Exploring Elements of Human Capital Development and Firm
Performance in the Financial Services Industry
Via Irhamny Az-Zahra and Dina Nurdiani Sapitri
Universitas Pendidikan Indonesia, Jl. Dr. Setiabudhi No. 229, Bandung, Indonesia
Keywords: Flexibility, Adaptability, Competencies, Development of Organizational Competencies, Individual
Employability, Human Capital, Firm Performance.
Abstract: The purpose of this study is to examine the relationship between the elements of human capital with firm
performance. The elements that are expected to affect firm performance in financial services industry are
competence, flexibility, adaptability, development of organizational competencies, and individual
employability. Each component of the elements has different role in creating company’s human capital that
will determine the firm performance. The research uses a qualitative approach in which in-depth interviews
were performed to gain insights from top-level managers of the studied companies. Cross-case study
analysis was carried out to analyze the data. The results indicate that the five elements in human capital
have a significant and substantive influence on firm performance.
1 INTRODUCTION
The knowledge-based economy era highlights the
pursuit of new types of capital by companies,
namely human capital (HC). HC refers to the
knowledges, competencies, skills and other personal
characteristics acquired through individual’s way of
life which are then utilized for production of goods
and service. Thus, it can be said that human capital
affects organizations’ growth and sustainability
more than other resources (Hassan et al., 2017).
Human Capital Theory was developed by Becker
(1964) who views trainings to improve human
capital as another form of capital, thus expenditures
on it should be viewed as an investment with
valuable returns as opposed to a simple cost.
Wernerfelt (in Juwita and Anggraeni, 2007) also
included human capital as one of the most useful
resources to maintain competitive advantage
(Juwita, Anggraeni; 2007). According to the theory
of modern growth, the accumulation of human
capital is an important contributor to economic
growth. A numerous cross-country research has
extensively explored the significant contribution of
educational attainment to overall output production
in the economy (Soon, 2010). In general, human
capital is associated with skills and expertise of a
person in an organization.
The argument in the related researches is that the
current and potential human resources are an
important consideration in company’s development
as well as the implementation of the organization’s
strategic business plan.
Human capital-based performance assessment is
an interesting approach that needs to be developed
by companies. Human capital is one of the main
components of company's intellectual capital
(intangible assets). To date, the assessment of firm
performance mostly done based on company’s
physical resources (tangible assets). According to
Mayo (in Hakooma and Seshamani, 2017),
measuring firm performance from a financial
perspective is very accurate, but in fact, the basic
driver of the financial value is the human resources
(human capital) with all the knowledge, ideas, and
innovations they provide. Furthermore, human
capital is also the core of a company. Thus, human
capital can be understood as the skills, knowledge,
and abilities possessed by all peoples and those
needed in the labor market for the production of
goods and services (Hakooma and Seshamani,
2017).
The belief that the performance of individual
employees has implications for company-level
results has been prevalent among academics and
practitioners for years. The interest in the field has
recently intensified, however, as scientists have
404
Az-Zahra, V. and Sapitri, D.
Exploring Elements of Human Capital Development and Firm Performance in the Financial Services Industry.
In Proceedings of the 1st International Conference on Islamic Economics, Business, and Philanthropy (ICIEBP 2017) - Transforming Islamic Economy and Societies, pages 404-408
ISBN: 978-989-758-315-5
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

begun to argue that, collectively, company
employees can additionally provide a unique source
of competitive advantage that is difficult for
competitors to emulate. For instance, Wright and
McMahan (in Marimuthu et al., 2009), with the
reference to the theory of resource-based company
Barney in 1991, argue that human resources can
provide a sustainable source of competitive
advantage when the four basic requirements are met.
Human capital provides added value to company’s
production process at individual level while at the
same time plays an important role in strategic
planning, namely in creating competitive advantage
at organizational level (Marimuthu et al., 2009).
The financial services industry has undergone
dramatic changes in the last decade, with structural
and technological advances that put pressure on top
management to rethink their business strategy.
Financial globalization, increasingly fierce
competition, the development of Information and
Communication Technology (ICT), and deregulation
and regulation are the main drivers of the change
(Cabrita, 2008). In response to these changes, most
companies have embraced the concept in which
human capital plays a role as a competitive
advantage that will lead to higher performance.
Human resource development has become a part of
the overall effort to achieve cost-effective
performance as well as firm performance. Therefore,
companies need to understand human capital in
order to increase employee satisfaction, which
consequently will lead to better performance
(Marimuthu et al., 2009).
Research conducted by Garavan et al., (2001)
indicates that human capital has four main attributes,
namely: (1) flexibility and adaptability, (2)
competencies, (3) development of organizational
competencies, and (4) individual employability. The
research shows that these attributes in turn generate
added value for individual as well as organizational
outcomes. Finally, due to relational capital, there are
empirical evidences which display that employee
satisfaction, motivation and commitment have
positive impacts on employee satisfaction, loyalty
and retention, leading to higher corporate
productivity (Kaplan and Norton, 1996; Horibe,
1999). Researchers generally agree that the
rejuvenation of intellectual capital within the firm
requires a feeling of relational equality in order to
protect the organization from market obsolescence
(Håkansson and Snehota, 1995; Gibbert, Leibold
and Voelpel, 2001). Roos et. Al. (1997) argue that
employees produce ICs through their intellectual
competence, attitudes and agility. Bontis and Chua
(2000) state that competence includes skills and
education, while attitudes include employee's
behavioral elements.
2 METHODOLOGIES
The study uses a case study approach with the aim to
develop more specific Human Capital elements in
financial services industry. Case studies specifically
focus on a certain phenomenon that provide an in-
depth understanding of a particular event. The study
took place in four different private financial services
companies in Garut. The interview sessions in this
study were conducted between July and September
2017. The four financial services companies were
selected for the reason that the four companies
ranked in local’s top five financial services
companies. The financial services companies were
established and operated for over seven years.
The analytical unit of this research is top-level
managers such as senior managers who are
responsible for designing and managing companies’
strategies and operations. Their assessments and
suggestions regarding the variables that should be
included in Human Capital factors as well as their
impacts on firm performance will be considered to
be the most relevant answer of this research. It takes
about 90 minutes to conduct the informal interviews.
The population of this study is the top-level
managers of the four financial services companies
mentioned before. The study sample consists of a
total of nine individual respondents. Kiran (2008)
argues that nine is considered to be a sufficient
number of sample for a small-scale study. There is
no exact number or range of cases that can be used
as a guide for researchers, indicating that there are
no established rules regarding the sample sizes in
qualitative research (Hassan, Saleh, Kamaluddin and
Hamzah: 2017).
Table 1: List of financial service industry and interviewees
involved.
Employees
interviewed
Chief
executive
officer
(CEO)
Chie
operating
officer
(COO)
Huma
capital /
human
resources
manager
Total
FSC A
1
1
FSC B
1
1
2
FSC C
1
1
FSC D
2
2
Source : own resource, 2017
Exploring Elements of Human Capital Development and Firm Performance in the Financial Services Industry
405

The top-level managers interviewed in Financial
Services Company A and C are the CEOs of the
companies. CEOs occupy the highest positions in
the company, their primary responsibility is to
manage the overall operations and resources
including strategic decision making. Thus, a single
CEO representation is considered to be sufficient to
provide the information and assessment required in
this study. Due to unfortunate clash in the schedule,
COO and HRM representations of Financial
Services Company B were interviewed in place of
the CEO of the company. Finally, two HRM
representatives of Financial Services Company D
were interviewed to gain some insights from the
company. The interview was conducted directly. All
of the informations provided are sufficient to answer
the semi-structured questionnaires which were
compiled based on literature review. The
participants further ensure that the data provided will
not be used for any purpose other than this research
and that the confidentiality of the data will be kept.
3 RESULTS AND DISCUSSION
As elaborate as the elements of Human Capital can
be, the Human Capital can basically be seen as the
driving wheel of the organization, thus signify its
importance. The results of the interviews indicate
that the respondents consider Competencies and the
Development of Organizational Competencies as
human capital elements that play important roles in
firm performance. The main objective of financial
services industry is to achieve customer satisfaction
which will influence firm performance. Thus, the
respondents believe that employees’ soft skills in the
field of communication is a valuable competence
that will better support their work.
The findings of this study indicate that
companies in financial services industry do not
demand a correspending educational background
with the field of the companies. In regards to
customer service staffs, companies put more
emphasis on good communication skill as well as
employees adeptness and creativity in understanding
and providing informations about savings and loan
services provided by the companies. Daily morning
briefing and monthly evaluation are performed
regularly to measure how far the employees achieve
the expected performance. As stated in the
interview:
“... our main focus is the amiability of the employees
towards both the old and new customers...”
"... improvising employees in communicating has
became company's main service to hone employees’
soft skills ..."
"... the ability to adapt to new people poses a
challenge for the employees; the employees are
expected to appear like he or she has known the
customers for a long time ...”
As for the staffs who work as tellers, owing to the
fact that they directly deal with the system as well as
companies’ financial statements, they are expected
to have the basic computer skills needed, even if
they don’t have the educational background of the
discipline. Several cases of human error can be
immediately identified through monthly evaluations
as well as informal reports in the daily briefing.
"... the analysis and its accuracy in transaction
process become an important point for employees
owing to the fact that they will be faced with
unbalanced amount of money when they make any
mistake ..."
Nevertheless, the companies do not impose
different operational hours for different position. All
of the employees work with the same working hours
(Monday to Friday, from 8 am to 2 pm) while in
case of overtime, the employee will get
compensation in the form of overtime pay.
"... we value employees who prioritize their time and
thus spur other employees to be more disciplined ...”
Other findings of the study show that employees
receive educations and trainings in regards of related
themes. In addition to honing individuals’ capability,
the company also expect to dig the employees
competence deeper so that they can improve firm
performance. The four companies impose
sustainable training programs and are deeply
committed to the long-term career development of
their employees. The companies provide their
employees with facilities as well as leeways for
employees who wish to continue their education to a
higher level without diminishing any of their rights
as employees, as long as the employees do not
neglect his/her responsibilities.
"... the obligation of the employees is to get their job
done on time without leaving any work for the day
after, this is one of the expected impacts of the
training programs imposed to the employees..."
The companies realize that not all of their
customers can position themselves as their partners,
some of their clients - for instance – position
themselves as kings. Consequently, there are times
when customers would expect to be served in
employees’ break or lunch time.
ICIEBP 2017 - 1st International Conference on Islamic Economics, Business and Philanthropy
406

“... there are times when we find ourselves in that
kind of situation and we will just proceed the
transaction as a solution ...”.
As companies that engage in the financial
services industry, the performance of the companies
is not only measured from the performance of the
human capital, but also from the cash turnover of the
company. Credit transactions, among others, is one
of the products that made this financial services
industry. It is not unusual for the employees to be
challenged by customers who do not make their
payments in due time. “ ... here the flexibility of the
employees will be tested...”
The results of this study show that human capital
plays an important role in the financial services
industry. The results of the interviews indicate that
the four companies provide their employees with
opportunities to develop their competencies, some
amount of freedom to move, and supports from
senior managers. Feedback earned by the companies
for the provisions mentioned is the increased feeling
of happiness and productivity of the employees,
marked by the completion of all the work on time
which positively impact firm performance. On the
selection process, the companies are not only
focused on candidates’ high competencies, but also
give emphasize to the strong desire of the
individuals to improve their ability, skills, and
adaptibility to exercise the elements of human
capital they possess. Some companies have proven
the feasability of the principles regardless the
difficulty. Leaders are not expected to execute all the
tasks of the company in solitary, but to take the steps
needed so that the employees can overcome the
obstacles in work and complete all the tasks together
in accordance with the work portion of each field.
Nevertheless, the companies should established a
particular standard to manage the human capital
elements to prevent superficial understanding that
will lead to hasty decisions and policies as well as
exploring the elements in order to produce superior
resources and maintain their places as local’s four
best financial services companies.
3.1 Cross Case Analysis for the
Development of HC Elements in
Financial Service Industry
The results and data analysis of this study indicate
the existence of the companies’ efforts to develop
the basic elements possessed by their employees.
Table 2: Human capital elements for each financial service
industry.
FSI A
FSI B
FSI C
FSI D
Flexibility:
Employees’
readiness to
face changes in
company
policy
Flexibility:
Employees’
ability to keep
up with
organization
development.
Flexibility:
Employees’
readiness to
face the
decisions taken
by management
that require
employees to
quickly adjust.
Flexibility:
Employees’
readiness to
be
transferred.
Adaptability:
Is an important
element for
employees who
work as
frontlines.
Adaptability:
Is an
important
element,
especially for
dealing with
new
customers?
Adaptability:
Should be
balanced with
good
communication.
Adaptability:
Is a
favourable
element that
can be
valuable for
employees in
regards to
their monthly
evaluation?
Competencies:
Employees’
accuracy as
well as their
computer
ability.
Competencies:
Employees’
basic
financial
literacy as
well as their
improvement
in
accordance
with the
trainings given
by the
company.
Competencies:
Is an important
element that
differs depends
on employees’
responsibilities?
Competencie
s:
Favour
employees
with work
experience in
the field.
Development
of
Organizational
Competencies:
Employees’
capability to
understand the
basic of their
colleague’s
works that
leads to the
ability to cover
their
colleagues
absent
Development
of
Organizational
Competencies:
The obligation
to finish their
tasks on time.
Development of
Organizational
Competencies:
Employees’
multitasking
capability.
Development
of
Organization
al
Competencie
s:
Employees’
ability to
give their
contributions
to the
company, i.e.
the ability to
compile rules
of work
discipline.
Individual
Employability:
Employees’
capability to
deal with the
Individual
Employability:
Employees’
capability to
deal
Individual
Employability:
Employees’
loyalty as well
as their sense of
Individual
Employabilit
y:
Attendance
in internal
Exploring Elements of Human Capital Development and Firm Performance in the Financial Services Industry
407

FSI A
FSI B
FSI C
FSI D
impact of top-
level
management’s
decision.
with
complaining
customers, i.e.
to
first ask for
forgiveness
followed by
service
recovery.
responsibility to
finish the
designated
tasks.
meetings as
well as
monthly
performance
evaluations.
Overall, the top-level managers of the financial
services companies studied in this research
highlighted the importance of the elements of the
human capital, thus indicating the need to develop
the elements in order to improve firm performance.
The companies, in particular, emphasize the
importance of Competencies as well as the
Development of Organizational Competencies
attributes. The development of these elements will
develops employees’ potentials that will assist them
to improve their careers as well as improving firm
performance.
4 CONCLUSIONS
The results of this study indicates a significant and
substantive relationship between human capital and
firm performance. Furthermore, the elements of
human capital is shown to encourage the employees
to improve firm performance. The elements of
human capital development such as education,
training, work experience, and human resource
management must be in accordance with the
government agenda. The findings of this study may
not be able to perfectly represent the entire
population as it was done in a limited sample size;
thus limit the generalizability of the study (Gillies,
1998, Hassan, Saleh, Kamaluddin and Hamzah:
2017).
REFERENCES
Becker, G. S. 1964. Human Capital: A Theoretical and
Empirical Analysis, with Special Reference to
Education. Michigan: National Bureau of Economic
Research; distributed by Columbia University Press.
Bontis, N., Chua Chong Keow, W., 2000. Intellectual
Capital and Business Performance in Malaysian
Industries.
Cabrita, M. B., 2008. Intellectual Capital and Business
Performance in the Portuguese Banking Industry, Vol.
43., No 1-3., 213-237.
Garavan, T. N., Morley, M. M., Gunnigle, P., Collins, E.,
2001. Human Capital Accumulation the Role of
Human Resource Development. 48-68., ISSN 0309 -
0590.
Gibbert, M., Leibold, M., Voelpel, S. 2001. Rejuvenating
corporate intellectual capital by co-opting customer
compe-tence, Journal on Intellectual Capital, 2(2), pp.
109-126.
Håkansson, H., Snehota, I. 1995. Developing relationships
in business networks, Routledge, London.
Hakooma, N., Seshamani, V., 2017. The Impact of Human
Capital Development on Economics Growth in
Zambia: An Econometric Analysis, vol 5., ISSN 2348-
0386.
Hassan, H., Moch. Saleh, N., Kamaluddin, K., Hamzah,
N., 2017. Exploring Element Human Capital
Development of Private Hospital in Malaysia: A
Qualitative Approach, ISSN 2289-6589, vol 6., ISSUE
1., 167-177.
Horibe, F. 1999. Managing Knowledge Workers – New
Skills and Attitudes to Unlock the Intellectual Capital
in your Organisation. Toronto: John Wiley & Sons.
Juwita, S, P., Anggraini, F., 2007. The Influence of Human
Capital to Business Performance Through Costumer
Capital, Vol. 4., no 2., 229-250.
Kaplan, R. S., Norton, D. P. 1996. The Balanced
Scorecard – Translating Strategy into Action. Boston,
MA: Harvard Business School Press.
Kiran, K., 2008. Service Quality and Customer
Satisfaction in Academic Libraries Perspective from A
Malaysian University, vol 50. no. 4. 261-272.
Marimuthu, M., Arokiasany, L., Ismail, M. 2009. Human
Capital Development and Its Impact on Firm
Performance: Evidence from Development Economics,
vol 2/8., 266-272.
Roos, G., Roos, J. 1997. Measuring your company's
intellectual performance. Long Range Planning, 30(3),
413-426.
Soon, H. H., 2010. Human capital Development, ADB
Economics Working Paper Series No. 225, Asian
Development Bank.
ICIEBP 2017 - 1st International Conference on Islamic Economics, Business and Philanthropy
408