“MANAGING THE ALGERIAN NATIONAL BANKS’ HUMAN CAPITAL TO COMPETE”

“MANAGING THE ALGERIAN NATIONAL BANKS’ HUMAN CAPITAL TO COMPETE” KHADRA DAHOU

[email protected] ISHAQ HACINI

[email protected] Mascara University. Algeria

Abstract: This research aims to investigate the impact of human capital management on achieving the national banks competitive advantage.Using a multiple regression analysis, results show that the drivers of HCM: competenceand motivation & commitment have significant positive effect on banks’ competitive advantage, where competence has the strongest effect.

Key Words: Human Capital Management, Competence, Motivation & commitment, Competitive advantage

1.

As environments become more complex and dynamic, firms must become more entrepreneurial in order to identify new opportunities for sustained superior performance.Nowadays, there is an increasing reliance on intangible assets- such as human capital- as a source of firm performance and then competitive advantage. Many managers would agree with the assertion that “people are our most important asset”, but posing a significant challenge.

Resources based view of the firm provides a frame work to help understanding the potential sources of competitive advantage that could be generated through investments in human capital, in the extent they are valuable, rare, inimitable and difficult to substitute.

Capitalizing on human capital as a source of economic rents presumes that there is an adequate information infrastructure upon which to base both the design and implementation of managerial strategies.

This research examines the impact of human capital management HCM on sustaining a competitive advantage. It explores the influence of the HCM drivers: competence and motivation & commitment on achieving a competitive advantage and hence enhance the organizations competitiveness.

2.

 Develop relationship between Human Capital Management and competitive advantage.

 Identify indicators that measure and drive human capital management leading to sustain a competitive advantage.

 Approve the reality of the importance and the central role of HCM in sustaining competitive advantage through examining and analyzing this reality in the Algerian Banks.

3.

Recently, intangible assets of major corporations have become recognized as important determinants of firm value. Significant research attention has been devoted to empirically

examine the relationship between HR practices and firm performance. Numerous studies have established the positive linkage between high performance HR practices and superior firm performance and competitive advantage. People are the ultimate drivers of success in any organization.

4.

Two approaches have taken the study of human capital and identifying its potential, giving reference to its role from different perspectives: resources-based view and institutional theory.

4.1. Human Capital Management

As the service economy grows, the importance of human capital increases. Human capital management (HCM) has been described as ‘a strategic approach to people management that focuses on the issues that are critical to an organization’s success’ and ‘the possession of knowledge, applied experience, organizational technology, customer relationships and professional skills that provides a company with a competitive edge in the market’(Hartley & Robey. 2005).

Used for the first time by Nobel Laureate, Theodore W. Schultz, in the 1961 American Economic Review Article, ‘Investment in HC’, Human capital is a component part of the

‘intellectual capital’ of a company. ‘Recent estimates suggest that 50 to 90 per cent of the value created by a firm comes, not from management of traditional physical assets, but from the management of intellectual capital’.

Human Capital Management (HCM) is critical in order to create a high-performing work environment. Companies need to manage HC through all the phases of an employee’s work life - from recruitment to development to retention. HC is “the knowledge, skills, competencies and other attributes embodied in individuals or groups of individuals acquired during their life and used to produce goods, services or ideas in market circumstances”.(Westphalen, 1999)

Human capital management is also seen as acknowledging, anticipating, and acting on the human impacts of those actions. Human capital management provides a systems approach to improving the performance of an organization and its employees, by integrating initiatives that impact their performance, including restructuring, business process improvement, and new IT systems introductions, as well as more traditional HR programs, such as recruiting, retention, and performance management.

Achieving the competitive edge for individuals, enterprises and societies alike is thus increasingly becoming synonymous with the notion of human capital. This is partly justified by the growing importance of intangible assets in enterprises, of which human capital constitutes a major element and by the emphasis from both public and private bodies on human capital as a savior of competitiveness, reduction of unemployment and expansion of economic wealth.

Ulrich (1998) proposed a measurable definition of human capital which is the product of competence” and “commitment.”

- Competence is defined with two aspects: (1) competencies must align with business strategy; (2) competencies need to be generated through more than one mechanism (Ulrich, 1998).

- Commitment reflects how employees relate to each other and feel about a firm (Ulrich, 1998).

In this research, researchers have adopted the two factors of competence and motivation

& commitmentas drivers of human Capital Management.

4.2. Human Capital Management & SustainableCompetitive Advantage

An extensive body of literature argued the primordial impact of Human Capital Management on firm performance and thus on sustaining a competitive advantage (SCA).

Barney (1991, p.102) defines SCA as implementation by a firm of a value-creating strategy that is not simultaneously implemented by any current or potential competitor and for which such other firms cannot duplicate the benefits of this strategy. Based on Barney framework (2002), a competitive advantage can be sustained if the organization has the capability of exploiting resources and developing competencies with the following attributes:

value, rareness, imitability and organization (wheelen & Hunger, 2008).

So, the more valuable, perfectly inimitable, rare and greater innovations are the more better can organizations response and keep up in an ever changing environment.

Recent studies have focused on two main ways in which HCM practice might enhanceperformance and therefore sustain competitive advantage:

 Through raising the skills base of employees by, for example, appropriate recruitment and retention, comprehensive training and broad-based developmental activity; and

 Through enhancing employee motivation and ability to use their skills through measures such as design of reward systems, participative problem solving and teamwork.

Competence, motivation and commitment represent indicators of future capabilities, necessitating a long term investments, which link most strongly to performance.

Therefore, the researchers hypothesize as follow:

H.1. Effective Human Capital Management has a strong positive influence on sustainable competitive advantage.

From (H.1) two sub-hypotheses were developed:

H.1.1. Competence has a positive influence on sustaining competitive advantage.

H.1.2. Motivation & Commitment have a positive influence on sustaining competitive advantage.Figure.1. reflects the research hypotheses modeled as follow:

Figure.1. Research Model – Impact Of Human Capital Management On Sustaining Competitive Advantage

H

C

M

Commitment

S

C

A

5.

This cross sectional (one shot) study is a hypothesis testing, trying to explain the nature of relationship between Human Capital Management HCM and competitive advantage. This study represents a field study conducted in national banks as the unit of analysis.These banks are: Banque Exterieure D’Algerie (BEA), Banque Nationale D’Algerie (BNA), Credit Populaire d'Algerie (CPA), Banque de Developpement Local (BDL), Banque de l'Agriculture et du Developpement Rural (BADR), Caisse d'Epargne et de Prevoyance (CNEP Banque).

5.1.MeasurementThe measurement of items was taken from previous studies and merged items with the same meaning. The items for the HCM indicators: “competence” and

“Motivation & Commitment”, in addition to competitive advantage items, were taken from (Hsu, 2006; Molina&Ortega, 2002) and modified to fit the study.

Each item was surveyed directly on a five point Likert type scale with scales named in the following manner: “1” strongly disagree, “2” disagree, “3” neutral, “4” agree, “5” strongly agree.

5.2.Data collectionData used to test the research model were gathered from a non probability sample of respondents. The sample was selected on the basis of purposive sampling.

Respondents were asked to select the appropriate response.

Questionnaire was translated to Arabic language to become more understandable. A total of 95 questionnaires were distributed directly (personally)and successfully collected.

6.

6.1.

The reliability for this study was measured by using Cronbach Alpha-coefficient in the statistical package for social science (SPSS) software. All variables in the research model demonstrated acceptable reliability. These coefficients are represented for each of the variables in Table 1:

Table.1. Reliability

Variables Cronbach’s alpha

Motivation & Commitment 87.0%

Competence 79.6%

Competitive Advantage 78.0%

6.2.

Before conducting a regression analysis, a correlation test looked necessary to test the fit of the model and if there are relationships between independent variables and the research dependent variable. Table.2 reflects the results of Pearson Correlation test:

Table.2. Correlation between Research independent and dependent variables Competitive

Advantage

Motivation &

Commitment Competence Pearson

Correlation .818** .869**

Competitive Advantage

Motivation &

Commitment Competence Pearson

Correlation .818** .869**

**. Correlation is significant at the 0.01 level (2-tailed).

As shown in table.2, the two drivers of HCM are correlated to the research depending variable: competitive advantage. Thus, a multiple regression analysis can be conducted to test the research hypotheses. Results of the test are exhibited in the following Table.3:

Table.3. Multiple Regression Results R-squared : .832

F-statistic:227.385 Probability: 0.0000

Variable Coefficient T-Statistic Probability

Motivation & Commitment .348 6.439 .000**

Competence .574 9.424 .000**

The two major HCM drivers: motivation & commitment and competence explain 83%

of the variance in competitive advantage, significant at 1%. The 17% of the variance in competitive advantage may be attributed to other variables.

The first hypothesis H.1.1 points out that creating motivationand promoting commitment of employees would affect competitive advantage. The findings (ß =.348, t

=6.439, p=.000) indicate that the stronger the employee feels motivated and committed to the bank the best sustained competitive advantage is. This leads to substantiate the hypothesis H.1.1.

The hypothesis H.1.2 points out that possessing the needed skills and competences affects positively competitive advantage. The findings (ß =.574, t =9.424, p=.000) indicate that the more the employees possess the right competences and skills best fitted with their jobs the more effective sustainable is the competitive advantage. This leads to substantiate the hypothesis H.1.2.

Generally, the acceptance of the two sub-hypotheses H.1.1 & H.1.2 specifies that the management of human capital within the national Algerian banks assist and support in sustaining a competitive advantage.

7.

Relationship between human capital management and firm performance and competitive advantage has always been of centre importance, taking human capital management from different perspectives and based on various human capital drivers and measures. Several indicators and drivers were proposed in literatures relating to human capital. In this study, researcher has taken into account the most important indicators in measuring human capital:

Competence - reflecting capitalizing skills and knowledge through recruiting excellence, training programs, retention-, and Motivation & Commitment which makes employees using

their skills and involvement in a consensus improvement of firm performance needed for sustaining competitive advantage.

Results show that motivation & commitment and competence of employees have great impact on competitive advantage. These findings suggest that in order to develop and sustain a competitive advantage especially in services sector, investors and top managers have to make more investments in developing employees’ skills and knowledge, and make more efforts to involve them to get increased learning capacity, knowledge accessibility, talent engagement and optimizing the workforce to gain in return the desired outcomes, precisely having a competitive advantage.

These results are supported by the AMO theory, reflected in the following equation:

Performance = f (employees’ Ability, Motivation, and Opportunity to participate).

As Boselie et al. (2005) mentioned that the model argued that the organizational performance and competitive edge are best served by an HCM that focuses more on three pillars: employees’ skills, employees’ motivation and employees’ commitment and participation.

Because of the difficulty of designing and providing services when compared to products, such as the high customer contact, the service providers need must possess the required competences and skills to be consistent with service expectations. As predicted in literature, Competence is perceived as the stronger factor affecting competitive advantage.

Therefore, developing employees’ competences and raising their skills base, by pursuing appropriate recruitment and retention, comprehensive training and broad-based developmental activity, would enhance the employees’ performance, differentiating and creating the national bank’sservices’ value-added perceived by customers and thus creating and sustaining a competitive advantage.

On the other hand, having motivated, well involved and committed employees, create a synergetic and harmonious working environment, enhancing into them the senses of involvement, organizational citizenship, and professional satisfaction within their organizations. To get such motivated and committed employees, the organizations should enhance employee motivation and ability to use their skills through measures such as design of reward systems, participative problem solving and teamwork, empowerment...

Finally, the researchers recommend national banks’ managers to put more intention on developing their employee competencies which represent the most critical component in designing and providing services, especially those employees in front (service encounter) who are in direct contact with customers, necessitating from them providing a really distinguished service, establishing a unique service image. Implementing intensive competencies development programs would directly promotethe national banks competitiveness, especially with the existence of foreign banks with international reputation and huge images like Société Générale Algérie & BNP Paribas El djazair, Citibank, Gulf Bank Algeria…

The researchers recommend also all national banks employees to commit to the improvement of the banks’ performance and develop their competitive advantage.

Researchers suggest designing a clear reward system based on an effective performance management and equity, motivating employees intrinsically and extrinsically, leading for remarkable outcomes.

8.

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Molina, J. A. & Ortega, R. (2002). Can effective human capital management lead to measured firm performance?. University of Zaragoza. Zaragoza, Spain.

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