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Eric Garton, partner in Bain & Company’s Chicago office and leader of the firm’s global organisation practice, affirms why companies would be better off managing human capital the same way they manage financial capital.
Today’s executives spend a lot of time managing the balance sheet, despite the fact that it doesn’t represent their company’s scarcest resource. Financial capital is relatively abundant and cheap, with the global supply of capital at nearly 10 times global GDP, according to Bain’s Macro Trends Group.
In contrast, today’s scarcest resource is human capital, as measured by the time, talent and energy of your workforce. Time, whether hours in a day or days in a career, is finite. Difference-making talent is also scarce. The average company considers only about 15% of its employees to be difference makers. Energy, too, is difficult to come by. It can be measured by the number of inspired employees in your workforce. Based on our research, inspired employees are three times more productive than dissatisfied employees, but they are rare. For most organisations, only one out of eight employees is inspired.
Here’s the way to manage people as effectively as you manage money.
A veritable alphabet soup (ROA, RONA, ROIC, etc.) exists to measure financial capital. To measure human capital, deploy metrics such as our 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 against projects or initiatives, and you can measure the return on that time. You can actively measure the amount of difference-making talent that you have in your organisation.
When Caesars Entertainment, a gaming company, reorganised operations in 2011, the senior team not only developed a database on the performance and the potential of the company’s top 2,000 managers, but also analysed the ability of the top 150 to take on new and different jobs.
Invest human capital just like you invest financial capital
The business world has developed concepts such as the opportunity cost of financial capital. For human capital, start thinking about the opportunity cost of a lost hour. One way to do this is to measure the cost of meetings.
My 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. Woodside, an Australian oil and gas company, discovered that meetings were consuming 25%–50% of staff’s time.
Before taking on a new meeting or initiative, include the opportunity cost of time and talent in the hurdle rate.
Teams of financial planning and analysis professionals measure actual and expected results for financial capital. We all must submit capital-approval requests to release funds.
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. A statistical analysis of metrics from Workplace Analytics and other factors revealed how one firm’s top performers spent their time.
For example, top performers were three times more likely to interact with multiple groups inside the company. In other words, they connected with people who could help them with customer issues, such as staff in ﬁnance, legal, pricing or marketing.
Recognise and reward good management of time, talent, and energy
Historically, successful investment of financial capital can make someone’s career. 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 rerecruit them by creating a stimulating working environment.
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 they have 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.
These are only some of the ways to bring greater discipline to human capital management. The sooner we act on these beliefs, the sooner we will get the return on human capital that we deserve.
Photo / Bain & Company