Management of human capital in sharper focus today

The management of human capital is becoming more pivotal for organisational success than focusing on tracking outcomes.

Ignoring the unlimited power of human capital will increase employee disengagement which results in major losses to companies, Group Director and CFO, John Keells Holdings, Ronnie Peiris said.

He was addressing the third LBR-LBO Chief Financial Officer Forum on 'Creating Performance Driven Culture: The CFO's New Frontier' at the Cinnamon Grand Hotel on Tuesday.

"Despite high spending on human capital a few Chief Financial Officers (CFOs) understand the return on investments. CFOs see human capital as a key value driver and a central factor for a company to achieve outcomes but have made little or no effort to harness the power of human capital," Peiris said.

A recent CFO Research services survey revealed that though companies spend 36 per cent of the revenue on human capital expenses, only 16 per cent of the financial executives understand the return on investments.

"CEOs today are increasingly looking to their CFOs to play a more decisive role in performance improvement management as the 'high performance organisation' becomes the strategic imperative," he said.

While the cost of disengagement to companies in the United States is estimated to be around US$ 250-300 billion per annum the cost to Europe is approximately US$ 30,000 per employee per annum. The cost of disengagement in Sri Lanka is in equally disconcerting proportions.

Disengagement takes place when employees continue to work but have effectively quit which is commonly known as 'quit' and 'stay'. Such employees put in a minimum effort to get their pay cheque without getting fired.

Poor working conditions including inadequate recognition and reward, lack of understanding of the company's vision and mission, non empowerment of employees and poor recruitment and the selection process are some of the primary reasons for employee disengagement.

The CFO said organisations need to go beyond outcomes and focus on developing team work.

The father of Japanese process improvements said "While we need good results, 'management' of results is not the way to get good results; it is just an action on outcomes. It is more important to work on the causes of the outcomes".

Human capital is the skills, knowledge and experience of the total workforce of an organisation. The CFOs disinterest in developing the workforce has left them embarrassed," he said.

CFOs need to simplify systems, improve processes, establish decision rights and empower employees for better employee engagement in organisations.

Peiris said CFOs should see human capital as a value and competitive advantage and not merely to consider the bottomline.

The old-world mindset of accounting based on assessing assets must change to eke out a sustainable value from tangible and importantly intangible assets such as human capital. LF