Strategic Management of Human Capital Edward B. Yost Ph. D. , SPHR September 1, 2008 Ohio University College of Business Executive Education
Bom dia Boa vinda a Ohio University College of Business Executive Education
What is Strategic Success? ØDelivering high value results to significant stakeholders Financial Success Operational Success Customer Success Workforce Success Ohio University College of Business Executive Education
What Companies are Most Successful? Name some companies that are consistently delivering strategic success to the stakeholders. Ohio University College of Business Executive Education
What determines strategic success in business? • • • Being in the right (growth) industry Size High Technology Low cost Global Reach • Strategic Intent Ohio University College of Business Executive Education
The “Right” Industry • The best returns are from “Growth” – In terms of returns to shareholders there is no evidence that this is true Ohio University College of Business Executive Education
Bigger is Better? • While there may be some truth to this it is far from universal – Only about 1% of returns on total capital and/or returns on net worth are explained by revenue – In some industries the relationship is negative – Big is nice but not very important Ohio University College of Business Executive Education
Is High Tech. the Answer? • Technology may not be an automatic route to Success – while some high tech organizations top the list it is lonely at the top and the staying power is questionable Ohio University College of Business Executive Education
Low Cost = High Returns? • Manifestation of cost control is “rightsizing” – The problem is that cost cutting ignores the other half of profit making - revenue. – Cost cutting is like thrill show of jumping w/o a parachute -you can only do it once! – Cutting people cuts loyalty not a simple lay off and recall process. Ohio University College of Business Executive Education
Global is Good! Being Global doesn’t hurt but isn’t almost everybody? And… to be successful requires significant changes in all management systems Ohio University College of Business Executive Education
Defining the Business Strategy is: The central, integrated, externally oriented concept of how we will achieve our objectives. (Hambrick & Fredrickson) Ohio University College of Business Executive Education
Start with a Strategic Intent Looking for operational, financial customer, workforce success through… Betting on the incompetence of competitors Acquiring and utilizing the competencies of others Using existing resources & competencies differently Ohio University College of Business Executive Education
Strategy as a Process Strategic Intent Strategy Execution Emergent Strategies Strategic Success Ohio University College of Business Executive Education
What is “Strategic Competitive Advantage? ” Any Enacted or Utilized Organizational Competency that: Ø Allows the organization to distinguish itself from competitors Ø Cannot be readily duplicated or imitated Ø Provides a positive economic benefit(s) Ohio University College of Business Executive Education
Organizational Competencies • Tangible and intangible resources and capabilities that enable the organization to: develop, choose and, implement value enhancing STRATEGIES. Ohio University College of Business Executive Education
3 Basic Properties of Organizational Competencies • Potential to add VALUE (shareholder) • Utilize strengths/eliminate weaknesses and Exploit opportunities/neutralize threats • HETEROGENEOUS: • Very few firms have it or can provide it • NON-TRANSFERABLE • durable, immobile, hard to duplicate Ohio University College of Business Executive Education
Where do I Get this Stuff? Ø From a firms internal resource endowments Ø Buy or shared resources (M&A) Ø From resource deployments, systems and processes that cannot be imitated. Ø All of this is dependent on the workforce to enhance the exploitation of these resources. Ohio University College of Business Executive Education
The Secret Revealed! What is the SECRET of obtaining a Strategic Competitive Advantage? ØSimple: ØJust do what everyone else ISN’T! Don’t imitate – INNOVATE! Ohio University College of Business Executive Education
Strategy execution requires active management PROCESSES that: ØFocuses organizational attention on winning & motivate the people to seek the end through communicating the value of the target Ohio University College of Business Executive Education
Strategy execution requires active management PROCESSES that: ØProvides for individual and team contributions with contingent and equitable recognition and rewards Ohio University College of Business Executive Education
Strategy execution requires active management PROCESSES that: ØSustains the level of commitment and enthusiasm by providing for new operational definitions of the target as circumstances change. Ohio University College of Business Executive Education
Strategy execution requires active management PROCESSES that: ØUsing the strategic intent consistently to guide and sustain resource allocation decisions Ohio University College of Business Executive Education
The Key to Strategy Execution Workforce Capabilities (Select & X Mindset and Culture Develop Skills) = Ohio University College of Business Executive Education Leadership & Workforce Behaviors to Strategy Execution
Leadership & workforce behaviors Strategy Execution Workforce Capabilities Workforce mindset & culture Right types of HR alignment Right HR Practices Human Capital Ohio University College of Business Executive Education
What is Human Capital? üTalents and abilities üKnowledge and skills üSocial networks (capital) üDesire and visions Ohio University College of Business Executive Education
Human Capital Markets ØVarious levels of value ØAppreciates and depreciates ØTraded in markets and regulated ØIndividually owned but collectively realized Ohio University College of Business Executive Education
Human Capital Defined The collective sum of the attributes, life experience, knowledge, inventiveness, energy, and enthusiasm that its people choose to invest in their work. Weatherly 2003 Ohio University College of Business Executive Education
Human Capital and The Bottom Line • To create value through the HR requires a fundamental change in managing human capital. • The firm’s human assets have a value that corresponds to the present value of future net cash flows and are derived from the skills, motivation and adaptability of the firm’s workforce. Ohio University College of Business Executive Education
Why a HUMAN CAPITAL ORIENTED STRATEGY? Because…. . . The organization can leverage people with capital to achieve a higher return for owners Ohio University College of Business Executive Education
The Power Of HR Share Holder Returns Capital Human Resource Systems Ohio University College of Business Executive Education
The Power Of HR Share Holder Returns Human Resource Systems Capital Ohio University College of Business Executive Education
So What is Important? Successful organizations understand the importance of implementation, not just strategy, and moreover, recognize the critical role of human capital in the process” “People are the Strategy” - and to be successful organizations need to manage human resource systems Ohio University College of Business Executive Education
Why are people important? v. Provide a basis for a sustained competitive advantage v. Things like financial structure operational processes and technology can be easily copied or purchased Ohio University College of Business Executive Education
How Human Capital Helps • Workforce behaviors are the only way to achieve strategic outcomes like: • World class customer service • New product development • Cost controls • You name some more… Ohio University College of Business Executive Education
Human Capital is Invisible • Unlike conventional assets human capital does not appear on the balance sheet. • It is vested in the human resources often in the form of intellectual and social capital. • It is developed, utilized, and sustained through the management practices. • Being invisible it is harder to duplicate. Ohio University College of Business Executive Education
Basics of an HR System • More than the traditional functional components of HR. • Staffing, Training, Appraisal and Rewards are still important functions but… • They must be managed as a system; designed to produce employee behaviors that focus on key business priorities and drive profits, growth, and market value. Ohio University College of Business Executive Education
High Performance Work Systems • HPWS are generally firm specific and designed around the needs of the firm. • HPWS requires a strategic collaboration between traditional HR and CEO. • Requires alignment with the broad strategic infrastructure of the firm. • Must contain opportunity to participate, incentives, and skills Ohio University College of Business Executive Education
HPWS & The Employment Relationship ØAny intervention, and especially transformational interventions, that alter the Employment Contract ØEconomic ØPsychological ØSocial Ohio University College of Business Executive Education
HPWS --- Pfeffer’s 7 • • Employment Security Selective Hiring Self Managed Teams High and Contingent Compensation Extensive Training Reduced Status Distinctions Extensive Information Sharing Ohio University College of Business Executive Education
A True HPW System • Goes beyond the cost center to a market base measurement. • Today’s HR interventions directly impact present value of tomorrow’s cash flows. • One estimate of impact of HPWS is $15, 000 to $60, 000 increase of market value per employee. Ohio University College of Business Executive Education
Human Capital Index In a Watson Wyatt study companies that scored higher on HCI delivered significantly higher Total Return to Shareholders over a five year period. Ohio University College of Business Executive Education
Practices That Lead to High Performance Organizations *Impact on Market Value Recruiting & Retention Excellence 7. 9% *based on 1 standard deviation improvement Ohio University College of Business Executive Education
Practices That Lead to High Performance Organizations Impact on Market Value Total Rewards & Accountability 16. 5 % *based on 1 standard deviation improvement Ohio University College of Business Executive Education
Practices That Lead to High Performance Organizations Impact on Market Value Collegial, Flexible Workplace 9. 0% *based on 1 standard deviation improvement Ohio University College of Business Executive Education
Practices That Lead to High Performance Organizations Impact on Market Value Communication Integrity 7. 1% *based on 1 standard deviation improvement Ohio University College of Business Executive Education
Obtaining Strategic Success Financial Success Operational Success Customer Success • All are LAGGING indicators of strategic success Ohio University College of Business Executive Education
Obtaining Strategic Success Staffing Training Assessing Performance Rewards • All are LEADING indicators of Strategy Execution Ohio University College of Business Executive Education
Staffing • Buying Human Capital • A procurement function • An inventory management and valuation function • Matches human capital resources to needs • Provides for retention and divesting of human capital Ohio University College of Business Executive Education
Training & Development • Creating Human Capital • Matching competencies and skills to strategic needs • Capturing, maintaining, allocating and protecting knowledge • Preparing for the future Ohio University College of Business Executive Education
Assessing Performance • Measuring the critical behaviors that support strategic success • Evaluates the effectiveness of staffing • Identifies training & development needs • Evaluates the effectiveness of training & development • Provides a basis for allocation of rewards Ohio University College of Business Executive Education
Rewards • Provides a culture and mind-set to support strategic execution • Encourages critical behaviors • Attracts critical and capable human capital • Retains effective and removes ineffective human capital Ohio University College of Business Executive Education
Interaction of HR Systems Staffing Training Assessment Rewards Ohio University College of Business Executive Education
The Key Question is… What type of HR management system is required to deliver a workforce capable of successful strategy execution? Ohio University College of Business Executive Education
HR System Differentiation Drives Strategy Execution Strategic HR System Customization S t r a t e g i c I m p a c t Core HR System Differentiation Generic Best HR Practices Low Medium High Workforce Differentiation Ohio University College of Business Executive Education
Generic Best Practices ü The foundation for transforming the human capital to a strategic asset ü It is the combination of HR policies and practices that support the management of the workforce ü The use of “best practices” is a first step toward differentiation but be careful with importing the practice wholesale. Ohio University College of Business Executive Education
Core Workforce Differentiation Ø High level HR management systems to support high-level business strategies Ø Differentiation based on firm’s core strategy Ø Assumes a small number of relatively generic core strategies Ø Attempt to match elements of the HR system to the core strategy Ohio University College of Business Executive Education
Using the Core Approach ü It is relatively easy to implement and a good place to start the process of aligning the HR strategy with corporate strategy – because there is only one point of alignment which is the core value proposition ü Yet the limited options prevents this approach from developing significant competitive advantage Ohio University College of Business Executive Education
Strategic HR System Customization ü Differentiated HR management systems in support of strategic value drivers ü The focus is more explicit than core workforce differentiation with clear linkages between the HR system and strategic performance drivers ü There may be great variation of HR systems within the organization Ohio University College of Business Executive Education
Avoiding Execution Imitation Ø To develop strategic activities that creates value for customer in inimitable form Ø First, the organization articulates the system of strategic activities that define successful strategy execution Ø And define the KEY performance drivers in the strategy execution process and their relationship to one another Ohio University College of Business Executive Education
Fitting to the Internal Requirements Ø Differentiate the core HR systems sufficiently to meet the unique human capital needs of each performance driver Ø This approach is increasingly required as different elements in strategy execution require different workforce behaviors, mind -sets, and competencies Ohio University College of Business Executive Education
Positioning Customization of HR Strategy ü A continuum from best practices to customization ü Selecting the degree of customization depends on the cost benefit calculation ü Creating differentiated HR system creates costs at the same time it adds value ü As with all strategic decisions – a tradeoff Ohio University College of Business Executive Education
Align HR Architecture with HR Deliverables • Internal Alignment is the extent to which the HR policies and practices interact and support the other HR policies and practices • External Alignment is the causal linkages between the HR systems and the realization of the strategic competitive advantage Ohio University College of Business Executive Education
Deadly Combinations and Powerful Connections in HPWS L Deadly combinations - result from adopting or adapting HR practices in isolation. J Powerful connections - result from synergies obtained from complimentary HR practices that occur as a function of the environment. Ohio University College of Business Executive Education
Deadly Combinations L • Often result from rewarding A while hoping for B. • Example: Train on customer service and reward on a percent of sales bonus. • Example: Recruit highly talented people and promote on seniority. • Often a result of random benchmarking! Ohio University College of Business Executive Education
Powerful Connections J • Based on a Human Capital Management approach not a simple collection of HR functions. • Example: Investing large sums in developing employees and then assessing and rewarding based on performance. • Others? ? Ohio University College of Business Executive Education
For Alignment to Work… HR practices need to be strategically redundant It is not enough for the selection or the training or the compensation to be aligned with desired workforce outcomes All of the HR programs must work together as a synergy creating system for workforce success Ohio University College of Business Executive Education
The Product of Workforce Capabilities X Mindset and Culture Lagging Indicators HR Systems Leading Indicators Value Creation Ohio University College of Business Executive Education Strategy Execution
Creates Value because it is tied to Performance Results! Ø Innovation Ø Customer Service Ø Organizational Learning and Skill Development Ø Productivity Ø Speed Ø Cost Reductions Ø All of which lead to increased returns to owners over time. Ohio University College of Business Executive Education
Um descanso curto Ohio University College of Business Executive Education
Richard and Mary Practicing Management Ohio University College of Business Executive Education
The Key to Strategy Execution Workforce Capabilities (Select & X Mindset and Culture Develop Skills) = Ohio University College of Business Executive Education Leadership & Workforce Behaviors to Strategy Execution
Start with Workforce Capabilities Select & Develop Required Skills – Staffing contributions did they have the right skill set to start? – Training contributions did they have the opportunity and rewards to develop required skills? Ohio University College of Business Executive Education
Workforce Mindset and Culture Richard and Mary Individual perception of the situation? • Their Role – Performance measures, – Rewards • The role of others? – Performance measures, – Rewards Ohio University College of Business Executive Education
Leadership & Workforce Behaviors • Do we know what we should be doing? • Do we know what others should be doing? • Do we clearly communicate & understand the strategic intent? Ohio University College of Business Executive Education
Workforce Capabilities: Richard & Mary Select & Develop Required Skills – Staffing contributions did they have the right skill set to start? – Training contributions did they have the opportunity and rewards to develop required skills? Ohio University College of Business Executive Education
Workforce Mindset and Culture Individual perception of the situation? • Their Role – Richard/Mary – Performance measures, – Rewards • The role of others – Richard/Mary – Performance measures, – Rewards Ohio University College of Business Executive Education
Leadership & Workforce Behaviors • Does Richard know what he should be doing? • Does he know what Mary should be doing? His superiors? • Does he clearly communicate & understand the strategic intent? Ohio University College of Business Executive Education
Leadership & Workforce Behaviors • Does Mary know what she should be doing? • Does she know what Richard should be doing? Her subordinates? • Does she clearly communicate & understand the strategic intent? Ohio University College of Business Executive Education
Mary • Does she have capabilities? • What is her mindset and culture? • Is she maximizing strategy execution? Ohio University College of Business Executive Education
Richard • Does he have capabilities? • What is his mindset and culture? • Is he maximizing strategy execution? Ohio University College of Business Executive Education
How Richard sees Mary How Mary sees Richard Ohio University College of Business Executive Education
Explaining Attributes of Performance • Subordinates attribution of their own performance • I have the ability - more than enough • Opportunities are available; if I want them • But my supervisor’s mind set holds me back – I could do so much better if…. Ohio University College of Business Executive Education
Explaining Attributes of Performance • Supervisors attribution of their subordinate’s performance • They have the ability – I gave it to them • Opportunities are available; if they want them • But my subordinate’s mind set holds them back – They would do so much better if…. Ohio University College of Business Executive Education
Solving the Problem What can be done? Is it Human Capital? Is it HR Practices? Is it a Lack of Support? Ohio University College of Business Executive Education
Leadership & workforce behaviors Strategy Execution Workforce Capabilities Workforce mindset & culture Right types of HR alignment Right HR Practices Human Capital Ohio University College of Business Executive Education
Isn’t it COMMON SENSE? Managers know that they should implement high performance factors but They have elaborate excuses why they can’t Ohio University College of Business Executive Education
Its Only Common Sense! Half will never see the connection between People and Profits Half will embrace the potential of the connection between People and Profit Ohio University College of Business Executive Education
Its Only Common Sense! Half will never see the connection between People and Profits Half will engage minimal change Half will engage comprehensive change Ohio University College of Business Executive Education
Its Only Common Sense! Half will never see the connection between People and Profits Half will engage minimal change Half won’t stay the course Half will succeed Ohio University College of Business Executive Education
It is Difficult to Imitate ÜOnly about 1 in 8 even come close! ÜImplementation requires deep change and a commitment to “stay the course”. ÜIt is often slow and backsliding is common ÜMost of the requirements defy “Conventional Wisdom” Ohio University College of Business Executive Education
Just Do It? Managers will need to know WHAT to do but they will also need to know HOW to do it and must have the competencies and support with which to do it! Ohio University College of Business Executive Education
Obrigado para sua atenção amável Ohio University College of Business Executive Education
Скачать презентацию Strategic Management of Human Capital Edward B Yost
7d2db1ab947f8094cc0e39bbb0a0e137.ppt