Importance of human capital in industry of IT


In today world organizations have given more priority and investing on people (live ware) now more than before. They have identified to be retaining in the global context need more emphasis on developing and retaining proper people. Several authors have identified people in the organization are essential assets who contribute for the development and growth similar to machinery, processes and technology and as a result refer them as human capital (Handy, 1993; Mayo, 2001; Fisher, 2005 & Macfarlance, 2007). As Boehm, 1981 identified people attributes and activities are an opportunity for the productivity of software development. Further in 1989 he argued knowledge as the raw material of software development and the level of talented heads on particular project is often the predictor of its results and major project risk would be personnel shortfalls. Support the above Charles Darwin, father of evolutionary theory have said,

"It is not the strongest of the species who survive, nor the most intelligent; it is those most responsive to change".

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As Dayan and Evan (2006) recently claimed that major asset of IT organizations wont be their software products but the people who produce those. So it is significant to focus on areas of performance and viability as per Sunstrom (1990). Studies on computer science has been conducted over a long period of time evidenced studies of Weinberg (1971) and Shneiderman (1980). In late 1980s, realized the realization that software could not prioritized only with hardware improvements but attention on human factor in the process of system development and the performance conceived by end user of computer systems as per Nichols, 1982.

2.2 Importance of people management and performance evaluation

As recognized before human capital is a valuable concept where people should treated as assets in organizations, rather than expenses due to the salary pay for them is a cost. As a Nobel prize winner for economist, Gary S. Becker (1993) once denominate human capital as a resource where companies posses and most successful companies and economies evidenced those who manage human capital most effective and efficient manner. This highlights the importance of having a proper standard to measure the quality of the people.

Despite this, many enterprises regardless of its size still disregard in investing on resources, time and creativity utilize on managing people within organisations as identified by West, Lawthom, Patterson and Staniforth, 1996.

But later, research literature in the organisational philosophy (Schonberger 1986) has been dominated

by the idea of quality as an important concept in new and world class manufacturing and quality people management practices make a difference to company performance identified by Huselid 1995;

MacDuffie 1995 . So this can resulted firms with a source of competitive advantage that is harg to imitate for competitors. It is the management of human capital, rather than physical capital, that is seen as the most important determinant of

company performance.

The Investors in People (IiP) standard, the EFQM Excellence Model and the Chartered

Institute for Personnel Development (CIPD) offer good practice with regard to people management and identified the role and validity of people and their managing in providing a strategic direction for an organisation. Comprehensive Performance Assessment (CPA) 2005 recognised the significance of effective people management which ultimately results the enhancing of organization performance.

Bidgoli, H. (2010) identified following opportunities people tend to learn more those would be the prioritized ways to implement a standard for people to enhance their performance. As they identified employees learned most are through,

Working together with colleagues on a task (67%)

When doing research (22%)

When a college explains something personally (10%)

Through a manual or text book (2%)

So this is to evidence that it's effective and successful to make people learn and measured through on the job standard implementation within the organization as a whole by letting them to learn as a team.

For expanding scope of business as Sharma & Loh 2009 argued, combination of technology (hardware, software, networks), management principles (project management and active knowledge), tools (issues tracker and request logs) and quality/process improving frameworks (such as quality standards) are essential.

Handy, 1993; Mayo, 2001; Fisher, 2005 & Macfarlance, 2007 further understood that due to high competition, changes need to happen fast but the newly introducing processes and technologies may short-lived if competitors adopt the same but, to happen the change successfully, their people must have same or better skills and abilities. Therefore sustain of capable people in organization indicates following (Prahalad 1990)

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Readiness for performing its critical business activities,

Sound results through implementing business activities

Potential for benefited from invest in process improvement or sophisticated technology.

Trower and Straub 1991 raised the idea of improving performance of information systems (IS) personnel through properly understanding their motivation factors and issues to improve. Tjosvold, 1991a further discusses the aspects of performance evaluation: picturing the strength of people, uniting in an innovative ways, empowering employees, exploring current issues to find the best solution, and reflecting on strengths and weaknesses of a certain IT project to direct improvement.

According to Buxbaum, 1995; Hammer and Champy, 1993; Hammer, 1996, 1999 firms are now viewing their processes as strategic assets and it doesn't no longer viewed as a collection of functional areas, but as a combination of highly integrated processes. Additionally they have emphasized, processes are now considered to be assets which require investment and development as they mature. Thus, the process maturity concept is becoming increasingly important as firms adopt a process view of the organization. This concept proposes that a process has a lifecycle that is assessed by the extent to which the process is explicitly defined, managed, measured and controlled.

McCormack and Johnson 2000 conducted a detailed study to assess the relationship between application of standards/ standardizing in organization and the resulted business performance. There they further suggested the importance of assessing followings.

. Process management and measurement - Which include aspects of the processes such as product/ outputt quality, cycle time, people, process cost and variability, compared to the traditional measures.

. Process jobs - jobs/ roles that focus on processes as opposed to functions, and which can be cross-functional

in responsibility

. process view - the cross-functional, horizontal picture of a business including elements of structure, focus areas, measurement techniques, ownership and users of the process.

Same idea was elaborated by Feiler and Humphrey (1993) and Hammer and Champy (1993).

When it comes to today organizations employees needs to be stay alive, learn free for new ideas, ultimately contribute to improved task completion by create a result they truly desire. Here they moved from traditional authoritarian work to where they can learn as a team by taking them to a mature status through adding value for both human resource and organization as a whole (Navran Associates Newsletter 1993 & Rheem 1995, p. 10) and further these practices can positively associates with increase in share prices (Hannon and Milkovich, 1996).

2.3 Requirement of people performance measuring standards in today world

People as the most important asset in organizations as Pfeffer in 1994 evidenced, that to gain the competitive edge over your rivalries in the industry other sources of competitive success have slowly fading but your organization, its employees, and how they work remains as the actual differentiating factor. The management literature focuses on strategic alignment; develops the concept of maturity alignment. Maturity alignment indicates that an organization must have to have the appropriate managerial and operational processes to achieve the maturity level for meet up ultimate strategy (The Economist, 2005). Therefore, having a clear vision and well elaborated strategy is not enough. Even the execution of the strategy is a bigger management challenge than determining the right vision and strategy (Kaplan and Norton, 2001).

Many authors have pointed the importance of proper performance management systems as a critical success factor for the strategy implementation (Balkin and Gomez-Mejia 1990; Montemayor 1996; & Heneman 2002). Organizations at present world tend to respond their issues and challenges by making modifications to the processes of planning by setting up different performance criteria, or else attempting to align organizational budgets with the strategic goals and objectives ensuring the continuation of effective control and stategy achievement(Grant, 2003; Harrington et al., 2004; Kaplan and Norton, 2001; Rothschild et al., 2004).

According to Sleezer, et al 2002 human talent as a scare resource which distinguishes market leader from others have to develop capacity to compete in networked world because both human resource and information technology are interrelated from both front and centre. Supporting to above Rosenberg 2001, argued that people knowledge is a core to support, create and to share valued information and insights throughout organization. Further follow his idea due to the emergent of new technologies of sharing information people involvement was essential in those architectures. Boehm 2000 said people factor is the second most influencing and important point which requires more effort after software product.

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Zahniser 19990 presented a practical approach on enhancing people performance for software development performance, by as much as 75%. He further described manner of working on software products by people, consists of levels of involvement. Due to competition is now decided now on knowledge, skills and capabilities, practised through organizational processes so it's more towards the talent improvement as per Day 1994.

According to the study of Helio (2001) assessments of Software Engineering Institute (SEI) in 1991 indicated, 93 percent of the software companies have no well-defined software development process collaborate with people. 81 percent of that cluster did not have quality management systems even. Although global sourcing is a potential obscure for software quality management, international standards and frameworks exist enable the software industry to build quality systems into their processes. Examples of such standards and frameworks include the ISO 9000 series, the Capability Maturity Model (CMM), and the Software Process Improvement Capability Determination (SPICE) standards which has limited concern on enhancing quality of people.

Since a problematic organization cannot implement all the best workforce practices within one night to incur good results (Cappeli, 1999) but, it enables to develop in stages. So application of standards would change in the way of doing things in organizations by engaging with more powerful and effective practices for attracting, developing, organizing, motivating, and retaining its workforce. According to Curtis et al 2009 standards can be an integrated system for workforce practices that matures through increasing alignment with the organization's business objectives, performance, and changing needs of management. Thus the benefit of better workforce practices has been demonstrated empirically in numerous studies (Appleby 2000, Becker 1998, Delaney 1996, Huselid 1995, Kling 1995, Labor 1993, Mavrinac 1995).

Many writings (eg Bailey 1993; Guest 1997; Huselid 1995) have pointed the fact that people management practices can ultimately results a improve in company performance as in areas of:

• Increasing employee skills and abilities in performing task

• Promoting positive attitudes and increasing motivation within employees.

• Providing employees more expanded responsibilities so that they can make full

use of their own skills and abilities.

Therefore the purpose of my dissertation I would concern application of People CMM standard in IT companies to ensure the achievement of written objectives with their people factor with the help of above readings and possible measuring methods.

strategy (Wortzel, 1991).

The key is to constantly identify and to capitalize on new sources of competitive advantage, and to be faster and more adept at identifying and implementing opportunities for change. Taking advantage of the opportunities requires .. . flexible strategy (Wortzel, 1991, p. 366).

2.4 Incapability of other people quality standards

Several performance models have been developed, all emphasizing different elements of the organization. They range from the abstract to the concrete, dealing mostly with macro-level concepts.

The learning systems model

The learning systems model, for example, is a relatively abstract concept, that suggests the organization's learning orientation or style consists of a common culture and a set of core competencies that endow it with unique competitive qualities.

The learning systems model (Figure 1)

recognizes three factors that relate to success:

1 well-developed core competencies that

instigate new products and services;

2 an organizational culture that fosters continuous improvement; and

3 the ability to exit outmoded lines and

enter new ones, i.e. change (Nevis et al.,


The task model

The task model divides organizational tasks into operational and strategic categories. The crux of this approach is that employees are a strategic resource that need to be developed for either operational, or strategic roles within the organization

This caution holds especially true for the global organization, where human resource transfer extends to culture re-orientation within the workplace and across geographic, cultural, political and linguistic boundaries. Thus, cross-cultural training and in-career development strategies must be designed to avoid potential misplacement of people (Shaughnessy, 1995).

Internal fit refers to the match between individual's skills strengths and weaknesses and the unique demands of a task. External fit deals with the match between the demands of the geographic locale and the cultural sensitivity of the individual (Black et al., 1992).

The capabilities model extends the concept of core competencies, by utilizing the fit between an employee and a particular capability (Stalk et al., 1992).

Capabilities-based companies have been very successful at transferring their critical business processes to new geographic locations and to new business ventures (Stalk et al., 1992).

2.5 People Capability Maturity Model (P-CMM) standard and its usability

Refer previous literature as BAB+00 pointed the fact that irrespective to product size, people have the strongest influence on deciding the amount of effort required to develop a software product. [BAB+00]. So the concept of P-CMM was first published by Bill Curtis, 1990 (Curtis 1990). The present version 1.0 , the subjected P-CMM introduced in 1995 by Software Engineering Institute of Carnegie Mellon University. The P-CMM integrates the software CMM with product and process enhancement to provide a guiding principles for improving and evaluate their both software product and systems engineering aspects of organization. As other quality standards this too provide guidance to use when developing processes but not describing processes as a result of it depend on factors such as application domain(s) and organization structure and size. So the process here is a set of practices which can performed to achieve certain purpose and this might be relate to tools, methods, material and/or people to get better performance or yield throughput as per Armistead, 1999. As Humphreys, 1995 outlined P-CMM as a expanded version of Personal Software Process (PSP) due to it consider not only single person work process.

This consists of five maturity levels and each level establishes foundations for continuously improve individual competencies (knowledge, skills and attitude) to developing effective teams for learning, motivating for achieved performance by upgrading levels, and finally shaping the workforce of the organization for successful implementation of business strategies. The unique characteristic of the People CMM is its staged framework for introducing and steadily improving successful workforce practices and can viewed as follows.

Figure 1: Model of P-CMM Standard

Source: Curtis, B, Hefley, W and Miller, S (2003) People Capability Maturity Model (P-CMM), Carnegie Mellon Software Engineering Institute

Consider the figure 1Level 2 focus on adding basic discipline to people management activities. At Level 3 proper investigate issues of primary competencies then aligning people management activities with them. At a glanze for Level 4 organizations P-CMM focus on quantitatively managing organizational growth in people management capabilities and in establishing competency-based teams. Finally Level 5 covers continuous improvement methods for developing competency at the organizational and individual level. According to Hefley 1995 this organized via common features of commitment and ability to perform, perform activities, measure and analysis and verifying the implementation to diagnose its' effectiveness.

The purpose of P-CMM is then, to provide guidance for improving the organization's processes by managing its people at different maturity and knowledge levels by attracting, choosing, coaching, improving, rewarding and integrating them. And it's a proven approach into a structure as in Software CMM but in different dimension with priority on people.

According to Pulikkalakath, 2007 strategic objectives of the P-CMM are to,

Improve the capability of software organizations through the capability of their workforce moving from error full to error less organization

Ensure software development capability is an aspect of the organization as a whole

Align the motivation of individuals with the organization objectives

Retain human assets within the organization to develop them as human capital

It has become popular due to allow organizations to measure the maturity of their people practices as a bench marking tool. Thus many workforce benchmarks focus on employee attitudes and satisfaction rather than workforce practices (Zingheim & Schuster, 2007).