terms of inimitability, there are at least two reasons why human resources may be difficult to imitate: causal ambiguity and path dependency (Becker & Gerhart 1996, Barney 1991). ‘First, it is difficult to grasp the precise mechanism by which the interplay of human resource practice and policies generates value…second, these HR systems are path dependent. They consist of policies that are developed over time and cannot be simply purchased in the market by competitors’ (Becker & Gerhart 1996:782).
The interdependency between HR practices combined with the idiosyncratic context of particular companies creates high barriers to imitation. Of course, the human resources must be valuable; they must, as Boxall says, be ‘latent with productive possibilities’ (1996:67) and so human capital advantage depends on securing exceptional talent, or, in the familiar phrase, ‘the best and the brightest’.
This emphasis on human capital also chimes with the emphasis in strategy research on ‘core competencies’, where economic rents are attributed to ‘people-embodied skills’ (Hamel & Prahalad 1994:232). The increasing importance of the RBV has done much to promote human resource management in general and human capital management in particular, and to bring about a convergence between the fields of strategy and HRM (Wright et al 2001).
The resource-based view of the firm strengthened the often-repeated statement from the field of strategic human resource management that people are highly important assets to the success of the organisation. Although Michael Hammer suggested that ‘people are our greatest asset’ is ‘the biggest lie in contemporary American business’, the rise of human
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resource management, in terms of rhetoric at least, has been spectacular. This was sparked in the 1980s by the examination of the ‘Japanese miracle’, an analysis that showed success built on a distinctive form of people management, and by the eagerly received recommendations from the excellence movement (Peters & Waterman 1982, Collins & Porras 1994), which urged the development and nurture of employees within a supportive strong culture. A more recent, and equally important strand has emerged under the title ‘the knowledge-based view of the firm' (Grant 1996), which emphasises the requirement of organisations to develop and increase the knowledge and learning capabilities of employees through knowledge acquisition and knowledge sharing and transfer, to achieve competitive advantage.
Human capital, and complementary capitals
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 & Picken 2000:8).
From a definition such as this, it becomes clear that human capital is rather broader in scope than human resources. The emphasis on knowledge is important, and though the HR literature has many things to say about knowledge, the debate is traditionally rooted in an individual level perspective, chiefly concerning job-related knowledge, whereas the human capital literature has moved beyond the individual to also embrace the idea that knowledge can be shared among groups and institutionalised within organisational processes and routines (Wright et al 2001).
‘The concept and perspective of human capital stem from the fact that there is no substitute for knowledge and learning, creativity and innovation, competencies and capabilities; and that they need to be relentlessly pursued and focused on the firm’s environmental context and competitive logic’ (Rastogi, 2000:196).
Such a consideration leads to a crucial point: the accumulation of exceptionally talented individuals is not enough for the organisation. There must also be a desire on the part of individuals to invest their skills and expertise in the organisation and their position. In other words, individuals must commit or engage with the organisation if effective utilisation of human capital is to happen. In addition, therefore, to human capital, there must also be social capital and organisational (or structural) capital. These three forms of capital contribute to the overall concept of intellectual capital (see Figure 1).
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Figure 1: Intellectual capital
Structures, processes & culture
Skills, behaviour, knowledge
The OECD (1999) defines intellectual capital as ‘the economic value of two categories of intangible assets of a company’ – organisational and human capital. Wright et al (2001) argue that intellectual capital is a factor that includes human capital, social capital and organisational capital. For Nahapiet & Ghoshal (1998), intellectual capital refers to the ‘knowledge and knowing capability of a social collectivity, such as an organisation, intellectual community, or professional practice.’ (1998:245). There is a lack of clarity surrounding these and related terms, with numerous definitions abounding. In one study, Gratton & Ghoshal (2003) argue that intellectual capital is part of human capital, that is, human capital subsumes intellectual capital, and also includes within it social capital and emotional capital. For most commentators, however (e.g. Kaplan & Norton 1993, Harvey & Lusch 1999, Stewart, 1997, Sveiby 1997) intellectual capital has a broad sweep and includes human capital as one of its key dimensions.
Central to these ideas is that intellectual capital is ‘embedded in both people and systems. The stock of human capital consists of human (the knowledge skills and abilities of people) social (the valuable relationships among people) and organisational (the processes and routines within the firm)’ (Wright et al 2001:716).
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Developing human capital therefore requires attention to these other complementarities. If competitive advantage is to be achieved, integration between human, social and organisational capital is required.
According to Nahapiet & Ghoshal (1998) ‘the central proposition of social capital theory is that networks of relationships constitute a valuable resource for the conduct of social affairs…much of this capital is embedded within networks of mutual acquaintance’ (1998:243). Social capital, it is argued, increases the efficiency of action, and aids co-operative behaviour (Nahapiet & Ghoshal 1998). Social relationships and the social capital therein, are an important influence on the development of both human and intellectual capital. At the individual level, individuals with better social capital - individuals with stronger contact networks - will ‘earn higher rates of return on their human capital’ (Garavan et al 2001:52). But it is at the organisation level that social capital is highly important. As Nahapiet and Ghoshal argue: ‘social capital facilitates the development of intellectual capital by affecting the conditions necessary for exchange and combination to occur’ (1998:250). In social capital, the authors argue for three major elements: a structural dimension (network ties, network configuration and appropriable organisation); a cognitive dimension (shared codes and languages, shared narratives), and a relational dimension (trust, norms, obligations and identification). All three influence the development of intellectual capital. This approach links well with the prevailing resource-based view, with its emphasis on bundles and combinations of resources. Social capital, with its stress on linkages between individuals, creates the conditions for connections which are non-imitable, tacit, rare and durable. Gratton & Ghoshal (2003) argue that social capital is based on the twin concepts of sociability and trustworthiness: ‘the depth and richness of these connections and potential points of leverage build substantial pools of knowledge and opportunities for value creation and arbitrage’ (2003:3).
The principal role of organisational capital is to link the resources of the organisation together into process that create value for customers and sustainable competitive advantage for the firm (Dess & Picken 1999:11). This will include: