Category: University of Mumbai BMS Notes

Borrowed capital consists of money that is borrowed and used to make an investment. It differs from equity capital, which is owned by the company and shareholders. Borrowed capital is also referred to as “loan capital” and can be used to grow profits but it can also result in a loss of the lender’s money.

Businesses need capital to operate. Capital is wealth that is used to generate more wealth. For businesses, capital consists of assets property, factories, inventories, cash, etc. Businesses have two options to acquire these: debt financing and equity financing. Debt is money that is borrowed from financial institutions, individuals, or the bond market. Equity is money the company already has in its coffers or can raise from would-be owners or investors. The term “borrowed capital” is used to distinguish capital acquired with debt from capital acquired with equity.

There are many different borrowing methods that constitute borrowed capital. These can take the form of loans, credit cards, overdraft agreements, and the issuance of debt, such as bonds. In all instances, a borrower must pay an interest rate as the cost of borrowing. Typically, debt is secured by collateral. In the case of a home purchase, the mortgage is secured by the house being acquired. Borrowed capital may also take the form of a debenture, however, and in that case, it is not secured by an asset.

Borrowed capital is commonly used in the economy whether that be for personal reasons or for business reasons.

The upside of investing with borrowed capital is the potential for greater gains. The downside is the potential for greater losses, given that the borrowed money must be paid back somehow, regardless of the investment’s performance.

Capital contributed by the owner or entrepreneur of a business, and obtained, for example, by means of savings or inheritance, is known as own capital or equity, whereas that which is granted by another person or institution is called borrowed capital, and this must usually be paid back with interest. The ratio between debt and equity is named leverage. It has to be optimized as a high leverage can bring a higher profit but create solvency risk.

Borrowed capital is capital that the business borrows from institutions or people, and includes debentures:

• Redeemable debentures
• Irredeemable debentures
• Debentures to bearer
• Ordinary debentures
• Bonds
• Deposits
• Loans

International bonds are bonds issued by a country or company that is not domestic for the investor. The international bond market is quickly expanding as companies continue to look for the cheapest way to borrow money. By issuing debt on an international scale, a company can reach more investors. It also potentially helps decrease regulatory constraints.

Three Categories of International Bonds

There are three general categories for international bonds: domestic, euro, and foreign. The categories are based on the country (domicile) of the issuer, the country of the investor, and the currencies used.

• Domestic bonds: Issued, underwritten and then traded with the currency and regulations of the borrower’s country.
• Eurobonds: Underwritten by an international company using domestic currency and then traded outside of the country’s domestic market.
• Foreign bonds: Issued in a domestic country by a foreign company, using the regulations and currency of the domestic country.

A foreign bond is a bond issued in a domestic market by a foreign entity in the domestic market’s currency as a means of raising capital. For foreign firms doing a large amount of business in the domestic market, issuing foreign bonds, such as bulldog bonds, Matilda bonds, and samurai bonds, is a common practice.

Dollar-denominated Bonds

Dollar-denominated bonds are issued in US dollars and offer investors more choices to increase diversity. The two types of dollar-denominated bonds are Eurodollar bonds and Yankee bonds. The difference between the two bonds is that Eurodollar bonds are traded outside of the domestic market while Yankee bonds are issued and traded in the US.

Eurodollar bonds

Eurodollar bonds are the largest component of the Eurobond market. A Eurodollar bond must be denominated in U.S. dollars and written by an international company. Since Eurodollar bonds are not registered with the SEC, they can not be sold to the U.S. public. However, they can be traded on the secondary market. Even though many portfolios do include Eurodollar bonds in U.S. portfolios, U.S. investors do not participate in the primary market for such bonds. Therefore, the primary market is dominated by foreign investors.

Yankee bonds

Yankee bonds are another type of dollar-denominated bonds. However, unlike the Eurodollar bonds, the Yankee bonds’ target market is within the U.S. These bonds are issued by a foreign company or country that has registered with the Securities and Exchange Commission (SEC). Since Yankee bonds are meant to be purchased by U.S. citizens in the primary market, they must follow regulations set by the SEC. For example, the company issuing the bond needs to be financially stable and capable of making payments throughout the period of the bond.

Non-dollar-denominated Bonds

Non-dollar-denominated international bonds are all the issues denominated in currencies other than the dollar. Since there is currency volatility, U.S. investors face the question of whether to hedge their currency exposure. The different types of non-dollar-denominated bonds depend on the domicile of the issuer and the location of the primary trading market. The three major types are the domestic market, the foreign market, and the Euro market.

Domestic market

The domestic market includes bonds that are issued by a borrower in their home country using that country’s currency. Domestic markets have seen significant growth for several reasons. First of all, for companies, issuing debt in the domestic currency allows them to better match liabilities with assets. By doing so, they also don’t need to worry about the currency exchange risk. Also, by issuing debt in dollar-denominated markets and the domestic market, companies gain access to more investors. This allows them to obtain a better borrowing rate.

Foreign market

The foreign bond market includes the bonds that are sold in a country, using that country’s currency, but issued by a non-domestic borrower. For example, the Yankee bond market is the U.S. dollar version of this market. This is because they are sold in the U.S. using the dollar, but issued by a syndicate outside of the U.S. Other examples include the Samurai market and the Bulldog market. The Samurai market is Yen-denominated bonds issued in Japan but by non-Japanese borrowers. The Bulldog market is pound-denominated bonds issued in the U.K. by non-Brtish groups.

Euro market

Securities that are issued into the international market are called Eurobonds. This market encompasses all the bonds that are not issued in a domestic market and can be issued in any currency. Eurodollar bonds are an example of a U.S. dollar-denominated version of a Eurobond as they are sold in the international markets.

Most of the time, the bonds are written by an international syndicate and sold in several different national markets simultaneously. Issuers of Eurobonds include international corporations, supranational companies, and countries.

Private Ltd. Company

A Private Limited Company is a joint stock company, incorporated under The Indian Companies Act, 2013 or any other previous act. The maximum number of members is 200, excluding the current employees and the ex-employees who were the members during their employment or continues to be the member after the termination of employment in the company.

The company restricts the transfer of shares and prohibits invitation to the public for the subscription of shares and debentures. It uses the term ‘private limited’ at the end of its name.

Public Ltd. Company

A Public Limited Company or PLC is a joint stock company formed and registered under The Indian Companies Act, 2013 or any other previous act.

There is no defined limit on the number of members the company can have. Also, there is no restriction on the transferability of the shares. The company can invite the public for the subscription of shares or debentures, and that is why the term ‘Public Limited’ gets added to its name.

Difference Public Company:

1. Ownership: Owned by the State Government or Central Government or both.
2. Objective/Motive: To promote public welfare.
3. Social Objectives: They are launched to achieve social objectives like development of backward regions, creation of employment opportunities, etc.
4. Forms of Organisation: Departmental undertakings, Statutory Corporation and Government Companies.
5. Management: Managed by bureaucrats; hence efficient.
6. Financial Resources: Huge financial resources; no problem in expansion and growth.
7. Accountability: Accountable to the public through Parliament.
8. Political Interference: Comparatively more Political Interference.
9. Government Control: They are subject to strict financial control by the government.
10. Distribution of Income: Equitable distribution of income.

Difference Private Company:

1. Ownership: Owned by private individuals.
2. Objective/Motive: To maximize profits.
3. Social Objectives: Social objectives are not very important.
4. Forms of Organisation: Sole proprietorship, partnership, joint Hindu family business, cooperative societies and joint stock company
5. Management: Managed by professional managers; hence efficient.
6. Financial Resources: Limited financial resources; less scope for expansion.
7. Accountability: Accountable to the owners.
8. Political Interference: Less political interference
9. Government Control: They are not subject to strict financial control by the government.
10. Distribution of Income: Concentration of wealth in few hands.

A private company is owned by either a small number of shareholders, company members, or a non-governmental organization, and it does not offer its stocks for sale to the general public. Instead, its stock is offered, owned, or exchanged privately among a small number of shareholders or even held by a single individual. Private companies are also referred to as privately-held companies, limited companies, limited liability companies, or private corporations, depending on the country where they’re incorporated and how they are structured.

Section 2(68) of Companies Act, 2013 defines private companies. According to that, private companies are those companies whose articles of association restrict the transferability of shares and prevent the public at large from subscribing to them. This is the basic criterion that differentiates private companies from public companies.

The Section further says private companies can have a maximum of 200 members (except for One Person Companies). This number does not include present and former employees who are also members. Moreover, more than two persons who own shares jointly are treated as a single member.

This definition had previously prescribed a minimum paid-up share capital of Rs. 1 lakh for private companies, but an amendment in 2005 removed this requirement. Private companies can now have a minimum paid-up capital of any amount.

Features of Private Companies

• No minimum capital required: There was a minimum paid-up share capital requirement of Rs. 1 lakh previously, but that is omitted now.
• Minimum 2 and maximum 200 members: A private company can have a minimum of just two members (but just one is enough if it a One Person Company), and a maximum of up to 200 members.
• Transferability of shares restricted: Private companies cannot freely transfer their shares to the public like public companies. This is why stock exchanges never list private companies.
• “Private Limited”: All private companies must include the words “Private Limited” or “Pvt. Ltd.” in their names.
• Privileges and exemptions: Since private companies do not freely transfer their shares and involve limited interest by members, the law has granted them several exemptions that public companies do not enjoy.

Privileges of Private Companies

The Companies Act has provided certain privileges and exemptions to private companies that public companies do not possess. These privileges accord them greater freedom in conducting their affairs. Here are some examples of them:

• No need to prepare a report for annual general meetings.
• Only 2 minimum directors required.
• No need to appoint independent directors.
• They can adopt additional grounds for the disqualification of directors and vacation of their office.
• They can pay greater remuneration to their directors than compared to some other types of companies.

Merits

Owning Property

A company being a juristic person, can acquire, own, enjoy and alienate, property in its own name. No shareholder can make any claim upon the property of the company so long as the company is a going concern. The shareholders are not the owners of the company’s property. The company itself is the true owner.

Free & Easy transferability of shares

Shares of a company limited by shares are transferable by a shareholder t any other person. The transfer is easy as compared to the transfer of interest in business run as a proprietary concern or a partnership. Filing and signing a share transfer form and handing over the buyer of the shares along with share certificate can easily transfer shares.

Limited Liability

Limited Liability means the status of being legally responsible only to a limited amount for debts of a company. Unlike proprietorships and partnerships, in a limited liability company the liability of the members in respect of the company’s debts is limited. In other words, the liability of the members of a company is limited only to the extent of the face value of shares taken up by them. Therefore, where a company is limited by shares, the liability of the members on a winding-up is limited to the amount unpaid on their shares.

Borrowing Capacity

A company enjoys better avenues for borrowing of funds. It can issue debentures, secured as well as unsecured and can also accept deposits from the public, etc. Even banking and financial institutions prefer to render large financial assistance to a company rather than partnership firms or proprietary concerns.

Dual Relationship

In the company form of organization it is possible for a company to make a valid and effective contract with any of its members. It is also possible for a person to be in control of a company and at the same time be in its employment. Thus, a person can at the same time be a shareholder, creditor, director and also an employee of the company.

Capacity to sue and be sued

To sue means to institute legal proceedings against or to bring a suit in a court of law. Just as one person can bring a legal action in his/her own name against another in that person’s name, a company being an independent legal entity can sue and also be sued in its own name.

Limitations

No valuation of investment:

Shares of a private company are not listed on stock ex­change. There are no regular dealings in these shares. A shareholder cannot, therefore, know the real value of his investment in a private company.

Lack of public confidence:

Public has little confidence in a private company because its affairs are unknown and it is not subject to strict control under the law.

Smaller resources:

A private company cannot have more than fifty members. Its credit standing is lower than that of a public company. Therefore, the financial and managerial resources of a private company are comparatively limited.

Poor protection to members:

A private company enjoys several exemptions from various provisions of the Companies Act. Minority members may suffer at the hands of the majority members. Dissatisfied members cannot cut off their connection with the company except at a loss.

Lack of transferability of shares:

There are restrictions on the transfer of shares in a private company. As a result a shareholder cannot leave a private company easily and quickly.

Sole trade is the oldest and most commonly used form of business organisation. It is as old as civilization is. Historically, it appears that business first started with this form of organisation. With the development of science and technology the needs of the business also increased and new forms of organisation developed. This organisation is also known as Sole-Proprietorship, Individual-Proprietorship, and Single Entrepreneurship. In sole trade organisation, an individual is at the helm of affairs. He makes all the investments, shares all risks, takes all profits, manages and controls the business himself.

The sole-trader mainly depends up to his own resources, so the business is generally on a small-scale basis. The business is normally run with the help of family members but he may employ persons to look after the day-to-day activities of the business. So far as his liability is concerned, it is unlimited.

Features of Sole Proprietorship:

Individual Initiative:

This business is started by the initiative of a single person. He prepares the blue prints of the venture and arranges various factors of production. He may employ other person for assistance but ultimate authority and responsibility lies with him. All the profits and losses are taken by the single individual.

Management and Control:

The proprietor manages the whole business himself. He prepares various plans and executes them under his own supervision. There may be some persons to help him but ultimate control lies with the owner.

Unlimited Liability:

In sole trade business liability is unlimited. The proprietor is responsible for all losses arising from the business. The liability is not limited only to his investments in the business but his private property is also liable for business obligations.

Business Secrecy:

All important decisions are taken by the owner himself. He keeps all the business secrets only to himself. Business secrets are very important for small business. By retaining business secrets he avoids competitors entering the same business.

No sharing of profits:

A sole trading concern is established and managed by the single person. Profit is not required to share with another. Sole trader individually enjoys the profit and bears the risk by himself.

Limited area of operation:

Since the sole trading concern is invested by the single person, there is less scope for expansion and growth of it. Sole trader individually can’t manage the big size of a business and he can’t manage the big size of a business and he cannot invest for this as well.

Independent Decision:

The sole trader can freely make the decision. He or she does not need to take consent of others while making the decision. Therefore, in this form of business decision making is fast.

Undivided risk and responsibility:

In this business, risk and responsibility can be shared with another person. The sole trader individually takes all kinds of risk. A sole trader is personally responsible for accomplishing all activities of a business.

Objectives of Sole-Trade Business:

Channelise Individual Funds:

Individuals have small surplus funds with them. These funds are not enough to set up big business. People may not like to risk their funds in those businesses where they have no say and control. It is better to set up a small business instead of keeping the funds idle. So sole-trade business provides a channel to make productive use of individual funds.

Serve Consumers:

A small trader comes in direct contact with the consumers. A consumer wants to buy his day-to-day requirements from the nearest place. Sole-traders set up their shops wherever the consumers are available. A consumer saves time by purchasing daily necessities from the nearest retail outlet.

Strengthen Distribution Channel:

Sole-Trade business is generally on a small scale basis. People set up small retail outlets under sole-proprietary organisation. A retailer is an important link in the chain of distribution. He is in direct contact with the consumers. No distribution channel from the producer to the consumer can be successful without the active involvement of sole-traders.

Avoid Concentration of Wealth:

In order to avoid concentration of wealth in a few funds, sole trade business helps in its distribution among large number of people. When large number of people enter into different businesses, may be at a small scale, it helps in distribution of economic wealth.

Help Large Business:

The success of large-scale business is also linked to the help provided by small business units. Small units provide ancillary service to big units. Large units require a number of small components from small units. So sole-trade business provides service to large units by providing them all those things which they do not want to manufacture themselves. In Japan, all large scale units depend upon the supplies from small units.

Disadvantages of Sole Trading Concern

• Limited capital
• Limited managerial ability
• Unlimited liability
• Loss in absence
• Uncertain life
• Limited scope for expansion
• Limited scope for opportunity

Limited managerial ability:

It is managed by a single owner who may not have adequate managerial skills and technical abilities. So, it may face various managerial deficiencies.

Limited capital:

Its capital is limited due to the investment of a single owner. Such limited capital is insufficient for large-scale production and marketing of goods and services.

Unlimited liability:

The sole trader does not have limited liability to his business capital. The owner must pay the liability of his business even by selling his private properties if the assets of the business are not sufficient to meet such liabilities.

Loss in absence:

It may come to close if the proprietor remains absent from his business due to his illness or other reasons. So, if the owner or proprietor is absent, the business may face the loss.

Uncertain life:

Its life is closely connected with the life of the owner. So, it can be terminated any time due to death, lunacy, insolvency or disability of the owner.

Limited scope of expansion:

It has a limited scope for expansion and development. Due to the limited amount of capital and managerial skills, its activities cannot be diversified.

Limited scope for opportunity:

It offers limited opportunities to his employees. Due to the limited scope of expansion and development of business, its employees get limited opportunities for training, higher studies, career development, attractive salaries, and other benefits.

1. Ethnocentric Approach:

Here the MNC simply transfers HR practices and policies used in the home country to subsidiaries in foreign locations. Expatriates from the MNCs home country manage the foreign subsidiaries and the MNCs headquarters maintain tight control over the subsidiaries policies.

2. Polycentric Approach:

In this case, the subsidiaries are basically independent from headquarters. HR policies are developed to meet the circumstances in each foreign location. Local managers in the foreign sites are hired to manage HRM activities.

3. Region-Centric Approach:

This approach represents a regional grouping of subsidiaries. HR policies are coordinated within the region to as much an extent as possible. Subsidiaries may be staffed by manager from any of the countries within the region. Coordination and communication within the region are high, but quite limited between the region and the MNCs headquarters.

4. Geocentric Approach:

In this case, HR policies are developed to meet the goals of the global network of home country locations and foreign subsidiaries. This may include policies which are applied across all subsidiaries, as well as policies adapted to the needs of individual locations depending on what is best to maximize global results.

The firm is viewed as a single international business entity rather than a collection of individual home country and foreign business units. HRM and other activities throughout the MNC are managed by individuals who are most appropriate for the job regardless of their nationally. Thus, one may find a British manager handling HRM activities in the New York office of a Dutch MNC.

Practices of International Human Resource Management

An organization needs to consider the purpose for which it needs to send the employees for international assignments. For example, an organization may send its employees aboard to set up or explore a new market, or prepare them for top management positions. After the purpose of the international assignment is specified, the organization can initiate the process of selecting the best employees for the international project.

The following are the aspects of concern in IHRM:

1. International staffing
2. Pre-departure training for international assignments
3. Repatriation
4. Performance management in international assignments
5. Compensation issues in international assignments.

International Staffing:

International staffing refers to the selection of the most appropriate employees for international operations of an MNC.

The selection of the most appropriate employees can be done by using the following three sources:

• Home Country or Parent Country Nationals (PCNs):

Refer to the citizen of the country in which the headquarters of the MNCs is located. PCNs are not the citizens of the country in which they are working. For instance, an Indian citizen who is posted to an overseas subsidiary of an organization that has its headquarters in India is a PCN. In addition, PCNs are termed as expatriates.

Generally, PCNs are hired to occupy key and top-level management positions because they possess sound knowledge about the operations of parent organization. The knowledge about parent organization helps the PCNs in ensuring proper linkage between foreign subsidiaries and the headquarters. However, hiring PCNs is a costly affair for an organization as it has to bear the relocation cost for them.

• Host Country Nationals (HCNs):

Refer to the employees of an organization, who are citizens of the country in which the foreign subsidiary is located. An Indian manager working in an Indian subsidiary of a US organization is an HCN. For example, IBM normally hires HCNs. In addition, HCNs generally occupy middle and lower management level positions. The recruitment of HCNs is not a costly affair for an organization because it does not need to incur extra cost in cross-cultural training of employees.

• Third Country Nationals (TCNs):

Refer to the citizens of a country, other than the country where the organization is headquartered and the country that is hosting the subsidiary. Staffing is done on the basis of ability and not on the basis of nationalism. For example, a British citizen working in the Indian subsidiary of an organization whose headquarters is located in the US, is termed as a TCN. You should note that a TCN has substantial international experience and exposure that is quite advantageous for an organization.

The approach of internal staffing differs from organization to organization.

Competency management as a business lever for hiring, development, mobility, and promotion started more than 40 years ago. It continues as essential today in the effective management of human capital. To implement competency management to drive employee development and performance excellence, let us align on four key definitions.

1. Competencies are abilities, behaviors, knowledge, and skills that impact the success of employees and organizations. Some common competencies are analytical thinking, communication, flexibility, integrity, and teamwork.
2. A competency model is a set of key competencies, ideally seven to 10, carefully selected in alignment with an organization’s business goals. High-performance models include four types of competencies: core competencies, leadership competencies, functional competencies, and career competencies
3. A competency proficiency scale is a defined rating or measurement that assigns an expected level of competence on a given competency. Leading practice scales have behavioral indicators as their building blocks with related behaviors organized under each competency. Scale ratings range from three to seven mastery levels, with five levels being the most common.
4. Competency management is the set of management practices that identify and optimize the skills and competencies required to deliver on an organization’s business strategy. Competency management provides the foundation to manage strategic talent management practices such as workforce planning, acquiring top talent, and developing employees to optimize their strengths.

Benefits of Competencies

Effective and automated competency management creates a real-time and predictive inventory of the capability of any workforce. By defining and automating job roles and associated competency proficiency, leadership can readily identify strengths and skill gaps. Competency management then informs targeted skills development learning solutions improving individual and organizational performance, leading to better business results.

High-performance organizations describe the following benefits of effective and automated competency management:

• Enriched understanding of expected behaviors and performance. Of course, the quickest path to improving performance starts by knowing the target performance. Organizations that take the time to define the short list of competencies and expected proficiency level for each competency, by job role, essential for the achievement of business goals, have taken the first step toward giving employees and leaders the best shot at performance excellence.
• Improved talent planning. Competency assessment results inform leadership about current and future talent capability. To be assessed as competent, the employee must demonstrate the ability and experience to perform a job’s specific tasks. Data and analytics about employees’ skills and knowledge are essential for performance risk mitigation that leadership would otherwise be blind to.
• Optimized development and mobility strategy. High-performance organizations realize that organizational success depends on how capable their people are. They also recognize that formal training does not necessarily equip employees with the appropriate skills to thrive in the workplace. This is where competency management and competency-based development comes in. Competency-based development is created around the competency standards that have been identified for a specific role in an organization.
• Enhanced talent pipeline. Automated competency management enables on-demand information about employees’ and leaders’ competency mastery and readiness to move into next-level or other critical roles. In this fashion, organizations are better prepared with development planning and, as a result, yield healthier talent pipelines regardless of business cycle or economic conditions.
• Improved operational efficiencies. Competency management automation facilitates business-driven learning and development, eliminates non-value-add training, highlights strengths to be further developed, flags critical skill gaps for mitigation, and generates higher levels of employee and leader satisfaction with their overall experience with the organization.
• Integrated talent processes. Serving as the standard for expected performance by job role, competency management becomes the standard by which the highest-performing organizations talk about and manage all phases of the employee lifecycle: from talent acquisition to development, to retention and reward.

The Competency Based Human Resources Management is an approach that standardizes and integrates all HR activities based on competencies that support organizational goals.

Competency-based HRM is about using the concept of competency and the results of competency analysis to inform and improve the processes of performance management, recruitment and selection, employee development and employee reward. The language has dominated much of HR thinking and practice in recent years.

Competencies are any observable abilities, skills, knowledge, motivations or traits defined in terms of the behaviors needed for successful job performance.

From the competency framework, the main types of competencies are created, and they consist of core, functional and leadership competencies.

Core Competencies, are fundamental to the organizational success and are applied across the whole organization from the board of directors, and middle management, down to fresh graduates and juniors. These competencies decide how organizations want to shape their employees, the company’s image and its professional characteristics. They are one of the company’s strengths, competitive advantage and could affect its profitability and growth.

Competency-based HR is primarily based on the concepts of behavioural and technical competencies as defined in the first section of this chapter. But it is also associated with the use of National and Scottish Vocational qualifications (NVQs/SNVQs) as also examined in the first section. The next five sections of the chapter concentrate on the application and use of behavioural and technical competencies under the following headings:

• Competency frameworks;
• Reasons for using competencies;
• Use of competencies;
• Guidelines on the development of competency frameworks;
• Keys to success in using competencies.

Behavioural competencies

Behavioural competencies define behavioural expectations, ie the type of behaviour required to deliver results under such headings as teamworking, communication, leadership and decision-making. They are sometimes known as ‘soft skills’. Behavioural competencies are usually set out in a competency framework.

The behavioural competency approach was first advocated by McClelland (1973). He recommended the use of criterion-referenced assessment. Criterion referencing or validation is the process of analysing the key aspects of behaviour that differentiate between effective and less effective performance.

Technical competencies

Technical competencies define what people have to know and be able to do (knowledge and skills) to carry out their roles effectively. They are related to either generic roles (groups of similar jobs), or individual roles (as ‘role-specific competencies’). The term ‘technical competency’ has been adopted fairly recently to avoid the confusion that existed between the terms ‘competency’ and ‘competence’. Competency, as mentioned above, is about behaviours, while competence as defined by Woodruffe (1990) is: ‘A work-related concept which refers to areas of work at which the person is competent. Competent people at work are those who meet their performance expectations.’ Competences are sometimes known as ‘hard skills’. The terms technical competencies and competences are closely related although the latter has a particular and more limited meaning when applied to NVQs/SNVQs, as discussed below.

NVQ/SNVQ competences

The concept of competence was conceived in the UK as a fundamental part of the process of developing standards for NVQs/SNVQs. These specify minimum standards for the achievement of set tasks and activities expressed in ways that can be observed and assessed with a view to certification. An element of competence in NVQ language is a description of something that people in given work areas should be able to do. They are assessed on being competent or not yet competent. No attempt is made to assess the degree of competence.

Functional Competencies are the Business’ Front Wheel Competencies, no vehicle can function or move forward without its front wheels; the same goes for business, no organization can perform without its Functional or its Job Specific Competencies. These competencies drive high performance and quality results for each function in the organization. It can be technical or non-technical knowledge, skills, and abilities required to fulfill job tasks, duties or responsibilities.

Leadership competencies are basically leadership skills and behaviors that contribute to superior performance, used to assess an individual’s ability and skills to be a leader. By using a competency-based approach to leadership, organizations can better identify and develop their next generation of leaders.

Finally, applying the Competency Based HRM in any organization is the most effective approach nowadays; as competencies act as an effective benchmark for measuring employees’ qualifications and suitability of filling a specific position.

Applying the approach across the organization, should lead to more fairness in evaluation, proper career development, improve hiring decision, increase operating effectiveness and most important to supporting the achievement of strategic and business goals.

Some of the benefits are:

• Providing feedback more regularly improves communication and employee engagement.
• Potential problems are addressed sooner.
• The time to address performance issues and get them corrected is lessened.

Proactive Approach

HR managers must anticipate the challenges or problems before they arise. Prevention is better than cure.

The proactive approach will save companies considerable time and money in the short and long run. P. F. Drucker (1997) highlighted the importance of a proactive approach very rightly.

He argues,” In a perfect world every startup would take the proactive approach and build their company from the beginning by identifying not only the mission, vision, values, goals, objectives, etc., but will determine where they want to go in the short and long-term and build a holistic, aligned organization beginning at the founder level where they can attract, hire, and retain the top talent to get them where they want to go.”

Human Resource Approach

People are human beings with a lot of potentials and intellectual abilities. It is important to treat people with respect and dignity.

Commodity Approach

People are a commodity. They are viewed as a cog of a machine. People can be hired and fired through money. It is money that matters most. There is a saying, “money is sweeter than honey.” This approach views people as an economic man.

Strategic Approach

People are the strategic asset of an organization. People have core competencies, the basis of competitive advantage.

Human resources are the combination of talent and skills; some of them are inborn and other skills they have acquired through learning and education. The strategic HRM approach focuses on people management programs and long-term solutions.

It stresses organizational development interventions, achieving employee organizational fit, and other aspects that ensure employees add value to the organization.

Management Approach

HRM is a part of general management. Management is nothing but managing people in the workplace. Managers at all levels are responsible for managing their employees or subordinates.

Reactive Approach

It occurs when decision-makers respond to problems. If efforts are reactive only, problems may be compounded, and opportunities may be missed, and organizations may suffer loss.

Companies may lose time and money if they take a reactive approach.

System Approach

A system is a set of interrelated but separate elements or parts working together for a common goal.

For example, HRM is a system that may have parts such as procurement, training, performance appraisal and reward, etc. One part affects and is affected by the other.

Hiring Through Student Competitions

• You get a wider pool of aspirants as opposed to when you might have posted a job description on a single website.
• This pool of aspirants would be much more vibrant and talented. The people willing to take part in a competition to showcase their skills are smarter and more willing to take up initiatives.
• You get the opportunity to sell your brand through such activities. It’s basically killing two birds with one stone, you get the desired recruits and also get great PR.
• You can customize the game levels according to your requirements. There is no one-size-fits-all rule here.

Creating games/competitions for the specific purpose of recruitment is a detailed process. It starts with an assessment of the job in question and the requirement of the organization and goes through several steps before ending with the final result. Instead of spending your time and resources on the same, it is advisable to hire professionals for this job.

The Benefits of Recruiting Contest and Award Winners

There are numerous reasons why you should recruit contest and award winners. Some of the primary reasons include:

• It’s easy. Finding the winners is incredibly easy because the names of the winners and the finalists are almost always published.
• Selection is based on results. Contests focus on results rather than the more prominent screening criteria of education or experience. As a result, when you recruit an award winner, you’re getting someone that has actually produced superior results.
• They’re a great source of ideas. If you run the contest, even if you don’t end up hiring one of the winners, you do get to capture all of the answers and ideas that were generated. Many times, the business value of these ideas far outweighs the cost of the contest.
• It’s also a learning tool. After identifying award and contest winners, the conversations with them can be great learning mechanisms, whether you hire them or not.
• Referrals are another output. Obviously, you can’t hire every award winner, but you can certainly build a relationship with them and use them as a referral source. They might refer mentees, people they know, or even members of their own team that need new experiences or who are in dead-end positions.
• It’s cheap. If the contest is run by someone else, there’s no cost in capturing the names of the winners. If you run the contest, most entries can be done online, so there’s no paper and the administration is easier. For software contests, the entries can even be assessed automatically using software.
• It’s low-volume and high-quality. Most recruiting sources get you high-volume and low-quality candidates and, as a result, sorting is a nightmare. However, when you’re recruiting award winners and contest champions, there are no “turkeys” to screen out. All of them are winners, and often even non-winner participants are also top performers (in the Academy Awards, even the losers for Best Picture are probably outstanding).
• They’re less biased. Because most contests are anonymous and are based on real problems, the process is generally less biased than most face-to-face selection processes.
• It’s global. Because contests can be web-based, it’s possible to get global award winners and thus global recruiting targets without having to get on an airplane.

Some additional examples might further convince you that it’s time for you to catch up and take advantage of this approach.

• Top Coder. Clearly a best practice leader when it comes to running challenges in the software industry. It holds worldwide electronic code writing contests to identify the very best in software engineering for forward-thinking firms like Google, Yahoo, and Microsoft. Not only do top contestants get job offers, but Top Coder figured out how to leverage the contests to produce code that they could, in turn, sell to organizations. Codewalkers provides similar contests in the web application and development area. WizardHunt offers “contestware” for firms.
• Matching problems with problem-solvers. One company, InnoCentive, was recently highlighted in Bill Taylor’s leading-edge “Mavericks” column in The New York Times. InnoCentive’s leading-edge site allows companies to post their latest problems online and provides problem solvers an opportunity to submit solutions. The winning solution gets a monetary prize and the company gets outstanding answers and the names of some outstanding problem-solvers. If you can propose a catalyst system for an improved synthesis of a monoresorcinyl-triazine, your solution could be worth $50,000.
• Professional associations. Nearly every professional association holds both national and local awards and contests. For example, the IEEE holds an annual Robotics Challenge, a prime recruiting event for electrical and mechanical engineers.
• Department of Defense. Even the government has gotten into the contest game, offering prizes for university teams that develop driverless cross-country vehicles. Hanging around the pits at these events will produce candidates who are several levels above those who can be found at most college career centers.
• Quicken loans. This forward-thinking firm has contest plans for the best customer service person and the best salesperson.
• The best wait person. One major hotel chain held a “find the best waitress/waiter contest,” challenging its employees to identify the very best in their city. In essence, this created the world’s first employee referral contest.
• Student challenges. Colleges have been holding “drop the egg from the roof” and “Concrete Canoe” contests for years, and the winners are highly sought after. Similarly, winners of debate contests are sought out as potential salespeople, and photography and film contests make it easy to identify the best students in media.
• Scholarship contests. There is no better way to get detailed information about the best college students than offering a scholarship and then utilizing the application data to identify potential college interns or hires.
• The best nurse. The New York Times recently ran a full-page ad asking individuals around the United States to submit the names and stories of wonderful nurses. Think of the learning, referral, and recruiting value if you could develop a contest or process that captured the names and stories of the best nurses in your region.
• NFL-type draft. National Oilwell Varco holds an internal NFL-style draft for its college hires after they complete their initial rotations. A brilliant approach because competition raises management’s attention, and it also brings out the best in almost all situations.
• The best in HR. Even SHRM holds Jeopardy-type contests among its university chapters. Anyone who wins an Optimas or ERE Recruiting Excellence award is certainly also at the top in his or her field.
• The best salesperson. If you spend a lot of time at the bars of hotels that cater to a lot of company events, just look for those with brand-new Hawaiian shirts or leis around their necks. Invariably, they just won the best salesperson award and thus, a free trip to Hawaii.
• Interactive Brokers Group has an electronic trading Olympiad, the Collegiate Cyber Defense Competition, which helps identify the best at building barriers to hackers. In addition, Legoland California has a contest to find the best model builder, and L’Oreal has its e-Strat challenge.