Analyzing Your Human Capital

Your strategic objectives are achieved by your employees. And your mission and vision are implemented by your employees. And aggregate value – financial, functional and emotional – is created by your employees. By your human capital.

Therefore, in order to become the best of the best, you will need to maximize the aggregate value of your human capital to your corporate stakeholders. And, first and foremost, its financial value to your shareholders. And its aggregate performance.

To achieve this highly ambitious objective, we need to begin with the right human capital management paradigm. In corporate cockpit methodology, this paradigm is based on the following propositions:

1.      The fundamental objective of a business entity is to generate the maximum amount of financial and aggregate value for its stakeholders

2.      This value is generated by decisions and activities of its employees (managers and specialists) structured into corporate projects and processes (P&P)

3.      To create a strong enough P&P backbone (foundation) these activities are structured into responsibility areas around the corresponding corporate objects

4.      These responsibility areas are assigned to the most qualified corporate employees – based on knowledge, skills, experience and overall capabilities

5.      Corporate employees (human capital) are than structured into a hierarchy of functional units

6.      Corporate employees are appropriately and efficiently guided (by individual plans and ‘orders from above’) and competitively motivated to maximize their performance in their responsibility areas

7.      Decisions and activities of corporate employees must be perfectly coordinated – vertically and horizontally – with those of other corporate employees

8.      In addition to careful planning, this coordination requires highly efficient working relationships between employees

 Therefore, to maximize the aggregate value of your human capital, you will need to make sure that:

1.      Activities are properly (optimally) structured into responsibility areas

2.      Responsibility areas are properly assigned to your employees on the basis of training, knowledge, skills, experience and personality traits

3.      Declared responsibility areas match actual ones

4.      You maintain an optimal in-house/outsourcing balance (as well as full-time/part-time/contract balance)

5.      Your employees are qualified enough to operate at maximum performance in their responsibility areas

6.      You have established highly efficient training, coaching and employee development system to make sure that your employee qualifications always meet the requirements of the ever-changing corporate environment

7.      Your human capital is both sufficient and lean

8.      Each of your employees has optimal vertical and horizontal relationships with other employees – in terms of influence on his/her individual and group performance (and thus aggregate value generation)

9.       You have established for your employees optimal individual and group objectives (with the optimal degree of ‘stretch’)

10.  You have established a fair, objective, comprehensive and efficient performance measurement and assessment (analysis) system for each of your employees

11.  You have established a fair, objective, comprehensive, competitive and efficient compensation system for each of your employees

12.  Each of your employees operates at optimal and comfortable ‘production capacity’ – neither ‘overworking’ nor ‘underworking’

Your employees are your stakeholders. Very special stakeholders (because they are internal, unlike all others), but stakeholders nevertheless. Therefore, your relationships with your employees must conform to the same ‘harmony’ principle.

In other words, it means that not only your employee must generate the maximum amount of aggregate value for your company, but your company must also create the maximum amount of aggregate value for your employee. Financial, functional and emotional.

I will cover the ‘employee side’ of aggregate value maximization in the section on ‘corporate happiness’. Here I will mention only that you must develop and implement an optimal career development plan for each of your employees.  

To make it all happen the way you need it, you must develop and deploy a highly efficient human capital management system (HCMS). The core of this system is, obviously, its own human capital – you human capital director and his/her employees. Who no less obviously must be highly competent and experienced.

They will need (1) a detailed, comprehensive, well-structured, accurate and up-to-date description of your HCMS; (2) a highly efficient HCM process, including employee recruiting, hiring, motivating, promoting, training, terminating, etc. and (3) highly efficient HCM tools.

For the recruiting part, you will definitely have to use services of outside recruiting and headhunting companies with whom you must maintain comfortable and highly efficient relationships.

The key parts of individual employee descriptions are his/her (1) internal history in terms of responsibilities, assignments, successes, failures, training, etc.; (2) external history; (3); training, knowledge, skills and experience; (4) responsibility areas; (5) key personality traits, needs and desires; (6) key horizontal and vertical relationships; (7) performance and happiness measurement system; (8) compensation and motivation system; (9) individual operational plans and (10) needs for external (corporate) knowledge and tools.

As for the ‘quality-of-fit’, your HCMS must match you KEF, your DCI, your corporate mission and vision statements and your human capital management strategy. Your corporate culture and code of conduct are themselves parts of your HCMS.