Sustainability in Business and Human Resource Management

 

Sustainability is the topic of the century. It’s an important issue for people across the globe, and as climate change continues to affect our lives, we are constantly trying to find new ways to increase our sustainability and do our bit for the planet.

What does Sustainability in Business Mean?

Business sustainability means to operate without negatively impacting the local and global environment, community, or society as a whole.

For leaders, business owners, and administrators, sustainable corporate practices are becoming imperative. Industry form a big part of the climate change discussion due to its reliance on land, resources, fossil fuels, and non-stop production and consumption. The first step to business sustainability starts with businesses being mindful of the issue and understanding how and why they need to make changes.

To be environmentally mindful, a business needs to consider more than just profits. A sustainable business observes what is known as the triple bottom line. Accordingly, a business makes its profits by being socially accountable and protecting our use of the globe’s resources.  

Why is Sustainability Important for Business?

Beyond helping to battle global challenges, sustainability can drive business success. Research shows that companies with high Environmental, Social, and Governance rating have a lower cost of debt and equity, and that sustainability initiatives can help improve financial performance while fostering public support (Spiliakos 2018). In this circumstance, ‘doing good’ and ‘doing well’ go hand in hand.

(Spiliakos 2018)

How will Sustainability Benefit Business?

Being a more sustainable business can support to become more efficient, improve brand value and reputation, provide a platform for innovation, help attract and retain staff, achieve better growth, cut costs and strengthen stakeholder relations (Sustainable Business Network 2020).

Two gaps to be mindful of – In order to address sustainability appropriately, organisations need to bridge two critical gaps:

• ‘The knowing-doing gap’: one study found that, where 90% of executives find sustainability to be vital, only 60% of organisations actually integrate sustainability in their strategy. And only 25% have sustainability incorporate in their business model (Haanaes 2016).

• “The compliance – competitive advantage gap’: nevertheless, more organisations are seeing sustainability as an area of competitive, only 24% act on the knowledge. However, all organisations should to compliant, and these topics would be addressed separately (Haanaes 2016).

How Human Resource Management Could Contribute to Sustainability in Business

Amongst other functions, Human Resource (HR) management is critical in supporting a business to: 

• Improve the effectiveness of policies and procedures.  
• Manage corporate governance and ethical issues beyond economic performance. 
• Support the realignment of the company’s future direction.  

HR can be a corporate’ moral scope by promoting policies and best practices that are sustainable for both people (in and outside of the company) and the environment.  

These goals aren’t easy to achieve, but good HRM can facilitate communication between managers and employees, as well as contribute to culture change within the organisation.  

Human resources link ethical principles, CSR, and HR functions together, creating a map to sustainability. HR professionals can support and embed sustainability in ways such as:

• Engagement techniques focused on open and transparent communication. 
• Motivational theories based on extrinsic and intrinsic values. 
• Regular meetings in accordance with the principles of respect and understanding. 
• Applying analytical capability to best align them in the direction the organisation is headed. 

The aim is to embody a sustainable environment that doesn’t just focus on economic factors, but also on HR and their relationship with the surrounding environment. Therefore, the aforesaid people-focused skills are vital to a sustainable business. 

Conclusion

Sustainability is a key focus area for modern business world. The HR Management is one of the most important functions in the organization to deliver a sustainable business.

Reference

• The Economist. (2009). Triple bottom line. [online] Available at https://www.economist.com/news/2009/11/17/triple-bottom-line [Accessed 01 May 2021]

• Spiliakos, A. (2018). What Is Sustainability in Business? | HBS Online. [online] Harvard Business School Online Blog. Available at: https://online.hbs.edu/blog/post/what-is-sustainability-in-business [Accessed 01 May. 2021].

• Sustainable Business Network. (2021). Why should my business become more sustainable?. [online] Available at: https://sustainable.org.nz/guide-to-sustainability/ [Accessed 01 May. 2021].

• Haanaes, K. (2016). Why all businesses should embrace sustainability. [online] IMD business school. Available at: https://www.imd.org/research-knowledge/articles/why-all-businesses-should-embrace-sustainability/ [Accessed 01 May. 2021].

Human Capital

 

Human capital is a term used in management literature to refer to the value of employees and their skills, knowledge, and ability. Human capital reporting allows management to measure and set out the value of human capital within the employer.

What is Human Capital?

The human capital could be a loose term that refers to the educational achievement, knowledge, experience, and skills of an employee. The theory of human capital is comparatively new in finance and economics. It states that organizations have an incentive to pursue productive human capital and to add to the human capital of their existing employees.

Human Capital Theory

In the 1960’s, Nobel Prize winners Gary Becker and Theodore Schultz pointed out that education and training were investments that could add to productivity (Becker 1975). As the globe accrued more and more physical capital, the opportunity cost of going to school declined. Education gradually became an important component of the workforce. The term was also approved by corporate finance and evolved part of intellectual capital, and more broadly as human capital.

Why Human Capital is important and why does it matter?

Smart leaders are aware of the importance of human capital as a competitive advantage. Organisations that focus on engagement, well-being, organisation culture, and employee development in their organisations tend to outperform their competitors.

The effective utilization and engagement of an organisation’s human capital have also been proven to have a direct impact on a wide range of organizational KPI’s (Key Performance Indicators), including efficiency, employee revenue, product quality, work safety, and customer fulfillment.

The Gallup organization’s 2017 State of the Global Workplace report ties employee engagement – a sense of being very involved and keen about their work and workplace – a wide diversity of business outcomes and the overall performance of the workplace culture.

They reported that most employees are not engaged; worldwide, the percentage of adults who work full time for an employer are engaged at work is just 15%.

The report also offers compelling statistics that show how business units in the top quartile of global employee engagement perform versus those in the bottom quartile.

·         Higher productivity: 41% lower absenteeism and 17% higher productivity

·         Lower turnover: in organizations with high employee turnover, highly engaged business units achieve 24% lower turnover

·         Better product quality: highly engaged business units experience 40% fewer quality incidents (defects).

·         Better customer experience: highly engaged business units achieve 10% higher customer metrics and 20% higher sales. 

                                                    (Clifton 2017)

Effective human capital management isn’t solely essential for ensuring the health and success of your business but to enable you to compete in an increasingly competitive world. 

By making human capital, a priority, the organizations able to attract, retain, and engage the talented, high-performing individuals you want to be successful, from finding the right talent, to onboarding and supporting the employee experience throughout the employee life cycle.

Measuring Human Capital: Why?

Attempting to measure and develop human capital just since it is “good practice” will never help an organization to accomplish your goals. One needs to know why it is being done in order to get the most out of it.

On that note, pleased find below few reasons why organizations should measure its human capital.

• To determine it’s human capital’s ROI (return on investment) – human capital is an asset that the organisation invest in and expect to get a return on. Once you calculate what your return is on your human capital investment, you will be able to judge the efficiency and effectiveness of your human capital.

• To identify gaps in human capital – It’s quite simple; when you measure what you have, you will be able to see what you don’t have! The gap becomes even clearer when you consider your organisation’s overall objectives.

          An example, if your company’s objective is to be the best service provider in the IT industry, 

         then  having exceptional IT skills is an essential attribute that your human capital needs to       

         possess. But if your organization’s objective is to be the highest-grossing retailer, then exceptional

         IT skills probably aren’t going to be at the top of your list!

• To bond, the gap in your human capital - Just similar with any other analyses, their overall objective is recognizing what you have, what you are lacking, and then determining how to bond the gap between the two in order to achieve your organization’s goals.

          It is critical to keep in mind your organization’s objectives during all your analysis, and 

          especially when bridging any gaps in human capital. You must ensure that how you bond the gap

          supports your organisations goals. For instance, you might think that any gap might easily be     

          resolved with the right training program. However, if your organisations corporate strategy is to 

          be the lowest-cost provider, then spending a large sum of money on a training program might not

          be the best answer.

Key Takeaways: Human Capital

• Human Capital the intangible economic value of an employee’s knowledge, skills, experience, and social qualities that contributes to a person’s skill to perform work in a manner that produces economic value.

• Education and health are key qualities that improve human capital and directly contributes to economic growth.

• Both employers and employees make significant investments in the development of human capital.

• Human capital theory is an effort to quantify the true value of an investment in human capital and is closely linked to the field of human resources.

Now that you know why you need to measure human capital, make certain you take all the right steps to assure its optimal development!

Reference

• Gary S. Becker. "Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education." National Bureau of Economic Research, 1975

• Chen. (2021) Intellectual Capital. Available from https://www.investopedia.com/terms/i/intellectual_capital.asp [Accessed on 29 April 2021].

• J. Clifton. (2017). The Gallup organization’s State of the Global Workplace. P. 4 to 7. Available at: https://www.gallup.com/workplace/238079/state-global-workplace-2017.aspx?thank-you-report-form=1 [Accessed on: 29 April 2021]