For Better Financial Outcomes, Look to Your Human Capital Management Strategy

In our current post covid workforce environment and economic situation, every organization is searching for new efficiencies to cut costs, boost revenues or both. The natural tendency is to first focus on the ‘nuts and bolts’ of operations: reducing overhead, streamlining production or any number of other things. But many organizations overlook the value of their own workforce and its impact on the bottom line. While every company values its employees (or says it does), far fewer recognize the direct link between human capital and better financial outcomes.

Human Capital Management (HCM) strategies attempt to bridge this gap. Oracle says, “HCM considers the workforce as more than just a cost of doing business; it is a core business asset whose value can be maximized through strategic investment and management – just like any other asset.”

What is Human Capital Management?

In one sense, there’s nothing new in the individual components of HCM: They encompass all the traditional functions of human resources, from recruiting and training to payroll and performance management. HCM takes all those individual activities and rolls them into a comprehensive strategic plan designed to make improvements in acquisition, management and development of the workforce.

All this begins with a shift in organizational mindset.  Often, employees are viewed as a disposable expense vs realizing their potential as capital and understanding that by investing in the seemingly intangible components of HCM, an organization can grow its capital in very real ways. Many organizations have had expensive lessons on this front in the age of the Great Resignation, realizing the costs of inadequate focus on employees when their replacements had to be recruited, hired and onboarded.

Components: Knowledge Capital, Emotional Capital, and Social Capital

Human capital, and an HCM strategy, can be divided into three categories: knowledge capital, emotional capital and social capital.

Knowledge capital encompasses education, training, ‘hard’ skills and work experience. Emotional capital would include creativity, problem-solving skills, emotional intelligence and even company loyalty. When we speak of social capital this includes relationships, professional networks and overall social status.

There are limits to an organization’s ability to control or change some of these components. For example, it’s unlikely that any strategy would make substantial improvements in a given employee’s social status or emotional intelligence. Attention paid to all these elements can help to make sure that the right people are in the right seats, with skill sets and emotional qualities that are appropriate to their roles.

Transparency the Key to Successful Human Capital Management Strategy

As a direct contribution to an organizations top line, the velocity needed has to start with leadership.  The next steps towards the culture movement is the organizations belief system in the accelerated shift that recognizes employees as assets. 

Another key factor in a successful HCM strategy is transparency. Senior management will often resist sharing information down the line, and it’s proven that transparent organizations find it easier to attract and retain talent, a hallmark of any successful business. Implementing and HCM strategy will involve change, which many employees will fear and resist. A transparent and positive approach to change, one that clearly communicates the reasons, will smooth the path.

Proper HCM begins with a strategy that encompasses all of a company’s talent, structure and culture. This strategy has clear and measurable goals that can be backed by strong processes and data-driven tools. In other words, HCM is more than mission statements and team-building sessions; if an HCM strategy is to result in increased capital, there must be a road map with clearly defined goals. Many times mistaken as a first step, as HCM processes and operational efficiencies mature, the last step is to adopt the right technology to support and scale the HCM strategy you have developed. 

As more and more firms recognize the value of HCM, the field itself will continue to take on increased importance. A study from ResearchAndMarkets.com projects global growth of 10.53% in the HCM market over the next decade. The corresponding focus on team members and their value to an organization will position more organizations for success.