CURRENT ISSUE

MGM 4136

SEMESTER 2010/2011 (2)

Human Capital

Kumpulan 15

PROF. NOOR AZMAN BIN ALI

MOHAMAD KHAIRUL NIZAM 149100

MOHAMAD NOR AZRI BIN TUKIMAN 146947

ANAS SYAZWAN BIN MOHD SAH 145988

MOHAMMAD FIRDAUS BIN IBRAHIM 147608

Human Capital

Definition

According Schultz (1993), the term “human capital” has been defined as a key element in improving a firm assets and employees in order to increase productive as well as sustain competitive advantage. To sustain competitiveness in the organization human capital becomes an instrument used to increase productivity. Human capitals refer to processes that relate to training, education and other professional initiatives in order to increase the levels of knowledge, skills, abilities, values, and social assets of an employee which will lead to the employee’s satisfaction and performance, and eventually on a firm performance.

Rendering by Becker (p.25, 1993) there is a relationship between the amount of investment in human capital to improve the level of schooling and training, medical services and childcare; and the quality of the workforce which ultimately contributes towards economic progress within a country.

Economists often regard expenditures on education and medical care as investments in human capital. The term “human capital” is used because people cannot be separated from their knowledge, skills or health in the way they can be separated from their financial and tangible assets.

Human Capital Origin

A. W. Lewis is said to have begun the field of Economic Development and consequently the idea of human capital when he wrote in 1954 the "Economic Development with Unlimited Supplies of Labour." The term "human capital" was not used due to its negative undertones until it was first discussed by Arthur Cecil Pigou: "There is such a thing as investment in human capital as well as investment in material capital. So soon as this is recognized, the distinction between economy in consumption and economy in investment becomes blurred. For, up to a point, consumption is investment in personal productive capacity. This is especially important in connection with children: to reduce unduly expenditure on their consumption may greatly lower their efficiency in after-life. Even for adults, after we have descended a certain distance along the scale of wealth, so that we are beyond the region of luxuries and "unnecessary" comforts, a check to personal consumption is also a check to investment.

The use of the term in the modern neoclassical economic literature dates back to Jacob Mincer's article "Investment in Human Capital and Personal Income Distribution" in The Journal of Political Economy in 1958. Then T.W. Schultz who is also contributed to the development of the subject matter. The best-known application of the idea of "human capital" in economics is that of Mincer and Gary Becker of the "Chicago School" of economics. Becker's book entitled Human Capital, published in 1964, became a standard reference for many years. In this view, human capital is similar to "physical means of production", e.g., factories and machines: one can invest in human capital (via education, training, medical treatment) and one's outputs depend partly on the rate of return on the human capital one owns. Thus, human capital is a means of production, into which additional investment yields additional output. Human capital is substitutable, but not transferable like land, labor, or fixed capital.

Human Capital Theory

Human capital theory is concerned with finding ways to measure human capital and the rate of return on investments in human capital, both to the individual and to the economy as a whole.

A Model of Human Capital Theory (Swanson, 2001: 110)

Relationship 1 represents the concept of production functions as applied to education and training. The key assumption underlying this relationship is that investment in education and training results in increased learning.

Relationship 2 represents the human capital relationship between learning and increased productivity. The key assumption underlying this relation is that increased learning does, in fact, result in increased productivity.

Relationship 3 represents the human capital relationship between increased productivity and increased wages and business earnings. The key assumption underlying this relationship is that greater productivity does, in fact, result in higher wages for individuals and earnings for businesses. As per conclusion, human capital does contribute to the organizational advantages and profits.

The entire human capital continuum represented is assessed using return-on-investment analysis or cost-benefit analysis. The human capital theory is an important agent for boosting firm performance. Thus, this study has capitalized on this theory for arguing that human capital becomes an element in firm performance.

Human Capital Problem

This lack of a standard measurement for talent and the insufficient level of information collected has a direct impact on the workforce, presenting three key areas of risks:

* Workforce is not equipped with the right skills to achieve corporate goals * Recruitment, development and retention practices are inconsistent and costly * Key contributor workforce becomes unstable, losing institutional knowledge

The result is that companies are operating blindly in the face of the challenges and risks across their workforce. Lacking a sound methodology and consistent basis for measuring talent, companies are exposed in a very real and direct way to potential weaknesses that can prevent achieving their goals and upend their business.

Efficacy/Output

Earning/Output

Citizenship Process

Resources Production Process

OutcomesResources Education &

Training

{----------------------- Relationship 1----------------------- }

{---------- Relationship 2----------} {-------- Relationship 3 --------}

Human Capital Risk

Human Capital Risk is the measurement of the gap between the goals of the organization and the skills of the workforce. The process of reducing this gap is called Human Capital Optimization, but in order to start, some method is needed to measure the gap.

Human Capital Advantage

Human Capital Advantage is a term used to depict an organization’s ability to leverage on an employee’s fullest possible and more importantly, usable contribution to the organization by:

Creating internal infrastructures that can support learning, knowledge sharing, and capability building

Creating a work culture where people feel that they are working towards an organization objective – thereby, creating employees who are predisposed to knowledge sharing in a usable format

Redefining existing boundaries to create a new playing field

The Human Capital Advantage concept is not an academic management thought but a synthesized product of Human Resource, General Management, Organizational Development and Performance, Knowledge Management and Social Complexity concepts.

Related Issue: Priority For Human Capital Development, Says Muhyiddin

KUALA LUMPUR, March 14 (Bernama) -- Human capital development will be given priority through transformation in education, enhancement in skills training and acculturation of lifelong learning, said Deputy Prime Minister Tan Sri Muhyiddin Yassin.

Describing human capital development as an important determinant to the country's economy, he said: "Certainly, supply and quality of human resources capacity and capability would be a pre-requisite in driving the economy successfully on a prolonged and sustainable basis."

He said, to further ensure that diverse skills and expertise required by industries were met, implementing agencies had been tasked to craft and roll out human capacity programmed based on the skills needed by the respective industries.

He said they were particularly highly-skilled experts, in support of the economic transformation agenda for the success of the country. He also stressed that it was equally important for public sector agencies and departments to be fully aware of problems faced by the private sector, so that necessary remedial action could be taken expeditiously.

Conclusion

How will the best companies define themselves in the 21 st century? Where are companies going to find the next areas of efficiency and innovation? Having pursued re-engineering, cost cutting, automation, and technology, the last operational area for companies to unleash efficiencies is in their people. Lasting change will not be achieved with the latest and greatest management fads, but through substantive innovation into more rational and informed uses of human capital. Human capital risk is the foundation for this groundswell of change and the best opportunity for companies to compete and thrive in the new global economy.

Reference

Becker, G.S (1993) Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education 3 rd Edition, Chicago, University of Chicago Press

Katz, R. L. "Skills of an effective administrator," Harvard Business Review: Cambridge, MA, People: Managing Your Most Important Asset (1989) pp. 45-57

Maran Marimuthu, Lawrence Arokiasamy, Maimunah Ismail (2009) Human Capital Development And Its Impact On Firm Performance: Evidence From Developmental Economics

Mark Birch (2010) Human Capital Risk

Michelle Ling, (2010) What is Human Capital Advantage?

Schultz, T.W. (1993). The economic importance of human capital in modernization. Education Economics, 1(1), 13-19.