Human Capital practitioners are often accused of not playing the strategic role they should; failing…
Human Capital Strategy – let’s cut through the mumbo jumbo and get to People Centred Strategies that truly supports the business
The time for “warm and fluffy” People Strategies built around meaningless concepts is over. Human Capital Strategies reflecting empty statements and buzzwords such as “attraction of key talent”, “retention of critical skills”, or “building a high-performance culture” should not be tolerated when these are adding no measurable value to the organisation if not substantiated with business focused content.
Let’s face it – most organisations use the same words reflecting the same old sentiments year in and year out. I suppose it’s like saying “our business is all about its people” and having no idea what this really means.
In 2010 – I cannot help but wonder whether organisations and specifically Human Capital Professionals have a real understanding of how to translate their business model and strategy into an appropriate People Model. We often over romanticise the role of people in business. But when thinking about it carefully we are reminded that we employ people in business to deliver a specific outcome – today, tomorrow or next year.
Continuing along this train of thought, our understanding of work, clearly articulating the desired outcomes, the competencies and skills required to achieve these outcomes and the reward the organisation will part with in exchange, are the fundamental building blocks of a solid people model.
This all sounds rather mechanistic. But is this not the real starting point? People have abilities and skills. Organisations need these to operate and build sustainable businesses – delivering profit for shareholders or delivering appropriate services effectively, in the case of government departments.
One can equate the building of sustainable and mature human capital to building a house. When you consider building a house, the logical process would be that (1) you would carefully design the house (2) analyse and procure all the material you require to build (3) hire professionals to build and (4) most importantly, build a solid foundation before systematically building the rest of the house from the bottom up.
Unfortunately, the vast majority of human capital professionals try to build their “house” by putting the roof on first. It is glaringly obvious that if you do not establish a solid foundation, your house (read department) will come tumbling down.
How we match people with requirements, what they get in exchange – be that development, career opportunities, money and the pinnacle – job satisfaction and even self-fulfilment…all have as fundamentals; the elements of work, outcomes, competencies and reward.
But let’s test these foundations against our “universal” People Strategies:
- “attraction of key talent”– If the organisation understands work and outcomes required, the relevant skills and competencies needed and apply classic resource planning to determine headcount required, we can plot gaps. Combine this with an understanding of critical roles in the organisation and one can make effective strategies to “hunt for talent”.
- “retention of critical skills”– If the organisation understands work and the outcomes required, relevant skills and competencies needed, then they can track performance and identify talented people in critical roles. With a solid understanding of rewards in the market and by the individuals involved; appropriate targeted strategies can be built to retain the skills the business really needs.
- “building a high-performance culture”– If the organisation understands work and the outcomes required, the relevant skills and competencies needed as well as the reward paid in the market; the business can build focussed strategies to motivate people using personal development, career opportunities and focussed reward strategies to drive even higher performance – eventually making it a part of the culture.
It should be clear that having these means having solid foundations settled in the people model of the business. Of course, solid foundations require more than the above, but many modern organisations do not have these essential building blocks mentioned, in place. It is regarded as unsexy and boring, even as limiting flexibility. These businesses have clearly not experienced how a little bit of discipline can create freedom and flexibility.
For the rest of this article I will assume that the basic building blocks are in place. If not – stop reading and do that first.[1]J
Building business focussed people strategies
Taking a functioning, mature people model for Human Capital for granted, affords one the opportunity to consider the kind of conversations regarding people that should happen, around the business strategy table. At the risk of over simplifying discussions required regarding Human Capital in modern business, which is not the intention, it is important to note that thought leaders seem to categorise these conversations around 5 “themes”, which I like to refer to as ‘the 5 Strategic Levers.’ These themes woven together become the basis of how organisations engage, manage and relate to staff at all levels and report on them.
- Work and structure: As a basic point of departure we should understand, discuss and report on the work that happens in business and, more specifically, how we structure or organise work in the form of a hierarchy.
This pays homage to the statement “form follows function”. Any change in strategy might affect the kind of work that is required in the business or how we structure it. Examples of these are: a new product range, a merger, closing a production plant, focus on R&D, processes, efficiency etc. This can affect:
- Levels in the hierarchy
- The type of roles required
- Number of people in the roles (position)
- Actual structure (legs in the structure) or
- The whole philosophy of the structure – market facing, geographical, client facing, etc.
Certain design elements of the structure and number of jobs, may directly impact the implementation of the business strategy and costs related thereto. This reality check can often impact a change in the strategy itself.
- Outputs:What gets measured gets done. As strategy shifts, the emphasis or focus of work might change. Whilst the focus can obviously not contradict the foundation of work, as staff make daily decisions or choices in the work place, these choices will be influenced by the focus currently required by the strategy, which is driven through the performance management process. This can also be in the form of a target.
As the business tracks the results of staff and team performance in the context of strategically relevant outputs, focuses and targets, certain tactical responses (decisions) might manifest in order to keep the outputs and deliveries on track, to deliver on the strategy.
Specific decisions on high and low performing units, high and low performing people in those units, the balance between lead and lag factors reflected in output and the dynamics of the Kaplan and Norton Balanced Scorecard process, all become tools that enable business relevant discussions under this lever.
- Reward and recognition:You get what you “pay” for. There is little as powerful in changing human behaviour or driving a different or new strategy and output, as rewarding people differently for it. This includes base pay, incentive pay and recognition campaigns.
We know reward is not a motivator, but wrong or inappropriate reward is certainly regarded as a de-motivator. Debate on relevant pay principles and strategies and how they relate back to the business focus and strategy is essential. Who is getting what slice of the cake? Is it appropriately structured to drive the required delivery?
- Competency and skills:Any shifts in business strategy, and specifically changes like new business models, different market strategies, new product sets or closing current product sets, new legislation etc., imply shifts in skills sets. If these shifts are not anticipated with strategic discussion and analysis, there is a permanent lagging of skills with regard to strategic delivery. Shifting competence within a business happens in any of the following ways and can happen as fast or slowly as the business allows (quickly or up to 5 years):
- Structuring
- Staff development
- Recruitment
- Retrenchment
- Culture, climate and engagement. This reflects on behavioural competencies that will apply to the business. For example, the values, leadership philosophy or any specifics related to business strategy or vision that is intended to drive a desired climate e.g. high innovation.
This is by far the most complex category of discussion around people and the timeous delivery of strategy. This represents what people think, believe and want from the business as a total system of processes, colleagues, managers, work/life balance, etc. It is impacted by all of the other four categories and how they change and align.
Applying the strategic levers in Human Capital
Driving business through a specific strategy requires that the executives have influence through the decisions they make.
Consider the following Scenario: Business XYZ needs to protect their market position and continue to drive growth despite the fact that a new competitor from a larger country, which is technically superior, has just entered the market. Finding a willing buyer for the business or buying a competitor are the two viable options on the table and current profitability is low, which will impact the bank’s willingness to fund either of the two options. A decision regarding the need to increase profitability whilst not sacrificing client retention or net client growth, forces the executive to look at cost drivers, process efficiencies or spend on research and development, as an example. Cutting edge research and development may hamper long-term growth or might impact the belief that the business has a bright future, in the eyes of the market financial analyst. An alternative may be to modernise the production plant that might impact negatively on cash flow but the anticipated impact on profitability through cost savings might make this option more appropriate.
Executives make decisions that impact business to achieve a certain outcome. The decisions are normally found in very specific categories: cash flow, profitability, stock holding cost, etc. These are described as strategic levers in the hands of the executives.
In the previous section we discussed categories or clusters of information that typically exist in the Human Capital arena. These clusters of information in fact become the strategic levers to the executive team regarding their Human Capital in the organisation.
Considering the above scenario within business XYZ, what can strategically be done from a human capital perspective?
| # | Lever | Strategy |
| 1 | Work and structure | Integration of structures to drive efficiency and minimise duplication. Should the number of sales and retention agent’s increase? What about staff turnover? A modernised plant will lead to significant shifts in the work/job content or even the structure itself. |
| 2 | Outputs | Shift the focus on
· Retention/sales and related targets during contracting and setting of weightings in performance management. · Contract on long term research and development results being implemented. · Contract the continued focus on cost and process efficiency. |
| 3 | Reward and recognition | Ensure appropriate long-term schemes are in place to focus success on implementing results of research and development work. Build a financial scheme to retain sales staff – but increased pay is a risk so rather, increase the percentage incentive to total package. Focus on the scarce skills required in the new plant; are they paid appropriately? |
| 4 | Competency and skill | Focus on sales and client service skills as well as on the skills required for the modernised plant. Are we buying or developing the skills? What is the availability of technical skills in the market? Consider bursaries for students in this field. |
| 5 | Culture, climate and engagement | Focus on client service, innovation and technical precision. Create an understanding of the business strategy through specific communication interventions. Design and implement employee engagement and change programmes. |
The above matrix is a potential “one size fits all” view of the Human Capital strategy. The longer the focus of the strategy is, the easier it will be to identify appropriate people related strategies to deliver and support the business direction.
This document focuses on a structured approach to Human Capital models, strategies and decision-making. The fundamental premise here is that such a structured approach to Human Capital delivers the flexibility in strategy which business requires of Human Capital.
Flexible Human Capital Strategies
Providing actions are aligned with the strategic levers and are also focused on the agreed business strategy, using the matrix from the previous section to define related actions for each Division, in partnership with the executive team, will both deliver on business need and provide a clear flexible context for Human Capital to work in. The ultimate success of such a process lies in the implementation of DCM®and SIPP® – all part of building solid people models.
| Human Capital: Strategic Lever Grid | |||||
| # | Lever | Strategy for Division 1 | Strategy for Division 2 | Strategy for Division 3 | Strategy for Division 4 |
| 1 | Work and Structure | … | … | … | … |
| 2 | Outputs | … | … | … | … |
| 3 | Reward and recognition | … | … | … | … |
| 4 | Competency and skill | … | … | … | … |
| 5 | Culture, Climate and Engagement | … | … | … | … |
Summary
Human Capital’s ability to make a meaningful, trustworthy and relevant contribution to a business strategy and impact a businesses’ ability to deliver in the most efficient manner over an extended period, is linked to its ability to get the basics right. Dealing with complex business systems made up of processes, people, technology and their often-conflicting interests is not an easy task. Line Managers working with and being responsible for the most unreliable and flexible, yet most valuable and difficult to replace of the three (namely people) deserve all the support Human Capital can provide.
By Otto Pretorius
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The SIPPTMand DCMTMprotocols are good models to assist your business in achieving this.
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