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The Human Capital Telescope:Tips on linking HR to clients and investors

WE continue with the key thought introduced in last week’s article.

Report  By Brett Chulu
Last week we showed that even in this difficult business environment some firms are trading at market values per share that significantly exceed underlying net asset value per share. Based on this empirical evidence, we surmised that some firms appear to have commendable non-financial drivers or intangibles that the market recognises as an excess over book value. We observed that strategic HR, through its unique expertise in developing organisational culture, talent and leadership, is a powerful creator of the many intangibles that investors desire. Naturally, a case was made that leveraging on these powerful intangibles, Zimbabwean firms can increase their market-to-book values.

 
In this article, we offer a few ideas on how business leaders can practically tap into the heavily underutilised intangibles resident in strategic HR practices. Top brands are now paying top dollar for HR executives based on the foregoing. The case of Cisco we touched on last week is worth reconsidering to buttress our argument. Cisco, one of US’s top IT brands, sends its top HR executives to interact with investment analysts and top shareholders.  Cisco has realised that strategic HR creates intangibles which are captured in its market capitalisation which must be communicated effectively to the investment community by the creators of those intangibles.

 
To directly contribute to market capitalisation businesses must build HR-related intangibles and communicate these to the investment community.

 
Involve key customers in HR
One of the key weaknesses of traditional HR has been a focus on delivering HR practices without a deliberate plan to connect with the expectations of customers. A negative perception was unintentionally created that HR is a bridesmaid to other business-oriented functions. HR executives had a very hard time in trying to demonstrate that HR practices and investments impacted on business performance. Marketers could readily demonstrate their business contribution by showing that they understood customers’ buying patterns and needs, and were using these insights to drive revenue. HR could not make such direct connections.

 
HR, like any other business function, can now show that it can bring unique business insights that are linked to the customer. In brief, HR provides unique insights by focusing on talent, culture and leadership practices.

 
The following are a few pointers on how business leaders can make their HR investments connect to the customer.

 

 

  • Bring key customers to make direct input into performance management. The idea is to contribute directly towards customer retention and building life-long business relationships. It is a well-known business fact that 10 to 20% of a business’s total customers contribute 80 to 90% of revenue, thus meeting and exceeding their expectations is critical to ensuring revenue stability. HR can directly mitigate the business risk of losing key customers by incorporating key customer accounts in performance management. For instance, business leaders can invite their key customer accounts to assess the performance appraisal form for relevance. The key customers are asked to vet the elements on which employees are to be appraised. The questions posed to the key customers are: “Of the elements in this appraisal pro-forma, which elements matter most to you that our employees should exhibit every time? Are there any behaviours that we have left out that matter most to you?”  In this way the business is assured of an appraisal system that is relevant to a key customer’s buying criteria.

 

  • Use key customers as training facilitators or contributors to training modules. Alternatively, invite key customers to participate in your training activities. The idea is that key customers should be given a chance to contribute towards making training and development relevant to their expectations. The message that business leaders communicate through partnering with key customers in co-creating the learning and development agenda is that the business wants to develop employees that deliver on the expectations of customers.

 

 

These ideas are by no means exhaustive. They serve to prime our creativity around HR practices.

 
Involve key investors in HR
Involving members of the investment community in guiding HR practices is a far more effective way of demonstrating the depth and quality of intangibles a business is building and investing in. It does what no corporate report can ever articulate. Giving investors and investment analysts the privilege to see intangibles being created gives them a basis for their trust based on undisputed empirical evidence. The investment community is more likely to believe the claims of an organisation on the quality of talent, culture and leadership when they are directly involved than when they merely read corporate reports.

 
Here are a few ideas on how the investment community can be involved in a business’s HR practices.

  • Involve key investors in the recruiting of key personnel. Asking key investors to be part of an interviewing panel is one way of building their confidence in the quality of leadership being brought into the business. Alternatively, key investors and investment analysts can be asked to contribute in crafting key interview questions. They can be asked to suggest the most important qualities that must be ascertained from potential key appointments. This does not remove the need for key HR expertise such as psychometric testing and behavioral profiling. The point is that HR practices that are not relevant to what investors and investment analysts deem critical, such as recruiting, will not be rewarded with improved market capitalisation. The question those doing the recruiting need to ask the investment community is: “If we get an executive with these qualities what will be your investment decision: Buy, hold or sell? Why?”
  •  Invite key investors and investment analysts to experience the organisational culture first-hand. Ask key investors and investment analysts to be mystery shoppers visiting randomly-selected service points. Ask them to assess their personal experience on the key elements they expect to be delivered by your employees. Ask them to score each visited place on the quality of culture they experienced. For instance, if you claim that customer service is your key competitive advantage, let the invited investors and investment analysts assess the extent to which you have a uniform cultural identity in every geographical area where the company has a presence.
  • Inform the investment communities how you are directly involving key customers in crafting HR practices that address your key customers’ expectations.

My personal experience
The chief executive of a non-profit organisation had a planned absence for an extended time period (over 12 months). In advance he began to prepare his entire team of executives (of which I was part for his extended absence. He deliberately set aside time to prepare the executive team to handle key strategic, operational and leadership tasks including stakeholder communications. When he was satisfied with the preparedness and competencies of his executive team, he made a series of meetings with key stakeholders to brief them on his planned absence and to inform them what he had done to prepare the organisation to deliver on their expectations in his absence.  With his executive team and the board chairperson, the soon-to-leave CEO met each key stakeholder. In his absence, the team broke new ground in terms of spurring growth and delivering on the expectations of stakeholders. Upon his return, he continued the culture wherein his executive team and board chair visited key stakeholders twice a year to inform them of operational performance, key organisational non-financial investments and to learn about stakeholder expectations.
Build and communicate organisational intangibles.

 

 

  • Let’s discuss at brettchulu@constultant.com.

 

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