Friday 19 December 2008

HCM in the Balanced Business Scorecard / Strategy Map


You can see the separation of the people and business management systems in most businesses' strategy maps.

Most, in fact very, very nearly all, show linkages between objectives in the internal process, customer and financial perspectives.  But there are very rarely connections between people and objectives in the other quadrants.



Why is this?

It's because what we do in HR, and the deliverables of this activity, ie human capital, affects everything else we do in the business.  Eg having engaged people doesn't just support one objective for operational success, it supports all of the objectives within 'internal processes' and also directly informs objectives relating to customer and financial success.

They're two different systems, see.

But this only works if you think about human capital as the output of what HR does, ie of the people management system.  Still think human capital is just unnecessary jargon?



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Thursday 18 December 2008

HCM and business success


   I also wanted to pick up on Richard Donkin's comments linking success in human capital management systems and business results. Writing about the Royal Bank of Scotland, Richard asked:

"So were we all wrong? I think the answer is 'no'. The HR team headed by Neil Roden at RBS has done some pioneering work in performance management. The bank's recent decline in fortunes tells us not that HR is ineffective, but that HR's value may be less than is sometimes claimed. It couldn't halt a slide in investor confidence as the bank was engaged in consolidating an expensive purchase of Dutch bank ABN Amro."


This is something I come across a lot.  For example, I often use Yahoo! as an example of personalised employer branding.  But I know some people will feel that the fact that Yahoo's business is still in casualty detracts from this case study. And I was even expecting a bit of a back lash against road-kill Woolworth's recruitment team winning a Personnel Today award recently ("if they had been recruiting the right people, they wouldn't have got into this mess would they...").

I don't think these criticisms hold.  HR doesn't have to be operating in a successful business to be good.  And poor HR still can be found in many profitable businesses.


Human capital as a bridging concept in the HCM value chain

I've previously posted about the HCM value chain and how this can be used to show that HR can take accountability for human capital, but I think this also shows that HR can't be accountable for business results.

The CIPD talk about human capital being a 'bridging concept' and I think this is absolutely right.  Human capital bridges between two systems - a people management system, and a business system.

The output of the people management system is human capital (creating value), or the human resources required to meet business goals (adding value).  And these are the inputs to the business system as well.

HR can be accountable for the outputs from the people management system.  Ie we can ensure that the business has the capability, levels of engagement etc it needs to be successful.  But what it does with this human capital is largely down to others outside of HR.


OK, you might expect some links between good HR and good business, and if poor management or poor behaviours are the fault of poor business results (as I've previously suggested has been the problem in the City) then you'd want to see HR challenging these.

But good HR / HCM can't guarantee business success.  The best it can do is to stack the odds on your side.



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Wednesday 17 December 2008

Remaining arguments for investing in human capital


   Here are my top five arguments for investing in human capital.  As I noted in my last post, the first of these is currently rather debatable (I think you can make a case for people being less important than cash at the moment), but I strongly believe that all of the other points still apply:


Human capital has become increasingly important to future returns (and therefore to market value)
Human capital will become more important again in the future, and will be key to turning the corner as well
Financial capital may have become more important again, but cash still needs people to spend it
People need even more support at the moment (see for example this post by Erik Berggren on SuccessFactors' Performance & Talent Management blog)
People account for a substantial proportion of organisational costs and this expenditure needs to be optimised.


What arguments would / do you use, and how have they changed over the last year?


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Tuesday 16 December 2008

Human vs Financial Capital?


The increasing importance of human capital, not!

I used to use this slide, from Baruch Lev at Brookings Institute, in a lot of my presentations to illustrate the increasing importance of human relative to financial capital.

I don't do so anymore.  I don't know exactly what has happened to the graph during 2008, but it seems pretty clear than tangible assets (explained market value) have once again established themselves as a much more significant proportion of overall market value, and that therefore, from this way of looking at it at least, the importance of intangibles, including human capital, has reduced.

We seemed for a while to be operating in an environment where human capital, rather than processes / technology or financial capital, was the key driver for competitive advantage.  I used to argue that this made people management the core business process, and made HR the most important business function too.  However, for many firms, those days have, at least temporarily, gone.



So I was interested to see a post on Donald H Taylor's blog responding to an article by Richard Donkin, which noted that "the tired assertion, ‘people are our greatest asset’, has been disproved by the credit crunch".

I think Richard and Don both made good points, and I was particularly enjoyed reading Richard's suggestion that we also need to value, or at least take account of the role of "abstract, human, emotional, constituents - trust, love, anger, panic".

The arguments for and against human and financial capital have also been made elsewhere, for example, in Deloitte Debates.

Deloitte makes the case that although the financial crisis is getting all the attention, the talent crisis didn’t just magically disappear.  However, their counterpoint is that "actuallly, it sort of did. This might sound harsh, but the recent market crash may actually ease the talent crunch by forcing workers to put off retirement for a few years".

Another good point...



My summary of all of this is that is that the human capital / people are our most important asset argument currently doesn't hold as well as it did before.  So as I said earlier, I'm no longer using it.

I don't think it matters too much - there are plenty of other reasons why people should remain an organisation's top priority.

I'll see if I can come up with a list if you'd like...



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Friday 12 December 2008

This blog / Human Capital ning


   In my last post, I started commenting on my recent interview on William Tincup's Human Capital Vendor Space

As I explain to William in the interview, one of the things I want to focus on during the early part of next year is the human capital community ning I set up last year, after a conversation with him, but haven't had the time, or the inspiration to do much with as yet.

I want to start using this community platform to start pulling together, discussing and validating some of my ideas I've been blogging about over the last 18 months, and use this conversation as a basis for documenting what we together think lies at the heart of this approach.  Perhaps a manifesto for HCM?

I would just say though that I think we will need to share some core beliefs to support this document / manifesto, or we won't be able to agree on anything.  For me the key idea at the centre of HCM is that it's about managing people for the accumulation of human capital - and that this becomes the central business goal (business impacts are then the output from human capital, rather than starting point of business strategy itself).

And if human capital is the central business goal, people really are the key to effective business performance, and they need to be treated as such, ie with due care, investment and respect.

It's why I strongly disagree with another of William's posts, calling for an anti-humanity manifesto for HR.  In my view, such a manifesto has got to put humanity at its very heart.

Whether you agree with this or not, I'd really appreciate your participation in this community.  There are already a couple of members who I don't think are going to agree with a lot of this.  Which should of course lead to some rich discussions.  And I'm sure the community will continue to discuss other issues unrelated to the document / manifesto as well.

And from next week, I'm going to become a lot more active on the community too.

You can sign up here.


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This Blog: You, Me and HCM


     I've recently been interviewed on William Tincup's Human Capital Vendor Space about this blog.

After having responded, I've been thinking further about my responses.

I explain to William that the main reasons I continue to blog are the opportunity to discuss HCM this gives me, but also the internet footprint it provides.  So for example, search in Google for 'McKinsey War for Talent' - which quite a few people do - and one of my posts generally pops up on the front page.

I've not had a huge amount of work from my blog, but I've had some, and it's increasing.  As I say in my interview, blogging is a key part of my business strategy.

But I've been noticing that I've been feeling a bit ashamed of my response.  This isn't the way blogging is supposed to be, is it?  Most of the best blogs make a point of putting their readers first.  They're about providing knowledge, ideas and suggestions - for 'you'.

Some other blogs are about them (ie 'me') but I think this only works when the writer is a bigger names / ego etc than me.

So this blog is about 'it', which in this case is HCM.  I just think it's an important enough area, and one I'm clearly passionate about, that it justifies a blog of its own, even though this may mean my posts may be rather less personal than those from other blogs you may read.

But please don't feel that this focus on 'it', together with some commercial undertones, mean that I'm not interested in your readership and participation.  I wouldn't be blogging if I simply wanted to document my thinking, and I am sure there are many more productive ways I could use my time to grow my business.  I do need and value your comments, and they do help direct my thinking and therefore future posts.

So do please keep on reading and commenting, and if you've not done so, you may want to subscribe to my feed in your reader:


Oh, and do check out William's other interviews, and his interviewees' blogs as well.



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Tuesday 9 December 2008

People Challenges in Russia & CIS

Russia conference

О Конференции:

Мировые практики подбора, обучения и удержания персонала

Как успешно справляется Ваша компания с увеличивающимися организационными требованиями и изменениями в бизнес - среде?

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Автор книги 'Strategic Human Capital Management', HR консультант

People Challenges in Changing Business Environment

International HR Conference for Russia & CIS

Moscow, Russia

29th – 30th January 2009



Author of 'Strategic Human Capital Management' book

I will also be speaking at this conference in Moscow looking at how Russian companies keep their workforces focused and productive, in spite of rapidly changing market environment and economic turmoil.

8th Middle East HR Conference


   I'll be presenting at the annual Middle East Human Resources (HR) Conference and Expo running at the Jumeirah Emirates Towers in Dubai on February 25 – 26th 2009.

This year the event will bring together a diverse, international group of the world’s top thinkers in human resources management to discuss the latest concepts and practices from across the globe.

The conference will include sessions that discuss the latest HR innovations and creative techniques. It will also provide information on critical business issues, such as enhancing employee loyalty and retention, employee learning and development, alignment of HR practices with overall business strategies, diversity, development of workforce skills and leadership development.



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Monday 8 December 2008

Investing in Bob


   Last week's Talking HR show (006) focused on one 'Bob', but today, I'd like to talk about another: a talented young man who has recently started at University and whose tuition costs are being covered by investors in return for a percentage of the student's future earnings over a fixed period of time.

This form of "human capital contract" has recently been reviewed in a Boston Globe article, 'Betting on Bob'.  The article notes that:

"The concept of human capital contracts was originally the brainchild of economist Milton Friedman. In 1955, he wrote a paper, later reprinted in Capitalism and Freedom, proposing that equity-like instruments, rather than debt, should finance higher education.  For Friedman, equity financing was a way to keep government out of the business of paying for higher education."



Unlike with student loans, repayments on human capital contracts are scaled to salary received after graduation.  This means that graduates are freed of the risk of overwhelming debt and are able to pursue socially valuable but low-paying work such as teaching.  And investors face reduced risks of default then under a more conventional loan.  And if a graduate finds a job with a high salary the investors stand to gain more too.



Of course, there are quite a few problems with the idea too.  I think the main one of many reviewed in the article is one of 'adverse selection': that students who expect to be well paid in the future (tomorrow's doctors and lawyers etc) have less incentive to get involved than those who don't (eg the future artists and nonprofit staffers):

"Why, after all, would students who anticipate fabulous success sign up to subsidize their less go-getting peers? A student who intends to be a high-flying investment analyst might calculate that the payments on a traditional private loan are likely to take a smaller bite out of her salary than those for a human capital contract would."



This and other problems means that there are only a few examples of firms offering HC contracts:

  • The main one is Career Concept, based in Germany, "which finances about 2,000 students at 180 universities in more than 20 countries, mostly in the EU. Typically, students are obliged to repay between 3 percent and 10 percent of their income over a period of between four and six years".
  • And another is Lumni which has financed about 150 students in Chile, Colombia, and Mexico and is starting to look at the US. "Students pay no more than 15 percent of their income, and in some cases as little as 1 percent, for up to seven years".


My perspective -

However, in general terms, I think the idea is sound, and I see it as just one early example of the way in which organisational reward is going to have to change quite significantly over the next decade.

As each individual's human capital continues to become more important, simply paying them a salary and developing their human capital if it aligns with an organisation's own objectives, isn't going to be enough.  People are going to want to ensure their human capital is maximised and that they are rewarded for the human capital they provide.  They may also not trust their employer fully to do this. 

One of the other problems raised in the article was that human capital contracts are a form of indentured servitude. For example, Sandy Baum, a professor of economics at Skidmore College commented, "I don't like the idea of someone owning a piece of someone else".

To me, this is the key benefit that human capital contracts could provide.  Have you noticed how the entrepreneurs on Dragon's Den often value the input of the dragons more than their cash?  Investors in someone's human capital would take care of their tuition fees, but they could be active investors too.

Bob could ensure that his investors are involved in helping him choose his employer, and they will naturally want to ensure he is getting the best possible development, and the right reward.

Organisations may only just be getting used to including helicopter parents in their younger employees' performance reviews.  They may need to get used to the involvement of helicopter investors too.




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