Strategic Shift in HR

Published by MBA Skool Team, Published on March 23, 2013

So the exams ended. Finally they did. And the campus had all jubilant faces around. I lifted my bags, embraced the batch mates and boarded a bus back to my home town. Back at place, after the pleasantries the conversation shifted to my decision taken around half a year back of joining a HR course when I could have taken a general management course.

 My mother asked me whether I was happy with my decision. I replied affirmatively with a “yes” which was not intuitive like 6 months before, but was with conviction.

And we were back to the same room in which the decision was taken reluctantly, the day when my family thought human resource was all about pay-slips, recruitment, and the attendance part of the work force. I could not blame them because that had been the common perception. But now after a great learning experience for the past 6 months as a HR student, I have got to know that HR is much more and long back there has been a strategic shift from it being “Human resource” to “Human capital”.

The typical human capital definition cites it as a field that is emerging and focusing heavily on metrics to quantify the effectiveness of human resources activities.

And then I went into a retrospective mind frame and started explaining the critical change in the Human resource, of how it has changed from being a personnel services department to human resources to human capital. Because that would be one of the many ways, I could be vindicated of my decision and gain the confidence that I was no more a cost function, but an equally important domain which was to contribute to the strategic policies of the company.

I started to recite like an answer to a Viva question,

Past- 1980’s: Personnel management and not HR

The time frame mostly had industries since the industrial revolution had started to spread itself to all parts of the world. The origins of Personnel management can be seen as concentrating on the labor class in these industries and look after their exploitation. As the world and human thinking evolved over the timeit changed the personnel management responsibilities and transformed to maintaining a symbiotic relationship between labor and the management with the sustainment of effective personnel administration.

Shift of personnel management to HR:

The last three decades have seen far more developments than the previous decades in terms of R&D, expectations and office culture. The companies have transformed themselves from being merely involved in production of goods to maintenance of services. Additionally the change has been the result of dynamic world, cut throat competition across the domains, opening up of the economies and advent of Internet and other technological inventions. Thus, we find that the role has transformed magically to being a maintainer of relations and monitoring compliance to issues such as employee selection, training and development, performance appraisal, performance management, employee communication and involvement.

The world has seen a revolutionary phase and so has the HR department, which shifted itself from the back room to the board room. Companies understand the value of respecting talent and sticking them to their companies. They realized that they cannot satisfy the external customers (buyers) effectively if they are not able to satisfy their internal customers (employees).The golden rule seems to give out a message that there is a direct correlation of your company’s success in the market to your handling of internal talent. You would not want to lose your most important employee at a crucial juncture of a project when you earned it after a stringent procedure competing with your competitors. The industry realized of the people side of the business and gained insights as to the benefits of being “the happiest places to work at”. The perception again has started to see a change where the industry thought that human behavior and their interaction (bundled as human resource) in the organization has more to do with intangible aspects and attributes which cannot be quantified to an opinion that it is no longer the case. Last few years have seen the name “human resource” shifting itself to a more clearer yet intriguing and interesting concept coined as “Human capital”.

My mother asked me with an inquisitive face, “Wait, so now resource has moved to capital. And how do you measure human as a capital. I do not believe that you can attach an economic value to a human being. And basically, what is the difference between the two terms”?

I replied calmly, “It perfectly can be. That is what “Human capital” means. Conventionally, Human Resource metrics connote the HR function while Human Capital metrics talks in detail about the people working in the organization; their attributes, their rewards, and the risks involved in the organization.”

Before I could finish my sentence she asked, “Okay, so you quantify the human side. But suddenly why this need when your business is running smoothly”?

I smiled at her interest within and said, “See, our courts do not take a judgment without evidence and so have the companies started to think. Companies have started to think about their people as an asset. They have become very peculiar about every penny they are spending and expect a return for it. Well, you cannot blame them, after all a business is created to gain profits. And to take the right judgment you need numbers and that is where human capital and its related metrics come in.”

She replied cheerfully, “Now, I get it. And I thought every decision taken regarding the employee in an organization is random. Could you explain more”?

I replied like a guardian, “See, we grow through between a lot of values and change through our lives. Of which, a lot of qualities are innate and are difficult to change. But then, we may gather, maintain and increase human capital in a number of ways of which few can be through education, job training, retraining, redeployment, work experience, life experience, investment in health, etc.  Companies realize that capital is important, more so when you are investing in huge into your company in the various forms of inventories and employee compensation and benefits. The companies earn back this capital through financial gains. The gain though does not restrict here. With a proper working atmosphere and a respect to the work force, it can gain the respect of its workforce, their commitment, loyalty and their contacts. More so, with the world opening up through social networking, this can also result in efficient hiring through portals and word of mouth”.

My mother shouted “Eureka” and asked so you mean it was all about the workforce, the impact of management practices on it and the impact of human capital on business results.

“Bingo” I replied and we both smiled at the sudden enlightenment.

Just one last thing, don’t you think that quantifying human aspect is a bit derogatory when it comes to being called as “capital”?

Look mom. Employees at the helm of it do involve themselves in the production of goods and services, so in a sense they do add the economic value to the chain they are operating in. Moreover, this is the changed perception and what matters is the respect and recognition they would be seeking through these measures. You would want a proper numerical justification to your promotion, be satisfied about it and work towards more career growth now that you have understood the metrics. A literal definition of the word “Capital” should not make much of a difference.

After all this heavy discussion, my mother headed to her workplace (her respectful kitchen) to have a refreshing tea. While I checked my messages and flurry of e-mails in the campus id where there was a competition mail floated of the change in the way of HR to human capital. I smiled and started to pen down the discussion we just had. A soft smile was on my face, I looked at my mom’s face and she looked far more contended and free of apprehensions. My happiness knew no boundaries because of being the reason behind the satisfaction of her face and of course, the prize money that was attached with this article competition.

This article has been authored by Ayush Gupta and Vandana Somani from MDI Gurgaon.

Views expressed in the article are personal. The articles are for educational & academic purpose only, and have been uploaded by the MBA Skool Team.

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