Insurances for Human Capital Risk Management - Essay Example

Name: Course: Institution: Date: Article Review Summary The article ‘Insurances for human capital risk management in SMEs’ was published on the VINE journal volume 42, issue 1 in 2012. The article was a qualitative analysis on the element of human capital risks on the global market. In this case, the study aimed at evaluating ho insurance service and associated policy coves could be applied and used to mitigate SME human capital risks (Maenpaa, and Voutilainen 53). The study analysis was developed through a case study approach of an insurance provider, with specialised care and customer segment of the SMEs. In this case, existing literature on the topic is explored and a model and a series of recommendations developed for the SME ventures in the global market. The offered recommendations in the study revolve around the arguments for the need to insure key human capital risks in SMEs. Learning Points The study analysis forms a series of lessons that can be learnt and applied in the global market. In particular, this review identifies three of the core learnt lessons through a critical review of the study arguments. The first learnt lesson is on the role of risk management systems in organisations. In this regard, the study an article review illustrated that the presence of organisational risks in SMEs is a major source of their failure in the global market. This implies that through losses incurred as a result of the risks occurring, the SMEs lose their market competitiveness and effectiveness (Maenpaa, and Voutilainen 56). The article noted that through the use of proper risk management systems, the SMEs could successfully overcome and mitigate the risks. The main learnt lesson in the argument is that the use of insurance process is the best way for the SMEs to overcome their operational risks, especially the human capital risks. This lesson assumption is based on two discussed arguments, in that the risk management process reduces the SMEs involvement in risk management, and secondly because it reduces the overall loss end costs incurred if such a loss occurs. The second learnt lesson is that not all the existing human capital risks are uniform and that could be perceived as the same. Consequently, the key lesson is that not all the existing human capital risks that are insurable. In developing this lesson, the article illustrated that there are two forms of human capital risks, namely the insurable and uninsurable risks respectively. On one hand, the analysis learnt that the insurable risks are the human capital risks that are not within the control of the involved SME organisation (Maenpaa, and Voutilainen 59). On the other hand, the uninsurable risks are the risks that the SME organisations have control over to their frequency and magnitude of occurrence. The third key learnt lesson is the role of partnerships in developing risk management systems. The article illustrated that the only effectively approach through which to develop human capital risks insurance systems is through collaborations and partnerships with the insurance service providers. The key learnt lesson is that for every SME organisation, there is unique human capital risks posed. Consequently, this means that it is imperative for each of the SMEs to develop relations and partnerships with the insurance service providers (Maenpaa, and Voutilainen 63). Through such partnerships, the insurance companies are able to evaluate the human capital risks for the specific SME and subsequently offer and recommend unique insurance solutions to the companies. Critical Analysis The study offers a series of arguments, assertions and assumptions. This section offers a critical analysis and review of all of the offered arguments, assertions and assumptions in the entire study. As such, this critical review explores the extent to which the perceived arguments agree to existing literature as evaluated by the study. Thus, the entire critical analysis process is categorised into two main sections, namely points of agreement and points of disagreement points in the entire article Agreement Points In general, the entire article findings and analysis arguments are based on a number of valid principles and theoretical frameworks in the insurance and risk management topics. This section evaluates such point of agreement in the study. The first point of agreement is the deduction that a majority of the SMEs fail as a result of high loses incurring from their associated operational risks. In this context, the study offers an argument that risk associated losses lead to SMEs failure in the market. This argument and assumption is valid and can be supported by a series of other numerous arguments. First, Tagoe, Nyarko and Anuwa‐Amarh (333) noted that unlike the large global corporations, SMEs face financial and operational challenges. This means that the SMEs have lower operational capital, and thus cannot commit to huge operational investments. If this occurs, the SMEs lack the required capital to invest in the key growth projects. Thus, this affirms that indeed, the occurrence of human capital risks and the associated huge costs have the potential of collapsing and failing SMEs in the global market. Statistically, it has been established that a majority of the SMEs, especially in the emerging markets fail as a result of human capital failure. In this case, the organisations are unable to offer the employees the high rewards offered in the large corporations. Moreover, due to capital shortages, training and development programs are few. As a result, most fall into the risks of high employee turnover in search of higher and better rewards and working conditions, as well as the presence of a lowly motivated and undertrained workforce. The net effect of these risks is the lack of a proper and effective workforce for the SMEs, making them market irrelevant. Hence, based on the above arguments, this review indicates its agreement with offered article assertion that human capital risks have the potential and capability of failing SMEs globally. The second point of agreement is the assertion that human capital risks are not uniform. In this case, the study argued that for every workforce, and for every organisation, there are uniquely associated human capital risks. Based on this understanding, the article recommended that SME organisations should develop partnerships with the insurance providers to establish their unique human capital risks. The analysis agrees with the argument that the human capital risks vary from one organisation to the other. This is based on a number of background reviews. For instance, Desouza and Awazu (34) review established that human capital skills and experience impacted on their willingness to serve in a specific organisation. On one hand, the less experienced and talented employees could be less willing to venture into new organisations. This is because they feel the overall competition in new organisations could be hard. As a result, this reduces the employees’ human capital risk of turnover in organisations. On the contrary, the more experienced and talented employees are more willing to move to new organisations that are more challenging and offering between rewards, as they seek to explore their talents. Therefore, the nature of workforce that an organisation has determines the risk of human capital turnover. This is a clear illustration that human capital risks are not the same across organisations, and they so vary depending on the workforce characteristic. An additional argument that could be applied to support this article assertion is focus on workforce diversity, in terms of culture and different global market conditions. In this regard, cultural theories indicate that different markets have differing human workforce and society behaviours. For instance, the Hofstede cultural dimensions model notes on the element of collectiveness, individualism, and power distance. In this case, high power distance employees would require more resources and their training programs towards empowerment would be more challenging. Thus, this means that an SME organisation in a society with a high power distance would be faced with more inadequate training human capital risks than peers in markets with less power distance cultures in the market. Therefore, the above analysis indicates that the assertion that human capital risks vary from one organisation to the next is valid as has been supported by numerous illustrations. The third point and area of agreement is in the recommendation for strategic partnerships with the insurance providers. In this case, the article notes that SMEs could enhanced their human capital risks management by developing and establishing strategic relationships with the insurance providers. The need for relationships is underpinned as core value in strategic management. As Mellahi and Frynas (82) argued, the development of strategic relationship and partnerships is the new form of organisations market corporations. In this context, the authors argued that in order to facilitate operations efficiency and effectiveness, it is viable for organisations to develop relationships with all their market stakeholders. This assertion is founded on the theory of stakeholders’ management. The theory argues that organizations should focus on incorporating and including all their stakeholders in the management process rather than working isolation. Thus, this review argues that the recommendation for SMEs to develop strategic partnership relationships with the insurance providers is valid as has been supported with numerous theoretical arguments as above. Points of Disagreement Besides the offered points of agreement with the study arguments, this review establishes a number of weakness areas. The weak areas have the potential of reducing the reliability and validity if the applied study findings on SMEs in the global market. The first point of weakness noted in the study is the use of secondary data. In this case, the study applied a qualitative approach on existing literature on SMEs and insurance providers in the market. In particular, the analysis used the perceptive of an insurance provider. In this case, the use of secondary data limitations can be cited from Bryman (22), arguments. In the argument, the author stated that using secondary data limits an analysis to the reliability of the original findings. As such, in the event that the original data collection and analysis process had challenges and was as such wrong, the entire study that relies on such corrected data becomes misleading and the study findings cannot be relied upon at all. Thus, though using qualitative secondary data, the study subjected its validity and accuracy to the reliability if the used data sources’ and applied process. Thus, this review argues that although the offered recommendations are valid the validity of the resource base of the arguments will have to be validated on a source by source basis prior to validating the entire offered recommendations. Unfortunately, the accuracy of the reported data in the used articles cannot be verified, making the reliability and validity of the study findings questionable. In addition, the study used an insurance provider perceptive. In this case, it means that rather than addressing the human capital risks form the actual SME organisational approach, the analysis is based on the insurance provider perceptive. Although this cannot be applied to discredit the study findings, it leads to a number of key analysis questions. For instance, the question arises on the nature and extent to which the discussed study reviews addresses the actual SME human capital risks. In this case, this review asserts that it would be more effective and objective if the article had applied the use of an SME entity on behalf of the insurance company provider. In this context, the use of an SME would increase the practical objectivity and perceived validity of the findings. The insurance provider is a commercial profit oriented company. Consequently, this implies that there is the risk of the company exaggerating the associated human capital risks in a bid to increase insurance policies as a means of increasing paid premiums by the SMEs to the insurance providers respectively. Practical Application in the UAE The obtained study findings can be applied in a series of areas by SMEs in the UAE market. One of the core areas in which the findings can be applied is in the recruitment of an SME workforce in the future. As illustrated by the study analysis, the key challenge facing SMEs today is their human capital risks. However, it has also demonstrated that there exists a direct relationship between the types of employees in an organisation and the type and number of experienced human capital risks. Therefore, this review argues that the process can be applied through the recruitment process. In this context, an organisational recruitment process includes the determination of an entire workforce that is admitted into an organisation. In this regard, through a proper recruitment process, the organisational management sieves through the type and nature of workforce recruited in an organisation. This review argues that organisations can apply and adopt the study findings to determine the workforce recruited. This could ensure that through this strategic process, the organisations can work on proactively eliminating and isolating the occurrence of human capital risks. For instance, the organisational recruitment process can influence and determine the level of employee turnover. As already noted above, the most talented employees and those highly experienced tend to have a higher employee turnover human capital risks. Thus prior to recruiting the employees, SMEs should conduct an employee value proposition of their own. This is the ability to attract and retain talented employees. This includes their working environment conditions and their respective rewards in the market. This should be contrasted with the existing market condition and EVP by other SMEs and large organisations in the market, with whom they compete for employees. Once this is established, it becomes strategically easier to determine the kind of employees to recruit or not to recruit in an organisation. On one hand, the organisations should ensure that they recruit employees whose talents and experience do not fall above the acquired EVP. Recruiting such employees would increase the risk of human capital risks on turnover, as the employees would eventually seek out more challenging organisations. On the other hand, they should not recruit employees who fall way below their EVP scale. This is because such employees would create a reduced employee training. As a result, this could expose the organisations to the risk of low and inadequate employees training. Instead, through the use of the analysis findings, SMEs could easily recruit the employees that fall within their recruitment EVP category. As a result, this could ensure that the recruited employees could have a minimal human capital risks on inadequacy in training as well as low employee turnover in the market. Thus, through the review analysis, the analysis notes that through the study findings, SMEs in the global market could increase their human capital risks management by reducing the potential of the risks occurring proactively. The second key application area for the study findings is in developing human capital risks management systems and developing relationships and partnerships with the insurance companies. On one hand, the study findings note that the overall human capital risks could be categorised into two main categories, namely the insurable and the uninsurable risks respectively. On one hand, the insurable risks are those that the SMES lack control or influence over in the market. In this case, the insurance risks such as employee turnover and health issues are listed as among the insurable risks. In this regard, this review notes that the UAE SMEs can reduce their overall market liability on human capital risks by insuring the respective risks in the market. This would ensure that the SMEs reduce the negative implications caused by health issues on their staff that reduce their market competitiveness and productivity. Similarly, the article review notes the key uninsurable human capita risks in the market. The key applicability of the study in this review is the analysis of the key insurable risks and their associated remedies in insurance policies and covers. In this regard, it becomes a direct approach for the SMEs to insure their risks. This reduces the need for the SMEs to hire insurance and risk management experts to establish the best cover for each of the risks. Consequently, with such an informed base of understanding, UAE SMEs can easily insure their insurable human capital risks in the market. In this context, the SMEs should use this new category to form the basis of their internal risk management and control systems. For instance, the review notes that the risk of inadequate training among the employees is uninsurable. This means that the SMEs understand on the core responsibility and the need for the managements to develop and establish proper risk management systems. The analysis can be used as a pivotal tool in this process analysis. For instance, it clearly links all the established uninsurable risks to the causative factors. Thus, this creates an easy to follow template through which the ventures can adopt to develop internal risk management systems. This will be a major development in supporting SMEs use of risk management systems. In essence, most of the SMEs lack a clear understanding of the risk they face in terms of the existing workforce. As such, due to the limited nature of available resources, it is often hard and mostly impossible to do in-depth analysis on the key risk sources. However, through the study analysis, the hardest tasks have already been handled. Thus, the SMEs in the UAE can adopt the framework and increase their risk responsiveness in the market. Conclusion In summary, the above analysis offers a critical review of the Insurances for human capital risk management in SMEs’ article. In this case, the discussion opens up with a summary overview of the article indicting its publication journal and date details. Moreover, it enumerates the key learnt skills from the study. The core of the discussion analysis is the study critical analysis. In this case, the review critiques the study through two main fronts. The first front is on the point of agreement while the second front is on the key points of disagreements. Finally, the analysis reviews the practical application areas. In this case, it lists the key areas in which the obtained study findings and arguments can be applied in the development of the UAE SMEs risk management systems in the human capital risks management. Works Cited Bryman, Alan. Social research methods. Oxford university press, 2015. Print Desouza, Kevin C., and Yukika Awazu. "Knowledge management at SMEs: five peculiarities." Journal of knowledge management 10.1 (2006): 32-43. Maenpaa, Irinja, and Raimo Voutilainen. "Insurances for human capital risk management in SMEs." VINE 42.1 (2012): 52-66. Mellahi, Kamel, and G. Frynas. Global strategic management. Oxford University Press, 2015. Print Tagoe, Noel, Ernest Nyarko, and Ebenezer Anuwa‐Amarh. "Financial challenges facing urban SMEs under financial sector liberalization in Ghana."Journal of Small Business Management 43.3 (2005): 331-343. Read More