HR Business Event – Copenhagen 11th June 2014

‘“Creating High Value HR: How the 21st Century HR professional can add significant

value to any organization“

Paul Kearns

ChairIHRM

www.hrmaturity.com

The Value of Human Capital?

• Why is Toyota’s market capitalization c.3 x the size of GM?• Why can’t all banks produce value per head like Goldman Sachs?• Why have Pharma firms largely failed to fix R&D pipelines?• Why are BP & other oil majors still at risk of large scale disaster?• How did mis-selling arise at Lloyd’s after PPI & 5 years post GFC?• How does Costco stock consistently trade at a premium to Walmart?• How can Ryanair make more profit and be a ‘nice’ company too?• How is a 40 year old clothing firm more interested in saving the planet

making so much money?

Key Human Capital Questions need convincing answers:

“Some years ago a senior executive in charge of talent management ….called me to request my help as she set about, at the request of her CEO, to design a program for the bank’s “high potential” people.

‘Why did she need a program?’ I asked. Was there evidence that the bank was losing more talented people than in the past, or more than its competitors - in other words, was there any evidence of a problem?

That’s the state of play in human resources today - mindless imitation of what others are doing, little to no systematic evaluation of the effectiveness of management practices and programs, infrequent data-driven diagnoses of the problems HR is expected to address - in short, little of the professionalism now almost taken for granted in medicine, to take just one example.” Foreword by Professor Jeffrey Pfeffer

Evidence-Based HR/Management

HR’s value is determined by the level of organizational maturity

VA

LU

E

HU

MA

N C

AP

ITA

L

WH

OLE S

YS

TEM

LEA

RN

ING

PEO

PLE R

ISK

INTEG

RA

TIO

N

IMP

RO

VEM

EN

T

TR

US

T

PER

FO

RM

AN

CE

CO

MM

UN

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SOCIETAL VALUE

IHRM

Stage 2Good ProfessionalPractice

Stage 3Effective Management

Stage 4Human Capital becomes integral to business operations

Stage 5Transition: operationalto strategic focus

Stage 1PersonnelAdministration

Board & Executives resistant to measuring human capital

value

Stage 6Organisation becomes a whole system

Stage 0No ConsciousPeopleManagement

©Paul Kearns/IHRM

STRATEGICREACTIVE

HR Maturity Analysis

http://www.hrmaturity.com/a-simple-introduction-to-the-maturity-scale/

No Conscious People Management

Activity/Admin: Process only

Basic Professional: Process to system

Effective Management:

Systems with teeth

Business integrated: Early stages of system

integration

Transition from Ops. to Strategic:

Towards whole system

Whole System Organisation:

Seamless, unconsciousSCORE

CORE QUESTION

Where is the organization in terms of:-0 1 2 3 4 5 6

A Value motive - profit/societal No conceptShareholder value/Cost of service

Pure profit/service user

Performance Employee shares Shared values Societal value 2

BHuman capital - organization's view of human resource - people as cost vs. people as value producing best return

No concept People = costPeople compliance issues

Professional advice informs ops management

People management integrated with business plan

Focus shifting from ops to future plans

People as valuable capital

3

CWhole system design - level of integration between strategic plans and organization design

No concept Silos - no integrationProfessional advice on more systematic approach accepted

Organizational weakness/failings acknowledged

Matrix orientedMoving towards whole system design thinking

Whole system integration

2

DLearning organisation - incorporating knowledge management

No conceptTraining courses only

Training objectivesProfessional advice informs ops management

Evaluation systemMomentum of feedback loops

Org-wide learning system/culture of knowledge

5

E People Risk management No conceptEnsure activity completed

Basic complianceProfessional advice informs management

Business performance includes risk assessment

Spotting future trends in risk behaviour

Whole system, strategic risk analysis

1

F Integration - business/people strategy No conceptNo conscious integration

Managers advised to look outside own needs

Understanding of interdependencies

Interdependencies managed

Moving towards complete integration

Whole system integration

3

G Improvement philosophy – quality system No conceptNo philosophy - some cost/time awareness

Minimum quality standards

Principle established: improvement equals output/value

Managers' performance gauged by ops value

Gradual realisation total quality philosophy

True Kaizen 2

H Trust, Engagement & Cooperation No conceptJust get the work done

Introduction of concept that these issues matter

Conscious attempt to build

Connections made to value

Mistrust, poor cooperation and disengagement squeezed out

Level of trust built over many years

3

I Performance system No conceptNo system, just activity data

Min. standards on data gathering process

Basic performance measures managed systematically

Management understands link betweeen performance/value

Shift to value management exclusively

Performance = Value 1

J Communication - open & transparent No conceptMinimum level of one way communication

Advising that feedback process is necessary

Feedback system

Link between communication and performance understood

Communication becomes very focused & fluid

All feel free to voice views

6

Questions to ascertain levels of understanding about each core dimension of business/HR strategy and organisational maturity.

IHRM Standard - ARC© Maturity - The 10 Pillars

ARC - Pillars 1-5

Ask questions

Do background research

Construct hypothesis

Test with experiment

Analyse results:draw conclusion

Report results

Think!Try again

Hypothesis is trueHypothesis is false

or partially true

HR must adopt aScientific Method

http://www.economist.com/news/business/21593468-size-not-everything-mass-market-carmakers-it-helps-kings-road

Market capitalization –

TOYOTA - $173 billion

GM - $53 billion

“VW is targeting a margin of more than 6 percent for the mass-market car brand… That compares with auto division margins of 8.8 percent at Toyota and 9 percent at Hyundai last year.

http://www.reuters.com/article/2014/04/25/us-vw-results-outlook-idUSBREA3O0X720140425

So where is Human Capital Value today?

“Incorporating ESG and human capital into company analysis and

valuation”

www.omratings.com

Stage 6 = AAA

Stage 2Good ProfessionalPractice

Stage 3Effective Management

Stage 4Human Capital becomes integral to business operations

Stage 5Transition: operationalto strategic focus

Stage 1PersonnelAdministration

Board & Executives resistant/unaware of people & human capital value up to this

point

Stage 6Organisation becomes a whole system

Stage 0No ConsciousPeopleManagement

Maturity spectrum:OMR ‘AAA’ Scales

LONG TERM - STABILITYSHORT TERM - UNSTABLE

A+

to

AA

-

AA

A

BB

B to

AB

BB

-

BB

+

BB

C B

OMR

ARC