HOW Human Capital Impacts a Company Performance

Human Capital is the most important resource for an organisation to succeed. The quality of the human resource and the work performance directly impact an organisation’s performance. Thus, human resource management plays an important role to ensure the efficiency in an organisation’s daily operations via efficient recruitment, training and development, and staff retention. Besides, efficient human resource management may create competitive advantage to an organisation. There are various theories explained how human resource management impacts an organisation’s performance.

This essay focuses on two theories – Reinforcement Theory and Resource-Based Theory. 2. 0 Reinforcement Theory and the Implementation Reinforcement theory was proposed by BF Skinner and his associates. It focuses of shaping human behaviour by controlling the consequences of the behaviour. In reinforcement theory a combination of rewards and/or punishments is used to reinforce desired behaviour or extinguish unwanted behaviour. It has similar base as “law of effect” where it states that individual behaviour leads to different consequences.

Thus if a behaviour leads to positive consequences, the individual tends to repeat the same behaviour in the future. On the other hand, if a behaviour leads to negative consequences, the individual will try to change their behaviour to avoid the unpleasant consequences. For example, employees may obey the company’s rules and regulation as they may fear of disobedience leads will lead to punishment. On the other hand, employees try to meet the target set at work as they may be rewarded. Thus, in order to change employee behavior, the consequences of the behavior must be changed.

For example, an employee who is frequently late to work, may be motivated to report to work on time (change of behavior) by changing the consequences of being late. Behavior modification consists of 4 methods: 2. 0. 1Positive and Negative Reinforcement This implies to remove negative behaviour of the employees by giving positive consequences to the employees. For example, a company could establish a reward system to the sales team, when certain target has been achieved, sales person would receive additional incentives. Both positive reinforcement and negative reinforcement encourage certain behaviour to be happened or repeated.

The more spontaneous the reward is given, the greater the reinforcement value it has. 2. 0. 2 Punishment This implies to decrease the probability of undesirable actions by enforcing some punishments or negative consequences to the employees. For example, salary deduction for employees those do not report to work punctually. 2. 0. 3 Extinction The objective of extinction is to reduce the unwanted behaviour. If an employee gets praised for the promptness of his job completion for certain period of time, but receives no praise subsequently, his desirable behaviours may diminish.

Thus, managers have to continue to offer positive consequences to avoid unwanted extinction of behaviour. 2. 1 Reinforcement Theory impacts on organisation’s performance The core objective of Reinforcement Theory in Human Resource Management is to change the employees’ behaviour. Increase the possibility of positive behaviour and reduce the chances of negative behaviour. Organisation performance will be boosted if there is drastic change in employees’ behaviour from negative to positive. Besides, it also ensures the positive behaviour to be maintained as a norm in an organisation.

New joiners may follow the company good norms which will past through generation by generation. Below are some of the examples how Reinforcement Theory impacts an organisation’s performance: 2. 1. 1 Attendance and punctuality improvements Positive reinforcement and punishment towards employees’ punctuality may improve the punctuality to work. For example some companies provide extra allowance to employees who adheres the punctuality to work and salary deductions for those who is late to work. This may motivates employees to arrive on time.

This cultivates a culture where time management is important in the organisation. Hence, the discipline of the organisation gets improved which also leads to work efficiency. Sales result improvements Positive Reinforcement for instance Incentive given to the sales department may motivate the sales persons work towards to achieve the sales target. Sales persons may change their working style by making more cold-calling, increase the efficiency in time management by visiting more customers. As a result, it may increase the company’s revenue.

Productivity improvements Performance appraisal system can be used in the implementation of reinforcement theory. For example, KPIs set for employees according to the organisation’s visions and goals. This serves as the key performance measurement for the employees. Employees work towards the KPIs in order to receive good appraisal, and expected to receive a better rewards and compensation. Organisation’s performance relies on the achievement of the KPIs. If the most of the KPIs can be met from bottom to top, the organisation’s has higher chance to achieve its visions and goals.

Summary of Reinforcement Theory Reinforcement theory focuses on what will the consequences happens to the individual after some actions has been taken. This theory argues that the internal state and the reasons of the actions of the individuals can be ignored as human tends to exhibit their behaviours base on the result of the behaviour. Reinforcement theory does not focus on the causes of individual’s behaviour. As a result, it may shows lack of empathic and less human in a sense if we ignore the cause of the behaviour of an individual.

For example, if an employee always late in work, the manager could have understand the reason behind and decide whether salary deduction to be enforced for this employee. Nevertheless, in terms of organisational management, Reinforcement Theory serves as a very direct way to control the employees’ behaviour by understanding the needs and fears of the employees. Employees may tend to adhere to the rules and regulations as they look forward for the positive consequences (reward or praise), and avoiding negative actions as they are fearful of negative consequences (punishments).

As a result, company performance will be enhanced if the employees show positive behaviour more frequent. 3. 0 Resource-Based Theory and the Implementation Resource-Based Theory argues that human resources is a subset of an organisation to enable them to achieve competitive advantage and business sustainability. Valuable and niche resources leads to an organisation’s competitive advantage. Moreover, the firm has to be able to protect against the resource turnover in order to sustain the competitive advantage for longer period of time.

The source of Resource-Based Theory dates back to 1967, Selznick proposed the term organisation’s distinctive competence. Later in 1959, Penrose, puts forward the “Theory of the Dynamic Growth of the Firm” and defined an organisation’s achieve distinctive competence through the distribution and the use of resources. This concept later became the basis of resource-based theory. In 1984, Wernerfelt who lead the mainstream strategic management, proposed a resource-based idea that the “internal” organisational resources and the “external” commodity markets together form a complementary strategy.

In an industry, if an organisation has the internal distinctive resource of value, rarity, inimitability and non-substitutability (Barney, 1991), it is able to increase the quality of goods and services. Which also enable the organisation to create competitive advantage and to sustain the competitive advantage. There are two main criteria in resource-based theory: resource diversity and resource immobility (Barney, 1991). 3. 0. 1 Resource diversity This refers to the human resource expertise are niche and specialise in the market, which leads to create the competitive advantage for an organisation.

This is important for organisation which the business is emphasis on innovation, consultancy, creativity and etc. For example, If an organisation is trying to develop a new innovative product, it requires resources with specialise knowledge and expertise to achieve the goal. If those resources are niche in the market and other competitors cannot duplicate the product easily, it creates competitive advantage to the organisation. To ensure resource diversity, important effort requires in recruiting quality and competent employees, provide training and development to the existing employees in order to achieve resource diversity.

Resource immobility This refers to how easy the resource turnover from one oganisation to another. It is important for an organisation to retain productive human resources in order to ensure the organisation operates smoothly and to sustain the competitive advantage. In order to ensure the resource immobility, it requires efficient staff retention program, clear and achievable career path, career advancement opportunity, good benefit and compensation policy. 3. 1 Resource-Based Theory impacts on organisation’s performance The implementation of resource-based theory is able to improve an organisation’s performance as below:

Increase Work Efficiency Work efficiency can be achieved if the employees are proficient in their role. It creates higher chance to prone to errors and finally it increases the company’s performance in various areas. 3. 1. 2 Create Professional Image to the Organisation Employees with high competency in job creates professional image to the organisation. This is important to increase the good will and brand name of the organisation. Besides, for those businesses mainly providing professional services to the clients requires employees with highly competency in order to create the competitive advantage among the competitors.