HR Business Event – Copenhagen 11th June 2014
‘“Creating High Value HR: How the 21st Century HR professional can add significant
value to any organization“
Paul Kearns
ChairIHRM
www.hrmaturity.com
The Value of Human Capital?
• Why is Toyota’s market capitalization c.3 x the size of GM?• Why can’t all banks produce value per head like Goldman Sachs?• Why have Pharma firms largely failed to fix R&D pipelines?• Why are BP & other oil majors still at risk of large scale disaster?• How did mis-selling arise at Lloyd’s after PPI & 5 years post GFC?• How does Costco stock consistently trade at a premium to Walmart?• How can Ryanair make more profit and be a ‘nice’ company too?• How is a 40 year old clothing firm more interested in saving the planet
making so much money?
Key Human Capital Questions need convincing answers:
“Some years ago a senior executive in charge of talent management ….called me to request my help as she set about, at the request of her CEO, to design a program for the bank’s “high potential” people.
‘Why did she need a program?’ I asked. Was there evidence that the bank was losing more talented people than in the past, or more than its competitors - in other words, was there any evidence of a problem?
That’s the state of play in human resources today - mindless imitation of what others are doing, little to no systematic evaluation of the effectiveness of management practices and programs, infrequent data-driven diagnoses of the problems HR is expected to address - in short, little of the professionalism now almost taken for granted in medicine, to take just one example.” Foreword by Professor Jeffrey Pfeffer
Evidence-Based HR/Management
HR’s value is determined by the level of organizational maturity
VA
LU
E
HU
MA
N C
AP
ITA
L
WH
OLE S
YS
TEM
LEA
RN
ING
PEO
PLE R
ISK
INTEG
RA
TIO
N
IMP
RO
VEM
EN
T
TR
US
T
PER
FO
RM
AN
CE
CO
MM
UN
ICA
TIO
N
SOCIETAL VALUE
IHRM
Stage 2Good ProfessionalPractice
Stage 3Effective Management
Stage 4Human Capital becomes integral to business operations
Stage 5Transition: operationalto strategic focus
Stage 1PersonnelAdministration
Board & Executives resistant to measuring human capital
value
Stage 6Organisation becomes a whole system
Stage 0No ConsciousPeopleManagement
©Paul Kearns/IHRM
STRATEGICREACTIVE
HR Maturity Analysis
http://www.hrmaturity.com/a-simple-introduction-to-the-maturity-scale/
No Conscious People Management
Activity/Admin: Process only
Basic Professional: Process to system
Effective Management:
Systems with teeth
Business integrated: Early stages of system
integration
Transition from Ops. to Strategic:
Towards whole system
Whole System Organisation:
Seamless, unconsciousSCORE
CORE QUESTION
Where is the organization in terms of:-0 1 2 3 4 5 6
A Value motive - profit/societal No conceptShareholder value/Cost of service
Pure profit/service user
Performance Employee shares Shared values Societal value 2
BHuman capital - organization's view of human resource - people as cost vs. people as value producing best return
No concept People = costPeople compliance issues
Professional advice informs ops management
People management integrated with business plan
Focus shifting from ops to future plans
People as valuable capital
3
CWhole system design - level of integration between strategic plans and organization design
No concept Silos - no integrationProfessional advice on more systematic approach accepted
Organizational weakness/failings acknowledged
Matrix orientedMoving towards whole system design thinking
Whole system integration
2
DLearning organisation - incorporating knowledge management
No conceptTraining courses only
Training objectivesProfessional advice informs ops management
Evaluation systemMomentum of feedback loops
Org-wide learning system/culture of knowledge
5
E People Risk management No conceptEnsure activity completed
Basic complianceProfessional advice informs management
Business performance includes risk assessment
Spotting future trends in risk behaviour
Whole system, strategic risk analysis
1
F Integration - business/people strategy No conceptNo conscious integration
Managers advised to look outside own needs
Understanding of interdependencies
Interdependencies managed
Moving towards complete integration
Whole system integration
3
G Improvement philosophy – quality system No conceptNo philosophy - some cost/time awareness
Minimum quality standards
Principle established: improvement equals output/value
Managers' performance gauged by ops value
Gradual realisation total quality philosophy
True Kaizen 2
H Trust, Engagement & Cooperation No conceptJust get the work done
Introduction of concept that these issues matter
Conscious attempt to build
Connections made to value
Mistrust, poor cooperation and disengagement squeezed out
Level of trust built over many years
3
I Performance system No conceptNo system, just activity data
Min. standards on data gathering process
Basic performance measures managed systematically
Management understands link betweeen performance/value
Shift to value management exclusively
Performance = Value 1
J Communication - open & transparent No conceptMinimum level of one way communication
Advising that feedback process is necessary
Feedback system
Link between communication and performance understood
Communication becomes very focused & fluid
All feel free to voice views
6
Questions to ascertain levels of understanding about each core dimension of business/HR strategy and organisational maturity.
IHRM Standard - ARC© Maturity - The 10 Pillars
ARC - Pillars 1-5
Ask questions
Do background research
Construct hypothesis
Test with experiment
Analyse results:draw conclusion
Report results
Think!Try again
Hypothesis is trueHypothesis is false
or partially true
HR must adopt aScientific Method
http://www.economist.com/news/business/21593468-size-not-everything-mass-market-carmakers-it-helps-kings-road
Market capitalization –
TOYOTA - $173 billion
GM - $53 billion
“VW is targeting a margin of more than 6 percent for the mass-market car brand… That compares with auto division margins of 8.8 percent at Toyota and 9 percent at Hyundai last year.
http://www.reuters.com/article/2014/04/25/us-vw-results-outlook-idUSBREA3O0X720140425
So where is Human Capital Value today?
“Incorporating ESG and human capital into company analysis and
valuation”
www.omratings.com
Stage 6 = AAA
Stage 2Good ProfessionalPractice
Stage 3Effective Management
Stage 4Human Capital becomes integral to business operations
Stage 5Transition: operationalto strategic focus
Stage 1PersonnelAdministration
Board & Executives resistant/unaware of people & human capital value up to this
point
Stage 6Organisation becomes a whole system
Stage 0No ConsciousPeopleManagement
Maturity spectrum:OMR ‘AAA’ Scales
LONG TERM - STABILITYSHORT TERM - UNSTABLE
A+
to
AA
-
AA
A
BB
B to
AB
BB
-
BB
+
BB
C B
OMR
ARC