Human capital management: more than HR with a new name.(PERSPECTIVES)

Businesses are racing to gain and sustain advantage in today's globally competitive business environment. Digital age technology is rapidly shifting where and how business is done. The pressure for profitability, to decrease the cost of production and increase revenues, fuels the need to leverage all of the sources of capital a company can access--including human capital.

HR's response has been to become HR strategic business partners. This is a great and necessary step, but the stakes are high and we need to shift gears faster--and think bigger! Either we move up the business value chain, or we slide down it driven by the twin and intertwined forces of technology and outsourcing that are already reshaping HR.

The term human capital management (HCM) is entering our lexicon of change. Most use the term interchangeably with HR, but HCM can and should be more than HR with a new name. HCM is a C-suite business discipline that develops enterprise human capital strategies and ensures the human capital portfolio is effectively managed. Just as the chief financial officer (CFO) is a full senior partner in identifying and solving business issues from a financial perspective, the chief human capital officer (CHCO) is a full senior partner in identifying and solving business issues from a human capital perspective. As C-suite members, the CFO and CHCO are accountable for overall enterprise performance. Both also have responsibilities for enabling business operations and the performance of their organizations.

HCM provides decision support by combining business and workforce intelligence to the development of enterprise human capital strategies: how to leverage people and their ideas effectively to achieve bottom-line business goals such as growing the business, increasing market share, margins, share price, and decreasing SG&A costs, as well as improving business processes, benefiting from technology investments, and increasing productivity.

The future of HR and the emergence of HCM are big topics. In this article we touch on a few starter points, hoping to open up further dialogue.

Human Capital Management--Strategic Domains

Leadership Capital: Executive performance and credibility

Structural Capital: Governance, business structure, processes, and technology

Workforce Capital: Employees, contingent labor, outsourcers, suppliers, and partners

Cultural Capital: Ethics, values, relationships, and reputation

Intellectual Capital: Innovations, inventions, and knowledge management

Leadership Capital: Strategy

Determining strategies for growth is a significant component of leadership performance. Growing the business is as much a human capital decision as it is a product/service and financial decision. Organic growth through extending existing products, adding new products, opening sales channels or expanding into new markets requires human capital resources. HCM considers the state of the enterprise innovation engines, SG&A impact, and the leadership and workforce options and costs of expanding and operating in new channels, markets, or geographies.

Perhaps it is time to "buy" growth through a merger or acquisition (M&A). Have you noticed when a major M&A deal is initially announced the stock of the acquired company usually goes up and the stock of the acquiring company goes down? Shareholder skepticism is justified, as many mergers do not produce all the promised results. The wheeling and dealing of an M&A is heady, but the aftermath is often simply a headache. If the M&A value proposition is based on anything more than merely buying the tangible book value assets and market footprint, then increased HCM due diligence and preplanning for the post merger integration is critical before deal fever kicks in.

Structural Capital: Governance

Operating structure and governance exist to facilitate achievement of the business goals in the current environment and at each stage of the business life cycle. To be public or private, centralized, decentralized, or a holding company should be based on how well the needs of the business are met now, not on just the preferences of the current management team or what worked in the past.

Structuring the board and senior leadership team, defining management roles and responsibilities, designing total executive compensation packages and employment contracts are among the most powerful domains of HCM, and are currently under intense public and stakeholder scrutiny.

Public companies need a balance of internal power and controls between the C-suite members and the board of directors. Without better corporate discipline, plenty of regulatory and legislative bodies are ready to step in with more regulations and legislation, and overreaching requirements, like Sarbanes Oxley, will continue to drive up compliance costs. Part of that balance could be a strong CHCO backed by a professional body of HCM ethics and standards.

Workforce Capital

Strategy and structure are only as valuable as the results produced. The "make vs. buy" decision extends to more than products and services. An employee-based workforce is only one of today's many choices. HCM critically assesses the competitive advantage of any work done in-house and explores an extended workforce portfolio to determine the optimum mix of full- and part-time employees, contingent workers, outsourced work, and suppliers or partners.

HCM includes influencing external workforce sourcing, contracting, and management to ensure vendor capabilities and controls in areas such as training, turnover, and incentive transparency, in addition to competitive pricing and service levels.

In telecommunications, when a telemarketer's employees make bad sales in your name ("slamming"), it is your company that will be in the news and pay fines to regulatory agencies. If your customer care outsourcer has poor training and high turnover, your company's customers will be dissatisfied and perhaps lost. In business process outsourcing (BPO), you are buying performance and results; you are not managing the vendor's processes, but you do need to know that they are!

Offshoring work? HCM goes beyond labor arbitrage to review the decision drivers and business implications of where work is done. Would an offshore investment add needed HCM capability and flexible capacity? Would you recommend expansion via a "captive," an acquisition, or an outsourcer? Do the risk management calculations of using a low-cost country and weigh the business impact of outsourcing back office, mid office, and front office work.

The question must be asked: Why use people at all? HCM looks for cost-effective technology to enable direct access and self-service across the value chain. Technology displacement of labor is a fact of life in most industries (including HR). Use people where complexity, judgment, and personal interaction add competitive advantage. Get ahead of the curve by ensuring technology investments are made in alignment, managing the total cost of labor and the value propositions of the business.

Cultural Capital

Now more and more of a company's market value is in "intangibles" rather than book value. Today's performance results and tangibles such as cash and inventory on the balance sheet are easy to understand, measure, and manage--at least easier than concepts that drive stakeholder actions founded on beliefs about the future. Belief in the sustainability of profitable growth and competitive advantage drives much of the intangible market value. Perceptions about culture, operational values, ethics, and behaviors of the leaders and the workforce influence customer, investor, and employee decisions.

Effective cross-functional and organizational collaboration can increase speed to market and in turn support external brand reputation. Cultural fit supports strategic alignment and interdependence of action across increasingly diverse people and places, businesses and supply chains. Cultural compatibility between alliance partners, or the talent acquired in an M&A, may mean the difference in finishing first or worst.

Intellectual Capital

Human capital management is about people and their ideas, and the capability to leverage both in achieving business strategies and goals. A great salesperson is a valued asset. But one salesperson can only reach and serve so many clients, no matter how capable. People have built-in capacity constraints. If you leverage the learning and competencies of the one to train others or to improve staffing selection criteria, you can achieve a greater level of performance for many.

The common thread across income from patents and new products, proprietary processes that enable competitive advantage (think Wal-Mart and eBay), or operational efficiencies that increase productivity and reduce expense is people and the leveraging of their ideas to increase transferable knowledge, repeatable results, and sustainable advantage.

What HCM Brings to the Table

Human capital decisions are made all the time in businesses. Why add HCM as a discipline? Because a series of scattered one-off decisions may suboptimize the overall workforce portfolio, and missteps with people in one area often have negative public consequences for the whole company. The CHCO does not own or make sole decisions in every area mentioned. The key is to have the enterprise HCM strategic view and management of the total cost of human capital led by a responsible and accountable senior leader with the authority of a C-suite seat at the CEO's table.

HCM strategic decision support requires extensive authoritative external and internal business and workforce intelligence with a credible understanding of business financials and operations. The CHCO should be the first and most informed source of what is going on externally with the world of work related to your company, competitors, and industry. Internal business intelligence requires data mining, metrics, and analytics. HR is too often well back in the pack in terms of producing metrics at the business impact level. It is hard to have business intelligence without intelligent IT systems and the analytic capabilities to interpret the data. When upgrading the enterprise ERP or the internal HR technology infrastructure, or embarking on comprehensive platform outsourcing, be sure to design in (and invest in) the diagnostic and reporting capabilities to identify, analyze, and measure performance of the enterprise's use of human capital.

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