Human Capital Management

The Wealth of Knowledge

Chapter 12 The Human Capitalist

Angeline LeowMuthu

Scope

Whose company is it, anyway?

The Professionalization of Work

The Capitalization of Pay

Different Stake for Different Flakes

E pluribus unum

Changing timesModern corporation vs postmodern corporation

Requirement to know:Who’s doing whatWith whichTo whom

Corporate boundaries defined by:Who has property rights to intellectual capital that

emergeWho is entitled to what cash flows

Whose company is it , anyway?

Shareholders view

Company exist to make money for shareholders, managers are supposed to serve only the shareholders

Employess are passive participants

Stakeholders view

In addition to shareholders, company has responsibility to employees, community, planet

Employees are assets

In knowledge intensive companies, most of the value is produced by talent, not 8-5 work like the industrial worker

In knowledge economy, people are neither employees nor assets investors

Shareholders invest money; employees invest time, energy and intelligence“I’ve given the best years of my life to XYZ

Company”

Capital, personal human capital is invested. The sum of all they know, all they can do, all they might become


“Work is a two-way exchange of value, not a one-way exploitation of an asset by its owner”

How companies can enrich both themselves, and their investors


Current trend : People change employers more often than they used to. But they change occupation less often;

Mobility across employers, stability across profession

IBM Sales

IBM Marketing

IBM Manufacturing

IBM Finance

IBM Marketing

P&G Marketing

Verizon Marketing

Wells Fargo Marketing



Schooling/credentials > promotionsPersonal growth (and gain)

Schooling builds individual’s stock of human capital; he has more to invest (and expect to get back)

Dilemma for companies – Training their employees make them more mobile (and easier for them to leave)

BUT in reality, training reduces turnover

Value of employee retention is huge - $25million saved for every 1% drop in rate at which people leave

Therefore, people are bearers of human capital, who choose where to invest it for an immediate reward paybut also for long term reward their

continued growth


How to train more effectivelyEmphasize action learning

Classroom training zzzzIt works, real work is done, social networks

are builtBuild informal learning into work

Make it easy to ask for helpTrain for today’s job, not tomorrow’s, and

train to increase the overall flexibility of the workforceTraining at every layer

Focus on key skills and knowledge workersTrain on what differentiates from

competitors, not generic trainingFocus on what makes your company unique


The Capitalization of PayZurich Financial Services Group's Employee

Productivity bias in its US subsidiary

“40% of Annual Turn Over contributed by top third, A – players”

A Bonus Pool to Capture Employee Interest

Above 10% ROE , 85% of profit stays in Company or returned to Share Holders and 15% goes to Bonus pool

Half of bonus pool contribution goes to A - players, 35% to B and 15% to C - players

Inducing more than “just a job” feeling

Dramatic change in contribution profile by squaring employee’s business interest

Motivated C - players contributed to 45% of turn over suppressing A - players to 20%

Realization coined two principal classes of equity investors: public shareholders and employees

High implementation risks for start up firms

Constructive redistribution of corporate ownership in established firms

Capitalists Vs EmployeesResponding to a real

problem with real money

Work with board of directors to allocate the return on investment along a spectrum of risk for capital gains

Responding to a divided problem with dedicated time and effort

Contribute to a specific line of business, relatively important with financial capital based on its risk levelThe investors bearing the most risk should get a

shot at the greatest rewards

The more human capital an individual employee puts at risk, the more he/she should be rewarded with equity.

Different Stakes for different flakes

Risk brain power

Efficient Resource Utilization and Delivery Excellence

High maturity with legitimate power to protect their investment

Life time employment

Remunerate with financial capital in the form of equity or other means of direct profit sharing

“The locus of invention isn’t the boardroom or the corner office; it’s the team.”

- Philip Harris, CEO of PJM Interconnection

A Mega Incubator fashion with impermeable boundaries

“A skunk work, rapid prototyping, rapid piloting, and rapid ramp-up, and bingo! a new business allowing the individual to put their tools, their equity, at risk” - Harris

“If you have people who want to do something new, create a place, create an incubator. Create a climate in which they innovate and offer at least a share in the wealth that’s being created there ”

http://www.juyofo.com/2011/04/visit-facebook-office.html



E PLURIBUS UNUM ‘Knowledge Business’Overcoming the Innovator’s Dilemma with

product differentiation and autonomy - Teradyne’s success story by tinkering the governance model

“The idea was to think of launching a new, low cost testing equipment, Integra as a business from the start, not a R&D project.The board setup allows independence and more of a coaching attitude.” - Integra’s GM,Levine

“Do the next logical thing and make it compatible with the existing line. Be aggressive on the technology. Do something no one else has done. Because we had no revenue at stake, we could push the risk.”- Teradyne’s VP, Rogas

PC FC

IC

Companies with mature human capital processes have superior

financial results

Published by the Accenture Human Capital Development Framework

for High Performance Business

Human <intrinsic link> Relational Capital

Relational Capital

Human Capital

• Customers • Investors • Government

• Employees/retirees • Suppliers • Other stake holders

Trust

Stock of active connections

Shared

ValuesMutual

UnderstandingEquity carve outs

Spin Offs

Joint Venture

s

Alliances

Corporate stock of human capital = financial capital provided by shareholders + employee’s investment + investments of other employees + company’s other intangible assets (processes, intellectual property, and customers)

Key takeawaysK- Economy signifies the power of human capital

Induce Employee Ownership of Business

Adopt incubator working style for innovation with high autonomy and high technology risks

Focus on Collaboration than competition

Mature human capital derives relational capital

K-Business looks out for The Next Big Thing !

Thank you