The Importance Of Human Capital In Strategic Management

Human Resources have been believed to be a cost to the organization that needs to be minimized and controlled. However, in recent years, the connection of human capital to financial performance has been well recognized. Many organizations battle not only the tough competition, but also a world financial crisis. An increasingly competitive environment, many companies turn to human resources (HR) in order to stay in business and achieve goals, and maintain profitability. “Resources are invaluable and limited sources of any organizations which cannot be easily replaced” (Zohreh, M; Napsiah, I; Zulkiflle, L; Norzima, Z., 2013). Organizations turn to strategic management of human resources to accomplish its mission.
Sustained competitive advantage

The individual versus collective approach to human capital is the first key issue discussed. There is a problem in combining the individual behavior, skills or experiences on a unit level. The process fails to give an explanation of the mechanisms driving the performance. “Approach such that each incremental addition of human capital will increase performance and fails to explain where the human capital resource originates, how it is created and how it is transformed” (Wright, P., and McMahan, G., 2011). The specific versus general approach aligns the human capital characteristics, along various dimensions, from more general to pure specific. The approach suggests that competitive advantages of the organization can be achieved by development of firm-specific human capital. The general human capitol characteristics are wildly used by many firms, for a market level compensation. Therefore, general human capital skills can be easily found and obtained. On the other hand, the specific characteristics approach only has value within the organization itself. Therefore, the strategic HRM should reimburse the specific human capital in order to encourage and retain employees. However, the general human capital can also be a source of a sustainable competitive advantage. The sustainability of the human capital emphasizes “better recruitment and retention of employees, cost savings, and improved corporate reputation and relations with stakeholders and financial returns” (Zohreh, M; Napsiah, I; Zulkiflle, L; Norzima, Z., 2013). Skills versus motivation versus behavior theory concentrates on building motivational bridges between human capital and behavior. Supporters of such a theory argue that the characteristics of an employee (skills, knowledge, education, etc.) only provides a base but,