UNIVERSITY OF IRINGA

FACULTY OF BUSINESS AND ECONOMICS (FABEC)

EFFECT OF HUMAN CAPITAL DEVELOPMENT ON

ORGANIZATIONAL PERFOMANCE: A CASE OF IRINGA MUNICIPAL.

By

EMMANUEL PETER MSILU

BHRM-29036

SUPERVISOR NAME:

Ms. MUNISI

A Proposal Submitted in Partial Fulfillment of the Requirements for The Award of the
Bachelor of Human Resources Degree of the Iringa University in Tanzania

JUNE, 2024
 CHAPTER ONE

1.1 Introduction

Organizations around the world are constantly seeking ways to enhance their performance and
gain a competitive edge in today's dynamic business environment. One crucial factor that
significantly influences organizational performance is human capital development. Human
capital refers to the knowledge, skills, expertise, and abilities that employees bring to an
organization. The development of human capital involves investing in employees through
training, education, and other forms of professional development to improve their skills and
capabilities.

Numerous studies have shown a positive relationship between human capital development and
organizational performance. Organizations that prioritize the development of their employees
tend to have higher productivity, innovation, efficiency, and overall performance. Employees
who receive training and development opportunities are more engaged, motivated, and
committed to their work, leading to improved job performance and higher levels of job
satisfaction.

Despite the widely acknowledged importance of human capital development, there is still a gap
in understanding the specific mechanisms through which human capital development impacts
organizational performance. This research aims to investigate the effect of human capital
development on organizational performance and identify the key factors that mediate this
relationship. By exploring this relationship in more depth, this study seeks to provide valuable
insights for organizations looking to enhance their performance through strategic investments in
human capital development. Commented [U1]: How about the guideline?

1.2 Background of the study.

Human capital development has long been recognized as a critical factor in driving
organizational performance and competitive advantage in today's knowledge-based economy.
Human capital refers to the collective skills, knowledge, abilities, and experience of an
organization's workforce that contribute to its overall productivity and effectiveness (Becker,
2014). In the current business landscape, where technologies are rapidly advancing and markets
are becoming increasingly competitive, organizations must invest in developing their human
capital to remain agile and innovative.

Numerous studies have shown a positive relationship between human capital development and
organizational performance. For example, a study by Huselid (2015) found that investments in
training and development programs led to improved employee skills, which in turn enhanced
organizational performance indicators such as productivity, customer satisfaction, and financial
performance. Similarly, a meta-analysis by Gonzalez-Morales et al. (2017) demonstrated that
effective human capital development practices, such as performance appraisal and feedback,
were associated with higher levels of employee performance and organizational outcomes.

Human capital development is not only essential for enhancing individual performance but also
for fostering a culture of continuous learning and innovation within organizations. As
highlighted by Armstrong (2014), organizations that prioritize human capital development create
a more engaged and motivated workforce, leading to higher levels of employee satisfaction,
retention, and overall organizational performance.

The effect of human capital development on organizational performance has been a topic of
significant interest and research in recent years. Human capital, defined as the knowledge, skills,
and abilities possessed by individuals within an organization, plays a crucial role in driving
performance and achieving organizational goals. By investing in the development of human
capital, organizations can improve employee productivity, morale, and overall performance,
leading to enhanced competitiveness and success in the market.

Also studies have been investigated the relationship between human capital development and
organizational performance across various industries and countries. For example, a study by
Becker and Huselid (2018) found a positive correlation between investments in employee
training and development and firm performance in the manufacturing sector. Another study by
Huselid (2015) demonstrated a link between human resource practices aimed at developing
employee skills and knowledge and improved financial performance in service organizations.

Research by Delaney and Huselid (2016) highlighted the importance of aligning human capital
development strategies with organizational goals and business objectives to maximize
performance outcomes. Companies that effectively develop their human capital by offering
training, mentoring, and career advancement opportunities tend to enjoy higher levels of
employee engagement, retention, and ultimately, organizational performance.

Research in the field of human capital development and organizational performance has also
focused on the role of employee motivation, learning, and skills development in driving
sustainable competitive advantage. For instance, a study by Lepak and Snell (2019) emphasized
the importance of strategic human resource management practices in fostering the continuous
learning and development of employees to adapt to changing market demands and technological
advancements.

Furthermore, research by Guest (2017) highlighted the impact of investing in human capital on
employee commitment, job satisfaction, and organizational performance. Organizations that
prioritize human capital development through training programs, performance appraisals, and
career development opportunities often experience higher levels of employee engagement and
loyalty, which in turn positively influence overall organizational performance.

The dynamic nature of the modern business environment, characterized by rapid technological
advancements and evolving customer preferences, underscores the importance of continuous
human capital development. Organizations that encourage a culture of learning, innovation, and
knowledge-sharing can enhance their employees' skills and competencies, leading to improved
organizational performance and adaptability in a competitive marketplace.

The relationship between human capital development and organizational performance is

multifaceted and complex, with various factors influencing the outcomes. By investing in the
development of human capital through effective training, talent management, and employee
engagement initiatives, organizations can create a sustainable competitive advantage and drive
long-term success in today's dynamic business landscape. Commented [U2]: How do we write the background?

1.3 Statement of the Problem

The most critical resource of every organization is its human capital. It provides the dynamic,
responsive and creative force required to achieve and sustain the competitive advantage desired
most by organizations. The human capital and its development are critical to ensuring the
maintenance and improvement of the performance of any organization (Ostroff & Bowen, 2020).
Human capital in organizations is the knowledge, skill, and experience of employees (Peprah, &
Ganu, 2018) inland organization that contribute to sustainable competitive advantage.

The human resource management functions are many, yet human capital development in this paper
is deemed as one worthy of focus. This is because of the assertion that, an organization with all
other resources inadequate forms may miss the market leadership spot if its human capital is
inappropriately developed to spot opportunities, create strategies, implement those strategies to
gain competitive advantage and sustain those competitive advantages (Peprah & Ganu, 2018).
This requires a detailed historical examination of the concept of human capital and the aspects of
it that should be developed. Also, what forms should such developments take and how could
human capital development be used as a catalyst for sustained organizational performance

Undoubtedly every organization cannot perform well if its human capital is not effectively
developed. Human capital development practices and processes face several challenges or
problems that inhibit their effectiveness for organizational development and sustainability. Firstly,
is the failure or inability of Human Resources Managers to properly identify and select training
and development programs needed in serious human capital development problem which does
not lead only to low productivity but also underdevelopment of employees. The issues of human
capital development are not taken seriously by any organization, this is because of the failure to
acknowledge the fact that business setting has become very active and as such only those
organizations with the right technological manpower succeed in modern time.

The productivity of workers is falling resulting to low performance of the organization. This is
because most firms fail to send their employees on training due to lack of funds that is involved
in embarking on employees training. Also, most firms believe that workers are dubious in nature,
after returning from training desert their firms to join other firms. For instance, most Tanzanian
organization do not give their employee effective and efficient training, considering the cost
implication of sending employees on quality training which result into low productivity.

Today’s business environment is in the state of flux, where competition is the name of the game.
Organizations that fail to change may be forced to change from existence to non-existence, hence
survival is the panacea. To survive, companies must explore all available avenues that can bring
about competitive advantage. To develop a competitive advantage, it is important that firms truly
leverage on the workforce as a competitive weapon. A strategy for improving workforce
productivity to drive higher value for the firms has become an important focus. Organizations seek
to optimize their workforce through comprehensive human capital development programs not only
to achieve business goals but most important is for the long-term survival and sustainability of the
organization. To accomplish this, firms will need to invest resources to ensure that employees
have the knowledge, skills, and competencies they need to work effectively in a rapidly changing
and complex environment (Agha,2022).

The dynamic nature of the business environment and the increasing importance of knowledge-
based economies have underscored the critical role of human capital in driving organizational
success. Human capital development, which encompasses investments in training, education,
skill development, and talent management, is often cited as a key determinant of organizational
performance. However, despite the growing body of literature on this topic, there is still a need
for further research to understand the nuanced mechanisms through which human capital
development influences organizational outcomes.

This study will specifically investigate the impact of human capital development on
organizational performance in the context of sector. By examining how human capital
development initiatives such as training programs, career development opportunities, and
performance management systems contribute to enhancing employee skills, knowledge, and
capabilities, this research aims to provide valuable insights for organizations seeking to optimize
their human capital strategies and improve overall performance. Commented [U3]: What is the problem?

1.4 Research objectives

1.4.1 General Objective

The general objective of the study is to assess the effect of human capital development on
organizational performance in Tanzania: A case of Iringa Municipality.

1.4.2 specific objectives

1. To assess the Effect of employee skills on overall organizational performance in

Tanzania a case of Iringa municipality.
2. To evaluate the role of leadership development initiatives in enhancing organizational
performance in Tanzania a case of Iringa Municipality.
 3. To investigate the influence of employee motivation on organizational performance in
Tanzania a case of Iringa Municipality.
1.5 Research questions
1. what are the effect employee skills on overall organizational performance in Iringa
municipality?
2. How does the role of leadership development initiatives in enhance organizational
performance in Iringa municipality?
3. How does employee motivation influence organizational performance in Iringa
municipality?
1.6 Significance of the study

1.6.1 To the Government

This study will be helpful to the government especially in a matter of making strong organization
which will be used to sustain the needs of the state by improve employees living standard so as
increase government revenue.

1.6.2 To the organization

This study will be helpful to Iringa municipality especially in a matter of making strong
organization performance reforms which will be used to sustain the needs of the employees by
improve living standards environment so as increase goals success to organization, also the
organization will be able to reduce unnecessary costs in terms of financially as well time saving
because the organization will be able to manage the better performance and successfully.

1.6.3 To the researcher.

This study will be helpful in fulfilling the requirements for the awards of Bachelor Degree of
human resource management at University of Iringa. As a researcher this study will be seems to
be as a perfect identity for the accomplishment of three years of study at University of Iringa.
1.7 Scope of the Study
The study will be conducted in Iringa Municipal Council. The study will be focusing on
assessing the effect of human capital development on organizational performance in Tanzania.
Specifically, the study will concern with public sector but it doesn’t mean is not essential for
private sector. Also the study will focus on issues pertaining to human capital development and \
organizational performance in Iringa municipal. Most organizational that operates in this area
experiences competitiveness in business perspective as a results poor performance due to the fact
that the issue of employee training development has found to be ignored.

1.8 definition of key terms

Human Capital:

Human capital refers to the processes that relate to training, education and other professional
initiatives in order to increase the levels of knowledge, skills, abilities, values, and social assets of
an employee which will lead to the employee’s satisfaction and performance, and eventually on a
firm’s or organization performance. Rastogi (2020) stated that “human capital is an important
input for organizations especially for employees’ continuous improvement mainly on knowledge,
skills, and abilities.” It is “the knowledge, skills, competencies, and attributes embodied in
individuals that facilitate the creation of personal, social and economic well-being” (Organization
for Economic Co-Operation and Development [OECD], 2001: 18).

It is an aggregated economic view of the human being acting within an economy, which is an
attempt to capture the social, biological, cultural and physiological complexity as they interact in
explicit and/or economic transactions. Many theories connect investment in human capital
development, productivity growth, and innovation has frequently been cited as justification for
government subsidies for education and job skills training. (Peprah and Ganu, 2018)

Employee Performance

The word has something to do with the job- r el a t ed activities expected of a worker and how
well those activities are being executed. Many businesses personnel directors assess the
employee performance of each staff member on annual or quarterly basis in order to help them
identify areas for improvement. Employee performance may also be understood as the standard
criteria of employee Behavior at work place. These criteria mean more than how an employee
does the work. On the other hand, employees are rated on how well they do their jobs compared
with a set of standards determined by the employer.

Employee Performance

The word has something to do with the job-r el at ed activities expected of a worker and how
well those activities are being executed. Many businesses personnel directors assess the employee
performance of each staff member on annual or quarterly basis in order to help them identify areas
for improvement. Employee performance may also be understood as the standard criteria of
employee Behavior at work place. These criteria mean more than how an employee does the work.
On the other hand, employees are rated on how well they do their jobs compared with a set of
standards determined by the employer. Commented [U4]: Citation?

Organization performance

The performance linguistically is the implementation of a thing and, therefore, means its
performance and its payment must be carried out. It refers to the extent of achievements out of a
given and agreeable goals. It is said to have performed, meaning it was done and executed, and
the performance has several linguistic synonyms, including completion, achievement, fulfillment,
execution, action, effectiveness, act, doing, direct and devotion. Also, the performance lexically
can be defined as a term derived from the English word “Perform to”, which is derived from the
old French word “Performer”, which means carrying out a task or performing an action (Al-
Qaisi, 2016).

1.9 Organization of the Study

This study comprises three chapter. The first chapter deals with the introductory part which
contains background of the study, statement of the problem, research objectives, research
questions, scope of the study, significance of the study, and organization of the Study. The second
chapter contains the literature review. The third chapter deals with the research design and
methodology, and procedure of data collection and analysis.
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Business Press. Commented [U5]: Use times new romans 12
Commented [U6]: Follow format
Commented [U7]: Justify your work
Commented [U8]: Follow format