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The New Human Capital Strategy

Bradley W. Hall · 2008

In a sentence

A systematic framework for measuring and managing human capital with the same discipline as financial capital, so organizations can prove their people in critical roles outperform competitors and improve year-over-year.

The New Human Capital Strategy argues that although executives universally claim people are their most important asset, almost no organization can state whether its human capital is more valuable this year than last—because the prevailing HR model was designed for administration, not business results. Drawing on his experience as both academic and senior HR executive at companies like IBM, AT&T, and ABN AMRO, Bradley Hall borrows the discipline W. Edwards Deming brought to manufacturing and applies it to knowledge and service work: define what human capital excellence looks like (a blueprint), build an integrated system rather than world-class programs, focus investment on critical roles, and measure and manage with data so the organization learns to make progressively better human capital decisions. The book delivers a four-component strategy—effective executive teams, leaders who deliver results, key position excellence, and workforce performance—plus a concrete roadmap (capabilities, definition of success, integrated improvement process, disciplined measurement) for executing it. It is a must-read for general managers and HR leaders who want to convert the cliché that 'people matter' into a tangible, measurable competitive advantage.

The four lenses

  • Science
  • Statistics
  • Systems
  • Strategy

The model

A causal framework in which design levers (organizational change capabilities, accountability, results-based definitions, integrated systems, disciplined measurement) drive psychological and behavioral states (role clarity, confidence/motivation, mutual accountability, leadership culture) and performance of critical roles, which in turn produce sustained competitive advantage and business outcomes (profit per employee, customer satisfaction).

Organizational Capabilities and Accountability for Changedesign lever

The structural and leadership arrangements (a results-accountable HR function, a general manager who manages human capital like financial capital, a Senior Leadership Team, and brand-manager-style ownership) that assign unambiguous accountability for year-over-year human capital growth and drive change.

Results-Based Definition of Successdesign lever

A clearly documented end-state blueprint and vision of human capital success expressed as objective, results-based lagging indicators and three-to-five leading key results for each critical role rather than activities or competencies.

Comprehensive and Integrated Improvement Systemdesign lever

A top-down, comprehensive, integrated, and disciplined system (not isolated programs) that deploys all necessary and aligned components—talent acquisition, skills, tools/information, best-practice adoption, manager support—to deliver defined results for critical roles.

Disciplined Measurement and Managementdesign lever

Capturing valid performance data at the lowest possible (individual/team) level, storing it for analysis, and using it to determine year-over-year change and learn relationships so the organization makes progressively better human capital decisions.

Focus on Critical Rolesdesign lever

The deliberate concentration of investment and improvement effort on roles (executive teams, leaders, key positions) most important to corporate core competencies and customer/shareholder value, rather than egalitarian distribution across all roles.

Role Clarity / Clear Expectationspsychological state

The degree to which employees and leaders know precisely what is expected of them and understand performance standards, identified as the most important driver of human capital productivity.

Fairness and Accuracy of Feedbackpsychological state

Employee perception that feedback and performance assessment are fair and accurate, found to be the single most impactful performance driver in the Corporate Leadership Council study.

Employee Confidence and Motivationpsychological state

The intrinsic willingness, energy, and confidence employees and leaders feel, driven by being made successful, receiving real-time feedback, working on strengths, and avoiding demotivating comparisons.

Leadership Culturecontextual condition

A shared values environment in which senior executives role-model development, prioritize building leaders, and hold managers accountable—identified as the most important driver of leadership quality.

Mutual Accountability and Trust (Teams)behavioral pattern

The team behavioral state in which members hold one another accountable for results and trust one another, arising from aligned assumptions and a clear shared purpose rather than from interpersonal interventions alone.

Strategic Alignment of Workforcebehavioral pattern

The cascading of strategic objectives and critical success factors so that activities of people throughout the organization are aligned to deliver the business strategy.

Performance of Those in Critical Rolesbehavioral pattern

The measured performance of executive teams, leaders, and key-position employees relative to competitor peers, expressed by role-specific leading key results and lagging business indicators.

Sustained Competitive Advantage Through Peopleoutcome metric

The condition in which the organization's core competencies, delivered by people in critical roles outperforming competitor peers, give customers a compelling and durable reason to do business with the company.

Business Outcomes (Profit per Employee, Customer & Shareholder Value)outcome metric

The financial, customer, and operational results—such as profit per employee, revenue growth, market capitalization, and customer satisfaction—that human capital improvements ultimately produce.

How they connect

  • change capabilities accountability influences critical role performance
  • results based definition success predicts role clarity
  • results based definition success influences feedback fairness
  • integrated improvement system predicts critical role performance
  • critical role focus moderates business outcomes
  • disciplined measurement moderates integrated improvement system
  • role clarity predicts critical role performance
  • feedback fairness predicts confidence motivation
  • confidence motivation influences critical role performance
  • leadership culture predicts critical role performance
  • mutual accountability influences critical role performance
  • strategic alignment influences critical role performance
  • critical role performance predicts sustained competitive advantage
  • sustained competitive advantage predicts business outcomes
  • change capabilities accountability influences leadership culture

A candidate measure

The New Human Capital Strategy — derived measurement candidates

Organizational Capabilities and Accountability for Change

Presence/maturity index of governance roles; Percent of HR goals aligned to HCS; Separation of admin vs strategic HR (yes/no)

self-report suitability: medium

Results-Based Definition of Success

Completeness score of vision/blueprint; Number of critical roles with defined key results; Time-bound milestone existence

self-report suitability: medium

Comprehensive and Integrated Improvement System

Integration/coverage index; Percent of programs linked to a key result; Number of orphaned (unaligned) programs

self-report suitability: low

Disciplined Measurement and Management

Existence/usage of HC database; Number of analyses informing decisions; Data validity/quality score

self-report suitability: low

Focus on Critical Roles

Investment per role index; Pay relative to market by role criticality; Training hours by role

self-report suitability: low

Role Clarity / Clear Expectations

Survey clarity score; Percent able to state strategic objectives; Goal documentation rate

self-report suitability: high

Fairness and Accuracy of Feedback

Survey item: people get ratings they deserve; Reward-link perception trend vs benchmark

self-report suitability: high

Employee Confidence and Motivation

Engagement survey score; Training enrollment rates; Intent to stay

self-report suitability: high

Leadership Culture

Culture survey on development dimensions; Percent executive time on development; SLT participation in talent events

self-report suitability: medium

Mutual Accountability and Trust (Teams)

Team trust survey score; Consistency of stated top priorities; Frequency of peer accountability behaviors

self-report suitability: high

Strategic Alignment of Workforce

Percent of workforce understanding strategic goals; Goal-cascade linkage rate; Goal transparency usage

self-report suitability: medium

Performance of Those in Critical Roles

Year-over-year key-result change; Customer comparison rating; Percent at quota / productivity per role

self-report suitability: medium

Sustained Competitive Advantage Through People

Competitor-comparison performance indices; Market share durability; Sustained core-competency superiority

self-report suitability: low

Business Outcomes (Profit per Employee, Customer & Shareholder Value)

Profit per employee; Revenue growth; Market capitalization; Customer satisfaction index

self-report suitability: none

Run the assessment

The story

The reader A general manager or HR leader who believes people are their most important asset and wants a sustained competitive advantage through a measurably improving workforce.

External problem

They cannot prove whether their human capital—leaders and people in critical roles—is better than competitors' or improving year-over-year, despite large investments in HR programs.

Internal problem

They feel frustrated and powerless that the 'most important asset' is loosely managed, and they suspect their training, appraisals, and incentives don't actually work.

Philosophical problem

It is wrong to claim people are the most important asset while leaving them unmeasured and unmanaged, when financial and manufacturing capital are managed with rigorous discipline.

The plan

  1. Create organizational capabilities and clear accountability to drive change (GM, Senior Leadership Team, redesigned HR).
  2. Define success: set the human capital theory, vision/blueprint, and the four strategic components.
  3. Focus on critical roles and define results-based measures (leading and lagging indicators).
  4. Build a comprehensive, integrated improvement system for each component.
  5. Measure and manage human capital with discipline, learning from data to make progressively better decisions.

Success

  • The organization can confidently state its people in critical roles outperform competitor peers and improve year-over-year.
  • Investments in human capital are tied to measurable customer and shareholder value.
  • Leaders and the workforce are clearly focused, motivated, and confident because success is defined and celebrated.
  • The organization learns from experience to make progressively better human capital decisions.

At stake

  • Continued spending on programs that don't deliver business results.
  • Loss of competitive advantage as competitors and technologies proliferate.
  • Demotivated employees, political gaming, and leadership pipeline gaps.
  • Inability to ever answer whether the most important asset is improving.