Human Capital and Relationship among Variables - Essay Example

14th April Relationship among Variables “Discuss the relationship among following variables. Firm strategy, human capital, human resource practices, human resource behaviors, firm performance and overlapping tenure” Introduction to Variables Firm Strategy, also known as Business Strategy or Corporate Strategy, is a long term plan of action of a firm. It helps firm in strengthening its performance. Without a strategy, firm has no direction to guide them. Human Capital is referred to as a measure of the economic value of abilities, skills and experience of employees. This concept states that all labor is not equal and the value of each labor can be enhanced by investing in them. The qualification, skills and experience of an employee has an economic value for his employer as well as for the economy as a whole. Human Resource Practices are defined as those methods, processes, rules and procedures used in the field of HR. Examples include recruiting, hiring, firing, training, monitoring, reviewing performance, performance appraisals etc. Human Resource Behavior refers to interdependence of individuals in co-coordinating their activities in order to perform at a higher level. Firm Performance is usually measured in terms of financial health of a firm. There are numerous contributing factors which effect firm’s performance. Some of the prior mentioned variables are also leading factors which influence firm’s performance. Finally, Overlapping Tenure is the amount of time employees have worked together in order to achieve common performance outcomes. Relationship among prior mentioned variables Extensive researches have been performed in order to examine the relationship among these variables. Aldehayyat & Twaissi (2011) examined a strong positive relationship between Financial Performance and Strategic Planning. The empirical results of this research also supported the practice of firms’ strategic planning in small and medium sized business firms. Leana & Van Buren, (1999) studied the relationship between Overlapping Tenure and Firm’s Performance. In this study, Leana & Van Buren, (1999) focused on the overlapping tenure that is the amount of time employees have spent in working with each other as well as with their manager. The authors stated that it may take time for individuals to form relationships with their-co-workers and allows them to work for common goals. Leana & Van Buren, (1999) stated that some studies found positive long term relationship between the two while other found negative relation between overlapping tenure and firm’s performance. Research conducted by Carmeli & Schaubroeck, (2005), Takeuchi, Lepak, Wang, and Takeuchi, (2007) and Lopez-Cabrales, Valle & Herrero, (2006) found positive relationship between firm performance and human capital. These studies employed industry accepted measures of human capital in order to investigate the relationship between performance and human capital. Leana & Van Buren, (1999) conducted a study to determine overlapping tenure and its relation with firm’s performance. In this study, the main area of focus was the amount of time employees have worked with each other and the amount of time they have worked with their manager. Leana & Van Buren, (1999) concluded that human capital is influenced by stability of employees’ relations. By having flexibility and promoting stability among employees, organizations may enhance their social capital. Study of Huselid (1995) stated that firm performance and high performance work reduces employee turnover and increase employee performance. Also, high performance work by employees leads to greater organizational performance (financial and productivity) (Huselid, 1995). The behavioral perspective of human resource behavior facilitates relation between organization performance and human resource practices. Human resource practices are utilized to improve and control the behaviors and attitudes of human resource. Behavioral perspective reveals that human resource practices effects the behaviors of human resource and therefore, the performance of overall organization. It does not take into account skills, knowledge and abilities of human resource, and only focuses on behavioral perspective (Wright & McMahan, 1992). Hitt et al. (2001) investigated human resource capital in law firms. It was measured in terms of experience and qualifications of participants. Initially, it was found that relationship between firm performance and human resource capital was negative but later on, it transferred to positive. This study suggests that early relations of human capital may not be beneficial for firm’s performance but overtime, when employees gain experience; it results to large amount of benefits to organization Hitt et al. (2001). Applying the Variables to a Case: Starbucks Just like all large multinational firms, Starbucks also believes that the success of a firm lies in its human capital. Starbucks initially changed its strategy and guided its employees from being arrogant to friendly. Starbucks invests in its human capital by investing in it. Starbucks provides its employees with comprehensive benefits and competitive pay scales. By doing so, it attracts motivated people having good work habits and above average skills. The company determines the pay scales of its employees based upon the geographic region and the skills, performance and experience of the workers. After six months of employment, barista are expected to earn between $8 and $9.5 per hour. Fortune magazine listed Starbucks among “100 best companies to work for”. In that article, it was stated that full time workers liked to work at Starbucks due to its camaraderie while part time workers prefer working at Starbucks due to health insurance benefits (Starbucks Corporation, n.d.). The company conducts Annual Partner View survey in which it reviews the feedback of workers, learn from their concern and evaluate job satisfaction. Schultz, CEO of the company, believes that the success of the company must be shared with the people who made it happen, i.e. the employees. It is because of them that the company made long-term relationship with its customers. He believes that if you treat your employees well, then they will treat your customers in a better way. This approach of Schultz shows the commitment of employees of Starbucks with the company. Schultz believes that a significant credit of the success of the company goes to its employees (Starbucks Corporation, n.d.). Conclusion After reviewing the relationship among variables and case of Starbucks, it became evident that human capital and human behavior is vital for any firm. Without providing proper support to employees, it can be difficult to improve the performance of workers. It has been reviewed and supported through literature that human behavior and human capital link directly to the firms’ performance. It can either improve or hamper the performance of a firm. Another critical factor is firms’ strategy. Without a proper direction to pursue, it is difficult for a business to survive. HR practitioners and experts need to incorporate these factors into HR policies and must bring them into practice in order to ensure better growth and sustainability of firm as well as of employees. Works Cited Aldehayyat, Jehad, and Naseem Twaissi. "Strategic planning and corporate performance relationship in small business firms: evidence from a Middle East country context." International Journal of Business and Management 6.8 (2011): p255. Hitt, M.A., Bierman, L., Shimizu, & Kochhar, R. “Direct and indirect effects of human capital on strategy and performance in professional service firms: A resource-based perspective.” Academy of Management Journal, 44.1 (2001): pp. 13-28. Huselid, M.A. “The impact of human resource management practices on turnover, productivity, and corporate financial performance.” Academy of Management Journal, 38 (1995): pp. 635-672. Leana, C., & Van Buren, H. “Organizational social capital and employment practices.” Academy of Management Review, 24 (1999): pp. 538-555. The McGraw Hill Companies. Starbucks Corporation. N.d. Web. 14th April 2013. Wright, P.M. & McMahan, G.C. “Theoretical perspectives for strategic human resource management.” Journal of Management. 18.2 (1992): pp. 295-320. Read More