Risky busi­ness

In­clude HR in risk man­age­ment plans

Winnipeg Free Press - Section H - - FRONT PAGE - BAR­BARA BOWES

WHEN em­ploy­ers hear the term risk man­age­ment, they more than likely think about iden­ti­fy­ing, as­sess­ing and pri­or­i­tiz­ing ar­eas of fi­nan­cial risk aris­ing out of such things as a busi­ness ac­qui­si­tion, ma­jor pur­chases, equip­ment fail­ure and/or the crash of a ma­jor in­for­ma­tion tech­nol­ogy sup­port sys­tem.

Risk man­age­ment has gained a good deal of mo­men­tum in the last num­ber of years, such that na­tional stan­dards have now been set and spe­cial­ized train­ing is avail­able. Na­tional and in­ter­na­tional or­ga­ni­za­tions have formed, new job roles can be found in many in­dus­try sec­tors and em­ploy­ees are striv­ing to at­tain pro­fes­sional des­ig­na­tions.

And while em­ploy­ers know, un­der­stand and ac­cept that em­ploy­ees and their in­tel­lec­tual knowl­edge are a crit­i­cal or­ga­ni­za­tional re­source, many pay lit­tle or no at­ten­tion and rarely con­sider this so-called hu­man cap­i­tal as a key busi­ness risk. Yet, since the field of hu­man re­sources is so broad, risk can be found in sev­eral ar­eas. Th­ese ar­eas in­clude tal­ent man­age­ment and suc­ces­sion plan­ning, ethics and cor­po­rate cul­ture, reg­u­la­tory com­pli­ance, pay and per­for­mance align­ment and em­ployee de­vel­op­ment. The U.S. Con­fer­ence Board, for in­stance, rates tal­ent man­age­ment and the loss of key tal­ent as the high­est ranked of HR risks.

Ac­cord­ing to Peter Cap­pelli, a well-known Whar­ton Univer­sity pro­fes­sor, the con­cept of hu­man cap­i­tal as a sig­nif­i­cant risk has been demon­strated time and time again, and he cites sev­eral re­cent busi­ness catas­tro­phes as ex­am­ples. One, the 2010 ex­plo­sion of the deep sea oil drilling rig off the coast of Mex­ico, was the re­sult of an or­ga­ni­za­tion cul­ture that un­der­val­ued safety, thus al­low­ing hu­man er­ror to cause the tragedy that re­sulted in the loss of 11 lives. So what ex­actly are the el­e­ments of hu­man cap­i­tal risk and what can be done to mit­i­gate the im­pact on an or­ga­ni­za­tion?

Since lead­er­ship starts at the top, the first key hu­man cap­i­tal risk re­lates to strate­gic hu­man re­source is­sues. For in­stance, if there is poor align­ment be­tween busi­ness and hu­man re­source ob­jec­tives, so-called dis­con­nects will oc­cur within the busi­ness that not only will cre­ate dishar­mony, but may well re­duce con­sis­tency of eth­i­cal be­hav­iour among se­nior man­agers. It will also cre­ate in­con­sis­tency in re­cruit­ment and re­ten­tion, which in turn cre­ates a loss of in­tel­lec­tual ca­pac­ity and may also hin­der the abil­ity to re­cruit tal­ented in­di­vid­u­als. Strate­gic hu­man cap­i­tal risk also refers to leg­isla­tive com­pli­ance and man­ag­ing through merg­ers and ac­qui­si­tions.

Se­condly, lead­er­ship and em­ployee be­hav­iour are also a ma­jor hu­man cap­i­tal risk. Un­eth­i­cal be­hav­iour may be ram­pant within an or­ga­ni­za­tion, which in turn causes low morale, em­ployee turnover and per­haps loss of cus­tomers and ven­dors. When morale among em­ploy­ees is low, the or­ga­ni­za­tion is sus­cep­ti­ble to union­iza­tion, poor at­ten­dance, sky-rock­et­ing sick leave and in­creased work­place ac­ci­dents.

Thirdly, a key hu­man cap­i­tal is­sue is the na­ture of skill gaps within an or­ga­ni­za­tion. If there is a short­age of crit­i­cal skills, pro­duc­tion and/or ser­vice are af­fected, re­sult­ing in fi­nan­cial losses. Gaps pre­vent or­ga­ni­za­tions from reach­ing their busi­ness goals and may force a re­liance on an ex­ter­nal tem­po­rary work­force that in turn may in­crease over­all costs of do­ing busi­ness.

Fourthly, the abil­ity to re­cruit the right em­ploy­ees at the right time for the right skills is also a key hu­man cap­i­tal is­sue. In­ef­fec­tive def­i­ni­tion of the skills and se­lec­tion cri­te­ria leads to poor hir­ing re­sults that in turn lead to vol­un­tary turnover and/or un­pleas­ant and costly ter­mi­na­tions. Sim­i­larly, poor re­cruit­ment pro­cesses also cre­ate the same neg­a­tive re­sults.

Fifth, but equally as im­por­tant as an area of hu­man cap­i­tal risk, is the is­sue of com­pen­sa­tion and ben­e­fits. For in­stance, many or­ga­ni­za­tions lose their top tal­ent be­cause of in­ter­nal pay eq­uity is­sues while oth­ers can­not or will not set their pay ranges at the local mar­ket rate. Still oth­ers might prom­ise bonuses but never de­liver. While pay is­sues are only one rea­son peo­ple leave an or­ga­ni­za­tion, it can cer­tainly cause a good deal of dis­con­tent and low morale.

Man­ag­ing hu­man cap­i­tal risk is no dif­fer­ent than man­ag­ing any other risk, be it a fi­nan­cial mat­ter, a pro­duc­tion is­sue and/or dis­as­ter re­cov­ery of your in­for­ma­tion tech­nol­ogy sys­tem. You need to ex­am­ine the hu­man-re­source is­sue con­fronting you and de­ter­mine the im­pact on the or­ga­ni­za­tion. De­ter­mine if the im­pact is im­me­di­ate or long term, if/when the sit­u­a­tion is best ad­dressed and then ex­am­ine strate­gies to mit­i­gate the risk.

Mit­i­gat­ing the strate­gic risk of low morale and a neg­a­tive cul­ture might re­quire that you hire com­pletely new ex­ec­u­tive lead­er­ship — an in­di­vid­ual and/or an en­tire team that can turn your or­ga­ni­za­tion into a high-performing en­tity. Th­ese new lead­ers will need to ex­am­ine the en­tire or­ga­ni­za­tion and seek out the pock­ets of HR is­sues that cre­ate both short- and long-term risk.

A strat­egy to mit­i­gate a com­mon staffing risk re­ferred to as “wrong­ful hir­ing” that causes high turnover within a cer­tain job sec­tor could be to con­duct a thor­ough anal­y­sis of job tasks and the skills re­quired of a high-performing em­ployee. Th­ese skills should be com­bined with char­ac­ter traits that will en­sure more ef­fec­tive iden­ti­fi­ca­tion of the right type of can­di­date.

Many or­ga­ni­za­tions ap­ply a train­ing and de­vel­op­ment strat­egy that serves to over­come sev­eral risks such as skill gaps, em­ployee be­hav­iour and em­ployee well­ness. Train­ing is also used to di­ver­sify risk as em­ploy­ees who are cross trained to un­der­take a va­ri­ety of roles of­ten ex­pe­ri­ence in­creased job sat­is­fac­tion and will re­main loyal to an or­ga­ni­za­tion in times of chal­lenge.

In­no­va­tive or­ga­ni­za­tions will take a so-called hedge ap­proach to hu­man cap­i­tal risk man­age­ment. This sim­ply means they will cre­ate pro­grams such as in­tern­ships that en­able new en­try em­ploy­ees to work with the em­ployer to see if there might be op­por­tu­nity for a longer-term re­la­tion­ship.

Com­pen­sa­tion is one of the most chal­leng­ing of hu­man cap­i­tal risks, es­pe­cially if an or­ga­ni­za­tion is not in a po­si­tion to in­crease their pay lev­els due to a chal­leng­ing fi­nan­cial sit­u­a­tion. How­ever, if the fi­nan­cial re­ward is per­ceived to be dis­con­nected to the level of per­for­mance, em­ploy­ees will feel their “psy­cho­log­i­cal contract” has been bro­ken and dis­sat­is­fac­tion will re­sult. There­fore, tough as it is, an or­ga­ni­za­tion must make spe­cial ef­fort to mit­i­gate this risk. Many or­ga­ni­za­tions are cre­ative when deal­ing with this risk; for in­stance, they may ap­ply a year-long flex­time pol­icy, in­crease va­ca­tion time, or cre­ate shorter summer hour sched­ules with time be­ing made up dur­ing busy sea­sons.

Risk man­age­ment strate­gies are not sim­ply for those hard-core tech­ni­cal and op­er­a­tional chal­lenges, they must also be ap­plied to your hu­man cap­i­tal re­sources. Fail­ing to do so will cre­ate the prob­lems that can lit­er­ally sink your or­ga­ni­za­tion and ruin your rep­u­ta­tion as an em­ployer.

Source: Be a Ring­mas­ter of Risk, Con­sider hu­man re­source strat­egy as risk man­age­ment, Wayne F. Cas­cio, SHRM, April 2012.

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