Recognizing Human Capital as a Competitive Asset

The New Balance Sheet

By Frank Pacheco

The New Balance Sheet

1. Human Talent as Misunderstood Capital2. Does Talent Make a Difference?3. It Makes a Difference!...Act Quickly4. Cost Analysis for Loosing Talent5. Cost Analysis for Acquiring Talent6. HR Strategy is Key to Business Success

OVERVIEWHuman Capital is the main competitive advantage of

the 21st century………. …….Mergers - Acquisitions;

Technical Advancements; Globalization - Emerging

Markets; Demographics and the “War for talent”

Let me walk you through it quickly….

Human Talent as Misunderstood Capital

Organizations or business Organizations or business groups that fail to appreciate groups that fail to appreciate human talent as a valuable human talent as a valuable asset, will be plagued by:asset, will be plagued by: •Weak earningsWeak earnings•Loss of market shareLoss of market share•Financial uncertaintyFinancial uncertainty•Unable to service growing Unable to service growing marketsmarkets•Unable to retain good Unable to retain good leadershipleadership•Unable to service internal Unable to service internal clientsclients

Name Branding suffers and top Name Branding suffers and top talent will avoid such talent will avoid such companies, causing:companies, causing:•Lowering of hiring standardsLowering of hiring standards•Retaining low performing Retaining low performing employeesemployees•Promoting un-qualified Promoting un-qualified personnelpersonnel•Condoning nepotism Condoning nepotism (Bush/Brown)(Bush/Brown)

Human assetsHuman assets are more valuable than

capital assets, but not treated the same, at times even casually………• Many companies track assets in

their balance sheet, but fail to track revenue per employee and/or analyze their bottom line impact

• Hiring is often ad hoc, not rigorous or well designed

• Performance metrics should be automated and ongoing

• Development dollars could be ambiguous or inefficient

• Little effort is spent in facilitating a smooth transition from onboarding to talent management

According to Gary Becker, winner of the Noble Prize in Economics, 65% of all capital in a highly evolved economy is Human Capital, therefore, workforce management

has a prominent role and the investment in technology to aid its endeavor is justifiable

According to Gary Becker, winner of the Noble Prize in Economics, 65% of all capital in a highly evolved economy is Human Capital, therefore, workforce management

has a prominent role and the investment in technology to aid its endeavor is justifiable

Does Talent Make A Difference?

1. Average firm $160,000

2. IBM $300,000

3. HP $500,000

4. Cisco $700,000

5. Dell $1,000,000

It takes 3x the number of bodies at IBM to produce the same revenue as Dell…….IBM has lost60% of the PC market share

Revenue per

Employee

Total sales revenue

# of employees

Bill Gates says…… “The productivity difference between my top performers (10% of his population) and the average ones is between 3x to 10x”

If rev per employee is $160,00010 x 160K = $1,600,000…Then

Top talent can make an extra $1,440,000 per year (Top RPE)

10% Top Performers

The rest

=

Talent Lost and Won

The tale of 2 cities exemplifies the consequences of talent acquisition.

Babe Ruth was released over the Boston Red Sox’s penny-wise and dollar foolish approach, which has earned them only one World Series in over a century, while the NY Yankees acquired Babe Ruth and continue spending on talent over the same period, winning 26 world series.

Paying for top talent is always the right choice!

Babe RuthWith the Red Sox

Babe RuthWith the Yankees

If Ally Mc Beal walked in…. Why would you feel the need to also interview Rosanne to check if Ally was really skinny?

• He was given an offer within 24 hours • Michael Jordan (s) are gone in one day• Within 10 days…the top 10% are gone• Quality of hire decreases over time• Top candidates hate delays

Just Do It !Just Do It !

Kai-Fu Lee

Looses lawsuit to

Over hiring their Top Talent

Google’s stock is up 200% since Mr. Lee’s arrival

Set fixed standards

Set fixed standards

Set fixed StandardsExpedite your hiring practice

It Makes A Difference!.....Act Quickly

Cost Analysis for Loosing Talent

New Hire at New Hire at $60,000$60,000Benefits Benefits 30%.30%. $18,000$18,000Space, Mgmt. Time, Soft Costs, TrainingSpace, Mgmt. Time, Soft Costs, Training $$22,00022,000 Total Yearly CostTotal Yearly Cost $100,000$100,000Recruiting & Termination CostsRecruiting & Termination Costs $60,000$60,000Sub-Total Capital Cost Sub-Total Capital Cost $160,000$160,000Top Rev P.E. $1,440,000

Total Capital Cost Total Capital Cost $1,600,000$1,600,000

How many organizations allow a $1,600,000 capital asset to walk?

We can not afford to loose talentWe can not afford to loose talent• We need to change how we We need to change how we

think about talentthink about talent• We need to view talent as a We need to view talent as a

legitimate legitimate balance sheetbalance sheet item item• We need a “Rigorous Process” We need a “Rigorous Process”

responsive to changing needsresponsive to changing needs• We need to effectively acquire We need to effectively acquire

and manage the talent we needand manage the talent we need

This is a shared responsibility between the hiring managers

and recruiting staff

Each business units needs a “Talent Acquisition and

Management Strategy”

Source of Hire

Internet

Print Advertising

Job Fairs

Employee Referrals

Contingency Agencies

College Recruiting

Executive Search

Exempt CPH

$ 213

2,084

1,284

500

15,596

2,544

34,844

Non-Exempt CPH

$ 51

726

70

70

2,076

457

7,838

Source: EMA 2000 Cost Per Hire and Staffing Metrics Survey

Yearly average Yearly average

100 Open reqs. per 100 Open reqs. per

5000 employees5000 employees

External$ 34,844$ 34,844

X 100X 100------------------------------------------------------------------

$ 3,484,400$ 3,484,400

Internal$6,625$6,625X 100X 100

----------------------------------------------------------

$ 662,500$ 662,500

Executive Executive Search CPHSearch CPH

HR Team HR Team CPHCPH

Yearly Savings for usingYour Internal Recruiters

$2,821,900$2,821,900

Cost Per Hire (CPH)

Cost Analysis for Acquiring Talent

HR Strategy is Key to Business Success

Business StrategyBusiness Strategy• ReliabilityReliability• Safety Safety • Asset UtilizationAsset Utilization• Growth in Market ShareGrowth in Market Share• Process ImprovementProcess Improvement

HR StrategyHR Strategy • Leadership DevelopmentLeadership Development• Succession PlanningSuccession Planning• Talent Acquisition • Teamwork & CommunicationTeamwork & Communication• Performance ManagementPerformance Management

Competitive Advantage• Lower Fixed Costs• World Class Performance • Faster Decision Making• Improved Revenues• Efficient Operations

Profits, Growth & Profits, Growth & Shareholder ValueShareholder Value

1

2

3

Star Over

Good people make companies successful andattracting Top Talent requires mastering…..

Good people make companies successful andattracting Top Talent requires mastering…..

Client-Candidate Relations, Power Client-Candidate Relations, Power Sourcing, Metrics and ReportingSourcing, Metrics and Reporting

By Frank Pacheco

The Art of War Talent Acquisition

The Art of Talent Acquisition

1. Talent Acquisition Management Strategy

2. Phase 1 - Understand Your Organization

3. Understanding Talent Types

4. Phase 2 – Understand What You Are Seeking

5. Attracting Top Talent (Beyond $$$)

6. Phase 3 – Recruit Aggressively

7. Process Drives Talent Acquisition

Talent Acquisition and Management Strategy(TAMS)

Multi-step process.

Forces organizations to understand

themselves.

Basis for imbuing a “talent is an

asset” culture in an organization.

Makes “Performance Management” an

expected practice.

Promotes recruitment “branding” to

make you an “Employer of Choice”

Phase One

Strengths

Shortcomings

Culture

Values

Value proposition for employees

Are you able to articulate the dream?

Understand Your Organization

Understanding Talent Types

Active job seekers

Undesirable if they had no job in 2007

May be unable of managing work relationships so they want to leave

May be poor communicators because no one knows they are leaving

Weak because no one is trying to keep them

Passive job seekers

Content/currently employed (top performer)

Must be convinced to look

Counter offers expected

Hired rapidly when they decide to look

Customers, competitors, investors and other website visitors that are already coming to your website but won’t leave a resume

PassivePassive

ActiveActive

These are candidates with active resumes

“C” Managers don’t hire “A” Players “A” Players won’t work for “C” Managers“C” Recruiters can’t recruit “A” Players

Phase Two

Rigorously review – “Do We Need This Role?”

Focus on the role’s ROI in alignment with your business plan

Can you justify the cost for the right talent?

Always aim for top performers! They produce 3x to 10x more than an average performers

Understand What You Are Seeking

Be prepared to answer three key questions

for the ideal candidates:

1. What do you want me to do? – Precisely.

2. How am I to be measured ? – Precisely.

3. How can I win?

Attracting Top Talent (Beyond $$$)

2%

17%

19%

23%

37%

0% 10% 20% 30% 40%

The bureaucratic red tape and lengthyhiring process*

Offering competitive compensation

Benefits, pensions, vacation time

Top talent unaware of available jobs*

Perception of boring and bureaucratic jobs

Overcome their concerns by discussing:

Your management style

Open 2 way communications

Challenging projects & opportunities

Opportunities to grow and learn

How their work makes a difference

How performance is recognized

How performance is rewarded

Degree of control over their job/life

CandidateConcerns

Phase Three

• Apply proven innovations• Eliminate unnecessary criteria• Focus on the goal and process• Be ready to act quickly. “The top 10% of candidates

accept jobs within 10 days.”

• Hire experienced Recruiters • HR professionals should design new

processes• Become a recruiter/salesperson• Treat every candidate with respect (increase

your network)

Recruit Aggressively

There is an ongoing

Talent Acquisition War

Your competitors

know your top

producers by name!

Process Drives Talent Acquisition

Powerful screening, filtering and scoring tools ensure that you find better

candidates faster.

Seeker Universe

Filtering,

Screening

Scoring

Client Relations

Highly qualified candidates

Proactive & Reactive ModelsProactive & Reactive Models

Recruiting Roundtable Research (I)

Recruiting Roundtable Research (II)