Understanding Human Capital For Small Business – Part 1/3

Welcome back to another edition of DID YOU KNOW? – where we breakdown everything business and finance simply for SMEs to understand. This week we take a look at human capital the very life-blood of any business that is looking to grow, whether it is increasing sales, brand awareness, and social responsibility to maintain respect, loyalty, and transparency in their community.

• Outsourcing vs Offshoring
• Gig Economy vs Sharing Economy
• of Labour

Introduction

South Africa has the highest unemployment rate on the African continent but that is not necessarily a bad thing, because youth makes up a major portion of the unemployment pool this is a huge opportunity for entrepreneurs to employ tech-driven individuals who know more about building relationships with others than any generation before it and has a deeper understanding of what is happening at ground level. By using these skills you can promote and drive engagement in the ever-growing market of companies looking to solve challenges facing South Africa.

History of Human Resource (Human Capital)

Human Resources (HR) is interwoven with politics, unions, and psychology.  Spanning nearly 120 years we will give you a summary of the years that handle the tide for methods used in modern-day HR so that we can drive a better workforce that is truly engaged with eating, living and loving the organisation.

So let’s begin by defining what Human Capital (HR) is, why you should care about it, the advantages and disadvantages of having staff and how it maximises output, as well as understanding the laws that come with having staff and why employees have more rights than the employer.  Then there are the bargaining councils that service the antiquated notions of adding more bureaucracy to small business owners.

What is HR? – Human resource management is primarily concerned with the management of people within organisations, focusing on policies and systems. HR departments are responsible for overseeing employee-benefits design, employee recruitment, training and development, performance appraisal, and reward management, such as managing pay and Employee benefit systems.

1920-1950 – When employees had opportunities to learn on the job and be compensated fairly for their efforts, they became more valuable to the organisation.

1960-1980 – Workers needed certain rights to be considered for a job, but they also needed psychological motivators including autonomy, purpose, and mastery to excel in their work.

1990-2010 – Human Resource management responsibilities reached far beyond administrative and compliance accountabilities. Having a strategic understanding of the business climate positioned you to recruit, hire and retain the best employees while adding value at the highest levels in the organisation.

2011-2021 – Tomorrow’s HR leaders will need to be bigger, broader thinkers, and they’ll have to be tech-savvy and nimble enough to deal with an increasingly agile and restless workforce. Leaders who understand HR’s enormous value in the workplace will have a unique, big-picture view from both the company perspective and employee perspective.

The Future for HR Leaders

• Embrace Technology & Analytics: Predictive analytics will grow to “assess everything from employee retention to recruitment strategies”.
• Understand Employees Life Stage:Today’s workforce is a hodgepodge of employees going through a variety of personal and professional changes.
• Change of Mindset:In today’s competitive space where driving engagement with both employees and customers is vital, marketing and HR executives need to lead the charge toward a meaningful partnership.
• Spend Time on Your Employer Brand Message:This communicates what sets your organization apart and why prospective employees should consider it. But if storytelling isn’t your jam, consider connecting with your marketing team members for support.

The next-generation HR function has an essential role to play, replacing traditional “best practices and cost-cutting” approaches with bold new strategies, structures, tools, processes, and metrics.

Outsourcing

Brief History – Outsourcing emerged in the 1950s, but it wasn’t until the 1980s that it began to be perceived as an attractive business strategy. The growth of outsourcing in the 1980s was largely driven by the “focus on core competency” strategies that were developed in the 1970s. Since then, outsourcing has had a significant and positive impact on businesses and in most cases helping them compete effectively.

What is it? – Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could have been done internally, and sometimes involves transferring employees and assets from one firm to another.

How does it work? – Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office. The outside organisations typically set up different compensation structures with their employees than the outsourcing company, enabling them to complete the work for less money.

The Advantages?

• You Get Experts/Specialists
• Things Get Done Faster
• Focus on What Matters The Most
• You Share Some of The Risk
• You Reduce Internal Labour Costs

The Disadvantages?

• Loss of Some Control
• There Are Hidden Costs
• Security Risks
• You Risk Public Backlash
• You May Face Moral Dilemmas

Offshoring

Brief History – The trend of offshoring began in earnest in the late 1970s at large manufacturers such as General Electric. GE’s then CEO, Jack Welch, who was widely respected by other corporate chieftains, argued that public corporations owe their primary allegiance to stockholders, not employees. Therefore, Welch said, companies should seek to lower costs and maximise profits by moving operations wherever is cheapest like other countries.

What is it? – The relocation of a business process from one country to another typically an operational process, such as manufacturing, or supporting processes, such as accounting, design, and legal.

How does it work? – Offshoring includes tasks that are performed by a foreign affiliate of the parent company and by an independent supplier through arm’s-length contracts. Allowing a company to reduce one of the most expensive parts of the business, the labour cost. Freeing this up will allow for reinvesting funds into the business and allow you to expand your offerings and service.

The Advantages?

• Lower Costs
• Focus On Business Development
• Attain Flexibility and Business Expansion
• Lower Risk
• Exercise More Control

The Disadvantages?

• Time Zone Difference
• Communication and Language Issues
• Cultural and Social Differences
• Geopolitical Unrest
• Displacement of SA Jobs

And that is a rap for part 1 of our three-part miniseries on understanding Human Capital. This article was an introduction to the history of Human Capital (HR) and creating human capital through unconventional ways that diversify how a small business can operate. In Part 2 we will look at how the labour market has changed over the years to fit into the modern digital economy which is set to reshape the landscape of things, so stay tuned for the next chapter of our amazing in-depth miniseries.