The New Economics of People and Profits

© 2010, McBassi & Company 3

Conclusions

1.  “Human capital management” is the essential competency for 21st century organizations

2.  The most successful organizations of the future will be those with the most strategic HR & learning professionals

3.  To be truly strategic we need smarter measurement—actionable business intelligence—on the “people side of the business”


The Bottom Line

“Globalization has left only one true path to profitability for firms operating in high-wage, developed nations: to base their competitive strategy on exceptional human capital management”

“Maximizing Your Return on People” Harvard Business Review


A powerful convergence of forces is at work

  Globalization

  Technology

  Demographic change

  Environmental change

  Human connectivity

  Political and regulatory change


Separately and together

These forces are fundamentally changing the rules of competitive advantage

Requiring that organizations develop a core competence in human capital management

Creating new demands and opportunities for the learning, OD, and HR professions


This means…

There is both the opportunity

and the necessity for us to find ways to

liberate human capability in our organizations.


Leaders’ views on the competitive landscape


A question to consider

Where does good strategy come from?

GOOD STRATEGY:

DOES NOT come from a single idea

DOES come from observing and proactively responding to a powerful confluence of forces inside and outside your company


•   “HR is not a strategic player—it IS the strategy”

•   Seeking to “liberate people capability”

•   Using “transparency to drive accountability and trust”

•   Making enormous investments in training

Indian-based technology company


U.S based Defense Contractor

•   Demographic change is the big force shaping Lockheed Martin’s path forward

•   Actively focused on:

 Becoming a “worthy employer”  Shifting the command and control culture   Increasing transparency  Major investments in T&D


Bricks and Mortar retail chain

•   Avoids commoditization by shifting from “product” to “solution”

•   Intensive focus on human capital strategy

•   Extraordinary investments in training (initial and ongoing)


Global Technology Company

•   Technology and demographic change are the big forces shaping EMC’s path forward

•   75% of revenues in 2010 will come from products that did not exist in January

•   Highly creative use of social networking to speed innovation, reduce costs


An Internet Retailer

•   Relies on insight from the “science of happiness”

•   Tremendous focus on selection and training

•   Authentic “empowerment” of employees

•   Savvy user of the power of social media


U.K - based Consumer Goods Company

•   Firms must now “earn a license to grow”

•   Doubling revenue while reducing carbon footprint

•   Measuring and optimizing “organizational readiness” = people capability


The 800 pound gorilla

•   Google is a pioneer in human capital analytics

•   Puts together disparate pieces of information (employee surveys, performance reviews, exit interviews, etc.) for the purpose of creating business intelligence

•   Gets “inside of employees heads” and knows when they are going to leave before they do


Core messages

1.  Senior executives are:   Serious about human capital management   Making intensive investments in T&D   Thinking outside the usual “measurement box”

2.  Leadership and organizational attributes of the future:   “Reciprocity”   Connectivity   Transparency   Authenticity   Courage   Purpose for being


Ongoing challenges for HR & learning

“If your HR and training departments are forever trying to justify their existence, then something is wrong” CEOs Leading Talent

People are “our most important asset,” but we measure them as a cost


Attention Grabbing Evidence on the Link Between People & Profits


T&D investments predict stock returns

correlation coefficient = 0.49


Human capital management drives stock returns


Human capital management predicts student achievement

Each data point represents a single school in the same school district. (“Maximizing Your Return on People,” Harvard Business Review)

HCM Maturity Score

© 2010, McBassi & Company 23 23

Human capital management predicts retention

Ability to Retain Key Employees Relative to Competitors, by Scores on HCM Capability

(Data from 69 law firms)

© 2010, McBassi & Company 24 4/15/10 24

Human capital management predicts profitability

(Data from 45 chemical plants)

Profitability Relative to Competitors, by Scores on HCM Capability


Smarter Measurement More Impact & More Influence


Traditional HR and training measurement provides too little by the way of actionable business intelligence

Smarter measurement helps bridges the “people side of the business” and operations

More of the same is not the answer


1.  Too often done for budget justification, rather than continuous improvement

2.  “ROI” calculations:

♦   Frequently not credible

♦   Often based on cost savings rather than business impact

Problems with T&D Evaluation


Based on clever marketing parading as science :

Myth-1 The drivers of employee engagement are the same across

organizations

Myth-2 The drivers of employee engagement are the same as the

drivers of business results

Myth-3 Employee engagement should be maximized

Problems with employee engagement measures


“Next generation” evaluation systems combine the best of:

  The Balanced Scorecard which focuses on leading indicators

- with -

  ROI which focuses on linkages to business results

- with -

  Smarter employee surveys that answer why questions and create actionable business intelligence

Thinking Outside the Box


To…

 Continuous improvement

 Enhancing accountability

 Strategic (macro) orientation

 Predictive and actionable

 Based on analytics

Move from…

 Budget and staff justification

 Lacking credibility

 Tactical (micro) orientation

 Backward looking

 Based on myths

We need measurement systems that help you:


1. Have noble aspirations

2. Ensure that “the perfect” doesn’t become the enemy of “the good”

3. Every evaluation should be acted upon

4. Create an “organic” system for evaluating training and development

The 4 Principles for improving measurement


...missing link is business intelligence

...missing tool is human capital analytics

The critical …


Concluding Thoughts


Essential 21st century capabilities

Reciprocity

Connectivity

Transparency

Authenticity

Courage

A purpose for being


Summing up

The economic forces at work demand that:

•   Organizations develop human capital management as a core competence

•   The strategic value of learning continue to increase

•   We develop strategic measurement systems that provide us with actionable business intelligence (and credibility)

The New Economics of People and Profits

Business

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