Productivity and Organizational Management

Carolina Machado, J. Paulo Davim

• Publisher: De Gruyter
• Year: 2017
• ISBN:
  9783110386615
• Edition: 1
• Topic: Physical Sciences
• Subtopic: Industrial & Technical Chemistry

Effective work practices and good employee relations are a real necessity of nowadays organizations, as they can help to reduce absenteeism, turnover, organizational costs, conducting to high levels of commitment, effectiveness, performance as well as productivity. Addressing these questions, this book focuses on the implications of changes in productivity and organizational management, exploring models, tools and processes.

Santiago Gutiérrez-Broncano, Mercedes Rubio-Andrés, Juan Carlos Zapata Valencia

1The measurement of human capital and its relation to the generation of business value: empirical study

Abstract: Although various empirical studies have attempted to measure the strategic contribution of human capital to a company, only a few use economic and financial indicators to measure that contribution. In this paper, we attempt to demonstrate how a measurement variable of human capital investment has a significant impact on the generation of business value. We also examine the role of a given sector in this relationship. Using a sample of 23 companies belonging to the Asociación Colombiana de Relaciones de Trabajo (Colombian Association of Work Relations) (ASCORT), we find that the larger the investment in human capital, the greater the economic development of a company, especially those in the service sector. These findings open the door to new research linking the strategic development of companies to investments in human capital.

1.1Introduction

Although currently most managers have the intuition that investment in employees typically results in additional value for their enterprise, it is unclear just how must additional value is generated [1].

“Our employees are the most important asset of the company” are words heard in most organizations. Despite this, few companies are able to prove that this asset indeed has an impact on the creation of added value for the company. In general, more emphasis is given to practices, such as employee satisfaction or investment in training; however, minimal importance is placed on the value generated by human capital.

Companies certainly wish to recover their investments in their employees and assume that employees will contribute beyond their own salaries and benefits, but it is difficult to determine just what their contribution consists of.

What might be the reaction of Wall Street analysts if a company were to announce that it was going to close one of its ten production plants to reduce costs? If we assume a typical 10% cut in the workforce, including generous compensation and early retirement, would this be more attractive to shareholders? This is the great dilemma facing most companies today. Intangible assets, as well as everything related to human capital, corporate social responsibility, reputation, and other items, are typically not factored into operating costs [2].

One might wonder whether investments in human resources reap financial rewards. The objective of this study is to identify variables in the measurement of human capital in enterprises that make it possible to establish a relationship between human capital and the generation of business value. To do this, we begin with a review of the literature on the importance of investing human capital and reveal the main indicators that allow us to measure the different organizational levels associated with human capital. This leads us to focus on those indicators that measure contributions at the strategic level. Finally, we carry out an analysis on 23 companies belonging to the Colombian Association of Work Relations (ASCORT) with the aim of studying the relationship between a company’s investment in human capital and the value generated by such an investment.

1.2Theoretical background and hypothesis

1.2.1Human capital and its relationship to value creation

Human capital has been defined at the individual level as the combination of four factors: heredity, training, experience, and attitude [3]. It is the sum of aspects inherent in workers: skills, knowledge, experiences, habits, motivation, and even the energy that workers demonstrate in carrying out their duties, creating a specific culture in each company [4]. Under these conditions, employees are able to learn, innovate, stimulate, and make changes, as well as think creatively, all of which factors are vital for the future success of a company.

The human resource management literature is based on the premise that human resources are vital to an organization’s strategy since, through their behavior, individuals have the potential to lay the foundation for strategy formulation and implementation [5]. In this way, they recognize that individuals’ knowledge, skills, and abilities are insufficient to create value for an organization, unless they are used through individual behavior [6, 7].

The human capital of companies is not precisely the workers, but rather the workers are the owners of their own human capital, and they exhibit said behavior in different areas of their private lives, including their interactions with their families, their communities, their hobbies, their sports, and in their work [1]. In this paper, we accept that a firm does not possess human capital; rather, individuals do. Companies need a higher level of knowledge, skills, and abilities; however, a superior alignment between individual and organizational goals is crucial [8].

Furthermore, many papers and reports relate the management of human resources to a greater generation of business value. The literature on strategic management of human resources has found sufficient evidence supporting the idea that a high commitment practices in human resource management lead to greater organizational performance (e.g., [9–14]). This set of practices, which is aimed at the management and development of human capital in organizations, serves to establish long-term relationships between companies and their employees, thereby promoting the sharing of the same strategic goals as well as the creation of a strong commitment between both parties and their respective objectives. All of this contributes to better performance of the organization [15].

A survey on human capital carried out by IBM Business Consulting Services at more than a thousand companies from 47 different countries demonstrates that a welldesigned and properly implemented human resource strategy can achieve a 35% increase in revenue per employee and a 12% decrease in absenteeism [16]. Conversely, those companies that reduced their workforce by more than 15% saw the price of their shares fall below the average level for their industry [17].

1.2.2Levels of human capital measurement: the value chain of human talent

Both the literature on human resources management and enterprise managers themselves have always recognized the need to establish human capital measurement systems in companies [1, 18].

Traditionally, researchers have measured the quality of human resources management systems using data related to various personnel policies implemented in a company gathered from a single informant [19]. Thus, the impact of human resource practices in business outcomes has been significantly different from what such works suggest and may be even greater than indicated in the literature.

One detected error is located in what is known as the percept–percept inflation, which occurs when the information of both dependent and independent variables originate from the same source [20]. This type of error poses the least threat thanks to the fact that most works obtained information from different sources [19].

Perhaps the more serious issues include those raised by Rush et al. [21], who established that respondents, either owing to faulty memory or because the requested data are unknown to them in their entirety, react by resorting to so-called implicit theories, which act as counsel when gaps in information are filled in a search for consistency among all data that have been produced. Thus, when information is requested by an informant, whether objective or subjective, it would seem logical to think that the respondent will react to information concerning the implementation of human resource policies in a way that is aligned with the same direction as the business results perceived by that informant.

Subsequent studies have supported this theory, demonstrating the need for some caution when it comes to measuring systems and human resource practices in enterprises [19]. For this reason, this work seeks alternative ways to measure the impact of hum...

Table of contents

• Cover
• Title
• Copyright
• Preface
• Contents
• About the editors
• List of contributing authors
• 1 The measurement of human capital and its relation to the generation of business value: empirical study
• 2 A case of certified units in a Portuguese university: Interactions of ISO 9000 norms with HRM practices, employee performance and employee satisfaction
• 3 Management tools for supporting productivity in organizations – empirical evidence from Slovenia
• 4 Economic and social efficiency: The case for inverting the principle of productivity in public services
• 5 Human resource management in the health system: in the never-ending quest for productivity improvements
• 6 Critical role of managerial competencies in productivity enhancement interventions: a HRM perspective
• 7 Prospective characteristics of contemporary engineers (using the approach of mechanical engineering)
• Index