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the problem of unemployment and underemployment. Other factors such as job selection, job pattern, skills mismatches, and changes in the economy and the failure in forecasting a country’s development direction are also extremely significant. As this thesis takes its lead from recognising technology as part of a NIS, where technology is a key part of a network, it favours approaches to human capital which interpret it as a crucial part of long term successful technological innovation.


determining an organization’s direction and progress. The second factor is the employees’ performance management which involves monitoring and observing the achievements of employees. Through performance management, employees of the organization will be evaluated and rewarded. The third factor, change management, prepares the organization for changes caused by the introduction of new technologies.

The last factor in supporting human capital development strategy is knowledge management which focuses on the human capital itself. It is used in transforming the knowledge an individual possesses into organizational knowledge. This is fundamental in order to nurture a knowledge culture, create a sense of belonging and increase innovative activities in the organization.

Adopting an appropriate human capital development strategy makes it possible for firms and also a country to address diverse aspects of the human capital development and similarly to build their competitive advantage. Such a policy should be capable of offering a comprehensive policy which identifies current and future human capital needs and sources of skilled human capital (SIGIR, 2006). Formal and non-formal education opportunity, promotion, incentive systems and job security are some the significant contributions of firms to enhance human capital performance (Huselid, 1995).

On the other hand, insufficient systemic planning can undermine human capital accumulation and lead to human capital problems such as skills mismatch and ‘outflow of talent’ (Mischel & Teixera, 1991, Davenport, 2004, Suntharasaj & Kocaoglu, 2008, Mao, Hu & Song, 2009 and Soboleva, 2010). Skills mismatch is the imbalance between


the availability of skills and job requirements. Based on the report by the European Centre for the Development of Vocational Training (Cedefop) (2010), overeducating, under skilling, skills shortages, skill gaps and skills obsolescence are some of the factors that contribute to skills mismatch (see Table 2.4). These mismatches mostly result from inefficient utilization and accumulation of human capital. The demand for skills is rising due to the changing nature of work; however, if there is no action taken to fulfil the requirement, it could result in undermining human potential and lowering economic productivity.

Table 2.4

Types of Skill Mismatch

Types of skill mismatch Description

Overeducation -A situation in which an individual has more education than the current job requires

-Overeducation resulted from the asymmetric nature of the supply of labour-market information

Underskilling -A situation in which an individual lacks the skills and abilities in the current job to acceptable standard Skill shortage -A situation in which the demand for a particular

type of skill exceeds the supply of available people with that skill

-One of the factors for shortage of skill is underinvestment in training

Skill gap -A situation in which the level of skills of the currently employed is less than that required to perform the job adequately or the type of skill does not match the requirement of the job

Skill obsolescence -A situation in which skills previously utilised in a job are no longer required or have diminished in importance

-Skills obsolescence arises in two ways. First, the diffusion of new technology may increase the obsolescence of existing skills. Second, experienced workers who have accumulated greater stocks of skills relevant to the old technology lose more human capital when switching to new task (Weinberg, 2007).

Source: Information compiled from Cedefop (2010)


Inconsistency of human capital development planning also causes an outflow of talent.

Talent flow is defined as the mobility of human capital between firms or to other regions. Research by Piansoongnern, Anurit and Kuiyawattananonta (2010) on three leading cement firms in Thailand have found that firm’s effective management planning, strong top management supports, training opportunity, career advancement and organizational unity are among the major factors that help to retain workers and at the same time attract new talent.

According to Arthur and Rousseau (1996, cited in Carr, Inkson & Thorn, 2005), lack of career development is one of the reasons for talent flow. Individuals usually migrate to different places in search of satisfaction in their career. In fact, work satisfaction influences individuals’ performance in the workplace.

Careers appeared increasingly to be under the control of the individual rather than the organization, and became boundary less, meaning that they crossed traditional organizational boundaries (Arthur & Rousseau, 1996, cited in Carr et al., 2005 p388).

In this circumstance, individuals’ attitudes towards their profession are reflected in the decision to work at selection firms. Therefore, lack of motivation by organizations in terms of incentives results in the loss of skilled people. In other words, in the migration of skilled human capital, the choice is made by the workers themselves. The option is made after considering the factors that influence their future prospects. Although the work of Arthur and Rousseau (1996) refers to the mobility of workforces between organizations within the country, Carr, Inkson and Thorn (2005) have applied the term in


a wider scope. Carr et al. (2005) noted that the approach proposed by Arthur and Rousseau (1996) can be applied in the context of international mobility. By changing the geographical view, the movement of workers is boundary less. For Arthur and Rousseau (1996) and Carr et al. (2005), it is the behaviour of living things to always think about themselves first in any decision they make. It is the same in the case of choosing a job.

Individuals tend to choose a position that can fulfil their self-satisfaction.

From the discussion above, it is clear that strategic planning on human capital development influences the level of human capital performance and provides opportunity for organizations to build their competitive advantage. Indeed, Bailey in his paper, Discretionary Effort and the Organization of Work: Employee Participation and Work Reform since Hawthorne (1993) stresses that skill will be wasted if workers are not given the opportunity to use their creativity to perform their roles.

It is important to also remember skills can be developed from diverse paths of learning.

Apart from formal education, individual capability is also developed informally.

Experience obtained in the workplace, communication among colleagues and on-the-job training are just some of the informal ways of skills are acquired. The next section of discussion explores the importance of considering the relationship between formal and informal skill acquisition modes in human capital development.