Developing Human Capital: Insights from the Summit

ETHOS Issue 05, Nov 2008

The inaugural Human Capital Summit has just taken place, at a time of unprecedented turmoil in world financial markets. The collapse of banking models that first appeared unassailable and the prospects of global recession have, in particular, added to the turbulence in which organisations now have to thrive, compete and prosper.

Turbulence, though, is nothing new. These recent developments merely strengthen the growing emphasis that organisations are putting on people as their primary source of sustainable competitive advantage. More specifically, they are facing the need to develop leadership and management systems that will enable them to take advantage of turbulence and turn organisational agility into a core competence.

This is a very different set of skills than those which had been required for success throughout most of the 20th century. When Western models of management—with their emphasis on mass standardisation, economies of scale, hierarchical layering of decision-making from the top and short-term focus on financial returns—were good enough, there seemed to be no reason to change or, for many developing economies, not to imitate them.

Even when firms in Japan showed that customers appreciated the products of a more engaging process—whereby employees at all levels are encouraged and expected to contribute to continuous improvement in quality, innovation and value for money—it was too easy and too common to dismiss such approaches as being culturally particular. When Toyota opened itself to international researchers and described its philosophy of lean management in great detail, few embraced the lessons fully, preferring instead to cherry-pick isolated programmes to emulate, rather than seeing it as a whole new way of working that was more suited to the way the world was moving.

As we move deeper into the global economy of the 21st century, there is a new focus on evidence-based ways of leading and managing. It needs to be unencumbered by models of the past, although, of course, learning from them.

Against that background, the Singapore Human Capital Summit uncovered and explored a diverse but converging set of pressures driving change in the human resource sector. It also looked at new approaches that organisations are taking to succeed in the emerging environment.

The following were the prevailing themes of the Summit.

GLOBALISATION IS NOT JUST ABOUT CUSTOMER MARKETS

Global mobility of talent, technology, capital and ideas is a reality. Disruptive technologies are leading to new sources of competition. New entrants to a sector, unencumbered by sunk investment in plant, buildings and methods can often undermine established players with new offers that customers prefer. National protectionist barriers are decreasingly relevant; and not all countries are equally adept at building human capital strategies, infrastructure and economic policies that can attract winning organisations.

TALENT HAS ASPIRATIONS OF ITS OWN

Organisations are increasingly dependent on the discretionary contributions of the people who work for them. Succeeding generations learn from the experiences of their parents and grandparents. Educational standards and material aspirations are rising; so are the expectations people bring into the workplace. More and more employees are demanding to be treated as respected contributors of value, invested in as important assets, enabled to work in flexible ways that fit with their personal and family lives, and empowered to fulfil at least some of their own aspirations in return for their commitment to their employing organisations.

Today's employees see their employment as a negotiable and changing relationship, not as a lifelong contract. Generation Y wants more from work than a salary and a pension, and they are prepared to move frequently into another relationship that appears to suit them better.

Employers need people who are willing, skilled and equipped to use initiative, innovate and make connections without having to be told what to do. Such behaviour cannot be enforced-it has to come from engaged employees voluntarily contributing to the level of their potential.

CUSTOMERS ARE FICKLE, DISLOYAL AND IN THE DRIVING SEAT

"They want what they want, when they want it." Indeed, customers expect to be given the opportunity to buy things they have not yet identified a need for, as soon as it becomes available. In this information-intensive age of instant gratification, they expect the widest range of choices and will buy from wherever it comes, regardless of geographic or traditional sector boundaries.

Like employees, they see themselves in a relationship where they have buying power—not just as the grateful recipient of whatever product or service the organisation puts out.

Customer power, coupled with the pressure to act in a socially responsible way, and to be transparently accountable to a wider range of interests than just equity owners, has shifted irreversibly the ways that firms can act

LEADERSHIP MUST EVOLVE

In the new world of the globalised economy, new forms of leadership are needed. The Summit surveyed many, including Dave Ulrich's notion of leadership as brand and other concepts of employer brand. Many of the chief executives who spoke emphasised on a number of features of effective leadership behaviour:

• Explicit values, frequently communicated, genuinely shared, understood and acted upon;
• "Walk the talk": leaders need to demonstrate the values themselves in all that they do and be visible to their followers;
• Authenticity and integrity are essential at all levels;
• Transparency and consistency in objective setting, performance management and reward;
• Continuous improvement of processes and focus employees on where they can add most value;
• Open communication and engagement with the widest range of views, inviting and respecting contributions, not suppressing unorthodox opinions;
• Developing people well and ensuring a strategic approach to succession;
• Leading people, not driving them, towards commonly understood goals.

Leadership development was seen as largely unsatisfactory and too haphazard. While Asian leaders and potential leaders were highly educated, often at prestigious business schools, many felt that their main learning had come from unplanned, unstructured experiences, "being thrown in at the deep end", assigned to an urgent project or overseas posting. Coaching and mentoring for leaders was not common.

On the other hand, in many Asian countries, it was felt that a more family-oriented, consensual and long-term approach to building a business was a strong base from which to develop leadership styles appropriate to the challenges ahead. While by no means universal across Asia, this was felt to be a competitive advantage worthy of further study.

CONCLUSION: TOO IMPORTANT TO BE LEFT TO CHANCE

In seeking to build a sustainable advantage through people, a number of directions have found general support at the inaugural Human Capital Summit.

Firstly, there is no "one size fits all" solution. Indeed, competitive differentiation requires each organisation to design its culture and working practices as a deliberate strategic act, so that it stands out from its competitors with hard-to-imitate capabilities. Its human capital strategy and real life practices should align with its business strategy. Furthermore, these should contribute measurably to its delivery and to making possible more ambitious strategic intent for the future, based on the capacities so created.

Secondly, human capital strategies should enhance an organisation's overall capacity for success. They should result in measurably superior performance, as well as build agility and resilience. They should act as a magnet for talent at all levels, both in attracting and retaining high-value contributors and in inspiring them to perform highly.

Furthermore, talent is only partly a question of staffing the organisation with good people. Without effective leadership, management, development, motivation and opportunity, talented people cannot flourish.

Finally, the Summit reinforced the key notion that human capital management is too important to be left to chance. It needs to be rooted in an evidence-based decision science, many of the components of which are already known, testable and measurable. And it needs to be systematically thought through in every organisation and applied in ways that support and extend its planned business outcomes.