The Influence of Human Capital in Achieving Corporate Performance

Anca Mndruleanu Academy of Economic Studies, Bucharest, Romania

anca.mandruleanu@fabiz.ase.ro
Abstract: It is hardly surprising that linking corporate performance to Intellectual Capital can help increase employees productivity, attain superior reliability, build organizational commitment to quality, create leaders, set goals, create incentives and achieve superior innovation. The organizational management is responsible for transforming the influence of Human Capital, one main component of the Intellectual Capital, in an increase of the corporate performance. This paper analysis the perception of some Romanian stakeholders regarding the influence of Human Capital over the corporate performance. All the stakeholders are in an exchange relationship with the company, they supply the organization with important resources and, in exchange, each expects its interests to be satisfied. In theory, an efficient firm succeeds in achieving both the stakeholders expectations and an increased corporate performance. This article will disseminate the results obtained from a research concerning the Romanian business environment, more precisely the role of the stakeholders over the corporate performance. A company cannot always satisfy the claims and the expectations of all stakeholders. The goals of different groups may conflict and, in practice, few companies have the financial resources to manage all the stakeholders. Often companies must choose. To do so, companies must identify the most important stakeholders influence and give the highest priority to pursuing strategies that satisfy their needs. Stakeholders impact analysis can enable a company to identify the stakeholders most critical to its financial growth. Typically, the analysis follows these steps: identify the stakeholders, identify their interests and concerns, analyze the claims stakeholders are likely to make on the organization, identify the stakeholders who are the most important from the companys perspective, identify the resulting strategic challenges. Keywords: corporate performance, managements perception, Romanian business environment, stakeholders

1. Introduction
Multibusiness companies consists of businesses, many of which could exist independently and a corporative hierarchy of managers, functions and staff. It is the companys hierarchy, that we refer to as the Human Capital, which is responsible for making corporate strategy decisions. It is the stakeholder who decides what new business to support, what acquisitions to make and whether to form joint ventures or alliances. It determines the structure of the corporation, defines budgeting and capital expenditures processes and sets the tone for corporative values and attitudes. The Human Capital of a company has the potential to both create and destroy significant amounts of value: it can ensure the increase or decrease of the corporate growth and renewal, identify or miss development opportunities, expand or isolate the business. The issue of determining a valid role for the Human Capital in the organization is now on the agenda of many companies. It has become a topic of central importance for managers who are eager to improve the corporate performance. It is a matter of increasing debate among stakeholders, who are no longer prepared to remain passive. If performance is unsatisfactory, corrective steps are now being taken more rapidly. The paper presents the perception of the Romanian stakeholders concerning their influence over the corporate performance. They represent the Human Capital, one of the three components of the Intellectual Capital, and it is very interesting to see the bound and the connections between the Human Capital and the corporate performance in the Romanian business environment.

2. Corporate performance
The primary wealth creation takes place at the business level and all the internal stakeholders must work together to create value. The first test is therefore whether they create any value in the business. Successful stakeholders create significant value. Managers do so by realizing specific performance improvement opportunities that exist in the business, for example: apply tighter controls, facilitate the sharing of complex know-how, strengthen the organizational culture, involve the employees in the procedures of obtaining the final organizational goals and create awareness about this, encourage innovation and so on. Not only large companies, but now also small and mid-sized ones must grow internationally in order to gain market shares. This has become necessary because markets in the industrial countries are highly saturated. Often, market growth is only possible abroad. Development

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Anca Mndruleanu of new market potential has thus become an important success factor in order to succeed in the framework of global markets (Hill, 2007). The employee of the future must think and act corporate. Today more than ever, future oriented businesses are dependent on innovations, development of new ideas, products and technologies. Organizations require employees, whose competences trigger the modernization processes, making the firm more competitive. In addition to this, it is the need for team work among all workers, reduction of unnecessary hierarchies, and a networked, cybernetic thinking. However, in order to make an optimal use of these capabilities, it is advisable to analyze ones abilities and weak points. It is important to reflect on ones strength. Many people possess remarkable knowledge and skills, most of which remain unused because their readiness to perform suffers due to lack of positive mental attitude to their tasks. A positive mental attitude is however the needed ingredient for accomplishments and results (Goold, 1994). Many firms that were used to successes in the past are now confronted with hard strong competition that threatens to squeeze them out of business. They hardly have any chance to prevail in such a competitive environment. This makes it clear that it is hardly possible to make profits using old concepts until future problems are resolved. It is only outstanding companies who have always recognized human potentials as future resources that must be cultivated and deliberately promoted. In the future, finances and machinery will become passive merchandise, while human capital, perceived as investment, will be the active source. This strong source can be fully used in the business environment only through the inclusion of highly motivated people. Human potential is the bridge between the demising industrial age and the emerging information age. Contentment and motivation of the employees play a major role in the success of a business. Expectation attitude of employees focuses more and more towards self-actualization on the labor world (Griffin, 2006).

3. Human Capital in Romanian business environment

In order to study the perception and the influence of Human Capital over the corporate performance in the Romanian companies and to discover the awareness of the Romanian managers and employees on this topic, a research was conducted using both qualitative and quantitative methods. The study is based on two hypotheses: Hypothesis 1a: The Romanian managers consider that the Human Capital of the company has an important influence in increasing the corporate performance. Hypothesis 1b: The Romanian managers do not consider that the Human Capital of the company has an important influence in increasing the corporate performance. Hypothesis 2a: The Romanian managers know the strategic objectives of the company and do the best in achieving organizational competitive advantage. Hypothesis 2b: The Romanian managers do not know the strategic objectives of the company and are not very involved in achieving organizational competitive advantage. The population is formed by the total number of corporations that act in the Romanian business environment. In the last years, the corporations proved to be an engine of the economies of the most important countries from the European Union. The corporations are the pioneers of the knowledge economy, the first who emphasize on knowledge, knowledge workers, teamwork, the importance of intangible assets and all their present characteristics show that they are still capable of playing the same important role in future. This is the most important reason for which the corporations acting in the Romanian market were analyzed. Thus, a sample of 50 companies was used, important players in the Romanian business environment, with a number of managers ranging from 1 and 15 and a number of employees ranging from 50 to 850. Several criteria were settled from the beginning, when choosing the companies: the organization should have at least one Romanian manager and the company should have at least 50 employees (the number of employees should range between 50 and 1000). In order for the research to be significant, the geographical distribution and the industry of the companies were also taken into account, so companies from every region of the country and from many fields of activity were chosen.

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Anca Mndruleanu From the total population of almost 450, sample of almost 50 managers was used and the main criteria were age, the period of time worked within the company, the seniority in that industry, the studies. Average age was 42.5. All of them (100%) had higher education. They were predominately seniors in the field of work (more than 10 years) and they had been with their current organization on an average of 7.85 years. The quantitative research was part of a larger survey on the role of management as an integrator over the organizational Intellectual Capital. Participants were asked to participate in a 20 minutes, online (web-based) survey. Participants were informed that results would be used for research purposes. The scalar questionnaire applied had five questions concerning the main macro-variable corporate performance and contained statements similar to the followings: Are the employees actively involved in elaborating targets? Could most staff list the organizations goals relevant to their activity and are they familiar with the plans to achieve in their own areas? Is the organizational and information processing highly essential to the firms strategy? Is the management style employee-oriented? Does the delegation of tasks, authority and responsibility prevail? Is there a high-level conformity of employees and firms expectations with one another?

The questions used to investigate the employees awareness regarding the strategic objectives (from the managements point of view) and the role and the importance of the corporation performance, were created and adjusted during a focus group with specialists in the management theory and representatives of the business environment. The final addressed questionnaire is considered to contain items that lead to relevant results in determining the role and the importance of the Human Capital for the companys performance. In the conducted qualitative research, the focus was on interviews. The research consists on an exploratory component, detailed 30 minutes interviews with six managers chosen from the selected organizations. They have a relevant experience in managing a company in the Romanian business environment. They were interviewed individually, with the clear goal of identifying their perception concerning the role and the importance of the success factors in the companys performance. The interviews were informal and conversational. After presenting the field of interest, they were asked to identify the first five characteristics that they consider to be relevant for the corporate performance.

4. Interpretations and results

These are the answers of the interviewed managers (Figure 1):
Manager 1 Qualified employees Clear goals Specific business concept for target market Price Manager 2 Good objectives Manager 3 Qualified employees Having experience Strategic options Manager 4 Employees awareness Purpose Price Manager 5 Goals Manager 6 Fundamental market knowledge Clear future plans Responsibility

Product quality Orientation

Clear direction Product quality

Goals

Technological advance

Investments

Geographical proximity to the customer Goals

Goals

Early market entry Technological advance

Qualified employees Price

Well known objectives

Figure 1: Managers answers Interpreting their answers, we can notice that three out of four managers related the companys performance to that of Human Capital. More than that, three of them mention precisely that efficiency involves the employees qualification, because in order to have performance, it is very important for all the workers to be familiar with the plans they have to achieve in their own areas. All the managers

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Anca Mndruleanu state that performance involves goals, objectives or plans and some of them consider that the vision of the company reflects predictability, direction, a good image in the future that can lead to performance. Also, three managers mention that the price and the quality of the products and services offered directly influence the performance of the organization. The Romanian managers are aware of the importance of the change in value. Intensification in the standards of quality of life and self-actualization has become a generally declared goal. The higher need for recognition than possession has become the strongest moving force for human performance. Whereas economic principles made specialization in areas of activity essential in the past, the situation has been reversed through technologically influenced new orientation structure (Hill, 2007). Decentralization of decision making, creation of clear and manageable units, adoption of actionoriented working groups, strengthening the ability of self-control and the integration of the different working areas are the starting points for the present and the future. Furthermore, only such firms where employees recognize the fact that their performance at work not only contributes to the overall development of the company, but also to personal development, will be successful. Concerning the quantitative research, data presented below were analyzed in SPSS program, with identifying information removed. The survey consisted of a series of questions presented above on the Human Capitals influence in increasing the corporate performance. Measures used in this study included the demographic items (year of birth) and the geographical distribution. The descriptive statistics for the variable that describe the macro-variable Mission and Vision is presented in Table 1. In Table 1, N represents the total number of the participating managers (50), Min equals 1 and Max equals 5 represent the minimum and the maximum values that their answers range between (1 represents totally disagree and 5, totally agree). The fourth column (Mean) represents the mean of the answers and varies between 3,81 and 4,39. The majority of the answers means is close to the maximum value (5), except for one variable that have a value less than 4. The Standard Deviation (column 4) has values less than 1 that means that the managers have similar opinions concerning the organizational Human Capital. Table 1: Descriptive statistics for managers
Descriptive Statistics N Q1. Active involvement Q2. Ability to recognize the strategy change 50 50 Min 1 1 Max 5 5 Mean 4,18 4,23 Standard deviation ,829 ,875

Q3. Information processing and firms strategy

50

4,29

,845

Q4. Employee-oriented style Q5. Employees and firms expectations

50 50

1 1

5 5

4,39 3,81

,891 ,718

More and more people are joining the list of future innovators. Innovations are not restricted only to products but also strongly reflected on markets, target groups and processes. Existing concepts are being questioned and changed. Innovation flourishes in an environment of trust and of positive attitude towards it both by employees and employers. It evolves in humans heads. Here, the need to apply both sides of the brain is very important. While the left side of the brain logically, analytically, rationally, linearly, consistently and conservatively processes sensory impressions, the right side operates integrally. It creatively and imaginatively uses experiences acquired from the left side. The logical left and creative right sides must be simultaneously activated in order to achieve the best possible innovations. Analyzing the Reliability Statistics, the value of Cronbachs Alpha is 0.824, more than 0.7, the minimum value that shows the relevance of the obtained answers. We can conclude that the answers are relevant and correctly correlated.

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Anca Mndruleanu In Table 2, there are two main aspects for this research: the values of the first column (Scale Mean of Item deleted) and the values of the last column (Cronbachs Alpha if Item deleted). Taking into account the values obtained, we notice that item Q4 has the strongest correlation with the scale, meaning it has a major role in this analysis. The weakest correlation with the scale belongs to the item Q2. Thus, we can conclude that the organizations have a management style oriented towards the employees. The management delegates tasks, authority and responsibility and they realize that empowering the employees is one of the best methods of increasing corporate performance. Still, not all the managers are convinced that their philosophy is well understood in the company and that most staff can list the organizations goals relevant to the activity and is familiar with the plans to achieve in their own areas. In Table 2, we can also notice the value of the last column Cronbachs Alpha if Item is deleted. The values are less than the value of 0.824, previously obtained. Thus, we can conclude that all the items that were initially selected are relevant for the present study. This value shows us that removing any of the selected items means a loss of information in analyzing the results. In addition, the Significance from the ANOVA table equals zero, which means that the analysis is significant at any level. Table 2: Items statistics for managers
Items Statistics Scale Mean if Item Deleted Scale Variance if Item Deleted 6,519 5,875 6,124 6,321 6,498 Corrected Item Total Correlation

Q1. Active involvement Q2. Ability to recognize the strategy change Q3. Information processing and firms strategy Q4. Employee-oriented style Q5. Employees and firms expectations

17,66 16,09 16,43 17,91 16,72

,678 ,578 ,581 ,601 ,512

,783 ,756 ,813 ,805 ,797

Going back to the initial hypotheses, after analyzing the data, we can conclude that both hypotheses are valid and we can state that in the analyzed Romanian companies, the managers consider that the Human Capital of the company has an important influence in increasing the corporate performance and they know the strategic objectives of the company and do the best in achieving organizational competitive advantage. In addition, the organizational and information processing is essential to the firms strategy; still, a better understanding of the management philosophy by the staff of the company is needed. This will lead to a better match between the employees needs and aspirations and the companys performance.

5. Conclusions
Romanian managers do believe that encouraging the development of Human Capital is essential, because this will lead to an increase of the corporate performance. Each employee, irrespective of his position or place in the organization and aside from professional and personal qualifications, requires more and more entrepreneurial capabilities. This must be made conscious to each employee. It is not in just a company where I am working, it is my company (Griffin, 2006). Organizations that expect this positive entrepreneurial thinking from his employees must provide stress-free working environment in which they can optimally apply their creative potentials and not be hindered by existing barriers. Moreover, it is a bigger and wider area of responsibility which is being transferred over to the employees as it is being expected of them to take self-conscious actions. They must be able to act and react as rational individuals and not just like subordinates. Nowadays, each employee must assume bigger responsibility when dealing with customers. This is the reason why corporate and entrepreneurial competences are being demanded of each employee. Managers understand the importance of Human Capital and they are willing to create an organizational culture that encourages the flow of information and knowledge within the company and to facilitate their creation. An effective leader has to focus attention on organizational culture, in relation to the shared beliefs, values and expectations of the people in the organization.

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Acknowledgments
We would like to acknowledge the support received from UEFISCSU ROMANIA through PNII research project ID_1812/2008

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