Human capital: A development strategy

Ross Woods, 2015

 

The guide below is a generic approach to assessing the human capital of an organization, and then planning improvement. For more on planning and implementing a training program, see Program planning: A one-stop shop for program planning. (Link opens new window.)

Human capital is the value of the skills and knowledge of the organizations’ personnel that can be used to make it more competitive. While not all organizations treat people as a capital asset, the principles and practices of human capital development are still helpful in training and developing people.

Managers can oversee human capital development as an ongoing responsibility. Alternatively, an analysis, plan and implementation can be done as a specific project.

 

About organizational capacity

Human capital is part of organizational capacity, that is, what the organization is capable of doing. Consider this illustration.

You are head of ZZZ Corp. A friend in another company wants to outsource an urgent major project. He feels that you will be easy to work with and trusts that you’ll do a good job. He offers ZZZ the contract.
But you don’t have the funds, equipment, experience, or staff to take on a project that big. If you took it on, you probably won’t be able to complete it satisfactorily. Sadly, you are forced to decline and let it go to a larger competitor.

Organizational capacity includes other things besides human capital such as geographical spread, equipment, software, licenses, funds (or access to loans), and business contacts. In fact, it includes anything that determines the capacity of what the organization can do. Consequently, the components vary between organizations and between industries.

 

Context

Define the context, i.e. the organization or department where you’ll do the skills audit. It could also be an industry or a region. Ask a wide range of sources about what staff actually do and the context they do it in. the following questions may be helpful:

1. What are its goals? What is it trying to achieve?
2. What are its core activities?
3. What are its peripheral activities, if any?
4. How is it structured and what are its reporting lines?
5. Who are the stakeholders and what role does each one have?
6. What constraints does it work under (e.g. finances, controls)?
7. What occupations do staff have?
8. What career paths do staff take? Do they tend to follow career paths within the organization?
9. What technology skills are required?
1. Is the technology up to date?
2. Are the technology skill requirements changing rapidly?
10. At what stage of maturity is the organization? (E.g. small and new, growing, large and healthy, plateau, stagnant, decline.)
11. What strategic plans are in place? You are aiming at a moving target, and the strategic plan indicates the future direction.
1. How far into the future does your plan need to go?
2. How much is there a risk that the organization will not follow its strategic plan?
3. What human capital will be needed?
12. Who are the stakeholders with whom you will need to consult?
13. Who are the gatekeepers and powerbrokers?
14. What level of organizational capacity does it appear to have?

Identify the factors involved in forming human capital.

1. Look at your policies for recruiting and promoting staff, your system for managing talent and performance, staff demographics, and staff retention.
2. For which occupations does training have to be done pre-employment?
3. For which occupations is internal training feasible?
4. For which occupations does training have to be done externally?
5. How long does it take to train people in each occupation?
6. Which occupations require licenses or professional registration?
7. What do published forecasts say about labor shortages and surpluses? (You should consider these forecasts even though future labor markets seldom follows them closely.)

 

Skills audit

You now need to do a skills audit to find out the current capabilities your workforce. Its results will probably surprize you because:

• Smaller organizations often muddle through with up to 80% of their staff being inadequately skilled.
• Many organizations to not bother to check their skills needs.
• Senior managers often don't know what skills their staff actually need for optimum performance.
• Many senior managers believe that they've got it right and go into deep denial.

You need answers to the following questions, among others:

1. Do your staff have all the skills they need to do their current jobs?
2. Do your staff have all the skills they need to do the jobs in the life of the current strategic plan?
3. How well do your personnel perform?
4. How do you know how well they perform? (For example, you might have a system of KPIs and reviews.)
5. How effective is your system for managing personnel? Consider the following factors:
• staff planning
• recruitment and induction
• training and professional development
• career structures
• succession management
• staff retention
6. What are the areas of high productivity or profit? For example:
1. High productivity of staff (e.g. remarkable performance, understaffing, excellent scheduling, waste prevention, unpaid overtime or voluntary services, improved efficiency and organization)
2. Windfalls (e.g. reduced cost of inputs due to external environment, increased price of outputs due to external environment)
7. What are the areas where extra costs are incurred through low staff productivity? For example:
1. under-performance
2. overstaffing
3. poor scheduling
4. waste of resources
5. inefficiency and
6. disorganization
7. effects of poor training or lack of skill (errors, wastage, etc.)
8. Are any staff under-employed? (I.e. have higher level skills than they use in their jobs.)

 

Plan the skills audit process

1. Who will authorize the audit?
2. What information do you need to gather? (E.g. records of performance and talent management, personnel records, job descriptions, training records, demographic data)
3. What special access to information will you need? (E.g. secure confidential information, "commercial in confidence" information)
4. How will audit results be distributed afterward?
5. How will you gather information? Your methods should be both qualitative and quantitative. For example, you might conduct interviews, review documents, gather feedback, take samples of statistical data, get financial data, or do observations, run a peer review, or review previous research

 

Conduct the skills audit

1. Gather information and analyze it.
2. Do a task analysis. Look at the purpose to be achieved and then work backwards to find all the roles and skills needed to achieve that purpose.
3. Interpret and evaluate the data
4. Draw conclusions on the match between current human capital and organizational requirements.
5. Issue and distribute the audit report.

Note: You will need to check the skills required for each position. Position descriptions and performance reviews might be a better measure of skills than formal qualifications. For example:

• Some qualifications do not equate to specific occupations.
• Unfortunately, some staff cannot satisfactorily do the jobs that their qualifications indicate.
• People usually change their area of expertise during their careers.
• Some staff who learnt on the job have much higher skill levels than formal qualifications:
• Some highly skilled people have no formal qualifications.
• "Qualified engineer" could mean either "recent graduate who still works under a supervisor" or "engineer with enough experience to lead a major project in a particular specialization."

 

Interpreting the audit

You now need to interpret the information gained during the audit so that you can use it as the basis for a plan.

 

Capital asset value

Determine the capital asset value of the organization’s human resources. (Capital asset value is the value a business may derive from any stock of assets it owns that can be deployed to create income, or from which interest and future value can be derived.) This process is quite simple in service industries but is much more complex in manufacturing where supply and production lines have many more stages. It is often difficult to assess actual production/services unless you are in a services industry where the services of staff are the main value you provide clients? It can comprise:

1. Replacement value, i.e. how much would it cost to replace staff and get new staff up to speed?
2. Opportunity value, i.e. do you have to the ability to take new opportunities?
3. Opportunity costs, i.e. what do you lose when you cannot take new opportunities?
4. Risk, i.e. what amounts are at risk due to lack of expertise?
5. Costs of inability to retain talented people.
6. Losses due to low productivity.
7. Profits due to exceptional productivity.
8. Intangible costs of unused talent.

 

Skills gap and training needs profile

Define the skills gap. That is, what is the gap between the skills the organization needs and the skills of its current staff?

Then write a training needs profile. It is a list of positions and skills needed in the future, and is a major part of your strategy for developing human capital.

1. Include notes of your consultations with stakeholders.
2. Include forecasts for the timeframe of the plan. If necessary, include the timeframes or deadlines by when particular skills are needed.
3. The training needs to profile occupational groups. Your profiles might also reflect:
1. age profile
2. career trajectories (promotions, dropouts, moves sideways)
3. composition - full-time, part-time, casual
4. formal education and training backgrounds
5. gender ratio
6. language and cultural backgrounds.

 

The plan

Write a plan for developing human capital.

1. Write a set of objectives or KPIs for the plan.
2. Link development clearly to the organization’s goals and its specific needs.
3. Set training priorities in consultation with key stakeholders. Some needs will be more urgent than others, but do not confuse urgent with important.
4. Recommend strategies and delivery systems that will work for the organization, the staff, and the budget. Some strategies will be far more effective than others.
5. Include a way to calculate Return On Investment for training.
6. Review the talent management plan. Propose one if the organization does not already have one.
7. Consult and negotiate widely with key stakeholders to determine options to work together to develop human capital. Consider including projects in which different stakeholders collaborate on projects.
8. Will some kinds of staff need to be phased out or transferred to roles for which they are better suited?
9. Will you need a budget allowance?
10. How will you promote the program to stakeholders?
11. How will you evaluate your implementation?
12. What reporting will you do at each stage? To whom?

 

Following through

To follow through, propose the plan to the board or senior management and get their approval. After that, you need to implement the plan and evaluate it.