Between 1995 and 2005, the world’s 30 largest companies increased Profit per Employee by 235%, total employees by 215%, and the Median Market Cap by nearly 500%. However, during that same period Return on Invested Capital (how well companies managed their financial capital) only increased 6%¹. How could this be? Put simply, tangible assets weren’t driving this period of growth, but instead intangible assets. You know – the ones that your CFO doesn’t like to invest money in because they can’t be owned or liquidated? What is your company’s largest intangible asset? You guessed it – Human Capital. This is significant for HR professionals because your job is to provide the business processes and technical infrastructure needed to help effectively manage human capital and ultimately drive financial results. So how do you do it?

Four Trends and Four Opportunities for Human Resources

1. Return on Execution²

A Harvard Business Review study shows that companies typically realise only 63% of their strategy’s potential value due to poor execution³. Because of this smart companies are implementing integrated technology to enable Strategic Human Capital Management as a means of (micro) managing execution to capture some or all of this 37%. If I were building a 12-step program for recovering execution “deficient” companies, then the first step would be “Alignment.” The good news is that your CEO likely agrees with me. In a recent survey of 48 CXOs, “Strategic Alignment?” was the top concern. This puts significant focus on the infrastructure needed to ensure that all employee objectives are aligned in order to drive understanding (and ultimately execution) of strategy. Who should provide the infrastructure? Look in the mirror.

2. Drive Business Impact by Getting beyond Automation

If Productivity equals Revenues divided by Employees, then how would you positively impact that?

1. Increase the number of employees
2. Develop your internal talent in order to increase the number of high-performers and decrease the number of low performers – which, by definition, increases productivity
3. Both

In this economy (and every economy for that matter) number two is going to provide your largest Return on Investment, and certainly makes the most logical sense. However, it requires that Human Resources get more “Strategic” and focus on creating true business value (Revenue and/or Profit) instead of simply automating HR processes. The reward for doing so is compelling. In a recent survey of more than 500 SuccessFactors customers, organisations that had selected their current usage as “Strategic” received 5x the productivity gains than those that labelled their current usage as “Automation?.”

3. Return on Integration

Phone a colleague in finance or sales operations and ask them to provide you with any number of reports related to financial or customer metrics. I can almost guarantee that they could provide you this with little effort. Now what if they asked you the same question regarding human capital? Who are our flight risks? Qualified successors? What percentage of high-performers makes up our voluntary turnover? Who is under/over paid relative to their performance? Could you provide them with the same level of insight? Remove the process/system barriers that keep the business from having holistic insight into people processes – Alignment, Performance, Development, Compensation, and Succession.

4. Harness the Power of Social Networks

Think about how effortlessly collaboration, feedback, and knowledge sharing happens outside the four walls of your company. This is the world that your employees operate in when not at work, yet when they step in their office they “go back in time” with the company’s operational systems and processes. Smart companies are utilising the same Social Networking technology to get a deeper view of employees, provide instant positive feedback through “Tagging” and “Badges,” and creating a collaborative environment that not only impacts engagement, but ultimately drives the productivity and business value CEOs are desperately seeking.

Keith Messick is Senior Manager Customer Results at SuccessFactors, the global market leader in on-demand performance and talent management. kmessick@successfactors.com

Sources & References:

1: The McKinsey Quarterly “The New Metrics of Corporate Performance: Profit per Employee” February 2007 Lowell L. Bryan

2: "Return on Execution” Forthcoming Book from Erik Berggren - www.returnonexecution.com

3: Harvard Business Review, “Turning Great Strategy Into Great Performance,” July-August 2005.

4: SuccessFactors Research partnered with a Top 2 Strategic Consulting Firm to Interview 48 CXOs, March 2009

5: SuccessFactors Research partnered with a Top 2 Strategic Consulting Firm to survey 524 SuccessFactors Customers