Leaving Human Resources behind, embarking Human Capital approach.
‘Kosovo doesn’t have talented workforce!’
A wild guess would say that many of entrepreneurs or business leaders in Kosovo have heard of or believe in this assumption. This because the organizations they run, either have problems with attracting talent within their organization or the talented people leave faster than they expect, in return they are faced with challenges which for them are hard to overcome. Consequently, it seems easier to agree with the above mentioned statement rather than face the issue. While on the other hand 39.2% of Kosovo population is in the working age.1
Our aim in this article is therefore to try to prove the contrary of this statement while emphasizing the role of Human Capital (HC) in the process, which in Kosovo for many years has been undermined.
1Kosova Agency of Statistics. (2018). Rezultatet e Anketës së Fuqisë Punëtore - kuartali i parë, në Kosovë.
Human Resources (HR) Evolution and Aim
The practice of Human Resources has been constantly changing adopting to organization’s needs and market requirements. In the beginning, it was known as ‘Personnel Administration’, which primary responsibilities associated to recruiting and training of employees. Later, the name evolved to ‘Human Resources’ where additional HR processes joined, while the latest transition in the practice is Human Capital, which plays a significant role in the organization, has a seat on executive table and is considered an investment to produce more organization capital in the future.
Moreover, Human Capital (HC), aims to integrate people issues with business strategy. Its mission is to provide innovative and practical solutions. It enables the businesses to: Optimize the effectiveness and contribution of their HR functions; Manage Talent Acquisition and Retention; Develop their performance culture; Align people, brand and structure with their business strategy; Secure and sustain the benefits of change programs; Manage Compensation and Benefits, Manage Succession Planning, and Quantify and manage human capital costs more effectively.
To bring it on Kosovo context, the Human Resources Department should be a function that plans and manages all aspects of the organization's human resources that enable: Execution of business strategy, Sustainability, Increased employee productivity and Development support. Consequently, the achievement of all the above-mentioned objectives enables the strengthening of the private and public sector organizations, being the driving force for Kosovo economic development.
Human Capital in Kosovo
Usually, HR or HC has five common maturity stages, as described in the figure below.
Based on our experience from the market in Kosovo and with reference to the graph above, Human Capital in Kosovo is at its early development stage, striving for the compliance level.
Even though the function is generally striving for maturity, many organizations don’t have an HR function, or at some others it’s a function dealing merely with administrative and transactional activities, which at most cases are decentralized (e.g. contracts’ management and employee relations are handled by the Legal Department, policies and forms are handled by the Administration Department etc.).
Ineffective HR as a result, makes many businesses not recognize the importance of HR or HC and therefore see it as an added cost instead of value.
Lack of a strong HR function, leads to a wide range of problems within organizations in Kosovo, including but not limited to undefined reporting and communication lines, misalignment of organization employees towards the department goals and organization goals, lack of standardized policies and procedures in place, lack of training and capacity building opportunities for employees, conflict of interest in job positions, the so called “agency problems”, lack of ‘growth organizational mindset’ and more.
All of these, in return bring high turnover rate of employees, low work satisfaction, employee confusion, lower performance of employees and other similar problems, influencing the organization image from inside and outside, consequently contributing to the initial assumption at the beginning of this article.
The role of entrepreneurship in encountering challenges
To encounter these challenges, organizations must stretch beyond their traditional boundaries. However, it takes boldness to lead, to inject creativity, innovation and agility into corporate cultures, where very often it requires having the flexibility of a smaller organization. That’s why the question facing many CEOs today is: How can we make our organization more entrepreneurial? 2
Entrepreneurial organizations actively seek to create and act upon new market opportunities and optimize the resources they have in possession. They motivate and empower employees to take calculated risks and pursue new ideas. They influence and organize people within the organization to achieve a common goal using proactive entrepreneurial behavior. By optimizing risk, motivating their employees, leading and actively coaching them towards the achievement of goals and objectives, making their employees recognize their importance in achieving goals, taking personal responsibility, recognizing performance, and managing change within a dynamic environment for the benefit of an organization.
Entrepreneurial organizations learn to accept failure as part of their journey to success. They tend to have less rigid structures, and more open workspaces that encourage knowledge building and sharing, teamwork, creativity and innovation among employees.
2 Francesco Fazio, J. F. (2011). Growth at Work: : The Benefits of Building Entrepreneurial Environments, Deloitte.
First line managers as enablers of top-down communication
For many organizations around the world, a shortage of leaders is one of the biggest inhibitors to growth.
Nowadays, the leadership needs are far broader and deeper than merely developing the next CEO or even building the C-suite pipeline. Many organizations, even in our market, face leadership gaps at different levels, as is the case when top-down communication faces a borderline faces a borderline at the level of first line managers – who are the enablers of it.
First line managers, regardless of the industry, should be Human Capital champions. Development and enhancement of capacities of their subordinates and peers should be their primary focus, resulting in the transition of mindset from Human Resources to Human Capital. As such, organizations get the return in investment from its people, while ensuring clientele expansion and satisfaction, leading to higher organization’s profits.
Today’s organizations have to manage people differently – creating an imperative to innovate, transform and reengineer human capital practices. Work is changing faster than ever, therefore organizations have to assist with shaping the human capital agenda. Consequently, one of the most important takeaways from this article is to understand what Kosovar businesses and HR leaders deem as critical areas to focus resources, energy and effort in order to implement important changes in strategies for leadership, talent and Human Capital.
Many researchers refer to the current environment as VUCA. In this context Volatility, Uncertainty, Complexity and Ambiguity change the dynamics of engagement, therefore requiring a decisive focus on Human Capital. In business, VUCA underscores the importance of sense-making, analytical skills, readiness planning, risk management, and situational problem-solving.3
Therefore, a well-established Human Capital practice should be able to support business growth by addressing questions such as:
1. How will you make sure you have the most capable people in your organization?
2. How will you optimize the people in your organization?
3. How will you create value and become a market leader?
4. How will your people develop break-through ideas to help your expansion into new territories?
5. How will your HR function lead you to the top of a VUCA world?
3 Jack Sellschop, G. E. (2014). Keep the human in Human Capital and thrive in a VUCA world. Deloitte. Deloitte & Touche.
Need for HR Transformation
As a result of all these growing demands, organizations should pay primary attention to Human Capital, Leadership, Entrepreneurship and Capacity Building to survive the market.
As a solution, our adapted model for HR transformation from Dave Ulrich4 includes four phases:
4 Dave Ulrich, J. A. (n.d.). HR Transformation: Building Human Resources from the Outside In.
Phase 1: Build the business case. (Why do HR transformation?) HR transformation begins with a clear rationale for why transformation matters based on the business context and a case for change
Phase 2: Define the outcomes. (What will be the tangible results if we invest in HR transformation?) The results of HR transformation are new capabilities and the intangibles that a business values
Phase 3: Redesign HR. (How do we do HR transformation?) HR transformation requires change in HR strategy to transform HR departments, practices, and people
Phase 4: Engage line managers and others. (Who should be part of the HR transformation?) HR transformation requires transferring ownership to line management and on strategies for building HR’s capability to create sustained value.
On a final remark, Human Capital mission is to raise awareness among business to lean towards the principle “Business Led, People Driven”, alluding to the fact that Human Capital is the most important asset within the organization, therefore their development is crucial for business success.