Monday, December 24, 2007

Human Capital Management (HCM)

In today’s hyper-competitive business environment, companies must maintain the highest level of performance in order to succeed and win.

As a result, companies must increasingly leverage every resource to create and maintain a competitive advantage. The resource most difficult toharness is people. This
resource, however, is also where companies find their greatest gains in productivity, creativity, and innovation. People are central to the success of any organization. Simply put, great people make great teams that make great products, and deliver great service. In order to deliver excellent results, employees must be motivated and have the necessary competencies, or the capacity to develop them. Furthermore, the organization must have the proper tools and support for the employee to succeed. The desire to harness the latent potential of employees is
driving the adoption of Human Capital Management (HCM) software, in order to motivate,
teach and allocate resources. In the paper How Smart HCM Drives Financial Performance,
Dr. Jac Fit-enz author of eight books and acknowledged father of HCM metrics, and Erik
Berggren of SuccessFactors Research, proved that there is significant financial benefit to
implementing a superior Human Capital Managementsystem . Now that this link has been established, it is critical to understand how HCM actually drives increases in revenue and profit.

Smart HCM Drives Financial Performance 2007 Analysis yielded the following findings:
Finding 1: 67% of companies with stronger financial performance cover all managers and some levels below with the performance management system. Only 28% of the weaker performers do.
Finding 2: 44%of the stronger performers have almost 100%aligned goals at the managerial level. None of the weaker performers do.
Finding 3: 38% of the strong performers have a succession planning program in place. 0% of the weaker performers do.

HCM Business Impact Model
The SuccessFactors Research
Human Capital Management Business Impact Model illustrates the dramatic impact of HCMon all aspects of business. Two-way relationships are noted with two-way arrows, one-way relationships with one-way arrows and partial relationships with dotted-line arrows .
Employee engagement stands at the apex of this model, driving customer satisfaction, productivity, and retention, which in turn drive revenues and profits.
The following relationships are illustrated:
1. Engagement to Customer Satisfaction (2-way)
2. Engagement to Productivity (1-way)
3. Engagement to Retention (2-way)
4. Retention to Productivity(1-way)
5. Retention to Customer Satisfaction (1-way)
6. Retention, Productivity and Customer Satisfaction to financial performance.Defining Engagement while retention, productivity and customer service are self-explanatory, it is important to understand what engagement is, and how it is defined for the purposes of this paper.
A recently conducted a survey of 12 research studies that were focused on understanding and driving employee engagement, which they define as:
a heightened emotional and intellectual connection that an employee has for his or her job, organization, manager, or co-workers that, in turn, influences him or her to apply additional discretionary effort to his or her work.
Driving Engagement
The aforementioned survey found eight drivers of engagement across all of the examined
engagement studies .

Eight Factors that Drive Engagement:
1.Trust and Integrity
2.Relationship with One’s Manager
3.Nature of the Job
4.Career Growth Opportunities
5.Line-of-Sight between Individual Performance and Company Performance
6.Employee Development
7.Coworkers/Team Members
8.Pride About the Company

Defining Engagement
While retention, productivity and customer service are self-explanatory, it is important to understand what summarized through one theme:
self-determination: In order to operate with self- determination, an employee must have trust in their business processes, a clear understanding of the business environment, the ability
to gain the skills necessary to succeed in the environment, and a career path within that environment.
This is evident in a published paper with Emerald, Transparency Drives
Strategy Execution2, where a SuccessFactors Research discuss the importance of a transparent environment for driving strategy forward. They explain the link between strategic transparency and employee performance and the open, navigable environment desired by self-determined, engagedemployee.
Engagement to Customer Satisfaction
It is logical that an engaged employee would produce higher levels of customer satisfaction. An engaged high performer would offer better customer service, with more frequent engagement with the customer. The SuccessFactors Research HCM Business Impact model links engagement to customer satisfaction. The Harvard Business Review article, Manage Your Human Sigma, shows the clear bidirectional relationship
between engaged customers and engaged employees. As customers
and employers become more engaged, performance increases
dramatically. However, customer satisfaction is not only the product of outward facing
employees. Timely order fulfillment and product quality are also critical to
customer satisfaction. According to a Northwestern University study:
Employee Satisfaction and Employee Engagement have both direct and indirect effects on subsequent market and financial outcomes. Employee Satisfaction directly influencesCustomer Satisfaction, while Employee Engagement’s effects on Customer Satisfaction are indirect
through market orientation and Customer Behavior.

Global Engagement Survey
14% of the World Workforce is highly engaged
84% of HighlyEngaged Employees believe they can positively impact the quality of their work
86% of the World Workforce is moderately engaged or disengaged
31% of disengaged employees believe they can positively impact the quality of their work
Source: Talent Management in the 21st Century:
Attracting, Retaining and Engaging Employees of Choice WorldatWork Journal, 1st Quarter 2006.

Retaining Top Talent
Retaining top talent employees constitutes the following:

1. Opportunities to Advance One’s Career. This retention factor maps directly with the career growth opportunities sought by engaged employees.
2. Employee Learning and Development. Also linked to career growth opportunities, skill development drives both engagement and retention.
3. Reputation of the Company. This retention factor maps directly with the Pride About the
Company engagement factor. While not always a controllable factor, it illustrates the strong similarity in those factors that encourage engagement and retention, respectively.

Driving Real Performance Engagement
“Engagement with employees within a firm has shown to motivate the employee to work beyond personal factors and work more for the success of the firm.” —The Gallup Organization
Inspires Retention
“Work groups whose members are positively engaged have higher levels of productivity and profitability, better safety and attendance records, and higher levels of retention. Not surprisingly, they’re also more effective at
engaging the customers they serve.” — Manage Your Human Sigma
Customer Satisfaction
“In a competitive marketplace where businesses compete for customers, customer satisfaction is seen as a key differentiator and increasingly has become a key element of business strategy” — Lawrence J. Gitman
“Mature systems support consistent application across units driving down G&A expense. More importantly they promote communication with employees, giving them clarity in terms of their effect on the business, thereby driving motivation. This leads to productivity and financial gain.”

The SuccessFactors Research HCM Business Impact model demonstrates the clear linkages between engagement, customer service, productivity, and retention. An engaged employee is
more likely to put extra thought and effort into their work, engage the customer more frequently, speak highly of the company, and is far less
likely to leave. This adds tangible value and savings for businesses that invest in HCM. This investment in improved process and smart technology can help drive engagement, therefore improving productivity, customer service and retention, which ultimately drives revenue and profit.
Dr. Peter Cappelli and SuccessFactors Research revealed in a recent presentation
that 65% of the costs of doing business are labor related. Employee performance is crucial. Businesses with engaged employees simply perform better, and are all the more suited to the hyper-competitive business environment of today. HCM drives this performance, engaging and retaining employees, leading ultimately to satisfied customers and superior financial performance.

Baker, A. (1998), Employee RetentionImproves with Virtual Routing Systems, Call Center Solutions.
Barret, V.M. (2007), Fight the Jerks.Forbes Magazine, New York, NY.
Bassi, L., McMurrer, D. (2007),Maximizing Your Return on People,
Harvard Business Review,Boston, MA.
Berggren, E., Bernshteyn, R. (2007),Transparency Drives Strategy
Execution, Emerald Press,London, U.K.
Coffman, K., Fleming J. H., Harter, J. K. (2005), Manage Your Human

Harvard Business Review,
Boston, MA.
Cozzani, C. Organizational Characteristics to Employee Attitudes and Behavior, Forum for
People Performance Management,
Evanston, IL.
Gebauer, J. (2005), Building the Global Village, Synnovation:
Gibbons, J. (2006), Employee Engagement: A Review of Current Research and Its Implications,
The Conference Board, New York, NY.
Gitman, L. (2004), The Future of Business, South Western College Publishing.
ISR Research. (2006), Global Employee Engagement Study, Chicago, IL.
Towers Perrin. (2003), The 2003 Towers Perrin Talent Report: Working Today: Understanding What Drives Employee Engagement, Stamford, CT.

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