Support our nonpartisan, nonprofit research and insights which help leaders address societal challenges.Donate
23 Jan. 2014 | Comments (0)
Acquiring and allocating human capital has been at the core of strategic human resource management since the 1990’s. Yet increasingly, both activities are making their way to the core of corporate strategic management, as executives realize that the performance of their talent has enterprise-wide effects, and at the operational levels of the business.
To illustrate, in 2011 both the Conference Board and Aberdeen Research found that although business growth was top priority among senior managers, it was hampered consistently by organizational behaviors pertaining to talent, such as employee engagement, retention, and decreased capacity due to skill shortages.[i]
Such a view has matured quickly, as in 2013 the Conference Board found senior managers struggling most with human capital and operational excellence, amid a clear understanding that future growth for their organizations depends on better management of their workforces.[ii]
Recasting the role of the talent scout
HR has been quick to recognize these challenges and adapt the HR function. Automation and self-service platforms have been a major part of HR transformations, relieving HR of some of its administrative burdens so that it can devote due attention to strategy. Advances in data provisioning and in-memory computing have also made unprecedented amounts of human capital data available, providing vast amounts of real-time information that can be applied to making optimal talent management decisions.
However, such power does not by itself improve the quality of talent management decisions. Rather, it requires that business users understand the unique environment the data describes in addition to data characteristics. More specifically, different roles within companies each contend with unique issues in applying data to human capital management programs.
Executives must evaluate numerous business opportunities, and determine where the organization ought to apply its scarce resources, including its human capital, in order to create business value. Yet, such strategic planning is frequently informed by data that is not fully trustworthy, and not followed up by adequate operational planning.
Line of business owners, in addition to insuring timely placement of persons in roles, must balance the tension of planning optimally for future headcount while ensuring their current performance targets are aligned with the strategic objectives of the company.
HR managers must assemble and maintain a talent inventory according to ever-changing business requirements and volatile labor markets. Human resource business partners must be able to keep track of approved positions over several quarters, and assure that the organization will be able to onboard the new hires.
And finally, finance and controlling struggles to monitor variances, such as actual headcount costs versus planned allocations, along with maintaining alignment between the financial and HR notions of performance management.
For each of these roles, a lack of accurate planning often affects the entire enterprise, whether by diminished productivity, reduced budget accuracy, increased costs, forgone growth and revenue opportunities, or higher operational risks.
The influenced becomes the influencer
Data-driven processes are nothing new to business. The entire value chain, including formulation of strategy, monitoring of production by statistical process control, transporting materials through supply chains, and most recently, customer relationship management, is characterized by rigorous analytical methods that require well-maintained databases.
Yet there are limits to these long-established analytical methods. During the transition to the post-industrial global economy, many businesses have found they are no longer able to create significant value simply by “going leaner.”[iii] As more industries are seeing leading companies approaching parity in the operational efficiency of hard assets,[iv] the value of a company’s intangible assets, particularly those residing in the unique capabilities of its people, has become widely recognized.[v] Additionally, due to ongoing uncertainty in the global economy, many companies remain risk-adverse toward incurring labor costs related to excessive hiring, turnover, or possible layoffs should conditions worsen suddenly.
For these reasons, the need for managers to know their workforces has never been greater. As IT investments mature, computing power increases, and warehouses of data accumulate, the ability to measure and control this last frontier has rightfully become a priority in many businesses.
Winning requires more than one “I”
Historically, talent development has been concerned primarily with individual performance, due in part to the fact that it is often much easier to observe, measure, and manage individual behavior than group behavior. In the last decade talent management has narrowed its focus to senior executives, certain star performers in key roles, and instances of exceptional individual performance. However, such a focus on individuals is becoming risky, as serious doubts about the portability of superstar performance have arisen, the global talent elite has become highly mobile, and unwittingly perverse performance incentives contain increasing risk of driving unethical behavior among key staff.
More immediately, such myopia can easily result in misidentification of the most appropriate roles for individuals to perform optimally. It can also take the focus away from addressing skill shortages, a problem exacerbated by high unemployment, which actually makes it even more difficult to recruit workers with needed skills.[vi] For example, a 2011 study by Deloitte Consulting and The Manufacturing Institute estimated that up to 600,000 jobs in the U. S. manufacturing sector remained unfilled due to employers being unable to find skilled workers to staff the positions (compared with approximately 3.5 million job openings and 14 million unemployed), with 67 percent of participating manufacturing firms experiencing a “moderate to severe shortage of available, qualified workers”, and 56 percent “anticipating the shortage to grow worse in the next three to five years.”[vii]
Many organizations are adapting by moving away from the idea of talent being an individual phenomenon and focusing instead on high-performance teams. The notion of organizational citizenship has given rise to a broader notion of talent, one that is characterized by the influence of social capital, and employee performance as a function of a sense of belonging to a high performing group.[viii]
100 percent human and 100 percent capital
Informed by over 20 years of strategic human resource management research, and aided by advances in enterprise software, talent management is rapidly gaining in sophistication. But with new competencies there are also two important lessons regarding keeping the human in human capital analytics.
The first is that human capital analytics that focuses exclusively on individual performance will neglect emergent, but no less powerful aspects of business organizations.
And secondly, human capital investments adhere to asset dynamics that are fundamentally different from traditional hard capital investments. Human capital analytics must be diligent not to confuse the performance of groups of humans with the performance of the organization to which those groups belong.
[i] Conference Board. (2011) The Conference Board CEO challenge 2011: Fueling business growth with innovation and talent development. New York, NY: The Conference Board, Inc.; Lombardi, M. (2010). The 2011 HR executive's agenda: Automation, innovation and growth. Boston, MA: Aberdeen Group.
[ii] Conference Board. (2013) The Conference Board CEO Challenge 2013 Summary report: Countering the global slowdown. New York, NY: The Conference Board, Inc.
[iii] IBM Corporation. (2004). Your turn: The global CEO study 2004. London, UK: Caspian Publishing Ltd.
[iv] Reimann, M., Schilke, O., & Thomas, J. S. (2010). Toward an understanding of industry commoditization: Its nature and role in evolving marketing competition. International Journal of Research in Marketing, 27(2), 188-197.; Frigo, M. L., & Hax, A. C. (2005). Overcome the dangers of commoditization. Strategic Finance, 87(1), 19-20, 59-61.
[v] Ployhart, R. E., & Moliterno, T. P. (2011). Emergence of the human capital resource: A multilevel model. Academy of Management Review, 36(1), 127-150.; Dean, A., & Kretschmer, M. (2007). Can ideas be capital? Factors of production in the postindustrial economy: A review and critique. Academy of Management Review, 32(2), 573-594.; Lev, B. (2001). Intangibles: Management, measurement, and reporting. Washington, D.C: Brookings Institution Press.
[vi] Mullaney, T. (2012, February 7). More job openings, but job hunters don't have skills needed. USA Today. Retrieved March 21, 2012, from, http://www.usatoday.com/money/economy/story/2012-02-07/december-job-openings-report/52998074/1.; Baden, B. (2011, November 18). Are employers to blame for the skills gap? U. S. News & World Report. Retrievedfrom http://money.usnews.com/money/careers/articles/2011/11/18/are-employers-to-blame-for-the-skills-gap.
[vii] Morrison, T., DeRocco, E. S., Maciejewski, B., McNelly, J. Giffi, C., Carrick, G. (2011). Boiling point? The skills gap in U.S. manufacturing. Retrieved from, http://www.deloitte.com/view/en_US/us/Industries/Process-Industrial-Products/6a67e7a878ee2310VgnVCM3000001c56f00aRCRD.htm.
[viii] Messersmith, J. G., Patel, P. C., & Lepak, D. P. (2011). Unlocking the black box: Exploring the link between high-performance work systems and performance. Journal of Applied Psychology, 96(6), 1105-1118.