Human Capital

Human Capital Management

Human Capital Management Russell Connor

The Foundation for Strategic Decision Support

About the Author: Russell Connor is the Managing Director of Dynamic Link (www.dynamic-link.com/).

Dynamic Link uses a Work Levels framework to help assess human capital.

Acknowledgements: Dynamic Link recognises the important contribution of John Boudreau and Peter Ramstad to the development of these ideas.

We highly recommend the book by them entitled Beyond HR. The New science of Human Capital. Harvard Business School Press ISNB-13: 978-1-4221-0415-6.

Overview: Despite significant effort, the human resource of a business has defied easy evaluation in the way that financial capital and markets have been assessed. Whilst finances can be talked about in clear and consistent ways, there is no common language that enables Human Capital to be addressed.

Russell identifies the lessons that HR can learn from other decision sciences and details the integrated framework upon which assessment of Human Capital can be established.

Aims and Objectives Human Capital Management is a new approach to people management that treats it as a high level strategic issue and seeks to systematically analyse, measure and evaluate how people, policies and practices create value.

The aim of Human Capital Management is to increase the success of an organisation by improving decisions that depend on or impact people.

Human Capital Management promises a great deal. However, the diversity of human beings and the fact that an organisation’s financial health is always context dependent makes a simple translation between people and profit an impossible quest.

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Despite this, there are ways in which companies can assess their human capital.

Other Decision Sciences There are three key domains which organisations must address to be successful, namely; money, markets and people.

The good news is that accounting and management professions recognise that traditional corporate measurement systems must be enhanced to take into account the value-add of the people domain - especially in the knowledge based economy. As yet few organisations have with the ability to assess or fully utilise this knowledge based asset, despite many hours of searching for ways of measuring it and managing it.

Human Capital Management In looking for ways to measure and manage the value of the people asset there is much to learn from other decision sciences such as Finance and Marketing.

The frameworks and principles used within these functions generate valuable data that provides the support for strategic decisions taken by the most senior executives.

For instance, organisations are not just interested in how much money is sitting in the bank or tied up in the manufacturing or service delivery process; they want to know how hard their capital is working.

Ratios such as Return on Investment are generated within the Finance function to help to answer this question. This is what investors are used to when making business decisions and it is this kind of robust information that is so clearly lacking when it comes to assessing Human Capital.

In Finance and Marketing the frameworks that they use provide line managers with tools that help them focus on operational efficiency and there is a sense of cohesion about the practices that underpin the linking of money to business opportunity and product to market opportunity.

The Finance function for instance shares information about costs and revenues with the management team using a common framework and clear definitions of terms.

This provides the basis to make important decisions in an aligned way. Although managers might not like the fact that some areas are allocated more resources than others they understand that investment must flow to the units that are most financially pivotal in helping meet the strategic and operational requirement.

Lessons for HR The lesson from the Finance and marketing disciplines is that the goal should be to provide data that supports decisions designed to increase the effectiveness of the organisation.

Compare this to the position within the people domain. Despite the investment in sophisticated software systems and

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balanced scorecards, HR measurement is largely focused on the outcomes of work that is undertaken by the HR function. In the words of John W Boudreau and Peter Ramstad, ‘HR measurement is largely produced by HR people for HR people’.

HR will never have measures that are equally significant so long as they focus on the activities or benefits of the HR function or programmes- after the event. To be strategically significant they must focus on improving people related decisions that are made by senior management.

Human Capital Management, as an emerging discipline, is about ensuring that talent and organisational data is presented in a way that makes the value connection clear and supports decisions wherever they are taken.

The Foundation of Human Capital Management The absolute foundation for Human Capital Management is an objective and dynamic framework that brings together work and people. Without the robustness of an integrated and dynamic framework, seamlessly linking jobs and people, there is no basis for a ‘gold standard’ or reference point.

A dynamic model depends on developing an understanding of the types of work that are undertaken in organisations. A few companies operate such models, some of which are based on the work of Elliott Jaques. He described the types of work in simple and robust terms and focuses on the decisions that need to be made at each level of work. A great strength of this approach is that it has held true for over 40 years and is valid for all organisations.

Jaques's original Work Levels have been developed over the years by a variety of academics and ‘operationalised' by Organisation Design specialists and some HR practitioners. Global Profiling System (www.global-profiling-system.com) is a good example of an integrated model that is based on Jaques’s original ideas and now provides the basis for a complete management system.

© Dynamic Link

Human Capital Management In this, all jobs in a commercial setting can be allocated to one of six distinct levels each with its own theme, purpose and core contribution. Core contribution describes the outputs of the job and the value of these to the organisation is in direct proportion to the complexity of the environment in which decisions have to be made.

capital?

How much potential do we have in the talent bank?

What is the level of risk associated with losing people in business critical roles?

How prepared are we for succession?

Based on this, the mirror image is established which relates to the people requirements. As such, and by making the connection, a dynamic link between people and jobs is formed.

This dynamic link enables Work Levels based diagnostic methods to generate valuable human capital data.

For instance, by using job profiles and person profiles that share a common language and the same dimensions it is possible to automatically measure the extent to which people match jobs.

Solid information derived from a robust model and objective assessment enables HR functions develop a different mission to that which they traditionally address. In the words of John W Boudreau and Peter M Ramstad, this new mission is for HR to extend its focus ‘from the services that it provides to the decisions that it supports’.

Benefits A Work Levels methodology and associated diagnostic tools provides the foundation for strategic decision support.

Work Levels provides frameworks and methods that are equivalent to the accounting standards in the finance field.

This enables people, work and organisations to be assessed in objective ways and for clear measures, indicators, ratios and indices to be derived that enable key questions such as the following to be answered: How efficient is our organisational structure?

Are we effectively utilising our human

Š Dynamic Link

Contact For more information on Work Levels or Global Profiling System, please contact: Dynamic Link Ltd UK Suite 2, 16-25 Bastwick Street London EC1V 3PS Phone +44(0) 207 608 1118 Please email: Rosemarie McGuire, Partner, Head of Practice at rmcguire@dynamic-link.com www.dynamic-link.com www.global-profiling-system.com

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