Leonardo Badea (BNR): Human capital - a key factor in adapting the economy to the new conditions

We are living in complicated times, when economic and social transformations are accompanied by deep reconfigurations of business models and work processes. The current overlapping crises (the conflict in Ukraine, the energy crisis, rising inflation, the climate crisis, the aging of the population) represent only a part, indeed important, of the causes of these transformations. They are, however, to a large extent also the result of a natural advance of knowledge and technology and especially of digital transformation.

By Leonardo Badea, Deputy Governor of the National Bank of Romania

Therefore, these transformations should not be seen exclusively as the unwanted result of unfortunate developments and events triggered by random adverse factors, but to a good extent also as adaptation to evolutionary changes in human society. Technological improvements and changes in the functioning of economic mechanisms and society are ultimately the answer to the challenges generated by the insufficiency of resources, the increasingly powerful disruptive effects of human activities on the planetary ecosystem, and the dynamics of the population.

However, these processes have become increasingly accelerated in recent years and the shocks generated by the pandemic followed by the increase in geopolitical tensions and the war in Ukraine have amplified their impact on the economy and society.

That is why the adaptation effort is significant and strongly felt by the population, inducing additional stress in the functioning of the systems and short-term pressure on resources (including financial). The changes we are going through are perceived as an acute pressure by society and the economic environment, either because they are too fast, or because they require a difficult redesign of the way we used to do things until now, or because in the short term and maybe even in the medium term involve costs of all kinds. However, adaptation is necessary because, under the new conditions, the old way of doing things becomes increasingly unsustainable.

In this context of change marked (as it always happens) by many uncertainties, tensions, and searches for solutions of an economic, social, and security nature, the institutions responsible for ensuring the stability and solidity of the systems place among the top priorities the increase in the degree of flexibility of the organizational structure, the way of organizing work, the processes and the technologies used.

These transformations impacted working, leading teams, evaluating and rewarding performance, rethinking the framework of recruitment, promotion, and succession.

Currently, the world is going through a process of rapid transformation, one of the key factors in the activity of each institution is the art of motivating and involving people in this transformation. This involves the development of skills such as: empathy, listening, and providing emotional support to others. Organizations that have been able to adapt in due time to these challenges have obviously been the most successful.

Organizational agility brings together human capital, technology, and institutions, transforming the organization into a whole that is more valuable than the sum of its parts.

We have the opportunity to shape and support this agility through innovative ideas and actions, rethinking, reimagining, and reinventing the way we want to work in the future. The main challenges in this regard will be the digitalization of products and services, as well as supporting and improving the performance and well-being of the workforce. At the same time, the tensions related to change will need to be minimized in order to ensure the well-being of the staff and to benefit from their loyalty.

The COVID-19 pandemic, the acceleration of the transition to a green economy, and the digital transformation will have a long-term impact on people and society. COVID-19 has driven the growth of automation and the use of artificial intelligence, but in parallel also the increased importance given to social governance and an increased focus on employee well-being.

According to a World Bank analysis, it is estimated that a company’s intangible assets, including human capital and organizational culture, account for more than half of a company’s market value on average. Efforts to introduce robust human capital measures into financial reporting have accelerated in recent years as there is a clear and growing market interest in understanding how companies manage and measure human capital.

We are already seeing changes in behaviour and in human interactions, reduced interest in jobs in certain sectors of activity, and greater concern for the balance between work and family or free time.

In this context, the ability of institutions to reorganize and reconfigure their processes and activities will be an important differentiator between success and failure in the long term. Team members play a central role in this scenario, being vital to the agility of institutions. That is why we need to look for solutions to create a framework conducive to high performance, which stimulates innovation and boosts the intrinsic motivation of employees.

From many points of view, scientific and technological progress in digitalization increases the importance of human capital as a means of achieving results and emphasize the importance of economic activities that involve physical interaction.

At the same time, the requirements for the level of professional training, digital skills, creativity, and adaptability of employees are becoming higher. This creates challenges but essentially represents a huge opportunity and an impetus for the development of human capital that acquires a great socioeconomic importance not only for the efficiency of the companies’ activity, but also for the progress of society as a whole, from multiple perspectives.

From the perspective of organizations, human capital is now considered an important source of competitive advantage (as is technological capital), not just “manpower” as it was viewed in the past. At the same time, at the level of society as a whole, investments in human capital (health, education, and the development of digital skills) contribute to raising the level of labor productivity, which should lead to an increase in the added value produced in the economy, at higher rates of growth economic and to faster improvement of living standards.

Moreover, human capital is inextricably linked to research-development and innovation activity, which in turn are important sources of competitive advantage for modern organizations and for the competitiveness of countries on regional and global markets, with an impact on the trade balance, on attracting foreign capital, and the level of external debt.

The recognition of this reality according to which human resources contribute decisively to the growth of organizational results and the economic development of the entire country entails a change of perspective regarding the management of human resources and the measurement of the impact of human capital in achieving the proposed objectives, emphasizing flexibility.

In the new conditions, the symbiosis between the business priorities of organizations and the life and work priorities of employees thus becomes one of the determining factors of successful adaptation to the new reality, and flexibility and hybrid work will facilitate this process.

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