Introduction
Human capital is regarded as an integral part of any organization. To gain competitive advantage, human capital plays a greater role than ever before since it is regarded as a wealth creator and a core determinant of competitive advantage ( Memon, Mangi, & Rohra, 2009). The foundation of human capital theory can be dated back to 1961 and was developed by Schultz who posited that human capital is a source of knowledge and skill in an organization which is gained by employees through training and education. Human capital holds that an organization’s productivity and capabilities lie in the firm’s employees and specific skill set held by them (Fareed, Noor, Isa, & Salleh, 2016). In this regard, the research paper proposes to identify and analyse human capital as a core determinant of competitive advantage. This report finds that human capital has become essential for the business competitiveness and organizations today witness revolutionary changes to manage human workforce effectively.
Defining human capital and competitive advantage
The term competitive advantage can be described as an ability of the firms developed thorough resources and attributes to perform beyond expectations and superior to the others operating in a similar industry. When such advantage is realised, the organization’s value creation is observed and the firm tends to perform effectively to outperform the others. To gain competitive advantage, organizations adopt several business-level and generic strategies to stay ahead of the game among which understanding the capital, both financial and human capital ensures gaining market leadership. Provided competitive advantage is the key determinant to superior performance and ensures prominent and sustainable placing in the market, it becomes necessary to develop competitive resources such as human capital to create s unique advantage (Mathur, 2015).
Human capital, on the other side, displays intrinsic talent in the firm which can moderate or change itself and other organizational inputs. Human capital can be referred to as work competencies, knowledge, education and psychometric evaluation. According to Pasban & Nojedeh (2016) the concept of human capital is rooted in both management and economic literature as it is neither financial nor physical capital rather is like a sustainable and biodegradable capital which improves the competitiveness of business organizations.
Human capital as one distinctive resource essential for competitive advantage
Technology, machinery and other tangible assets have no real economic value in the present organizations without people who can operate them effectively. Even most recognised leader emphasises on knowledge workers impact on the firm’s success and consequences related to employee selection. Today’s managers are aware that human competencies and skills are real and necessary for future sustainable productivity. Therefore, there is a widespread belief that human capital values represent a significant proportion and a distinctive feature of corporate’s productive capacity (Rahman & Mamun, 2013).
Hossain & Roy (2016) shares similar views and cites that to create an organization that relies on human capital for competitive advantage, it will include more than mere improvement made on selection or recruitment. This means, firms seeking competitive advantage designs every organizational system in a way that attracts and retains talented skill besides motivating and developing them to accomplish competitiveness that is otherwise hard to achieve. Human capital influences overall organizational performance by comprehending complexities in a business environment and transfers business processes by enabling their unique capabilities of problem-solving skills. Therefore, rareness and inimitability act as two distinctive features of human capital making a firm achieve competitive advantage.
Human capital for high-performance work practices
Developing human capital has become very challenging for the 21st-century organization due to which organizations build various strategy to manage human capital effectively for competitive advantage. Human capital is not only assumed as a source for developing competitive advantage in firms due to the competencies held by employees but because of its capabilities to provide management with solutions to solve managerial dilemmas like high-quality applicant’s recruitment. To support the above statement i.e. human capital as a core determinant of competitive advantage, Delery & Roumpi (2017) claims that a positive relationship can be found between firm’s performance and human capital which is a strong force for determining enhanced business competitiveness. It can be noted that when organizations can retain its top talent, it does effects profitability of the firm positively and hence most of the contemporary organizations enables talent management to ensure that best talent in the form of human capital is managed in the workplace.
By managing employees effectively and developing their capabilities and skills, organizations are able to retain them successfully and in turn enjoys workplace competitiveness (Kaur, 2018). Human capital can assist organizations and add value by operating according to a comprehensive quality plan. Employees have the potential to predict at different organizational levels, define the firm’s strategic plans, design mission and goals besides implementing them according to core organizational values. Therefore, Hossain & Roy (2016) argues that competitive advantage in a firm is not depended solely upon natural resources, economies of scale or technology but is dependent of rare, valuable and hard to imitate resource which resides in the workplace in the form of human capital. In this sense, human capital act as an invisible asset which helps the firms distinguish itself from the other business competitors.
Even Pasban & Nojedeh (2016) claims that to have a competitive advantage, organizations must look at ways to reinforce human capital by continuous training and motivation of employees. When employee’s talent like performance, ability to solve issues and creativity enhances it is likely that firm’s competitiveness will be increased. Other than this, firms can use effective high-performance strategies to foster human capital such as employee participation, job design and empowerment including extensive employee training, team-based projects, incentives and compensation plans to improve organizational performance.
Resource-based view
While discussing human capital and competitive advantage, the resource-based view provides an influential framework to comprehend the strategic management of firms. According to Ifleh, Lotfi, & Elkabbouri (2017), resource-based view is one of the most dominant theories which explains human capital as organization’s internal resource and capabilities which are valuable and not sustainable. As an important resource acquired for developing competitiveness, human capital can also be looked upon as bundles comprising tangible and intangible assets which includes management skills, along with knowledge achieved by employees.
Ismail, Omar, & Bidmeshgipour (2010) argues that strategy literature has shifted its views of resource-based view from external organizational factors like industry position to internal firm resources for competitive advantage. Internally, employees or managers can manoeuvre external elements beyond their control. In this regard, the growing acceptance seen towards internal resources as the key determinant of competitive advantage, employees become strategically significant for the firm’s success. Therefore, the literature suggests that organizations that are moving towards building organising human resources can sustain and gain competitive advantage. In other words, films can achieve competitive advantage not because of possessing economic resources but because of effective and innovative human capital management which ensures opportunities for future sustainable growth.
Human capital for global competitiveness
Technological evolutions, ambition to become knowledge-based firm and globalization have encouraged many organizations and country to pursue novel ways through which competitive advantage can be maintained. This in turn has made global firms consider the acquisition of a pool of resources to develop human capital. Human capital as the core determinant of competitive advantage represents the entire capability of an organization which further act as an organizational wealth that can be channelled to achieve the company’s goals. Provided every individual contributes equally in the global labour market by acquiring the distinctive set of skills, knowledge and abilities, organizations recognise human capital accomplishment necessary for global competitiveness ( Popa, Reczey, & Quansah, 2015).
Banu & Chandran (2019) stated that intellectual capital not only enhances global initiatives in organizations but influences global innovation and marketing skills of the firm which contributes to the development of new products and services. While employees or organizational members learn and share knowledge, it is applied effectively in every part of the global network. Thus, an organization must invest in human capital development for identifying global competitiveness. It can be noted that the organization’s future economic survival will become largely dependent on an organization’s ability to develop capabilities that can drive knowledge transfer and innovation. Hence, integrating globalization framework in core business strategy depends highly upon building human capital that corresponds to industry-specific requirement so that competitive advantage can be met effectively.
Conclusion
Human capital is considered as one of the most valuable assets of the firm and the core determinant of competitive advantage. Human capital not only provides organizations with long term profitability and sustainability but provide solid foundations through which an organization can develop new and innovative products and services. When human capital is managed effectively, are motivated and provided with empowerment, management can create a positive organizational environment through a distinctive resource. Although many assets of the organization can be imitated or replaced by competitive alternatives, human capital act as a rare and inimitable resource which is the reason most of the contemporary firms seek new ways to foster their human capital continuously. This research paper concludes that human capital has grown in significance and become the core determinant of competitive advantage, particularly within the new global economic landscape.
References
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