Synopsis

The breakthrough approach for aligning people with strategy for higher profits

Organizations that select, develop, deploy, manage, and motivate their people to produce outstanding business results have an extraordinary competitive advantage that others can't copy. Backed by Mercer's nine-year, $10 million study of leading companies around the world, Play to Your Strengths shows how to leverage a company's human capital strategy into business results that are measurable and profitable and that will create exceptional, enduring competitive advantages.

This bottom-line-boosting guide gives managers, senior executives, and consultants the theory, tools, and processes they need to:

• Measure the effects of people on business results
• Determine the impact of strategies before making them
• Focus on the organization's most effective people strategies
• Deliver more money to the bottom line in a sustainable manner
• Create enduring, copy-proof competitive advantages

Soundview Executive Book Summaries

According to the authors, four principals of Mercer Human Resource Consulting, one of the largest assets of any company is its human capital combined with the system that manages it, but many managers insist on treating employees as costs to be minimized rather than as investments that add value to the organization. The reason is that people and their skills are hard to measure and predict. But increasingly human capital is becoming a company's unique competitive advantage, they write, and it will need more active management and guidance.

The authors explain that a new, fact-based science of human capital management has emerged that is based on systems thinking, determining the correct facts about the organization, and focusing on value. With this new way of managing human capital, they write, executives can use their human capital to its full advantage by aligning the human capital strategy with the business strategy and finally allowing stakeholders to analyze and evaluate one of the most powerful assets of any company.

American companies typically invest an average of 36 percent of their revenue in their work force each year, the authors write, yet these companies know nothing of the return on that investment. Executives accept this lack of knowledge because of their inability to measure, assess or predict the outcomes of work force tactics as they can for other areas of the business. Since no company knows how to measure and manage human capital, no company has been able to use it as an advantage. But that is changing.

The authors explain that past sources of tangible competitive advantage, such as access to capital, technology, and economies of scope and scale, are becoming less critical. The last unexploited sources of advantage are a company's intangible assets of human capital and its human capital strategy - the tactics, policies and practices used to manage it.

Your Human Capital
According to the authors, the combination of the human capital system with the company's market and business model creates two potent competitive advantages. Human capital practices remain relatively stable and endure longer than the effects of technology and financial capital. In addition, because of its unique context and goals, the human capital management system is difficult to copy. Other companies cannot co-opt "best practices" because they exist in their own system of interrelated practices and values.

Principle 1: Insist on Systems Thinking
The first principle of effective human capital management is systems thinking, or having an awareness of the connections that link organizational units, people, processes and behavior. Any major change in one area ripples through the larger system. The authors write that it is impossible to solve problems in systems by treating the symptoms. It is necessary to identify and attack the root causes by gathering quantitative data.

Principle 2: Get the Right Facts
Systems are made up of interrelated parts, the authors write, and the subsystems or elements of any system may operate with different degrees of interdependence. Changes in any subsystem are felt in other subsystems, so implementing changes in one part of the enterprise without making changes in other, related parts is a recipe for failure. The authors explain that relevant and reliable facts are needed for good decisions. Facts from anecdotes are weak or unreliable. Facts drawn from benchmarking are generally stronger. Facts about cause-and-effect relationships have the greatest power, they write, but they must have some analytical rigor behind them.

Principle 3: Focus on Value
In business terms, value is output minus the cost of producing it. Human capital is an investment with a stream of economic returns. The authors explain that when the benefits produced exceed the costs, the asset has produced real value. Every alteration in the asset has an effect on those returns, they write, so actions - such as rotating people through positions; training; and reconfiguring pay and incentives - change the asset's potential to produce value. Even the personal choices of employees, which are affected by company policies, can influence value.

Human Capital Strategy
All organizations have a human capital strategy, whether explicitly defined or not, and HR is not the only group responsible for it. The authors write that line managers and top executives also impact the strategy.

Each of these factors, alone and in combination, affects the work force and its ability to deliver value. The authors explain that an organization needs to have a coherent and explicit human capital strategy that produces the right work force for the business and manages it in a way to optimize economic productivity. To determine this, the authors write that an organization must compare its current work force capabilities and performance with what they should be. Copyright © 2004 Soundview Executive Book Summaries

Biography

Haig R. Nalbandian, Richard A. Guzzo, Dave Kieffer, and Jay Doherty are cofounders and principals of Mercer HR Consulting and are the originators of the groundbreaking theory, tools, and processes in this book. Their work has garnered major media attention in the Wall Street Journal, BusinessWeek, and the Financial Times and on CNN and CNBC.