Human Capital Management

Here's an extract from an article I wrote that was published in July 2005 in Professional Consultancy. As I re-read it still seemed as relevant for many of the companies I'm working with today as it did five years ago. Their focus is still on the human resource rather than human capital.

HCM is the management of an intangible and volatile organizational asset. This asset being the collective sum of the attributes, life experience, knowledge, inventiveness, energy, and enthusiasm that the organization's people choose to invest in their work.

"Like financial capital, people need to be treated with care, respect, and commitment if the organization expects them to stay invested. It must also provide them with the returns they need. Just as in managing financial capital, organizations cannot afford to waste their human capital or risk it going to places where it can get a better return. Like financial capital, human capital needs to be carefully allocated, utilized, and managed." (Lawler, 2003).

Unlike financial capital, human capital is much more of an elusive asset – it can be influenced but not controlled. People determine via their commitment to the organization and their engagement in their job whether or not to invest their capital for the benefit of the organization.

Because HCM is not a new label for old HR practices but a profoundly different way of managing individuals in the workforce, there are some fundamental questions that challenge leaders of organizations as they think about transforming the way they manage their workforce (from one of cost control to one of strategic investment to ensure a good return):

Strategic Alignment
• How can collaboration and synergies be created among the different parts of the business to encourage extensive teamwork, create pools of innovation, identify and eliminate overlap and duplication, share knowledge and best practice?
• How can organizations develop their skills in external sensing – identifying trends in customer and competitive markets, government, legal, community and responding in a timely, effective, and efficient manner?
• What alliances must be created and sustained to ensure continuing strategic alignment of human capital with business plans and objectives?

Workforce Planning and Deployment
• What plans and actions must be taken to improve efficiency, reduce cost through productivity improvements; focus on being the low cost producer of products or services, with high levels of customer satisfaction?
• What needs to be put in place to leverage technology?

Leadership and Knowledge Management
• How will leadership talent be identified, created, and retained?
• What leadership attributes are required to guide the organization into the future?
• Who will build the organization's leadership brand and how?

Results-Oriented Performance Culture
• What systems, processes, and mindsets must be introduced or changed to drive HC quality and continuous improvement
• How do organizations acquire and exploit the latest trends in all forms of technology to manage the investment in human capital better?

• What organizational architecture needs to be changed or put in place to get competent and committed talent at all levels?
• What measurements will be put in place to ensure people are (and have the opportunity to) work at their potential?

• Who will ensure accountability for human capital management? And how will they deliver on this?

Posing the questions is one thing. Answering them is another! Briefly, there are four things organizations can do (and many are doing).

1 Appoint someone at an executive level who is accountable for Human Capital -whose background is delivering business results, and who is a strategic yet pragmatic thinker. This is unlikely to be someone with a pure HR background.
2 Develop the organization's HC capability and mindset so that this appointment works.
3 Take positive steps to develop and implement a 'new economy' model of HC asset management linked to the business strategy, bearing in mind that many countries are working towards requiring annual reporting on human capital as an organizational asset. (This is not relabelingling the HR function).
4 Integrate HCM measures and metrics into the overall performance reporting and management of your organization. (Consider tying human capital management to compensation).

Each one of these four things requires careful attention and none are quick or easy fixes. Bear in mind that in changing your organization's thinking about the human side of the enterprise from 'old economy' (HRM) to 'new economy' (HCM) is tantamount to business transformation, not 'better sameness'.