Are Korean firms utilizing their human talent fully?

Having lived in India for many years, I have developed an understanding of how hierarchical organizations work ― there is a major focus on control; loyalty is demanded with promise of long-term employment; employees are narrowly scoped into task-oriented jobs; and innovation is supposed to come from the top and productivity from below.

By Ravi Kumar

Having lived in India for many years, I have developed an understanding of how hierarchical organizations work ― there is a major focus on control; loyalty is demanded with promise of long-term employment; employees are narrowly scoped into task-oriented jobs; and innovation is supposed to come from the top and productivity from below.

After working in the U.S. for many years, I am used to flat organizations that are focused on “performance,” where job mobility (within or outside the organization) is high, loyalty is earned, questioning the status quo is supported, innovation can come from anywhere ― inside or outside the organization ― and retaining human talent is the name of the game.

Reading research articles from respectable organizations like Samsung Economic Research Institute and Korea Labor Institute, it seems that Korean human resource management systems has been changing over time.

Before 1987, the focus was seniority-based to support a stable workforce needed for rapid economic growth; gradual changes were made between 1987-1998 to encourage personnel abilities needed by basing promotion decisions on skills possessed by employees; and after the IMF crisis in 1998, performance-based pay and bonuses were encouraged for employees (albeit mostly team performance, as in profit-sharing, rather than individual performance).

Research also shows that, while such changes in Korean human resource management are occurring, large companies are still focused on the traditional control-loyalty dimensions for their core employees and the “hobong” system still rules, when it comes to recruiting new talent and to a large extent, in annual pay increases ― incentives and bonuses are still a small portion of the overall pay compared to seniority.

Let me focus on employees with post-graduate degrees, such as MS and MBA, the kind that top schools, like KAIST, whether through their business schools or their science and technology schools, are seeking to train and develop to support our corporate clientele.

It seems to me that human resource managers in large companies are not sure how to utilize this talent. I have talked with MBA students, both domestic and international, from many top business schools in Korea and the response seems to be the same ― MBA degrees are just equivalent to one, maybe two more years in the hobong table, that’s it!

And that can be frustrating for this talented group since they have learnt a lot during their educational program, they are excited to add value to companies that they join but are frustrated that these skills are not valued or going to be utilized any time soon.

Made me think of how disappointed I was, in 1987, when, after being a professor for 5 years teaching MBAs and consulting for several companies, I was offered a job by a Fortune 50 company at a level similar to MBAs.

One industry that seems to be able to attract and utilize MBAs well in Korea is the consulting industry; they do look at the specific skills that these students have and match them with projects that they are engaging in for their clients, whether in marketing, finance, operations, IT or strategy.

Another industry that does well is the financial securities companies, as they pick off our talented Finance MBAs who have specific skills in investments and asset valuation.

The emphasis in hiring in both these cases is more on performance and value brought to the specific job ― consulting engagement ― and building a talent base for the future.

So, what should Korean human resource managers do? Should they emulate the Japanese human resource models (where post-graduates like MBAs are not valued ― only in-house education and experience in the company is)? Or should they be looking at human resource models from their current and future competitors, like China and India.

If one looks at three-year pay raises ( as well as actual pay, adjusted for purchasing power parity) at Indian and Chinese business schools in the Financial Times top 100 ranked schools, they are 50 percent to 100 percent more than those at KAIST Business School (which is also in this prestigious list).

This implies that companies in India and China do consider that these MBAs out of top schools are talented human beings with managerial skills and some experience.

It is time for Korean human resource managers and company senior leadership to revisit the hobong system and see if what was useful in the past is going to be sufficient for them in the future. It is clear to me that the future success of Korea depends on innovation and creativity, based on sound technical and managerial knowledge, as well as excellent leadership, communication and problem-solving skills.

Korea’s top universities are trying to provide such human resource talent—Korean companies need to get ready to provide the organizational infrastructure and human resource management systems to nurture and get value from them.

Ravi Kumar is dean of KAIST Business School.