Changan Star III

Indwe - - Contents -

In part, it’s be­cause we value and re­ward good man­age­ment of fi­nan­cial cap­i­tal. And we mea­sure it. Great CEOs are held in high re­gard for their clever man­age­ment and al­lo­ca­tion of fi­nan­cial cap­i­tal. But to­day’s great CEOs need to be equally great at man­ag­ing hu­man cap­i­tal.

How Can We Man­age Hu­man Cap­i­tal Bet­ter?

Mea­sure it. As the adage goes, you can’t man­age what you can’t mea­sure. A ver­i­ta­ble al­pha­bet soup, such as ROA and RONA, ex­ists to mea­sure our fi­nan­cial cap­i­tal. To mea­sure hu­man cap­i­tal, you can de­ploy met­rics such as a pro­duc­tive power in­dex – which looks at the cost of or­gan­i­sa­tional drag, and the ben­e­fits of ef­fec­tive tal­ent and en­ergy man­age­ment on your over­all pro­duc­tive power.

You can mea­sure the amount and value of the time that you put in against projects or ini­tia­tives, and you can mea­sure the re­turn on that time. You can ac­tively mea­sure the amount of dif­fer­ence­mak­ing tal­ent that you have in your or­gan­i­sa­tion.

In­vest hu­man cap­i­tal just like you in­vest fi­nan­cial cap­i­tal. For fi­nan­cial cap­i­tal, the busi­ness world has de­vel­oped con­cepts such as the op­por­tu­nity cost of cap­i­tal, which is re­flected in a com­pany’s weighted av­er­age cost of cap­i­tal. We mea­sure the life­time value of in­vest­ments, and es­tab­lish hur­dle rates be­fore de­ploy­ing a sin­gle dol­lar of cap­i­tal.

For hu­man cap­i­tal, we need to start think­ing about the op­por­tu­nity cost of a lost hour. One way is to mea­sure the cost of meet­ings. Our col­leagues at Bain dis­cov­ered that a weekly ex­ec­u­tive com­mit­tee meet­ing at one com­pany con­sumed 300,000 hours a year in sup­port time from de­part­ments across the com­pany.

We should think about projects in terms of hours and rands as well, and be­fore tak­ing on a new meet­ing or new ini­tia­tive, in­clude the op­por­tu­nity cost of time and tal­ent in the hur­dle rate.

Mon­i­tor it. Teams of fi­nan­cial plan­ning and anal­y­sis pro­fes­sion­als mea­sure ac­tual and ex­pected re­sults for fi­nan­cial cap­i­tal. In­vest­ment man­age­ment com­mit­tees eval­u­ate new in­vest­ments. Cap­i­tal ex­pen­di­ture plans are sub­jected to de­tailed board re­views.

Sim­i­larly, for hu­man cap­i­tal we should do pe­ri­odic re­views of how much con­trol­lable or­gan­i­sa­tional drag we have in our or­gan­i­sa­tion and what ac­tions we are tak­ing to com­press it. Many big data tools, such as Mi­crosoft Work­place An­a­lyt­ics, can pro­vide de­tailed re­views of how we use time.

For tal­ent, we need to know who our dif­fer­ence mak­ers are and whether they are de­ployed in mis­sion-crit­i­cal roles and ini­tia­tives.

Recog­nise and re­ward good man­age­ment of time, tal­ent and en­ergy. His­tor­i­cally, suc­cess­ful in­vest­ment of fi­nan­cial cap­i­tal can make some­one’s ca­reer. Vari­able com­pen­sa­tion is of­ten tied to some mea­sure of eco­nomic value added. Even though most com­pa­nies no longer of­fer life­time em­ploy­ment, they should still find a way to cre­ate a life­time of as­sign­ments for their dif­fer­ence-mak­ing tal­ent, and work hard ev­ery day to re-re­cruit them by cre­at­ing a work­ing environment that is in­spir­ing and re­sults-ori­en­tated.

Lead­ers should be mea­sured and re­warded on their in­spi­ra­tion quo­tient. They should also be mea­sured and re­warded for build­ing a tal­ent bal­ance sheet: How many high-po­ten­tial in­di­vid­u­als have they re­cruited, de­vel­oped, and re­tained? And what is the trade bal­ance of tal­ent – that is, the net im­ports of high-po­ten­tial tal­ent into their group mi­nus ex­ports? A com­pany’s ac­tual val­ues, reads Net­flix’s fa­mous HR play­book, “are shown by who gets re­warded, pro­moted, or let go”.

Ti­aan Mool­man is a partner in Bain & Com­pany’s Jo­han­nes­burg of­fice where he leads the lo­cal Or­gan­i­sa­tion Prac­tice. Eric Gar­ton is a partner in Bain & Com­pany’s Chicago of­fice and leader of the firm’s global Or­gan­i­sa­tion Prac­tice.

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