The Impact of the Environment on the Management of Human Capital
Wurim, Ben Pam
Journal of Finance and Bank Management, 1(1), pp. 01-13.
Abstract
The environment in which an organisation finds itself considerably dictates the way and manner in which the human capital of the organisation is planned and managed. The environment consists of a plethora of forces (environmental challenges) that exert varying degrees of pressure and influence on the planning of human capital. The principal objective of this paper is to investigate the factors militating against the planning and management of human capital planning in public organisations. Three hypotheses in line with these objectives were drawn and tested based on the data gathered through a questionnaire. The survey investigation method was used in collecting the primary data for the study. The sample consisted of 349 middle level management staff of five public sector organisations in Nigeria. The results show that the planning and management of organizational people is significantly influenced by political influences, traditional rulers and military rulers; globalization, economic meltdown and technological changes; and the corporate strategic plans and objectives of the organization. Based on the aforementioned, the paper concluded that the environments in which organisations find themselves contain key trends and forces that have potential impact on the management and planning of human capital and these factors possess both opportunities and threats which, if well harnesses and checked can be great potential for public sector organisations. The paper recommends advocacy by HCP managers to influence detrimental laws that affect or influence HCP; training programmes and updates on technological changes and the need to harmonize HC plans with corporate strategic plans.

Keywords: Environment, Management, Planning, Human Capital

Introduction

Human capital is a key economic resource which demands the same attention from its enterprise as planning its finance, equipment, raw materials, production or services, sales, investments or profits. Human capital has been defined as the stock of productive skills and technical knowledge embodied in labour. In order words, human capital comprises of expertise, dexterity, talent, craft, aptitudes and abilities, and understanding. Without people, organisations cannot exist. This is because it is the knowledge, skills and abilities of individuals that create value to the organization (Armstrong, 2003). Davenport as cited in Armstrong (2003:353), observes that people possess innate abilities, behaviors and personal energy and these elements make up the human capital they bring to their work. And it is they, not their employers, who own this capital and decide when, how and where they will contribute it.

Human capital represents the human factor in the organisation; the combined intelligence, skills and expertise that gives the organisation its distinctive character. The human element of the organisation are those capable of learning, changing, innovating and providing the creative thrust which if properly motivated can ensure the long term survival of the organisation (Bontis, et al, 1999: 391-402). In summary, all the workers or employees of an organisation form the human capital of that organisation.

Human Capital Management (HCM) and Human Capital Planning (HCP) are two vital activities often associated with human capital and organizational performance. While human capital management is a management function concerned with the recruitment, selection, training and development of people in an organisation, (Aswathappa, 2005: 6), human capital planning is the process by which a firm ensures that it has the right numbers and kinds of people in the right places at the right time, doing things for which they are economically most useful (Fammularo, 1986:10).

The assumptions underpinning the management and planning of human capital are that people are the organisation’s key resource, and organizational performance largely depends on them. If therefore, an appropriate range of human capital policies and processes are developed and implemented effectively, human capital would make a substantial impact on organizational performance.

The aforementioned notwithstanding, human capital planners and managers in Nigeria grapple with the tasks of planning and managing the human capital of organisations in such a way as to increase productivity, effectiveness and efficiency, and meet production targets. In spite of efforts put in by such organizational operators, most organisations suffer from gross mismanagement which has consequently resulted into inefficiency in the use of resources, faulty recruitment of employees, inadequate training, absence or non compliance to replacement charts/succession plans, massive purges and corruption which have in turn weakened the ability of organisation to carry out their functions effectively (World Bank, 1991:23).

Why is it that in spite of frantic efforts to plan and manage the human capital in organisations, the productivity and performance levels of the workers is still below expectation. It is well known that no organisation operates in a vacuum. The environment in which it finds itself considerably dictates the way and manner in which the human capital of the organisation is planned and managed. Environment may be understood as all those forces which have their bearing on the planning and management of human capital (Decenzo, et al, 2002: 46).

Analysis of the environment is very important in order to be proactive. Reactive strategy serves the purpose when the environment is fairly stable and competition is less severe. But today’s business environment is characterized by change and intense competition. Therefore, proactive steps in the planning and management of human capital are vital for any organisation if it has to survive in such an environment.

Statement of the Problem

It is a truism that people are the organization’s key resource, and organizational performance largely depends on the people. However, the realization of a well planned and managed human capital that ensures maximum organizational effectiveness and performance depends on the inter-play of a plethora of forces that exert varying degrees of pressure and influence on the planning and management of human capital.

In other words, the great pressure exerted by the environment in which an organization’s human capital is planned and managed appears to be the main bane of its ability to meet target, datelines and customer demand, the achievement of teamwork and the employment of the right quality and quantity of workers. Other attendant problems are low labour productivity and capacity utilization.

These forces include among other things, global economic meltdown, logical changes, demographic changes, government/legal regulations, cultural diversities and trade union interest and expectations. Others are globalization, e-commerce, corporate strategic plans, objectives and policies. Whereas some of these are clearly observable, others are largely remote in operation and effect.

What is not yet very clear, however, is whether or not, or further still, which of these forces, affect the planning and management of human capital in Nigeria and to what extent?

Further compounding the problem is the apparent uncertainty as to whether the easily identifiable factors as opposed to the remote factors are the worst culprits militating against the planning and management of human capital in Nigeria.

Research Objectives

The major objective of this paper is to generally investigate the factors militating against the planning and management of human capital in organisations. The specific objectives of the study are as follows:

To assess the impact of political, traditional and military leaders influences on human capital planning and management To ascertain the extent to which globalization, economic meltdown and technological changes affect human capital planning and management To assess the impact of corporate strategic plans on human capital planning and management.

Methodology

The study is a survey investigation to find out how certain environmental forces militate against the planning and management of human capital in five organisations. The population of the study is made up of 10,127 middle level management staff presently active in the employment of the five selected organisations.

Table 1.1 Population of Middle Level Management staff in Five Selected Organizations

Given that the population of study is finite, the Taro Yamane (1964) formula was used to arrive at a sample size of 385. The formula is given as

n = N/1+N (e)²

Where: n = Sample size; N = Population; e = level of significance (or limit of tolerable error), in this case, 0.05. and 1 = Constant value. Primary data were generated using a Likert Scale (5 Points) structured questionnaire which covered three management functions and other issues relevant to the research topic. The questionnaire was administered on the selected sample (385) through direct distribution. The data collected through the questionnaire was analyzed using the Kruskal-Wallis test statistic.

Theoretical Framework

To actually understand the plethora of forces that exert pressure and influence on the planning and management of human capital, an environmental scanning must be carried out.

Environmental Scanning

As mentioned above, to identify the key trends and forces in the environment of the organisation as having a potential impact on the management and planning of human capital, an environmental scan must be carried out. The reason for this is because no organisation operates in a vacuum. The environment in which it finds itself considerably dictates the way and manner in which the human capital of the organisation is planned and managed.

Mathis & Jackson (2000: 38) posit that environmental scanning is the process of studying the environment of the organisation to pinpoint opportunities and threats. The external environment especially affects human capital planning because each organisation must draw from the same labour market that supplies all other employers. Indeed, one measure of organisational effectiveness is the ability of an organisation to compete for sufficient supply of human capital with the appropriate capabilities. Mathis and Jackson, go further to suggest the areas to be scanned to include: Government influence, economic conditions, geographic and competitive concerns, and workforce changes. To Aswathappa (2005:72), environmental scanning refers to the systematic monitoring of the external forces influencing the organisation. To him, managers monitor several forces but the following are pertinent for human capital planning: economic changes; technological changes; demographic changes; political and legislative issues; social concerns.

Analysis of External Environment

 When carrying out an external scan of the environment for the purpose of human capital planning, what things should one look at? According to the Government of Saskatchewan H R planning guidelines as contained in Bacal & Associate (2008: 1-2), in order to do human capital planning you need to have a sense of both the current external environment, and anticipate things that may happen in the future in the labour market place. You do this via an external scan or environmental scan that can address the following issues and questions:
 What is the current external environment? What elements of the current environment are relevant to the company? Which are likely to inhibit the company from reaching its goals?
 What are the company’s specific issues and implications of these issues? What key forces in this environment need to be addressed and which ones are less critical?
 What is the impact of local trends on the company (demographic, economic, political, inter-governmental, cultural, technology, etc)?
 Are there comparable operations that provide a similar service? How might that change?
 How would that affect the company?
 Where does the work of the company come from? How might that change and how would it affect the organisation?
 How might the external environment differ in the future? What forces at work might change the external environment? What implications will this have for the organisation?
 What kinds of trends or forces affect similar work in other jurisdictions?
 What kind of trends or forces affect the company’s partners/stakeholders and customers?

As already mentioned above, many factors are driving change both from within and without. A carefully scanned environment is likely to reveal active forces like government/legal regulations, economic and technological changes, globalization, e-commerce, demographic changes, and union interests and expectations. Others are societal expectations and corporate objectives and policies.

The Internal Organisational Environment

Human capital planning cannot take place in a vacuum. It is therefore essential to note that human capital planning is affected by corporate strategic plans, objectives and policies of an organisation. Bartholomew & Smith (1970:3), observe that human capital planning is an essential part of overall corporate planning of any organisation and cannot be successfully developed as a separate or parallel activity. For one thing, all the components of a corporate plan are of necessity, related to the organization’s “mission” and “objectives”, and all are concerned with the same future environment, although they focus on different aspects of it. Incomplete or inconsistent basic assumptions made by different contributors to a corporate plan are well known sources of disaster.

As a result of the aforementioned, human capital planners must be very conversant with their corporate plans and objectives, financial conditions and technology in use or to be used. This is because therein lies the answers and solutions to some of the basic questions they (HR planners) face.

In scanning the internal environment of an organisation to detect forces that influence human capital planning and management, a number of questions and issues need to be addressed. Bacal & Associate (2008:6) adapts from the Government of Saskatchewan (USA) a list of such questions and issues to be addressed and they include but not restricted to the following:

 What knowledge, skills, abilities and capabilities does the organisation have?
 What is the company’s current internal environment? What elements support the company’s strategic direction? What elements deter the organisation from reaching its goals?
 How has the organisation changed its organisational structure? How is it likely to change in the future?
 How has the organisation changed with respect to the type and amount of work it does and how is it likely to change in the future?
 How has the organisation changed regarding the use of technology and how will it change in the future?
 How has the company changed with respect to the way people are recruited?
 What is the public’s (or customers) perception of the quality of the organization’s products, programmes and/or services? What is being done well? What can be done better?
 Are current programs, processes or services contributing to the achievement of specific organisational goals?
 What are the present and future financial positions /conditions of the organisation?
 Is the technology currently in use cost effective? What other cost effective technology does the company have in mind for the future?

Organisational Objectives, Policies and Principles

Efficient and effective human capital management is a challenge to all human capital professionals. Staffing, training and managing with the aim of increasing organisational productivity needs proactive strategization.

Among the core human capital activities are: payroll, time and labour management, benefit administration and human resource management. These activities are affected by forces eminent in policies and principles of the organisation.

Organisational objectives are benchmarks against which actions of a Human Resource Management Department are evaluated (Shehzad: 2008:1). For human capital activities that are designed to increase organisational productivity to be effective, certain standards of measurement or points of reference must be set.

The primary objective of human capital management therefore, is to ensure the availability of a competent and willing workforce to an organisation. Beyond this, there are other objectives too. Specifically, human capital management objectives are four fold – societal, organisational, functional and personal. (Aswathappa, 2005:8). The implication of organisational objectives on human capital planning and management therefore, is that the planners and managers must plan and manage human capital in line with organisational goals. No more, no less.

Whatever the size of the organisation and however the human capital management functions and objectives are structured and located, there will be a need to communicate to employees their terms and conditions of employment and operations. These employment guidelines are usually reflected in human capital policies. Shehzad (2007:3) opines that polices are general statements that serve to guide decision making. Armstrong (2004:129) gives a more detailed definition of policies as he believes that they are continuing guidelines on the approach the organisation intends to adopt in managing its people. According to him, they define the philosophies and values of the organisation on how people should be treated, and from these are derived the principles upon which managers are expected to act when dealing with human capital matters.

Organisational policies therefore serve as reference points when human resource management practices are being developed, and when decisions are being made about people. They help to define the way things are done here. It is clear that organisational objectives, policies and principles exert pressure on the human capital planning and management.

Results

The questionnaire was distributed to 385 middle level staff of the five selected organisations and 349 copies representing 92% were completed and returned as shown in Table 1.2

Table 1.2 – Breakdown of Sample Size according to Organisations

We set out to provide the necessary lead for empirical examination of the impact of environmental forces in the management and planning of human capital. Specifically the study tried to assess the impact of political, traditional and military rulers; globalization, economic meltdown and technological changes; and corporate strategic planning on human capital planning and management.

For these reasons, we formulated the following hypotheses.

Hypothesis 1: Political, traditional and military leaders’ influences significantly impact on human capital planning and management.

Table 1.3 - Opinion of Respondents on the Impact of Political, Traditional and Military Influence on Human Capital Planning and Management.

Table 1.3 shows that 87.7% of total respondents agreed that political influences affect human capital planning and management. About 6.6% thought otherwise while 5.7% was undecided on the question posed. Also, 60.8% of the total respondents agreed that traditional rulers do compel their organisations to recruit the wrong type and number of workers. 26.3% thought otherwise while 12.9% were undecided on the question posed.

Lastly, on the question of whether or not military personnel do compel organisations to employ the wrong type and number of employees even when such vacancies do not exist, 60.8% of the total respondents agreed while 26.3% disagreed. About 12.9% were undecided on the question posed.

The Kruskal-Wallis one-way analysis of variance by ranks named after William Kruskal and W. Allen Wallis is used. It is a nonparametric method for testing equality of population medians among groups.

It is identical to a one-way analysis of variance with the data replaced by their ranks. It is an extension of the Mann-Whitney U test to 3 or more groups (Kruskal et al, 1952: 583-621). The test statistic is given by:

The test statistic is given by

where: n_i is the number of observations in group i ; r_ij is the rank (among all observations) of observation j from group I; N is the total number of observations across all groups and r=1/2(N+1) is the average of all the r_ij.

However, the Kruskal-Wallis computerstatistical package for social sciences (SPSS)- 16.O version was used to test the impact of political, traditional and military; globalization, economic conditions and technological changes; and corporate strategic on human capital planning and management (i.e. hypothesis 1, 2, 3). The result of the Kruskal-Wallis test showing the impact of these three variables on human capital planning and management (as shown on Table 2.1) shows that political, traditional and military influences had a 0.69 effect on human capital planning and management.

Statistical Decision

Level of significance = 0.05; Sample size (n) = 349, Test statistic = Kruskal – Wallis; Decision criteria = Reject H_o if K calculated  K_t = 0.5. Since K_c = 0.69  K_t = 0.5 as shown on Table 2.1, we reject H_o and accept H1. It was concluded that political, traditional and military rulers influence significantly affect the planning and management of human capital in Nigerian public organisations.

Table 2.1 - The Result of the Kruskal-Wallis Test Showing the Impact of Political, traditional & Military; Globalization & Corporate Strategic Plans on HCP & Management.

Test Statistics^a,b

2) Hypothesis 2: Globalization, economic meltdown and technological changes impacts on human capital planning and management.

Table 2.2 shows that 64.2% of the total respondents agreed that human capital planning and management is impacted by globalization.

About 17.5% disagreed while 18.3% remained indifferent. Also, 64.2% of the respondents agreed, 17.5% disagreed and 18.2% were undecided on whether economic meltdown affects human capital planning and management. Lastly, 61.3%, agreed, 21.5% disagreed and 17.2% undecided on the fact that technological changes affect human capital planning and management.

Table 2.2 - Opinion of Respondents on the Impact of Globalization, Economic Meltdown and Technological changes on Human capital Planning and Management^a,b

Statistical Decision

Level of significance = 0.05; Sample size (n) = 349; Test statistics = Kruskal-Wallis (K); Decision criteria: Reject Ho if K calculated  K_t = 0.5. Since K_c = 0.59  K_t = 0.5 as shown on Table 2.1, we reject H_o and accept H₁, It was concluded that globalization, economic meltdown and technological changes significantly impact on human capital planning and management in Nigeria Public organisations.

3) Hypothesis 3: Corporate strategic plans significantly impacts on human capital planning and management.

Table 2.4 Opinion of Respondents on the Impact of Corporate Strategic Plans on Human Capital Planning and Management.^a,b

Table 2.4 shows that 65% of the total respondents agreed that corporate policies and objectives impact on human capital planning and management.

Statistical Decision

Level of significance = 0.05; Sample size (n) = 349; Test Statistics = Kruskal-Wallis (K); Decision criteria = Reject Ho if K calculated  0.5.

Since K_c = 0.62  K_t. = 0.5 as shown on Table2.1, we reject H_o and accept H₁. It was concluded that corporate strategic plans significantly impact the planning and management of human capital in Nigerian public organisations.

Discussion and Implication Of Findings

Result of the test of the first hypothesis indicates that human capital planning and management is significantly influenced by political, traditional and military leaders’ influence. ( =0.05, K_c = 0.69  K_t = 0.5). We therefore conclude that the two variables are to a large extent associated. The result of the test of hypothesis 1 agrees with the findings of Abdullahi et al (2000:72) which disclose that the Nigerian Public Service, which is the engine room of progressive policy formulation and implementation and the sole provider of basic amenities that sustained livelihood and propelled economic development has since degenerated into a creaky apparatus of political patronage that ignores merit and puts round pegs in square holes.

Despite various interventions to revamp these public sector organisations, the sector has remained in a tailspin. Confirming this, Ayida (1997:2) laments that in spite of several reviews and commissions of investigation, the Nigeria Public sector of today remains a shadow of what is should be. According to him, some of the lofty ideals of efficiency, professionalism and accountability have not been achieved. This is partly due to political, traditional and military rulers influence on the planning and management of the people serving in these organisations. Such influences take place in the areas of recruitment, selection, discipline, promotion, transfers and performance appraisals.

Result of the test of the second hypothesis shows that globalization, economic meltdown and technological changes significantly impact on human capital planning and management ( =0.05, K_c = 0.59  K_t = 0.5). We thus conclude that the two variables are to a large extent associated. The result of this test agrees with findings from several other researches on the impact of globalization on human capital planning and management, Fortune (2000:232- 234) observes that foreign competitors can be formidable. For example, Coca cola earns more than 80% of its revenue from outside the United States.

The 500 largest firms in the world employ almost 44 million people, they gross almost $13,000 billion in revenues and $554 billion in profits, and the total value of the assets exceeds $44 billion.

The implication of globalization for human capital planning and management according to Reich (1990:53-64), is that as every advanced economy becomes global, a nations most competitive assets becomes the skills and cumulative learning of its workforce. Globalisation, almost by definition makes this true. It is therefore obvious that the relationship between quantitative workforce and foreign investment forms a vicious circle: well-trained workers attract global corporations, which invest and give the workers good jogs; the good jobs in turn, generate additional training and experience.

On the impact of technological changes on human capital planning and management, it has been observed that the new millennium came with it a lot of technological changes that affect almost every sphere of human and organisational life. Sparked by new technologies, particularly the internet, the corporation is undergoing a radical transformation that is nothing less than a new industrial revolution.

In the words of Cascio (2003:12), perhaps the most pronounced impact of technology on human capital management is on Human Resource Information System (HRIS) as Cascio observed. Indeed as technology integrates with traditionally labour-intensive human capital activities, human capital professionals are seeing improvements in response time and efficiency of the report information available.

Also, the general business cycle of recessions and booms affect human capital planning and management. Factors such as interest rates, inflation and economic growth affect the availability of workers and should figure into organisational and human capital plans. Decisions on wages, overtime, hiring or laying off workers may be affected by economic conditions (Mathis & Jackson, 2003:99).

From the third hypothesis, it was shown that corporate strategic plans and objectives impact on human capital planning and management. ( =0.05, K_c = 0.62  K_t = 0.5). We thus conclude that the two variables are to a large extent associated. The result is in agreement with Bartholomew & Smith (1970:3) who observe that human capital planning is essential part of overall corporate planning of any organisation and cannot be successfully developed as a separate or parallel activity. For one thing, all the components of a corporate plan are of necessity, related to the organization’s “mission” and “objectives”, and all are concerned with the same future environment, although they focus on different aspects of it.

Conclusion and Recommendations

Conclusion

The one is a set of clearly discernable forces that are external and outside the control of organisations which include the on-going global economic meltdown, technological changes, globalization, e-commerce, demographic changes, union interests and expectations, and societal expectations.

The second set of forces militating against human capital planning and management are internally located in organisations. However, human capital managers and planners have little control over them given the ultimate objectives of the organisation as profit making. These internal environmental forces include established corporate objectives policies and principles. In conclusion, the environments in which organisations find themselves contain key trends and forces that have potential impact on the management and planning of human capital. These factors possess both opportunities and threats which, if well harnesses and checked can be great potential for both the public and private sectors of the economy.

Negatively, such forces have directly or indirectly been traced to be responsible for the low level of productivity in organisations leading to low profit margins, inability to meet datelines and work schedules, and the inability of human capital planners and managers to employ the right number and quality of workers.

Recommendations

In view of the above, the following measures are recommended as ways of surmounting the forces of pressure that affect human capital planning and management:

Managers and planners of human capital must make deliberate efforts to study the opportunities and threat imbedded in each environmental factor with a view to incorporating such findings in their human capital plans.

Specific environmental factors that negatively affect productivity should be tactically dealt with so as to improve workforce productivity and the overall efficiency of the organisation. Key forces in the environment should be separated from less critical forces and handled separately.

Various actors in human capital planning and management, especially the Human Resource Department should adopt advocacy with the aim of influencing detrimental laws and legislations that have direct bearing on the operations of their organisations.

Organisations should, as a matter of urgency undertake deliberate training programmes to equip workers at the private and public sector levels with updated technologies that would increase the competitiveness of Nigerian organisations with those of multinationals. This is the only way to overcome the force of globalization and international competition.