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Human Values and Economic efficiency

in Industries
Amit Kumar Singh
Department of Management
Mizoram University Aizawl

Liberalisation of Indian economy has been like opening a

window of a closed house, which we look out we find that those
nations who have performed faster realised the importance of
human capital for economic growth. Similar is the case of
organisations and hence knowledge based organisations have
high growth rates. Therefore Indian industry requires to
perform-produce quality product and provides quality services.
With increased competition there is need to become cost
effective and efficient. There is also a need to improve
technologies in both manufacturing and services.
Organisations achieve their goals and accomplish their
objective by satisfying their employers and shareholders with
greater efficiency and effectiveness. The term efficiency and
effectiveness are employed in this context purposely and
precisely. Effectiveness refers to the extent to which
productivity is increased and efficiency is measure of how
economically the resources are utilised, shareholders,
managers and consultant at large are concerned above present
Human Value. The present situation of organisations in India
demands a system of training which apart from strengthening
employee co-operation must strengthen organisational
capability. They want better method for decision style,
motivating people and also identify that individual utilize their
full potential by enhancing their activation level and
maximising their skill and knowledge. Activation level refers the
extent to which individual can release the stored energy of
organisation through metabolic activity in the tissues and skill
as specific capability for accomplishing tasks.
Determining Human Resource Value- To study the methods
of measuring Human Resource Value it is necessary to
understand that what factors influence its magnitude and
fluctuations and understanding of the determinant of Human
Resource Value helps in measurement capabilities. As we know
Human Resource Value- depends upon economic, social and
psychological variables. Hence I shall first discuss about the
economic concept of value and then apply it to the people to
develop the notion of Human Resource Value. Next we shall
consider the factors that influence the value of the individuals
to organisation finally we will examine the factor determine the
value of group of people to the organisations
The economic concept of value
There are different types of human values like esteemed value,
social value, and psychological value but here we are interested
in economic concept of Human Value. This concept of value has
two different meaning –one is utility and other is purchasing
power. The economist has defined first as use value and later
as exchange value. In the words Flemholtz “All economic
theories of values are based explicitly on the premise that the
attribute determining whether and what extent an object
possess value is the perceived ability to render future economic
utility, benefits or services. ” An another noted economist wrote
that “whatever wants to construct an elementary theory of
Value and price must think of utility”, therefore if an object is
not capable of rendering the future economic services it has no
value. In these terms an object value is typically defined as the
present worth of services it is anticipated to render in future.
The concept of Human Value is derived from General
economic Value Theory. Like all resources people possess Value
because they are capable of rendering future services to the
organisation. The concept of human resource can be extended
to the individuals, groups and total human organisation. Thus
an individual’s value to an o if the person organisation can be
defined as the present worth of the set of future services the
person is expected to provide during the period he or she is
anticipated to remain in the organisation. Similarly, a group
value to an organisation may be defined as the present value of
its expected future services. Finally the value of the human
organisation as a whole is the present worth of its expected
future services to an enterprise.
The determinants of an individual value—Unlike other resources
human beings are not owned by the organisations and hence
they are relatively free to withhold or supply their services.
From an organisation point of view this means that the
realisation of an individual’s services is not certain. This also
suggest that there is dual aspect of an individual value-(1)The
amount of organisation could potentially realise from his or her
services if the person maintain his or her organisation
membership during the period of his productive services life i.e.
individuals expected conditional value.
(2) the amount actually expected to be derived making into
account the persons likelihood of turnover i.e. the realizable
value, which is ultimate measure of human resource economic
In regard to the monetary measurement person’s value is
a product of both the attributes of the individuals and the
characteristics of the organisation, while in measure of the non
monetary measurement of human resource value, we identify
several measurement and show the relationship to the ultimate
and penultimate measure of person worth.
Therefore the extent services value that can be received
by the organisation can be find as-
ERV=expected realizable value
ECV= expected conditional value
P(T)=probability of turnover
OCT= the opportunity cost of turnover
The determinant of Group Value-
Rensis Likert and G Bowers has identified several variables
which have been found to influence the effectiveness of a
human organisation .They tried to represent the productive
capabilities of human organisation of any company or unit
within it (work group ). Likret and Bowers suggestion can be
used as a basis for measuring changes in the value of
production capability of organisation .
Likert, Bowers, Seashore and others at the University of
Michigan’s Institutes for social research to identify and measure
the determinants of effective organisation structure and
management styles .They have classified these variables in
three broad classes: casual intervening &end results.
The studies show that there are two types of casual
variables responsible for group valuation one is managerial
behaviour and other is organisation structure. Managerial
behaviour refers to the dimensions of supervisory behaviour
influencing group effectiveness. Likert and Bowers had
identified four component of managerial behaviour that
influences group behaviour and effectiveness:
1. Support
2. Team Building
3. Goal Emphasis
4. Work facilitation
Organisation structure is the second broad class of casual
variables. It refers to structural relationship among
organisational roles: who reports to whom, the nature of
hierarchical relationship and fit between the formal and
informal organisation.
The two classes of casual variables influence the
intervening variables, group process, peer leadership,
organisation climate and subordinates satisfaction. End result
variables are composed to costs, sales, economy and the like
mainly casual and intervening variables are responsible for the
results or organisational productivity and end results on the
total productive efficiency.
Human Resource Measurement Techniques –
The contribution of human capital / knowledge workers goes
largely un reflected in statements of companies income and in
their balance sheets. The reasons is simple that most people
are unaware of it , several attempts have been made by people
but various points of time to assign money value to human
resources , some have succeeded .
Though in initial phase of developing methods for H.R.
Values, these were based on the expenditure made in human
capital but latter researcher like Flemholtz , Lev &Schwartz
identify that value depends upon the expected future services
given by the employee to the organisation and not the
investment made in it . Therefore the cost based human
valuation methods are not considered. the methods that are
existing for human valuation based on their expected future
services can be classified in two categories :
(A) Monetary Value System- Under this approach the value
of human resources of an organisation is determined in two
different ways:
- By discounting the expected future salaries and other capital
cost by a certain rate of discount.
-By discounting the future earnings of the organisation at a
certain date by a suitable rate and allocating a part of the
present value of earning to human resources.
On the basis of this, following valuation models are
available for the determination of present value of human
-The Lev & Schwartz Model
- The Herman Model
- The Flemholtz Model
- The Jaggi &Law Model
- The Sudan & Aurebach Model
- The Morse Model
- Prof. S.K.Chakrabotry Model
(B) Non Monetary Measurement-
In human valuation system non-monetary measurement has
significant importance. So we now concentrate our self on
different methods and techniques that might be used for non
monetary valuation of human resources. They include
measurements commonly used in personnel management like
skill inventories, performance evaluation methods, Potential
assessments and attitude measurements are all familiar tools
of Personnel Management and these methods can be used for
valuation purpose in a same manner. The concept of subjective
expected utility may also be used for non-monetary
measurement of human resources.

Economic Efficiency-
Deakin (1998) suggest that ‘Economic concepts specifying
performance goals include the notions of allocative (or static)
efficiency and dynamic efficiency. The static efficiency refers to
allocation of scares resources to their most productive uses
while the dynamic efficiency has a broader connotation which is
related to the capacity of a productive system to survive
extended shocks through innovation and adaptation to a
changing external environment. According to this definition, it
may be reasonable to suggest that organisations are better at
static efficiency than at dynamic efficiency. In a similar vein,
Michie (1998) argue, ‘whereas the high commit route promises
to achieve both high productivity / profits and high
satisfaction/commitment, The high performance route is only
concerned with the static efficiency.
Value is continuously expanded and perpetuated and it
becomes a dynamic force, multiplying itself time and time
again in capitalism. This is accomplished through the creation
of and than the continual expansion of surplus value. Surplus
value becomes a ‘dynamic totality’ which Postone refers to as
the ‘Valorisation of value’, the ‘Valorisation process’ or ‘self-
valorising value’. As Poston says, ‘value is a category of
dynamic totality. This dynamic involves a dialectic of
transformation and reconstruction that results from the dual
nature of the commodity form and from the two structural
importations of the value from the wealth.-The drive toward in
creasing level of productivity and the necessary retention of
direct human labour in production’.
(a)Static and Dynamic Efficiency- One neoclassical
assumption immediately disposed of when we consider
dynamic efficiency is that no allocation or Industrial structure is
preferable to any other. While many allocations may be
efficient, some are more efficient than others. The
consideration of dynamic efficiency is much more than market
or information failure, what creates the potential for industrial
policy by the government. We can broadly define industrial
policy as a deliberate action by the state to shift the structure
of economy away from its static comparative advantage to a
structure offering more dynamic potential. We generate the
first strong implication of our alternative paradigm: there may
exist a trade-off between static and dynamic efficiency.
(b)Profit and efficiency- Profits in the neoclassical model are
a temporary aberration of the market. Profits may exit
temporarily before resources and factors flow into a sector and
complete them away. In a dynamic word profits are useful to
induce and reward learning in order to raise productivity up
grade to higher value-added and less price sensitive sector.
Learning is much like patents that rewards innovation in a
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