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“Are people always an organization’s most valuable asset? Why or why not?”
An organization in the simplest explanation is an entity that consist of a person or a group of people that are put together to achieve a certain goal. An organization is best viewed as a system that is unified to achieve goals. Organizations should also have vision, mission, values and so forth.
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The term business has grown into a term of complexity compared to when it was decades ago. This complexity refers to the modern era business. Business has definitely grown alongside the expansion of technology. For example, the use of Internet has enabled business transactions online; an ease of use for consumers as less energy are needed to travel about purchasing items.
The term human capital refers to the importance of people in a business or an organization. The importance here is derived from the actuality that people are the contribution to the growth and development of a business or an organization. Human capital is an intangible asset and it cannot be handled the same way as the other aspects in an organization. This is because it is the employees that actually own their human capital instead of the organization. Any expenditure on employees, training and so forth is not an expense, instead, should be viewed as an investment.
With the ever expanding business line and branches, evermore, people are an organization’s most valuable asset. The idea that organizations “compete through people” highlights the fact that success increasingly depends on an organization’s ability to manage talent, or human capital.
Importance of human capital
The primary reason for the need of people in an organization is that, people are the fuel of an organization to run, maintaining the organization’s structure and so forth. Without people, an organization will not exist and will never accomplish their function. Then, numerous grounds can be linked to the importance of human capital.
The 5Ms Factor of Production listed machines, materials, money, management of time and man.
Source : Managing Human Capital for Optimum Performance
In this era of business, it is a good start to keep in mind that as the days go by, competition is on the rise. Change is a major aspect in today’s business, everything is fast-paced and hustled. It will be easier to think that you can maintain one product which is a success, but as a note, others may adopt and improve on your product, here others would have a win against you.
A situation worth from the current economy that could exemplify competition is the Apple vs. Microsoft debate. Microsoft’s recent market cap is $235billion whilst Apple’s $5billion further, at $240billion. It was a shock to most as Microsoft have long been the pioneer. A little trip back to history is worth a mention. In the year 2000, when Microsoft’s worth around $500billion and Apple was still on the brink with about $16billion. With this risen situation, there will be an ongoing debate on who’s the bigger household and there will be predictions from all directions. For example, investors will have a puzzle to crack; Apple would resemble a wildcard while Microsoft will remain as a safe investment and vice versa. Then again, it will all fall down to what type of investors the person is; a risk-taker or a moderate investor and so forth.
With the above mentioned, apart from the general thumb rule, competition is simple to comprehend. It is worth acknowledging the growing tide of competition and taking steps to stay relevant in the market, increasing the competitiveness of the firm.
Knowledge and Growth and Development
Knowledge refers to a command of a body of gathered fact. Knowledge comes from discovery, past experiences and more. In a workplace, communication with the environment can bring knowledge or even so, acquiring knowledge from co-workers. And, as a human, the unexplainable ‘intuition’ will remain unexplainable. Some call it instinct, sourced from ‘survival of the fittest’, while others call it an innate human capability that everyone possesses, the only difference is whether you are aware of it or you are not.
With knowledge comes growth and development. People are the reason for an organization’s growth. The contribution of each of the employees can be a milestone in an organization’s performance and achievements, particularly, if an employee is motivated, he or she would make a significant difference in the organization. However, growth and development happens when an organization adapt, learn, improve and not excluding the possibility of failing, but failing will never be the end unless it is let be.
Talent and Skill
The word talent refers to the innate ability that one is born with. Talent is an important aspect as a part of an organization’s most valuable asset. On the other hand, a skill refers to learned abilities. The previous generations will enter retirement sooner or later. There are a lot of young people surfacing, starting on their careers.
Skills and talents are often overlooked. Managers have to realize and efficiently manage the potential of their employees because placing people in a wrong job position can be a big loss to an organization. Managing employee’s skill and talent would bring a better work performance and also a personal growth for the employees.
A talent is hard to find and even harder to replace because the demand for talented people are permanent and relatively high. Economist Intelligence Unit’s prestigious CEO Briefing2007,1 CEOs of global organisations believes that to acquire and develop “talent” would be one of the top challenges for growth in the future.
Commitment & Motivation
The word commitment may bring different meaning to different individual. But, in the case of human capital, a commitment should be taken seriously by employers and employees. As a basic understanding, a better commitment of an employee would bring a greater work productivity result. Then, an old saying may come into picture, though cliché, but it is true; people have got to love what they do. For example, placing Anne on a marketing sales front; a very efficient worker altogether that is inclined more to being an introvert. It is important to note here that, putting people in a wrong work position can be a loss to a firm or an organization. Clearly, Anne may get her work done but she may not be performing as well as Luke who is an extrovert and love work that requires communicating with people. However, it is not a worst case scenario, just that they will lack incentives in doing what the job requires.
Commitment of the employers can be associated with many things, particularly, in improving their talent management skills to instil motivation in their employees. Employers should keep in mind that their employees have the choice of change in their hands; they can choose to be motivated or not to be. Research shows that across industries, 20% of the employees are fully engaged or slightly engaged, 20% are working against the organization and the rest are not engaged at all. As they say, men have the capability of ARI (Act, React, Interact). The motivation for the employees can be achieved through listening, recognition, appreciation and just. There are many little things that can be done to generate motivation. For example, employees should be included in organizational changes and building their pride and spirit as well as increasing the opportunity of personal growth at work. The reward system such as Employee of the Month award could also boost one’s motivation or through trainings and bonding. When workforce is affected by commitment positively, employers will benefit through a success in the market and employees will learn that they are the greatest assets of the organization. Research shows that an employee that feels engaged at work, often have a better work productivity.
In supporting this statement, it would best represented by Tiorio’s statement; “You can employ men and hire hands to work for you, but you must win their hearts to have them work for you”.
Creativity is often associated with thinking outside of the box, thinking differently than how most people do. This is important in an organization if a desire to excel is present. As competition is rising with every passing minute, it is vital for an organization to generate creativity that in return would establish a uniqueness of the organization. This uniqueness may vary from one industry to another. As a general comprehension, it is a fresh idea in the industry that puts the organization a few steps ahead of their competitors. However, it is important to note that creativity may come from various ways.
The story of a girl from California who changed her life will be used to illustrate how creativity can differ but matter at the same time. Andrea Wachner, was a girl who dreaded high school and left for New York right after graduation to pursue her love for drama. Then, one day she receives a high-school reunion after ten years. She knew the “fierce competition” back in high school would not just go away even after the ten years. So, she hired a stripper(Andrea was a drama geek back in the day, so this was in the “unsuprising” zone) to attend as her at the reunion. Wachner also hired a film crew to pretend that they were filming a documentary. They communicated through the ear piece. With the outcome of that night, Wachner made a 40 minutes documentary of it. Then, Hollywood received news about Andrea Wachner. Today, Wachner has attended CNN and Good Morning America, writes movie script and shopping a reality television series and more.
One step that she has taken, opened many other doors for her. The lesson from this story is that it is best to know who you are and what your strengths are and infuse the two together.
Though the story was based on an individual, the same principle can be applied for an organization. The key point here is that we have to think outside of the box to improve.
As human technology develops, so do the surrounding that is affected. An organization can only be called an organization if there were people in it. It is the people that will determine the direction magnitude of the business. People are the most valuable asset as they are they fuel or the “sense” of an organization; human lives would not have sense without people in it. People have many more great potential contributions to an organization that makes the valuable.
Therefore, this report will end with Excerpt 1 in the Appendix, by the father of human capital; Gary S. Becker. The interview is unaltered as it holds a thorough message regarding human capital.
In October 1992, the Royal Swedish Academy awarded the Nobel Prize in Economic Sciences to Gary S. Becker, University Professor of Economics and Sociology at the University of Chicago. Becker was cited at the time for “extending the domain of microeconomic analysis to a wide range of human behavior and interaction, including non-market behavior.” A big part of the research for which Becker was recognized was his work on human capital, and specifically the return on investment of education and training. His 1964 book Human Capital was a landmark study and for all practical purposes first put the concept on the map as a subject worthy of economic discussion. Since then, he has both continued his research, expanding and refining the topic even more, and also stimulated hundreds of books, articles, and treatises of other scholars and commentators who have replied to, challenged, or extended his original thinking. It would not be overstating the case to say he spawned an intellectual industry of debate about the most fundamental topic now in the New Economy.
We were delighted to have the opportunity to talk about human capital, more relevant than ever, with this founding father of the topic. Follows are some excerpts of the LiNE Zine interview, conducted with Gary in late February at the University of Chicago.
LiNE Zine : It’s been almost forty years since your first work on human capital and almost a decade since your Nobel Prize. How has your thinking evolved or changed on this topic since then?
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Becker: Well, the first edition of my book was 1964, and there were subsequent editions in the 1970’s and 1990’s. Of course I’ve learned much since then. We were really dealing with virgin territory in the early days; I suffered a lot of criticisms for applying the notion of capital to people, to human beings. We had to overcome a lot of initial opposition.
Looking back, some factors have become more important recently and in a few other cases I see that I didn’t really give certain factors enough attention.
The New Economy seems to have increased the value of education. In the early 1970’s, it looked as if the returns for a person’s investment in education were going down. Dick Freeman, a very good economist at Harvard, wrote a book called The Over-Educated Americans, arguing that we were getting too much education, and that the pay-off wasn’t there. But just about the time that this book came out, the trend started to reverse itself. For the last twenty-five years we have had a remarkable expansion in the returns on that kind of investment, especially college education, and in the 1990’s, even more so, on graduate education.
In the New Economy and our technologically more advanced world, skills conferred by college education have become more important. Although other factors may be at work, there are remarkable returns to be seen now, and it’s observable in all groups: men and women, whites, African Americans, Hispanics.
The second area which has benefited from more recent work is on the macroeconomic aspect of education and other human capital investments-that is the contribution of education to economic growth. The research began with my teacher and colleague Theodore Schultz who also won the Nobel Prize in economics, but it has received further emphasis in the last fifteen years or so years. There have been studies of over one hundred countries and there’s hardly a country that has achieved rapid economic growth without significant investments in elementary and secondary schools, and finally in higher education. (The one exception has been oil-rich countries like Arab sheikdoms whose growth has been based on natural resources).
LiNE Zine: Gary, what do you see as the role of technology and its place in either facilitating or extending the ability of human capital to be a critical source of value? Is technology really becoming more important, or is that overblown?
Becker: I think technology-computers, Internet, other technologies-are important in many different ways. First, of course, modern economies depend upon modern technology; you couldn’t have a modern economy with the technologies of the 19th century. Secondly, these technologies themselves are produced by people with lots of human capital; you need human capital to build and then make effective use of these technologies. One reason that less-developed countries haven’t adapted more advanced technologies is that they do not have the human capital that allows them to effectively utilize the technology. Finally, the new technologies are going to significantly impact the acquiring of this capital. Education and training and knowledge will experience revolutionary change through distance learning. Today, most learning in schools still takes place in the same way that it did in the time of Socrates: a group of people gather together with a teacher who conveys knowledge.
The problem here is that it is costly to gather people together in the same room in the same university. So people are now asking, “why not try to utilize the technology so I can learn at work or at home and pursue courses and degrees in this more remote fashion?” And by the way, good distance learning is not a video where you just see a professor lecturing. It’s got to be more interactive: graphics, back and forth questions, chats with other people involved in the learning experience, and the like. We’re just at the beginning of understanding the possibilities.
LiNE Zine: Given your interest in market economics, what do you make of the evolving phenomenon of so-called human capital markets on the Internet? Or the idea of making skills more portable, as in current discussions about knowledge workers each having their own “skills passports”?
Becker: Well, I see this beginning to happen, and I’d mention two dimensions of the evolution. First we can expect to see more employment exchanges in which jobs and people are being matched on the Internet, matching the right skill to the right demander. That will increase in scale. The second dimension is about the sourcing of skills from lower cost economies; that is only going to grow. Since India is producing some very good software engineers, why not farm out the work there, and have them communicate through the Internet with other people working for the same company? Some may be in South America, others may be in the United States or China. The division of labor will become more and more worldwide and virtual.
LiNE Zine: Given the kind of trends you see and we’ve been discussing, what are the new management imperatives? What should senior executives be thinking about in managing and developing human capital?
Becker: Well, a few thoughts-but understand I’ve never had to meet a payroll! First, the need to keep updating skills. Given the rate of change in technological progress, there’s an ongoing need for investment. Skills don’t last a lifetime. They depreciate. Any company has to recognize that not only is the human capital of their employees a major asset, it is also a depreciating asset that needs continuing investment. A finance officer with an MBA in finance from say twenty years ago will not know much about options markets, derivatives, options pricing, and the like. These people need refresher courses, to learn new techniques about the risk management of their company’s resources. It’s the same in every area: marketing skills, IT skills, how the Internet operates-everyone needs to keep updating skills.
LiNE Zine: You made a now famous distinction between so-called generalized knowledge and company-specific knowledge in your work on human capital. Do you still stand behind the different kinds of knowledge, and how does that difference affect planning today?
Becker: That distinction is now either explicit or implicit in most literature in the human capital area, and still has a lot of common sense behind it. There are some skills that people acquire that they can use in many companies, while other skills or knowledge is really highly specific to a particular company or maybe to only a small set of companies. For example, for me, the culture at the University of Chicago is very different from the culture of competitors like Stanford or Harvard; if I were to leave Chicago, I would lose that knowledge and I would have to acquire something comparable at another university. These differences can be found in pretty much all companies now, and the distinction also applies to particular technologies and the knowledge required to apply them. Some technologies are transferable as one moves from company to company; others are specific to how a particular company is organized and run. If you leave that company, that knowledge becomes obsolete. We can observe that when workers leave a particular company, their earnings will often be less; their company-specific skills are not as valuable, and thus they have to start over with new skills in a new company.
LiNE Zine: Does that distinction imply that companies should make much greater investment in the company-specific kinds of knowledge?
Becker: Yes, I would argue that most investments in learning for employees should be in company-specific knowledge. If workers acquire a general knowledge while employed, they’ll benefit more than the company if and when they leave; accordingly, workers themselves should pay for that knowledge through lower wages initially. Companies should be willing to pay for company-specific knowledge because it helps lock the worker into the organization. He or she will earn less from that knowledge in another company.
LiNE Zine: Do you believe that in the future workers will be paying for their own general knowledge or taking a lower wage because they are essentially becoming more mobile with those skills?
Becker: Absolutely. Ever since my original work, study after study has shown that workers are willing to invest in acquiring general knowledge by accepting lower earnings. And as we said before, we also see workers taking a hit when they move from one company to another when they have acquired company-specific skills.
LiNE Zine: A lot of the work that began with yours has equated human capital with knowledge and skills. Two professors, Chris Bartlett of Harvard Business School, and Sumantra Ghoshal of London Business School, have been working on a new management theory of human capital-and they define it as also including so-called social capital (value from relationships) and emotional capital (value from engagement and commitment). What do you make of this fuller definition of human capital?
Becker: I certainly think social capital is important; I’ve worked on that myself and just came out with a book called Social Economics. Yes, social capital is a form of human capital. When I spoke about corporate culture before I was really talking about social or corporate capital-how people are connected with a company. Social capital as a concept has become very popular in recent years; but it is very difficult to quantify, and emotional capital would be even more so. But they do seem important because they do affect the productivity of individual workers and certainly of companies overall.
LiNE Zine: Gary, any closing remarks or advice for our readers, looking ahead to the future?
Becker: I would start out with some obvious things that are still sometimes forgotten: the basic resource in any company is the people. Remember Bill Gates’ famous comment that if you took away the top thirty employees at Microsoft, it would be a pretty ordinary company. And what’s true for companies are true for nations as well. In the New Economy, the reliance on people hasn’t fallen, but has increased. We are much more a human capital based economy than the economy was even thirty years ago.
The most successful companies and the most successful countries will be those that that manage human capital in the most effective and efficient fashion-investing in their workers, encouraging workers to invest in themselves, provide a good learning environment, and yes, include social capital as well as skills and training.
I also think the best companies will set up human capital accounting systems. Companies don’t have to do that under present tax law because you can expense all your expenditures on human capital, but in order for a company to know more about just what human capital is costing and what the payoff is, they want to track and assess the return on investment. I can also foresee them publicly reporting what they spend and invest in this area. In this age when human capital is such an important form of capital, how could they not want to do that?
Gary S. Becker, winner of the Nobel Memorial Prize for Economic Science in 1992, is a Professor of Economics and Sociology at the University of Chicago and a Senior Fellow at the Hoover Institution and University. He is recognized for his expertise in human capital, economics of the family, and economic analysis of crime.
Source : Talking Human Capital with Professor Gary S. Becker, Nobel Laureate by Brook Manville, http://www.linezine.com/7.1/interviews/gbbmthc.htm
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