The Economics of People and Profits Laurie Bassi December 9, 2008

The Economics of The Economics of People and ProfitsPeople and Profits

Laurie BassiLaurie BassiDecember 9, 2008December 9, 2008

© 2008, McBassi & Company 2

The Economics of People and ProfitsThe Economics of People and ProfitsA “skill-biased” economic (re)evolution is underway

Twin forces: globalization & technology

Highly SkilledPeople

Organizationsthat manage

them well

Superior HCM= SustainableCompetitiveAdvantage


In the Long Run…

Globalization has left only one sustainable path to profitability for firms operating in high-wage nations…

...basing their competitive advantage on exceptional human capital management (HCM).


In the Short Run…

• The turmoil in markets dictates that we focus on that which we can control

• This suggests a heightened focus on the management of people

• Fortunately, this focus also yields a long-run competitive advantage


The HCM Drivers of Business ResultsThe HCM Drivers of Business Results

1. Leadership Practices

2. Employee Engagement

3. Access to Knowledge

4. Optimization of Employees

5. Capacity to Learn


Our Research-Based Measurement SystemOur Research-Based Measurement System


The Evidence—Investing in Developing People Pays Off

© 2008, McBassi & Company 804/20/23 8

Evidence Across Multiple Firms – Evidence Across Multiple Firms – HCM & Retention of Key Employees in Law Firm (n=69)


Evidence Across Multiple Firms – Evidence Across Multiple Firms – HCM & Process Safety in Chemical Plants (n=45)


Evidence within a School District – – Student Achievement in South Carolina

From Bassi & McMurrer, “Maximizing Your Return on People,” Harvard Business Review, March 2007, pg. 122.


Evidence Within a Single Firm – Evidence Within a Single Firm – HCM &HCM & Sales Performance


Implications

Focusing on HCM will help you:– Guide your organization through these

turbulent times– Position you for long-run growth

This is too important to be delegated to the HR department


Implications

1. Running the people side of your business by gut and intuition is dangerous — AND unnecessary

2. Hence, a decision science around HCM is beginning to emerge

3. Human capital analytics is an important missing capability within most firms


Getting Started

1. Use the assessment tool in our HBR article to get a quick sense of where your organization stands on HCM

2. Start to connect the dots—what data can be used to link the “people side” of your business to your organization’s performance?

3. Develop a data-driven HCM strategy that will drive business results in both the short & long run


A “How-To” Example A “How-To” Example

• Use an old tool—the employee survey—in a new way

• Apply “human capital analytics” to develop business intelligence and fact-based HCM strategies


Evidence-Based HCM: Step 1

1. Quantify HCM

Maturity

Quantify HCM Maturity and variations in it across functions, business units, regions and job categories.

How?By re-purposing traditional employee satisfaction surveys to measure the broader concept of HCM.

Why?To document organizational strengths and weaknesses

© 2008, McBassi & Company 1704/20/23

Scorecard: Sample Summary Table



1. Quantify HCM

Maturity

2. Link variations in HCM maturity

Link Variations in HCM Maturity toto variations in key business metrics (sales, employee commitment, safety, customer satisfaction)

How?Using appropriate statistical techniques, which vary and depend on the number of units available for analysis

Why?To determine which HCM factors are the most critical drivers of business results for your organization at this point in its evolution


Pinpointing Improvement

Major Regions

Branches

Critical Factors

(c) 2008, McBassi & Company



1. Quantify HCM

Maturity


3. Combinefindings

Combine the findings from steps #1 & #2

How?Systematically analyze which areas of HCM weakness are negatively impacting your business results, and which HCM strengths are so critical that you need to become even better at them

Why?To develop a fact-based, prioritized business case for driving business results through strategic HCM focus and investment



1. Quantify HCM

Maturity


4. Repeat

3. Combinefindings

Repeat Steps #1 - #3

How?By making “human capital auditing” an integral part of how business is done

Why?To continuously improve your HCM strategy as you evolve, and document the impact of your past initiatives

Results: Improved Performance

• Financial• Sales• Safety• Customer satisfaction• etc.


Wrapping upWrapping up

• Exceptional human capital management is the only remaining source of sustainable competitive advantage

• Running the people side of your business by gut and intuition is dangerous

• A decision science around HCM is beginning to emerge

• A rigorous focus on HCM will help your organization to manage through this crisis and to survive and prosper beyond it


Resources

1. Self-assessment guide to “Maximizing Your Return on People” (published in Harvard Business Review)

2. White papers and “how to” guides on our web site (http://www.mcbassi.com)

Documents

The Economics of People and Profits Laurie Bassi December 9, 2008