5 Benefits to Managing Human Capital & How to Do It Well

Randy knows his company’s HR department needs a serious makeover. The combination of the tough economy, government regulations, new technologies, and recruiting challenges has overwhelmed people with data management and analysis. Randy wants to shift HR’s focus from being a “personnel department” to an emphasis on human capital management through executive coaching programs and other proactive ways of enhancing their talent.

Randy is right to think more strategically about talent management, which plays a core role in company strategy. In these precarious times that have employees jumping ship right and left, it’s especially crucial to avoid costly mistakes.

Here are five key benefits to getting serious about human capital management.

1. HR can find the best place for each employee and their knowledge.

. They can strategically place each individual into a position that will strengthen the company’s core offerings. Make sure each employee is in the right job at the right time with the right skills.

2. HR can better train from within.

They’ll see the needs of the business with more clarity and therefore will be able to find people who can fit into a position with just a little more training. This saves them the time and effort of recruiting human capital from outside and having to wait for the new employee to adjust to the company.

They’ll know how to close skills gaps. HR knows their employees’ abilities as well as what skills are necessary to grow their core business. Thus, they know exactly the kind of training they must create to close the skill gaps, such as executive leadership coaching for budding leaders.

3. Employees can plan their careers more effectively.

When they have accurate performance appraisals and understanding of the necessary skills and knowledge. They will know what they need to learn, and how that will help the company prosper. Thus, they will feel more in control of their career path.

4. You can create accurate pay incentives.

Businesses will achieve greater alignment between the value of particular skill sets and actual salaries. By lending a better understanding of which jobs to value—and thus pay—more highly, strong human capital management can create a pay-for-skills salary system.

5. You’ll retain your valuable talent.

Many employees leave companies because they feel underutilized. HR can better manage their human capital when they know their people’s skills and fully utilize them. By supporting employees in growing the core competencies leaders must have, you’ll bolster their loyalty. Employees will feel more fulfilled and stay with the company for longer.

Strong employee retention tactics will ensure your people are engaged and satisfied in their jobs.

HUMAN CAPITAL MANAGEMENT – EXAMPLE OF HR CREATING A NEW DIRECTION WIITHIN THE COMPANY

When both businesses and employees see workers as “a package of skills,” both can more easily recognize the value they offer their company. In the future, the best human capital management will help employees align their skills with the core priorities of the business to gain long-term upward growth for both individuals and the company.

As company president, Randy assumes ultimate responsibility for all departmental outcomes. But he knows that his people will support what they help create, so he wants his managers to be involved in designing a new HR direction. In a two-hour brainstorming session, they outlined three action items:

1 – Adopt an asset focus.

A company that operates with a human capital management philosophy believes that its people are just as much an asset as its buildings, its inventory, or its cash in the bank. The salary people earn needs to equal the value being provided.

“We can quantify people’s value,” Randy tells his staff. “And we can increase that value by making the right kind of investment in them. But how do we do that?”

Truly treating employees like assets involves a new mindset for many corporations. Often, especially in a tough economy, people are viewed as liabilities. Both philosophically and in actual accounting, they are treated as costs—an overhead item that can be reduced or eliminated for short-term gain.

Instead of the traditional belt-tightening when the going gets tough, now is the time to increase investment in people, Randy decides. That means recruiting top talent with the same analysis and intensity the company would put into buying a new piece of equipment. It also means setting up a comprehensive personnel development program that includes management training, executive leadership coaching, and a comprehensive succession plan that provides upward mobility and salary increases for those who want a real future with the company. Within his overarching focus on human capital management, he knows that career satisfaction and a fair salary are priorities for employees.

2 – Reward results.

Overall compensation, including salary, benefits, and intangibles, is important, but it must be based on results. And the corporate culture should be set up so that the best rewards go to those who achieve the most impressive results. Along the way, of course, the company should also reward exceptional effort with praise and encouragement, even in cases where the expected outcome wasn’t achieved. Each departmental manager held responsibility for evaluation and rewards, he emphasized. They needed to hold employees accountable for achieving specific business objectives, coming up with new ideas, and contributing to the company’s long-range plans. For HR’s part, they needed to be open to salary negotiation when rewards were deserved, making equitable decisions based on the increased value employees were contributing.

3 – Expect continuous improvement.

Randy sees this strategy as a long-term change, and long term means continuous improvement throughout the company.

The principle of continuous improvement originated with Dr. W. Edwards Deming, the management guru who helped the Japanese rebuild after World War II. Rather than making radical, high-profile changes in company operations, Dr. Deming adopted the Japanese concept of kaizen, meaning “good change.” Kaizen says that each employee responsible for making small but consistent changes to his or her own operation. Over time, those small, incremental changes contribute directly to the company’s bottom line results.

Kaizen is based on five key principles: teamwork, personal discipline, improving morale, using quality circles, and making suggestions for improvement. Randy and his C-level managers base their human capital management strategy on implementing these principles. They provide monetary rewards, and they treat people as tangible assets by providing coaching and training that lead to career advancement opportunities.

“Invest in your people, just as you would any other tangible asset, and your ROI will go straight to the bottom line,” Randy now advises others. Work to deeply understand the value each employee brings. Chances are, you have some overlooked talent in your workplace. When people feel fully recognized and valued, they’ll know they have a good shot at moving up in the company.

If you would like to turn your people into tangible assets, Joel can show you how to do that. Contact him today to get started.