Maximizing the ROI on Human Capital

Clients frequently come to us with concerns about their people. “I wasn’t expecting her to jump ship.” “He looked so good when we hired him, but since then, it’s been a nightmare.” “I think my team is great, but my boss says they don’t connect to the rest of the business.”

These clients say they want to do better in hiring good people, developing their potential, creating effective teams. They value these “soft skills” – but as one client put it, “It is more important to focus on running the business.” It’s a hazardous distinction. Managing people is not a soft skill. It’s about maximizing the ROI on the significant investment in human capital.

Human capital may sound cold or like “consultant speak.” However, the people side of the business is expensive and has still not gotten the attention it deserves. People are the biggest investment in most organizations. That investment could be far better managed by applying the same due diligence to people that’s applied to managing other capital resources. How can ROI be maximized on people?

Three important components of human capital: individual performance, individual talent, and team effectiveness.

Individual Performance
Managing individuals’ performance is fairly straightforward. It is focused on what people produce; most organizations have processes in place to plan and manage the performance of people in their current roles. What they should be equally focused on is talent, which is about what people are capable of producing. That’s more difficult to define and manage. But, because it’s harder, doesn’t mean it’s not important to do systematically.

Individual Talent
Talent is too often principally defined by the person’s past performance and experience; the past is viewed as the best guide to the future. Talent definition needs to include the underlying abilities, drive, and personal insights that, when added to the person’s history, provide a far better indicator of future success. To gauge their talent capital, executives should clarify where their organizations are headed and rigorously define the talents they need to get there. They then should evaluate the current state of the talent in key roles by rigorously assessing the strengths and gaps of the people in those roles. If gaps are found in those people, what actions should be taken – role changes, mentoring, coaching, even separation? Do the above systematically, including tracking outcomes, and important talent-related improvements emerge around employee engagement, planning for succession, maximizing bench strength for the future. Clearer answers emerge to questions such as: Who has the bandwidth to take on more? Who is not a hi-po but is a valuable player we should help to be well engaged where they are? Who needs to be managed out of their role or out of the organization? What specific capabilities will be looked for in new people? What’s the best way to hire and onboard them?

Team Effectiveness
Managing team effectiveness too often involves intuitive, “gut” decisions. Many executives don’t take time to analyze what makes a good team; they may think it is too complex. But there are well-known components of an effective team. By asking some relevant questions about those components, executives can harvest significant improvements from their teams.

A good team starts with having a good leader. What experience and talent do they need to maximize the team’s success? A good team has a rational structure. Do the most important roles have direct and timely access to the leader and to each other? Equally important: how well does the team focus and agree on business priorities? Do the allocations of their time, resources, and energy align with the organization’s stated priorities and strategies? How do decisions get made and communicated throughout the organization? How good is the team at anticipating and adapting to changes in environmental demands? Do team members balance team and individual responsibilities, and do they know how to handle conflicts? Effective teams also submit to being measured. How well does it achieve its stated goals and live up to stakeholder expectations?

By focusing a sharp eye on all of these components of the human capital equation, performance, talent, and teamwork, leaders create a better picture of what it takes to run their organizations, minimize unpleasant surprises, and are more likely to maximize the ROI of their most important capital, people.

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