Topic: Capital Management (2)
This week we continue our exploration on the topic of capital management. The first article sheds light on the effective management of working capital which is a barometer of how freely cash flows. The other two articles focus on human capital, with the second article highlighting five global trends in human capital that have emerged in 2014 and the third article elaborating on the main elements of talent management.
Working capital is the lifeblood of every company and can
amount to as much as several months’ worth of revenues. Improving its management can be a quick way to free up cash. In efficiently run businesses, cash runs freely; in others, cash gets trapped in working capital, restricting the company’s ability to grow. This article published by Mckinsey examines four steps to effective working capital management. •
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Switch to cash flow as a primary measure of performance. Examples include 1) measure cash flow at the plant level and identify the right level of stocks and coordination among plants; 2) add a capital charge for outstanding accounts receivable to the measure of account profitability used to determine compensation levels for sales force. Collecting cash flow data into a consistent and usable format by either drawing on a single integrated IT system to automate the process or clearly identifying the kind of data needed and where to get it and building with a standardized template into an Excel spreadsheet Focus on areas of working capital with the largest dollar values such as inventory, accounts payable, and accounts receivable; set more meaningful targets by re-‐creating business processes as if there were no constraints and explicitly testing their assumptions—a so-‐called clean-‐sheet approach. Maintain the momentum of the baseline programs for working capital management.
• http://www.mckinsey.com/insights/corporate_finance/uncovering_cash_and_insights_from _working_capital Organisations are racing to recruit as they accelerate out of recession. While this is definitely great news for companies, it has to b e noted that recovery has b rought with it some problems – low employee engagement, wage inflation in some markets and most importantly, skills shortages. The world has changed over time, and so has the rules. Therefore, to maximise the
capital management, it is crucial to rethink about the recruiting process against the company’s current situation as well as against a bigger macroeconomic background. This article from PwC has summarized five global trends in human capital that have emerged in 2014. They are: the behaviour of organisations during a recovery, the nature of emerging markets, workforce management and the role played by diversity and trust, and the impact of HR itself. http://www.pwc.com/hctrends2014
This article from the Silverstone Group focuses on the main elements of talent management. They define talent management as the "alignment of talent to achieve the current and future business strategies of an organization." Silverstone states that talent management should be looked at as an
investment and dealt with as such. The article identifies 12 fields that must all be considered when concerned with talent. An overarching theme that is present in the 12 fields is one of constant change and adjustment, with a specific focus being placed on the importance of the current environment. The final message is that talent must be part of the development strategy and therefore must be well monitored and continuously developed. http://www.silverstonegroup.com/wp-‐content/uploads/2014/05/whats-‐your-‐talent-‐manag ement-‐strategy-‐f13.pdf
As we can see, it becomes imperative for firms to refocus on those previous underestimated areas such as working capital and talent management, both of which harbor great potential for the improvement of firms. With regard to managing working capital, analysis of cash flow data and identify potential areas of improvement are the key. When it comes to developing strategies to manage human capital, firms need to take into consideration the impact of their current processes and strategies on their overall business outcomes, their current business situations, as well as the bigger macroeconomic background.