Knowledge-intensive companies are focusing on a mix of measures to enable more effective human capital accounting

There is a fundamental shift afoot in the way organizations manage their people. Companies whose traditional focus has been on reducing labour-intensive tasks and automating traditional human resources (HR) functions suddenly find their futures hanging on their ability to improve workforce productivity.

Now, top organizations battle for talent in an arena where the skills needed to drive business performance are in ever-decreasing supply. That creates a new mandate: improving employee productivity by taking a business operations-centric approach to workforce performance and talent management.

Leading executives know managing talent well is fast becoming an imperative, and that doing it poorly is proving a major and obstinate barrier to optimal business success. The market leaders are already starting to rope in big gains by using human capital management (HCM) technologies.

Take Corning Incorporated, which is claiming savings of more than $US1 million a year in HR-related costs thanks to its use of Softscape's integrated HCM platform. That is four times more than it predicted in 1999 at initial roll-out, its executives say. Those savings embrace greater efficiencies in process time, a significant reduction in the number of queries per administrator, and a reduction in time spent managing the review process.

"The benefits to Corning have stretched beyond our expectations into entirely new areas," says Corning manager organizational effectiveness Hank Jonas. "Not only have we seen a marked jump in the hard dollar return of the performance automation process, we have also seen a significant increase in the demand for the 360 [degree] feedback process."

According to IBM's Asia-Pacific leader for human capital management, Bill Farrell, how talent is managed is where the battle for organizational competitiveness is going to be won or lost. "Some organizations do it well; others really struggle. I think the war for talent is on and a lot of organizations are losing the battle," he says.

IBM's Global Human Capital Study 2005 examined how organizations around the world are leveraging their human capital to improve workforce effectiveness and organizational performance. It found companies in both Australia and New Zealand struggling to hang on to executive talent, yet fewer than half adequately equipped to respond.

Despite being a leader in efficient HR methods, Australian organizations have real trouble in retaining their best and brightest employees and executives, the study showed, with the Asia Pacific region - including Australia - having the highest voluntary turnover of senior and middle management in the world. This costs organizations both dollars and intellectual property (IP).

"One of the key findings for organizations in this part of the world is this paradox of being very efficient in terms of HR processes while having an executive turnover that is the highest in the world. In other words, we're very efficient at recruitment but not necessarily very effective," Farrell says. "So you have to question where we are focusing our resources in terms of the HR function and the outcomes we're trying to achieve. I think we've lost track of what we're trying to do in terms of outputs."

Part of the problem seems to lie with the nature of systems already in place. A recent study from Curtin University of Technology found a majority of all current performance management systems had been designed by internal organizational HRM specialists or project teams, with the remainder imposed by multinational headquarters or designed by external consultants. The main types of performance management systems reported in the study were tailored combinations of traditional techniques, largely designed by the organizations themselves and incorporating all employees, and often consciously linking employee and organizational goals and imperatives.

However, traditional HR systems and practices seldom allow decisions about the talents of people to be made with the rigour, logic and strategic connections attending those about money, technology and products, and - unlike strategic planning, marketing, operations, and budgeting processes - only minimally connect to core business management processes. Too often people issues barely rate a mention in strategic plans.

Human Capital

Effective human capital management is proving a major differentiator for some organizations. Results of the Deloitte & Touche Human Capital ROI Study, which set out to measure human capital practices and link them to corporate financial performance, suggest human capital practices may account for as much as 43 percent of the difference between a company's market-to-book value and its competitors'. And Aberdeen Group's 2004 Employee Performance Management Benchmark Report found 90 percent of respondents saw improved employee performance management as a key to gaining competitive advantage.

Aberdeen found that even though leaders in employee performance management enjoy a competitive advantage over their peers, while also gaining improvements in employee satisfaction and retention, 40 percent are not ready to evaluate performance beyond its demonstration at the departmental level, and 52 percent are locked into paper-based evaluations that are conducted yearly and rarely reviewed again.