Effect of Human Capital Practices on Organizational Performance Bank Alfalah

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The purpose of current study was to determine human capital and organizational performance in Bank Alfalah. For this purpose study has collected primary data from sample size of 60 employees from Bank Alfalah with help of self-administered questionnaires based on topic of human and organization performance. To measure the human capital Likert scale with 5 options was used, for measuring organization performance a 10 point scale was used having range from low, middle and high. All employee responses http://qundeel.com/ were then measured using statistical tools of mean test and relationship between dependent variable of Human capital which had four 4 dimensions and Organization performance had 7 dimensions and both of these variables were measured by using correlation analysis techniques.

The results of this study shows that majority of employees at Bank Alfalah are agree with dimensions of human capital. The values for organization performance showed that employees were satisfied with level of organization performance at Bank Alfalah. According to our study results the company is performing efficiently as the employees are creative, http://qundeel.com/,talented, qualified, and highly trained to perform the tasks they are given without any problems. The leadership qualities also have a positive effect on organizational performance. The organization performance correlation value shows that although individually the organization performance dimensions had weak relationships but overall a strong relationship was observed between variables. The results show us a positive change in human capital and they influence the organizational performance.


The organization has been forced to focus on betterment of the workforce due to rapid advancement in technology, diverse workforce and impact of globalization. Because of all these advancements, organizations are now focusing more on developing the understanding, awareness and proficiencies of their workers to make them cost-effective and useful assets and a competitive resource. This effort triggers the sense of bond and love for their work that serves to be the foundation of Human Capital Management.

Today in the globalized market place it is very important for organizations importantly banking sector in Pakistan to reach and perform best performance. Having a reliable high performance in an organization means to be constantly adaptable to the demands of market and to respond to market changes on time. The aim of this study is to examine the impact of human capital on bank performance in Pakistan. It is important to ensure a competitive edge bank as to rely on their human capital as resourceful assets. Designing a better and effective strategy to enhance organization productivity to improve market share of the organization is a critical area of concern thus study is going to explore how human capital is linked with organization performance at banking sector in Pakistan.

1.2 Background:

The most important providers to the development in nations’ output and standard of living over time is human capital – the productive aptitude that is entrenched in people. It is an important determinant of individuals’ employability and earnings capacity, as well as organizations success. (Laurie et al, 2006).

 This is true that human capital decisions affect the firm’s performance and this is what the strategic role of Human resource measure as well. HR is becoming a high profit maximizing part of the business due to its capability to govern organizational effectiveness(Lawler, 2003).  (Boudreau, John W, 2004)

The management practice and academic research both has progressively engrossed on human capital as bases of value creation. (Becker and Gerhart, 1996).Moreover it shows significant part in the formation of investor wealth, (Becker&Huselid, 1998; Guthrie, 2001; Huselid, 1995; Ichniowski, Shaw, & Prennushi, 1997; MacDuffie,1995). The experts discover that handling these intangible assets brings a major challenge to the organization.

Potential source of competitive advantage is human resource and that has been proved by many studies. The firm internal resources are sources of competitive advantage to the degree they are valuable, rare, unique, and hard to substitute(Barney, 1991).Barney and Wright (1998)claim that human capital often meet these four standards. Certainly, the resource-based theory of the firm strengthened the idea that competitive advantage flows from unique resources of the organization (Nelson & Winter 1982), eventually leading to viable core competencies (Prahalad& Hamel 1990).

Thus, the significant job of an organization is to maximize performance outcomes through the ideal positioning of prevailing assets and abilities, while at the same time, developing its resource base to remain competitive in the future (Grant, 1996; Teece et al., 1997). Among numerous typesof resources, the view recognizes human capital as the most important type of resources a firm has.(Pfeffer, 1994; Wright et al., 1994).



Human Capital

Human capital has been defined as “an approach to people management that treats it as a high-level strategic issue and seeks systematically to analyze, measure and evaluate how people policies and practices create value” (Grant, 1996; Teece et al., 1997). The Institute of Personnel and Development in the United Kingdom states that “human capital is the skill, experience and capacity to develop and innovate, that is owned by individuals” (Whitaker et al, 2007).

 Hence the other researchers have defined human capital as employees’ skills, knowledge, and capabilities that are of economic value to organizations (Snell & Dean, 1992; Nahapiet&Ghoshal, 1998;Youndt et al., 2004). McKelvey (1983) proposed classifications of organizations based on their competencies, whereby organizational competencies were represented by the knowledge, skills and capabilities of organizational members.

More specifically, “human capital embraces the abilities and know-how of men andwomen that have been acquired at some cost and that can command a price in thelabor market because they are useful in the productive process” (Parnes, 1984: 32).

Therefore, the central principle of human capital reviewed from a competence perspectives the professed contributions of human capital to optimistic consequences of organizations. However, human resources (HR) with high levels of abilities, aptitudes and awareness may not certainly lead to worthy financial performance of firms. As argued by Roos et al. (1998: 37), ‘Companies need employees who are capable and willing to use their skills and abilities to the advantage of the company and who can motivate the whole company to reach these goals’. So, it is similarly essential for organizations to have human capital with aptitude and capabilities as it is to have human capital that is willing to identify itself with company goals and commit itself to achieving them (Wright et al., 1994; Ulrich, 1998).

Commitment has been identified as the one with multiple aspects. The basic features of the commitment construct taken are: employee involvement and participation, job satisfaction and empowerment.

If workers in an organization are made to believe that their organization encourages and values their participation, they will zealously participate in organizational matters and will feel that their participation is making a difference. As a result, they will suggest ideas to the organization and make their full contribution to achieve organizational success which ultimately leads them to be more concerned about long term organizational goals. (Coetzee, M. 2005)

Empowering employees also play an important role in ensuring employees dedication. Due to the fact that low level employees are given responsibilities and are held accountable, they are more content with their jobs and are more committed. They get more engaged in their work due to which their performance is enhanced as they have more control over their work. This results in increase in personal efforts to management objectives.( Byham, W. 1991,  Scott, C. and Jaffe. 1993, Pickard, J. 1991)Furthermore, pleased workersare more likely to be productive. Their creativity and commitment to their employers are high and hence job satisfaction results in a greater commitment. (Bhatti and Qureshi 2007).

Thus for the purpose of this article, human capital is defined as ‘employees’ skills and commitment that gives an organization a competitive advantage’.(Bontis& Fitz-enz, 2002; Noe et al., 2003).It is because of this blend of competencies and commitment that the human resource of any company can be its greatest source of profits .(Davenport,1999; Bontis& Fitz-enz, 2002; Noe et al., 2003).

Organizational Performance:

There has been an intensive research carried out in the past about organizational performance. Organizational performance can be measured by such indicators as are productivity, profits, turn over etc (Nickell, 1995; Estrin &Rosevear, 1999). Past researchers such as Noe, Hollenbeck, Gerhart and Wright (2000) are of the opinion that human resource management (HRM) determines the behavior, attitudes, and performance of the workers. Therefore for good organizational performance, incorporating efficient HR practices are very essential.

            Wright et al. and others such as Quinn (1980) suggests that if employees are knowledgeable and skillful, they will be able to detect environmental changes and make strategies accordingly and be able to implement them too. They will be flexible and responsive to the overall changes in the environment thus ensuring high probability of success in this era of rapid developments (Hsu, 2006). These competent employees can help organization gain its competitive advantage because they offer products and services which the end users greatly value (Reed &DeFillippi, 1990).

Team work and Organizational Performance

Team is in fact a working group which has all conditions for a real team and its members are totally committed to each other’s promotion and success. This commitment often leads to team development. A team with high executive power specifically performs all actions better than other teams and meets all logical expectations of the members. Teamwork is a mental and emotional preoccupation in individuals in group situations type of capital is the ability and capacity of human forces for solving organizational problems.

Employee-Organizational fit

Employee–organizational fit is likely to result in high organizational innovation. Drawing upon the argument given above, thus, the level of HRM practices (performance appraisal, career management, training, reward system, and recruitment) will be positively related to the organizational innovation (product innovation, process innovation and administrative innovation)

Organizational Creativity

Organizational Creativity is an application of a powerful interdisciplinary understanding of a technology of creativity interlinked through a common set of information to create health, wealth, inner satisfaction or whatever we desire to create. There are many books, teachers, consultants and the like that talk about how to manage an organizations. Many individuals have careers built on advising individuals as to how to go about creating effective organizations. However, everyone is not successful or at least not as successful as they like. If they were, we wouldn’t need all the book and teachers telling us how to do it. There would be no demand and no market for such individuals or information. So the question is, “Why are some organizations so capable of obtaining the desired performance where as other organizations are not successful especially when both groups use the same techniques and/or follow the same advisors.

Performance level

With respect to business performance, ten measurement indicators are used to assess business performance, including industry leadership, future outlook, profit, profit growth, sales growth, after-tax return on assets, after-tax return on sales, overall response to competition, success rate in new product launch, and overall business performance.

Relationship between Human Capital and Organization performance

There is a large and growing body of evidence that demonstrates a positive linkage between the development of human capital and organizational performance. The emphasis on human capital in organizations reflects the view that market value depends less on tangible resources, but rather on intangible ones, particularly human resources. Recruiting and retaining the best employees, however, is only part of the equation. The organization also has to leverage the skills and capabilities of its employees by encouraging individual and organizational learning and creating a supportive environment where knowledge can be created, shared and applied. In this review, we will assess the context in which human capital is being discussed and identify the key elements of the concept, and its linkage to other complementary forms of capital, notably intellectual, social, and organizational. ‘If the types and levels of skills are not equally distributed, such that some firms can acquire the talent they need and others cannot, then (ceteris paribus) that form of human capital can be a source of sustained competitive advantage’ (Snell et al., 1996: 65).

 Project on perceived effect of Human capital practices on organizational performance bank Alfalah is available with complete data analysis.

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