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Human Capital Management Summary

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Human capital management
Introduction
The word “Human Capital” was
introduced by A. W. Lewis.
Human capital consists of the
knowledge, skills and abilities of the
people employed in an organization.
According to Lawrence Bossidy
an American author and former
Signal,
CEO
of
Allied
later Homewell.
“I am convinced that nothing we do
is more important than hiring and
developing people. At the end of the
day, you bet on people, not on
strategies.”
Definition
Human capital represents the human factor in the
organization; the combined intelligence, skills and
expertise that gives the organization its distinctive
character. The human elements of the organization are
those that are capable of learning, changing, innovating
and providing the creative thrust which if properly
motivated can ensure the long-term survival of the
organization.
Bontis et al (1999)
Constituents of human capital
Human capital consists of :
Intellectual capital
• Intellectual capital is the value of a company's employee
knowledge, skills, business training, or any proprietary
information that may provide the company with a
competitive advantage.
Social capital
• Social capital consists of the knowledge derived from
networks of relationships within and outside the
organization
Organizational capital
• Organizational capital is the institutionalized
knowledge possessed by an organization that is stored
in databases, manuals, patents etc.
Components of Human Capital
Organizational capital
Social capital
Human capital
• the knowledge,skills,
abilities and capacity
to develop and innovate
possessed by people in
an organization
• the structures,
networks and
procedures that
enable those people to
acquire and develop
intellectual capital
represented by the
stocks and flows of
knowledge derived
from relationships
within and outside the
organization
• the institutionalized
knowledge possessed
by an organization
which is stored in
databases, manuals etc.
• These include HR
policies and processes
used to manage people.
• Also known as
structural capital.
3
Meaning: Human
capital management
Human capital management
(HCM) transforms the traditional
administrative
functions
of
human
resources
(HR) departments—
recruiting, training,payroll,
compensation, and
performance management— into
opportunities to drive
engagement, productivity, and
business value.
Human capital management
Human
capital
management
(HCM) is the set of practices an
organization uses for recruiting,
managing,
developing,
and
optimizing employees to increase
their value to the company.
What’s the strategic importance
of implementing HCM
Automation is
changing
the
workforce
Importance of Human capital management
Managing a company's people resources.
Enhance the recruitment process
Identify gaps in the capabilities of the workforce.
Align human capital management with business goals
Allows better career planning
Improve productivity and efficiency
Improve performance reviews
Match positions with employee capabilities
Improve organic growth by identifying the competencies
of individual employees
Human capital management drivers
Driver 1 Leadership
Practices
Driver 2 Employee
Engagement
Driver 3 Knowledge
Accessibility
Communication
Key
Responsibility
Areas
Information
Availability
Inclusiveness
Driver 5 Learning
Capacity
Work processes
Innovation
Working
Conditions
Commitment
Team Work
Supervision
Driver 4 Workforce
Optimization
Accountability
Time management
Hiring
Leadership
Evaluation
Information
Sharing
Training
Performance
Management
Career
Development
Learnings
Human capital theory
• It regards people as assets and focus that investment by organizations in people will generate worthwhile
returns
• It propose that sustainable competitive advantage is attained when the firm has a human resource pool that
cannot be imitated or substituted by its rivals.
• Human capital theory helps to:
Determine the impact of people on the business and their
contribution to shareholder value;
Demonstrate that HR practices produce value for money
in terms, for example, of return on investment;
Provide guidance on future HR and business strategies;
provide data that will inform strategies and practices
designed to improve the effectiveness of people
management in the organization.
START
Human capital measurement
Human capital measurement has been
defined by IDS (2004) as being ‘about
finding links, correlations and, ideally,
causation, between different sets of
(HR) data, using
statistical techniques’.
The primary aim of HCM is to assess
the impact of human resource
management practices
and the contribution made by people
to organizational performance.
Reasons for interest in human
capital measurement
•Human capital constitutes a key element
of the market worth of a company
•People in organizations add value.
•Focus attention on what needs to be done
to make the best use of human capital.
•Monitor progress in achieving strategic
HR goals and evaluate HR practices.
•You cannot manage unless you measure.
Approaches to Human capital measurement
1. The human capital index – Watson Wyatt
2. The organizational performance model –
Mercer HR Consulting
3. The human capital monitor – Andrew Mayo
4. The balanced scorecard
5. European Foundation for Quality
Management (EFQM) model
6. The Sears Roebuck model
The human capital index (HCI) –
Watson Wyatt
Categories
Percentage
•
Total rewards and accountability
16.5 percent
•
Collegial, flexible workforce
9.0 percent
•
Recruiting and retention excellence
7.9 percent
•
Communication integrity
7.1 percent
The organizational performance model –
Mercer HR Consulting
Organizational performance model developed by Mercer HR Consulting is based on the
following elements:
People
Work
processes
Management
Structure
Information
and
knowledge
Decision
making
Rewards
•
Each elements plays out differently within the context of the organization, creating a unique DNA.
•
The statistical tool, ‘Internal Labour Market Analysis’ used by Mercer scrutinize the record of employee and labour
market data to analyse the actual experience of employees rather than stated HR programmes and policies
•
Thus gaps can be identified between what is required in the workforce to support business goals and what is actually
being delivered.
The human capital monitor –
Andrew Mayo
Mayo has developed the ‘human capital monitor’ to
identify the human value of the enterprise or ‘human
asset worth’, which is equal to ‘employment cost ×
individual asset multiplier’.
The individual asset multiplier is a weighted average
assessment of capability, potential to grow, personal
performance (contribution) and alignment to the
organization’s values set in the context of the
workforce environment (ie how leadership, culture,
motivation and learning are driving success).
He believes that value added per person is a good
measure of the effectiveness of human capital
This Photo by Unknown Author is licensed under CC BY
EFQM model of quality
• The European Foundation for
Quality Management (EFQM)
model indicates that customer
satisfaction, people (employee)
satisfaction and impact on
society are achieved through
leadership.
• This drives the policy and
strategy, people management,
resources
and
processes
required to produce excellence
in business results.
The EFQM model
1.Leadership – how the behaviour and actions of the executive team and all other leaders inspire, support
and promote a high performance culture.
2.Policy and strategy – how the organization formulates, deploys and reviews its policy and strategy and
turns them into plans and actions.
3. People management – how the organization realizes the full potential of its people.
4. Resources – how the organization manages resources effectively and efficiently.
5. Processes – how the organization identifies, manages, reviews and improves its processes.
6. Customer satisfaction – what the organization is achieving in relation to the satisfaction of its external
customers.
7. People satisfaction – what the organization is achieving in relation to the satisfaction of its people.
8.Impact on society – what the organization is achieving in satisfying the needs and expectations of the
local, national and international community at large.
9.Business results – what the organization is achieving in relation to its planned business objectives and in
satisfying the needs and expectations of everyone with a financial interest or stake in the organization.
The Sears Roebuck model (Rucci et al, 1998)
• The Sears Roebuck model defines the
employee-customer-profit chain. It is
sometimes called the ‘engagement model’.
• It explains that if you keep employees satisfied
in terms of their attitude to the company and
their job you will create a ‘compelling place to
work’, which will encourage retention and lead
to service helpfulness and merchandize value,
which leads to customer satisfaction, retention
and recommendations, thus creating ‘a
compelling place to shop’.
• This in turn creates ‘a compelling place to
invest’, because of its impact on return on
assets, operating margins and revenue growth
This Photo by Unknown Author is licensed under CC BY
The balanced
scorecard
A balanced scorecard (BSC)
is defined as a management
system that provides
feedback on both internal
business processes and
external outcomes to
continuously improve
strategic performance and
results.
The financial perspective
• Focuses on financial performances of an organization. It normally covers the revenue and profit targets of commercial
companies as well as the budget and cost-saving targets of not-for-profit organisations. The financial health of an
organisation is a critical perspective for managers to track. It is important to note that financial performance is usually the
result of good performance in the other three scorecard perspectives.
The customer perspective
• Focuses on performance targets as they relate to customers and the market. It usually covers customer growth and service
targets as well as market share and branding objectives. Typical measures and KPIs in this perspective include customer
satisfaction, service levels, net promoter scores, market share and brand awareness.
The internal process perspective
• Focuses on internal operational goals and covers objectives as they relate to the key processes necessary to deliver the
customer objectives. Here, companies outline the internal business processes goals and the things the organization has to do
really well internally in order to push performance. Typical example measures and KPIs include process improvements,
quality optimization and capacity utilization.
The learning and growth perspective
• Focuses on the intangible drivers of future and is often broken down into the following components:
• Human Capital (skills, talent, and knowledge)
• Information Capital (databases, information systems, networks, and technology infrastructure)
• Organization Capital (culture, leadership, employee alignment, teamwork and knowledge management).
• Typical example measures and KPIs include staff engagement, skills assessment, performance management scores and
corporate culture audits.
Human capital reporting
Human capital reporting is
concerned
with
providing
information on how well the
human
capital
of
an
organization is managed.
Types of
Human capital
reporting
External
reporting
Internal
reporting
Human
capital
internal
reporting
•Analysing and reporting human capital data to
top management and line managers will lead to
better informed decision making about what kind
of actions or practices will improve business
results, increased ability to recognize problems
and take rapid action to deal with them, and the
scope to demonstrate the effectiveness of HR
solutions and thus support the business case for
greater investment in HR practices.
•Human capital information is usually reported
internally in the form of management reports
providing information for managers, often through
the intranet and on dashboards
Human
capital
external
reporting
• The companies to prepare a business review.
•This has to disclose information that is
necessary for the understanding of the
development, performance or position of the
business of the company including the
analysis of key financial and other
performance indicators, and information
relating to environmental and employee
matters, social and community issues, and any
policies of the company in relation to these
matters and their effectiveness.
HCM is Influenced By…
Internal Factors
External Factors
• Workers
• Cost of
production
• Work system
• Corporate
culture
• Management /
leadership style
• Vision and
Mission
•
•
•
•
•
Economy
Technology
Competition
Globalization
Government
HC Goal
The goals are categorized based on major HC system:
Talent
Performance management
Leadership
Example of HC goals:
 Attract and retain a high-performing workforce with the
technical and professional skills needed.
 Continuously develop workforce skills in line with organizational
requirements.
 Allocate HR across organization to efficiently respond to
changing workload requirements.
Strategies / Objectives
Strategies /Objectives
describes more
specifically how the
goals will be
accomplished.
Example:
Goal 1:
andGoal
retain ahigh-performing workforce with the
Strategies/objectivestoAttract
achieve
and
1:
professional skills needed
D evelop long-term plans for the
number and type of employees
needed.
Implement a flexible staffing process
that delegates to managers the
authority to make staffing decisions
consistent with long-term plan s.
Implement processes to quickly
reassign or rotate employees to
functional areas with high workload.
Implementation Plan
• The actions
required for
implementing the
strategies or
achieving objectives.
Implementation Plans describe:
The tasks or activities that will
happen
Who is responsible
The resources required (human,
financial)
Time frames
Detail of actions developed at
different levels
HCM and Organization's Core Business Practice
HC contributes significantly towards business
success.
Hence,firms should consider:
The inclusion of HC in the development of business strategy
and objective setting
Consideration of areas such as :diversity,training and
development,equal opportunities and positive leadership
Employee health and safety,and well-being and absenteeism
Attraction and retention of the workforce,and turnover
•
people leave
their managers not their
organizations. This may not
It is often said that
always be true but there is
something in it. So far as many
people
are
concerned
their
manager is the organization.
They do not have much contact with
other people in authority. A business
may have all sorts of progressive HR
it is managers
who have to make them
work on the ground.
policies but
• Managers depend on their
people. They cannot do
hole hearted
without their
commitment and support. But
gaining
that
support,
motivating and engaging
them and ensuring that they
know what they are expected to
do and how to do it is down to
managers. And it is a difficult
task.
The Benefits of
HCM
• Delivering tools and
technologies needed to
improve employee
relationship management
• Raise satisfaction and morale
• Minimize turnover
• Create stronger,more
motivated and loyal
workforce
• Eliminating manual administrative
procedures
• Increasing the efficiency of HC
departments
• Minimizing the costs related to
acquiring staff and attending to all
facets of their employment
• Helps companies create
employee-centric cultures
Aims of
HCM
1. Determine the impact of
people on the business and
their contribution to
shareholder value;
2. Demonstrate that HR
practices produce value for
money in terms of return
on investment (ROI);
3. Provide guidance on future
HR and Business strategies;
4. Provide diagnostic and
predictive data that will
inform strategies and
practices designed to
improve the effectiveness
of people management in
the organization
HCM Values
Celebrate Teamwork
Promote Honesty, Integrity, and Trust
01
Honoring our commitments and conduct
business in a manner that promotes
fairness, respect, honesty, and trust.
02
Model Leadership
Embrace Change and Innovation
03
Openness to possibility and foster
creativity and risk-taking to support
continuous improvement.
Encouraging the diversity of thoughts,
experiences, and backgrounds.
04
Leading by example and advocate
equitable treatment in behaviors,
policies, and practices.
HCM Functions
Talent Management
•
•
•
•
Recruiting
Learning
Development
Performance
appraisal
• Acquisition
Human Resource
• Core HRIS
• Payroll Benefits
• HR Planning
Workforce Management
• Time & Attendance
• Shift Scheduling
• Expense
management
Other
• Solution for staffing
• Job Analysis
• Compensation &
Benefits
• Motivation and
change
management
Human Capital Timeline
2015
• Fair labor
practices
• Health &
Safety
• Diversity in
work
2016
• Workforce
demographic
• Human rights
• Compensation
& Incentives
2017
•
•
•
•
Total headcounts
FTE & PTE
Annual turnover
Employee
engagement
score
2018
2019
• Gender Diversity
• OHS Practices
• Workers
participation in
decision making
• Workforce
compensation
welfare
• Investment in
skills & workers
representation
Difference Between HCM &
HRM
HRM functions
• Work according to the law and
company directives.
• Uses simple bench marking
techniques.
• Host as default body to all the
process in group.
• Only expose integration of
HRM.
• Can driven regularly by HR.
• Never defines its true
objectives.
• HR function often delivers a
major solution with perfect
end.
HCM functions
• It is related to all employees’
issues and other elements
such as employment,
utilization, compensation and
development.
• Uses complicated evaluation
techniques.
• Host only default outcome
processes.
• Only executes interaction of
human capital management.
• Defines its true objective with
perfect reputation.
• Can able to deliver solution
for minor instances
Dimensions of Human Capital
Andrew Mayo Model
A
B
A
B
Individual Capability
Personal capabilities, Professional &
Technological know-how, network & range
Individual Motivation
Aspiration, Ambition, Work motivation,
productivity
Leadership
C
C
Clarity of vision, Ability to communicate
D
D
Organizational climate
Values of people, Employees appraisal,
innovation & Creativity, Transfer knowledge
E
E
Workgroup effectiveness
Supportiveness, Mutual respect,
Sharing common goals
Three core dimensions of HCM
Recruitment Process
Externally
Finding
Candidates
Internally
Why Careful selection is important?
Economic Benefits of
HCM
HCM Change Management Practices
Future of HCM
HR will be dead by 2020
Changing
behavior
Technology
Work place
The Impact of HC
Concept
• It is finally puts people
on the right side of the
balance sheet.
• Recognized and accepted
as a common definition to
describe the important
element of people as
intangible assets.
•
The HC strength lies in three main
areas:
–
The development
and
application of relevant
measures to gauge people
contributions to organization.
– Gathering and
interpreting results
obtained
– Utilizing the information
for organization
strategic advantage
Why measuring the value and
impact of human capital
• Human capital constitutes a key element of the market worth of a
company. A research study conducted in 2003 (CFO Research
Studies) estimated that the value of human capital represented over
36 per cent of total revenue in a typical organization.
• People in organizations add value and there is a case for assessing
this value to provide a basis for HR planning and for monitoring the
effectiveness and impact of HR policies and practices.
• The process of identifying measures and collecting and analysing
information relating to them will focus the attention of the
organization on what needs to be done to find, keep, develop and
make the best use of its human capital.
• Measurements can be used to monitor progress in achieving
strategic HR goals and generally to evaluate the effectiveness of HR
practices.
• You cannot manage unless you measure.
Responsibilities of HC
Manager
• Advice & counsel
• Service
• Policy Formulation &
Implementation
• Employee Advocacy
Qualities of HC Manager
•
•
•
•
•
Business Mastery
HC Mastery
Change Mastery
Personal Credibility
Leadership Qualities
Human Capital
Perspectives
Traditional View
Present View
HC expenses are considered costs.
HC expenditure are viewed as source of value
The HR function is perceived as a support staff
The HR function is preceived as a strategic
partner
HR is involved in setting the HR budget
Top Executives and HR are involved in the
budget
HC metrics focus on cost and activities.
HC metrics focus on results
HC metrics are created and maintained by HR
alone
Top executives are involved in the design and
use of metrics
There is little effort to understad the ROI in HC
The use of ROI has become an important tool
to understad the caouse-and-effect
relationships.
HC measurement focuses on the data at hand
HC measurement focuses on the data needed
HR program are initiated without a business
need connected to them
HR program are linked to specific business
needs before implementation.
Overall reporting on HC programs and projects
is input focused
Overall reporting on HC programs and projects
is output focused.
23
W orkers As Assets
In HC theory reference is made to people and
skills. It emphasizes on the way in which
employee competencies create value to the
organization in the same way that the ownership
of physical capital contributes to organizational
performance.
Thus, the worker as an asset has significant
implications for management practice. It leads to
the conclusion that firms need to redefine the
costs associated with remuneration, training and
development and career progression as
investments that create value for the business.
The theory therefore underpins the philosophy of
HRM which, as developed in the 1980s, stated
that employees should be treated as assets rather
than costs.
Scarborough and Elias (2012)
H C as Intangible Assets
– With the growing
realization of the
importance of
intangibles, financial
analysts and investors
are calling for more
transparency in methods
to measure their value.
What we mean by intangibles?
Critical OrganizationAssetsTodayAre Mostly Intangibles
TANGIBLE
ASSETS
Goodwill
Brand
Inventory
Intellect
Terminals
Knowledge
Pipelines
Innovation
Materials
Teamwork
Systems
Ambition
Equipment
Courage
Machinery
Agility
Buildings
Systems
Land
Products
IN TANGIBLES
TALENT
Source: Row Henson, HCM Fellow Oracle,“People, Performance, Profit”, IHRIM Global Forum 2008, July 17-8, San
27
Francisco
Comparison Of
Tangible
Intangible
Assets
And
Tangible Assets
Intangible Assets
Required for business operations
Key to competitive advantage in the
knowledge era
• Readily visible
• Invisible
• Rigorously quantified
• Difficult to quantify
• Part of the balance sheet
• Not tracked through accounting practices
• Ivestment produces known returns
• Assessment based on assumptions
• Can be easily duplicated
• Cannot be bought or imitated
• Depreciates with use
• Appreciates with purposeful use
• Has finite application
• Multi-application without reducing value
• Best managed with “scarcity” mentality
• Best managed with “abundance” mentality
• Best leveraged through control
• Best leveraged through alighment
• Can be accumulated
• Dynamic: Short shelf-life when not in use
28
2 KEY PRINCIPLES
OF HC
1.
People are Assets whose value can be
enhanced through investment.
– The goal of investment to
maximize value while managing
risk.
– As value of people increases,
organizational performance
capacity, value to clients and
shareholders also increase.
1.
2. An organization's HC policies
must be aligned to support the
organization's shared vision, core,
values and strategies;
– HC policies and practices should be
designed, implemented and assessed
by the standard of how well they
help the organization pursue its
shared vision;
– Value enhanced through nurturing
and investment.
Key Enablers For Effective
HCM
• 2P’s1T : People,
Process, and
Technology.
• People: The most
significant
Organizational Asset.
In Knowledge-based
organization,
people:
– Define an organization character;
– Drive its capacity to perform;
– Often constitute largest budgetary
expenses.
CSF Framework of
HC
4 HC Cornerstones
1. LEADERSHIP
2. STRATEGIC
HC PLANNING
8 Critical Success Factors
Commitment to
HCM
Integration and
Alignment
Role of the HC
Function
Data-Driven HC
Decisions
U.S. General Accounting Office, 2000
CSF Framework of
HC
4 HC Cornerstones
3. Acquiring,
Developing,
and Retaining Talent
4. Results-Oriented
Organizational Cultures
8 Critical Success Factors
Targeted
Investment in
People
Empowerment
and
Inclusiveness
HC Approaches Tailored to
Meet Organizational Needs
Unit and Individual
Performance Linked to
Organizational Goals
U.S. General Accounting Office, 2000
LEADERSHIP
1. Commitment to HCM
•
Embody an approach that is factbased, strategic results focused,
incorporates merit principles and
other organizational goals;
•
Stimulate and support efforts to
integrate HC approaches with
organizational results;
•
Accountable for managing people
effectively;
•
develop, implement, and
evaluate by how well HC helps
accomplish intended results.
2. Role of the HC Function
• Recognize the role of HC
professionals;
• HC Professionals must be
partnered in developing
strategic plans;
• HC Professionals are prepared,
expected, and empowered;
• HC processes are streamlined
through the use of technology.
STRATEGIC HC
PLANNING
3. Integration and Alignment
• HC approaches must be
designed specifically to
support organizational
goals;
• Additional HC approaches
needed to overcome the
shortcomings of existing
approaches;
• HC approaches must be
reflected in meeting the
strategic planning.
4. Data-Driven HC Decisions
•
Decisions involving HCM are
informed by complete, valid,
current and reliable data;
•
Data is used to identify areas for
attention before crises develop
and for continuous improvement;
•
Data to measure HC performance
must be identified and linked to
results;
•
Data on workforce profile and
performance must be used in
strategic workforce planning.
Acquiring,
Developing,
and Retaining Talent
5. Targeted Investments
in People
• HC expenditures must be
regarded as investments;
• Strategies for investing in
HC are integrated with
strategic planning;
• The efficiency and
effectiveness of the
investments is
continuously monitored
and evaluated.
6. HC Approaches Tailored
to Meet Organizational
Goals/Needs
• Appropriate tools must
be identified to
modernize HC
approaches;
• HC approaches must be
specifically tailored to
meet organizational
needs.
Results-Oriented
Organizational Cultures
7. Empowerment and Inclusiveness
– Employees at all levels are
given authority;
– Innovation and problem
solving are encouraged;
– Seek the views of employees
at all levels;
– Work collaboratively between
management and employees.
– Reducing the causes of
workplace conflict;
– conflicts are addressed fairly
and efficiently.
8. Unit and Individual Performance
Linked to Organizational Goals
• Organizational culture is
based on results oriented;
• Individual performance
management is fully
integrated with
organizational goals;
• Clearly defined and
consistently communicated
performance expectations.
Issues And Challenges
1.
Lack of strategic
alignment;
2.
Skills imbalances;
3.
4.
Workload imbalances for
remaining skilled workers
– doing more with less
people;
Succession planning
challenges;
5.
Inadequate
accountability for
performance;
6.
Outdated performance
appraisal systems;
7.
Reduced investments in
people.
Respond To The
Challenges
1.
Organizations must use all appropriate flexibilities
available under current law while pursuing results-based
HCM;
2.
Once shortcomings of existing flexibilities are realized,
organizations should pursue additional, selective
legislative opportunities for new strategic HCM tools;
3.
All interested parties should work together towards more
comprehensive HCM.
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