Preserving employee capabilities in economic turbulence

• Published date: 01 April 2019
• DOI: http://doi.org/10.1111/1748-8583.12211
• Date: 01 April 2019
• Author: Jane F. Maley

ORIGINAL ARTICLE

Preserving employee capabilities in economic

turbulence

Jane F. Maley

Jane Maley Consulting, Sydney, Australia

Correspondence

Jane F. Maley, Jane Maley Consulting, Sydney,

Australia.

Email: jane@drmaleyconsulting.com

Abstract

This paper examines how, in times of austerity, employee

capabilities can assist firms in augmenting their human

capital and at the same time meeting their financial

obligations. Real option theory, a concept borrowed from

economics, is used to provide a theoretical framework to

demonstrate that management has choices when making

decisions in times of austerity. The framework provides a

means of understanding how decisions can be made to both

maintain employee capabilities and at the same time focus

on company profit maximisation, typically demanded by

shareholders in times of austerity. The study establishes

the benefits of a continuous approach to capability develop-

ment in an environment of economic turbulence. Most

importantly, it paves the way for future research in this

increasingly critical area.

KEYWORDS

employee capabilities, real option theory, turbulence

1|INTRODUCTION

This paper examines the impact of economic turbulence on human capital and, in particular, the development of

employee capabilities. Human capital is defined as a form of capital embedded in the knowledge and skills that people

acquire through education and training and is a product of deliberate investment that yields returns (Schultz, 1961).

Employee capabilities, on the other hand, are conceptualised as not only a measurable pattern of knowledge and

skills, but also abilities, behaviours, and other characteristics that differentiate high from average performance

(Rodriguez, Patel, Bright, Gregory, & Gowing, 2002).

Employee capabilities are, thus, a subset of human capital typically attained through training (Lee, Phan, &

Tan, 2003) that is continuously supported, sharpened, and deployed (Khan, Humayun, & Khan, 2015). However,

research has established that employee capabilities are costly to maintain (Cascio, 2014), and when business

conditions become challenging, as typically occurs in periods of economicturbulence, it is well recognised that human

Received: 12 November 2017 Revised: 27 July 2018 Accepted: 30 July 2018

DOI: 10.1111/1748-8583.12211

Hum Resour Manag J. 2019;29:147–161. © 2018 John Wiley & Sons Ltdwileyonlinelibrary.com/journal/hrmj 147