Human Capital Taking Centre Stage
As Organisations design strategies to become more sustainable, they are rarely focussing on human capital. However, research and common sense show that the most significant opportunity to achieving business sustainability is engaging and investing in people. For the most part, human capital is the essential component of the financial metrics presented to shareholders in their balance sheets. Human capital is the organisation and delivers all relevant activities that materially influence business operations and their consequent impact on all stakeholders (ESG). Organisations' solution to being genuinely sustainable is to find new value from the people who make up your business. If organisations want their operations to survive and thrive in the future of work, employees of all types must be the focus.
What's new in Human Capital?
In 2020, one of the most significant developments in human capital was when the Securities and Exchange Commission released a ruling requiring public employers to measure and report human capital metrics.
As recently as September, video game giant Activision Blizzard made headlines after it was reported that the SEC has taken action to challenge the company regarding its human capital disclosures. The company and several senior executives were subpoenaed by the SEC and are now under investigation on how they handled allegations of sexual harassment and workplace discrimination. In a press release on September 21, the company confirmed that it is complying with the subpoena and cooperating with the investigation. Activision’s CEO Bobby Kotick who was also subpoenaed said, “While we continue to work in good faith with regulators to address and resolve past workplace issues, we also continue to move ahead with our own initiatives to ensure that we are the very best place to work.” Regulators and international organisations are doubling down on the implementation of efficient human capital management and disclosure meaning Activision will be followed by other providers receiving the enforcement of human capital.
Thus, the human capital waves have started across the business landscape all over the globe. The question remains on who and how companies respond to the opportunity. Paddle in and maximise the ride or get dumped under a giant wave.
ISO 30414 Technical Specifications
Throughout 2021, the International Organisation for Standardization or ISO released technical specifications for individual metrics required under the ISO 30414 released in 2018. In addition, ISO now has 13 documents containing prescriptive guidelines on measuring human capital’s critical areas, including organisational culture, compliance and ethics, leadership, recruitment, succession planning, etc.
Human Capital and ESG
Human capital aligns with the very dynamics of S in ESG (Environmental, Social and Governance). With that, business leaders discussing human capital are also talking about ESG. The World Economic Forum said it best, human capital is “interconnected” with all three parts of ESG and is key to successful ESG initiatives and strategies. Key stakeholders, including consumers, investors, policymakers, and employees, demand more commitment towards human capital and ESG. For example, employees want more discussion and action on DE&I (Diversity, Equity and Inclusion) in the workplace. Jobseekers are more mindful if a potential employer is a purpose-driven organisation or not.
Global HCM Market Continues to Grow
Human capital management (HCM) and reporting value are more significant than ever before, with many organisations willing to inject millions of dollars into their human capital framework. Increasing digitisation is a primary driver of this continuous upward trend. Some HCM software available today can leverage advanced people data and generate financial insights on the materiality of Human Capital investments. Through this software, organisations can improve how they engage their employees to enhance overall growth and productivity. No to mention they can re-imagine how productivity is measured.
In 2020, the global Human Capital Management market recorded a year-on-year growth rate of 9.49% 2020, with North America having the largest market share, according to a forecast and analysis report by Technavio. According to the research, the HCM market will grow by $11.13 billion (USD) from 2020 to 2024. Furthermore, the report revealed that the US, China, Germany, the UK and Japan will record the highest revenue share and remain the largest HCM markets from 2021 – 2025. Due to rapid globalisation, the Asia Pacific is most likely to experience tremendous growth in HCM. In terms of industries, IT, retail, public sector, telecommunication and healthcare are experiencing or will experience significant adoption of HCM solutions.
Human Capital to solve the biggest business challenges in the future
The biggest challenges in the future of work are all about people/talent, not technology nor money. The job market will remain thin at best for most industries, and organisations will find it challenging to acquire the right talent and retain those people once securing them. According to a survey report by Fortune and Deloitte, the most prominent challenge CEOs face today and in the future is “talent, in nearly every form.” The report stated that “technological advancement and digital disruption” are essential in the present and the future, but they must first transform the workforce for business leaders to achieve what they want. The report described the workforce as “more highly-skilled, diverse, agile and prioritising well-being and purpose more than ever before.” These are all intangible assets and are all represented as core human capital areas.
What can we achieve with Human Capital strategies?
Human capital strategies are complex and even more difficult to measure in meaningful terms. Therefore, considerable challenges can appear when gathering people data and reporting its impact in financial terms. However, if we can do so, we can generate more robust insights to support our primary decision making and the material return on investment in our people. One recommended course of action for organisations unfamiliar with human capital is to use essential Human Resources data combined and analysed as part of the key financial data metrics. To do this enables businesses to determine a correlation between the amount of investment made to improve a specific Human Resource program, like recruitment, diversity and inclusion, organisational culture, leadership development etc., and the impact on financial performance; EBIT/DA, HCROI etc.
Organisations that embraced human capital metrics now and beyond the pandemic can shift from survival to thriving. What human capital program do you think will help you unlock the true potential of your workforce to be sustainable?
