Human Capital Development and Consequences, if botched
The Society of Human Resource Management (SHRM), the world’s largest HR membership organization devoted to human resource management and foremost expert, convener and thought leader on issues impacting today’s evolving workplaces globally, defines Human Capital as “the skills, knowledge, judgment, and intelligence of the organization’s employees.” (SHRM, 2015)
Developing Human Capital, therefore, consists of the strategies, tactics and processes that organizations put in place with a view of meeting today’s challenges while positioning the organization for sustained success in the future. The local chapter of SHRM in Ethiopia (SHRME) goes a step further in underlining the importance of human capital development in achieving the country’s development goals through fostering partnership with key governmental and non-governmental stakeholders in addition to professional development of the Society’s members. (SHRME, 2020)
Human Capital Development goes beyond the day-to-day transactional HR activities that are sometimes referred to as Micro HRM (‘MHRM’) covering the sub-functions of HR policy and practice including such areas as recruitment, selection, induction, training and development, performance management, and remuneration. (Boxall and Purcell, 2009) In fact, starting in the 1980s, the strategic role of human capital has been garnering traction as an important part of achieving the long-term organizational objectives. Hence, the popular adage: No strategy—no matter how well-designed—will work unless the organization has the right people, with the right skills and behaviours, in the right roles, motivated in the right way and supported by the right leaders.
In the Ethiopian context, the level of importance attached to human capital development varies depending on sector, organizational level of maturity and affiliation to international organizations or markets. Previously, there has been a ministerial level office (Ministry of Capacity Building), albeit limited for the civil service sector, dedicated to human capital development. On the other hand, in the private sector, one can clearly see the two extremes of non-existent human capital development initiatives and the growing attention being given to the field in organizations that are affiliated to multinational business organizations or international non-governmental organizations/development partners.
Why Human Capital Development?
Organizations have physical capital resources (e.g. plant, equipment, and finances), organizational capital resources (e.g. the organization’s structure planning, HR systems, history, and organizational culture) and human capital resources ( i.e. the skills, knowledge, judgment, and intelligence of the organization’s employees). While it is obvious that all of these resources are important, none of them would ensure a sustained level of high-performance on their own if the organization does not have capable, motivated, and high-performing employees.
At the macro-economic level, human capital development is a priority for governments in developed and developing countries alike to prioritise skills development as a key strategy for economic competitiveness and growth. (OECD,2012) Especially, in the case of developing countries, the critical role of human capital development is demonstrated through the need for complementing other investments and policies to boost productivity and economic progress. As such, the recently unveiled National Ten Year Development Plan drawn up by the Federal Planning and Development commission has a section dedicated to Population and Human Capital development which, among other priorities and numerical goals, includes education, training and development (ranging from pre- formal school coverage, education quality, standard) teacher’s recruitment and training, educational institutions standard, technical and vocational education and training accessibility as well as higher education participation goals. (FDRE Planning and Development Commission, 2021)
Current Human Capital Development Practices and Challenges
Rapid technological advancement, increased pace of change, globalisation and economic liberalisation in recent years has prompted organizations to pay particular attention to human capital development. The recent phenomenon of Covid19 pandemic and its associated toll on economies and work places has compounded the need to re-visit current human capital practices.
These days, employers need workers with the hard skills to perform jobs in technology, manufacturing, data analysis and other 21st century careers. They also need workers with the soft skills to communicate well, empathize with co-workers and lead their teams. Due to the pandemic, working remotely or work-from-home arrangements, where practical, have necessitated self-discipline, trust and communication skills in unprecedented ways.
In the current Ethiopian context where most small- and medium-sized, as well as a minor portion of the relatively large, organizations still consider human capital just as another aspect of physical or financial capital, it is even difficult to agree on the nomenclature to use for organizational talent, much less justify investment in human capital. The function looking after employees is often relegated to a sub section of Finance and Administration. Even in organizations that have embraced that human capital is more important than the other types of capital, the function is bogged down in running personnel services of constantly filling vacancies as and when they appear rather than as part of a deliberate talent-sourcing strategy, administering salary and benefits, maintaining employee records and at best keep the organization out of expensive and often humiliating court cases.
Organizations that have recognized the importance of human capital development have started tentatively testing the waters through short-term, classroom-based training as well as on-the-job training for the first few months of their entry-level employees. This is partly due to necessity i.e. fresh graduates from universities not being able to meet the demands of the workplace without significant additional investment. Although there is no shortage of fresh graduate applicants for entry-level positions, the challenge of finding “plug and play” employees who would fit vacant posts and start delivering to the required level of competency still persists, hence, an earlier AWiB Focus article with the title “Education and the Tyranny of Quantity in Ethiopia” has the quote “Being in school is not the same as learning. (AWiB, 2020)
This, however, does not mean that there are no organizations with well thought out Human Capital Development strategies and talent management programs that directly support these strategies. Although few in number, there are a growing number of business and not-for-profit organizations that have structured Graduate in Training programs of varying length (from 3 to 24 months) and program content (a blended learning approach of functional, technical as well as soft skills classroom-based training, on-the-job coaching, in-house mentoring, and best practice working visits to locations that have superior performance).
Due to changes in technology, new and improved ways of doing things or as part of a cost-reduction exercise, employee skills occasionally need to be upgraded to match the demands of the day: enter company-wide/in house run or company-led training/delivered classroom training, continuing formal education, and /or further professional certification/qualifications whose bills are footed by employers. This is where most development traditionally happens.
As employees progress in their careers, organizations have started implementing concurrent performance AND Development management programs where by continuous discussions are held between employees and their immediate managers at specific milestones throughout the year to set goals for individual performance. These are found to be good opportunities to make discussion of employee development a mandatory part of the process. What is more impressive is that development is now not limited to learning in classrooms; rather, coaching from a senior team member with specific training to conduct the process, self-paced learning supported by e-learning platforms, project-based assignments and, in exceptionally rare cases, executive one-on-one coaching for C-suite level employees have all made their way into the current human capital development arena. These, however, are exceptions to the rule as most organizations still prefer to spend their coveted budget sparingly for the development of a select few. There have been incidents where a “training trip” is even considered as a motivational tool for good performance rather than a means to address a gap in performance or as preparation for a more senior role.
On a positive note, some industries require a mandatory level of qualifications as part of getting a certificate of competence (particularly in the production of food, beverage, personal care items, etc.) or through industry-specific development programs. (Financial Sector Capacity Building Project; specific to financial sector institutions as part of a directive from the National Bank of Ethiopia). For most organizations, however, investing in employee development is still seen as an expense rather than an investment.
Human capital development is not without its associated challenges. Employers are reluctant to invest intensively—or even at all—on their human capital for different reasons which can be summarized under the following three general categories:
- Lack of clear measures for return on investment
Unlike advertising, investing in a new machine/equipment or paying for raw materials, spending money on human capital does not yield immediate and tangible financial return. With inadequate effectiveness measures, much less measures of impact, it is even more difficult to justify spending further on human capital.
- Fear of losing employees to the external market shortly after investing on human capital development
Employers are often concerned that money spent on training, further education, professional qualifications and other human capital development activities will make their employees more desirable to be poached by direct and indirect competitors. Although this holds merit to some extent, it cannot be taken as a valid reason NOT to invest in these activities.
- The global health and subsequent economic crisis
Even though these crises made it necessary for employees to develop new skills, there are reduced opportunities for up skilling and reskilling because of the financial uncertainty faced by employers. Employers prefer to contain costs to the minimum level possible and the first area they usually look to reduce costs is travel and development of their employees.
Given these challenges, there are also a number of ways—well-meaning human capital development strategies—that get derailed during implementation. For instance, development interventions are sometimes implemented haphazardly without considering the real need for employees to attend one or the other type of option. This results in undue focus on classroom training that does not address real-world challenges that trainees face. Even worse, learning and development that does not blend on-the-job training, coaching and learning-by-doing fails employees because they cannot grasp new concepts much less apply them or practice new-found skills back in the work place.
On the other hand, merely depending on “senior teaches junior” method for employees to figure out the intricacies of their development, without any support from a dedicated human capital development strategy, may result in unhealthy workplace practices that do not support desired organizational cultures.
Human capital development may also get botched if the organization’s overall strategy does not align with its human capital strategy in general and development in particular.
This is because long-term investment in human capital development needs a well thought out strategy that meshes well with talent attraction, acquisition, and engagement and retention strategies. The out-dated practice of focusing on a select few employees who would always get an opportunity to use all resources of development—whether they need it or not for their current or future careers—only results in frustration on their part (and frustration and resentment on other employees’ part) while at the same time wasting resources that could have been used by others and who would have benefited from them.
So, how do we address the paradox of the need to develop human capital in the face of these challenges? Here are some recommendations:
- Gain senior leaders’ commitment to Human Capital Development
Senior leaders are best placed to be acutely aware of their organizations’ greatest current and future human capital challenges in implementing their strategic plans. Just as they worry about operational and financial challenges, the recognition for human capital development should be front and center for their attention.
- Dedicate a Human Capital Development Function
Providing an executive seat to a senior leader for the Human Capital function goes a long way in improving the attitude placed on development. Naturally, this seat has to be filled with a leader that is qualified and engaged. This, in turn, assures the proper human capital development strategies that mesh well with corporate strategies are drawn up and implemented. In addition, the human capital function will be considered much more than a merely “hire and fire” role. It is important to ensure that other senior leaders also take responsibility for their own and their team’s development.
- Recognize that Human Capital Development is not a stand-alone function
Human capital development initiatives work well when the entire employee life cycle from talent attraction and sourcing, development, management, engagement and retention and eventually exit is considered. This would ensure that investments made in human capital development are worthwhile and justifiable in the future. In fact, part of the personalized Employee Value Proposition should consider personal and professional development in addition to the traditional components of offer (salary and benefits, incentive and bonus/perks or more recently flexible working arrangements).
- Consider Generational differences towards development options
A 2018 report from LinkedIn found that 93% of employees would stay at a job longer if it invested in their careers. In addition, the 2016 Deloitte Millennial Survey found that 71% of those likely to leave their jobs in the next two years are dissatisfied with how their leadership skills are being developed. In addition, development programs should consider alternatives such as coaching, e-learning, team and individual innovativeness competitions. Gone are the days where development is a blanket term for one-size-fits-all training programs only.
- Leverage technology for Analytics as well as delivery of development programs
Technology can support rolling out of personalized, self-paced development options that can be accessed anytime, anywhere, in a cost effective manner. Tracking development-related metrics, establishing causality and documenting results is also another area technology can be used within an organization.
Globally, we are in a period of immense change which make human capital development a crucial part of any executives daily agenda. The State of Skills Report for 2021 found that current economic uncertainty due to COVID-19 is accelerating the demand for new skills; 60% of managers and workers feel they need to up-skill as a result of the crisis.
As a result, the already widening skills gap in organisations will grow even wider, and it’s putting more pressure on workers and their mental health.
- 50% of workers feel a lack of confidence in their skills makes their jobs more stressful
- 40% feel this impacts their productivity
- 36% of them say they are more likely to leave their employer if they don’t see a commitment to their up-skilling
All this leads to the conclusion that human capital development will continue to be a major focus area for all organizations across the world. The benefits gained through a structured approach to human capital development that would address not only development but also retention far outweighs the alternative of keeping an under-developed, unmotivated human capital cost on the organization’s payroll. Developing the “whole human being” i.e. attending to the human need for constant learning both personally and professionally while simultaneously designing retention mechanisms is recommended for these challenging times.
The Ethiopian economy is opening up to international markets and investors more than ever. Competition for talent is only going to be much fiercer in the future. The talent market, on the other hand, is shrinking even further even while hundreds of thousands of entry level graduates join the market each year. If human capital development is not given due attention through up-to-date learning and development methods and technologies, organizations will continue to pay the high price of low productivity, low profitability, lack of employee engagement and overall organizational decline. Therefore, it goes without saying that organizations – whether they are businesses, non-profits or governmental agencies – find it imperative to recognize the importance of human capital and make concerted efforts towards developing it.
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