We value human capital. What does it mean to demonstrate it?

“If we don’t destroy life on this planet before we discover how to make it possible for man to utilize his abilities to create a world in which he can live in peace, it is possible that the next half century will bring the most dramatic social changes in human history.”
― Douglas McGregor, The Human Side of Enterprise 1960

“Employees are our greatest asset” says every (almost) CEO everywhere. It has become cliché. Few leaders and organizations live this belief. Those of us in sustainability and social impact are part of the few. We too have been slow to connect the dots on human capital value in organizations as the heart of internal social impact. That which drives customer relationships, quality and allows predictable business growth and outcomes.  

This is not a new idea. McGregor researched this in the 50’s and published his findings in 1960. We have yet to organize and manage human capital differently. To demonstrate it.

Kori and I dedicated two years of research and launched The Human Value Institute to transparently investigate and share our findings. To find out why. With you, our ‘team’ of socially astute change-makers, we continue to wrestle with ways we can one day demonstrate that humans are recognized and supported as the most important asset of the organization in which they contribute.

The current business state: humans remain our largest expense and are dispensable when short term pressures prevail. While the knowledge they hold is impossible to replace, leaders are expected to prioritize financial strategy separate from a people strategy. To inadvertently ignore that relationships and knowledge are what create customer value.  

Our envisioned future business state: humans are our greatest asset in serving customers, communities and driving business growth.  Decisions, financials and systems are strategically aligned to ensure that people are central. Each individual has the potential to work from purpose, to be empowered and autonomous to create, fail, transform and contribute to our mission.

To shift business for good and realize this aspiration, the embedded systems with methods that serve them, remain our biggest barriers. They are also our most important portals for change. Reconciling these barriers can better inform us as we ‘nudge’ into practice new systems that uphold humans as an actual asset. Instead of just a cliché that is often followed by layoffs.

Meeting in the Middle

We can stop doing things that disconfirm employees as assets and we can start doing things that realize them as assets.

Traditional methods of people management are being challenged and even abolished.
    Honeywell put employee value ahead of dividend value.
    Stout defined decades of serving shareholders as a myth.
    Interface pioneered a return on human capital accounting.  
    Infosys was a first organization to put into practice a approach to valuing human capital.

From the other side of this press, increasing innovation in organizational system design includes ways to better honor the human employee.
    Laloux’s Teal organization.
    Hsieh’s Holocracy.
    Kim and Messenger’s No-fire policy.
    Ries’ experiment and iterate imperative.

Emergence and piloted adoption of new structures and systems are helping to elevate the value of humans in and to organizations. Despite the barriers upheld by ingrained practices and methods. Meaningful change does not, and likely should not, happen at once. Understand where you are and where you want to go. Then determine how you can shift across this spectrum in a meaningful way. Identify a sort of new middle: a transition phase.

“It is probable that one day we shall begin to draw organization charts as a series of linked groups rather than as a hierarchical structure of individual “reporting” relationships.”
― Douglas McGregor, The Human Side of Enterprise

Mapping the Middle

The following measurement areas are core to human capital management.

• Traditional practices are those ingrained in most established organizations today.
• Emergent practices are innovative – some are examples happening today and some are aspirational to connect us to our envisioned future (above.)
• Transitional practices will help us serve the middle zone – between these two. To move us in a direction of emergence despite the barriers traditional practices have either established or are promoting.

Charting a Transition Strategy

1. First, recognize the traditional practices we are conditioned to believe are in fact traditional and may be barriers to progress that empowers people.
2. Secondly, compare these to the emergent or possible practices that will facilitate human value.
3. Finally, we can create a new middle by charting nudges or direct changes in how we make decisions. Strategy is decision-making so we now have a transition strategy.

For those organizations starting differently, as emergent, transition practices may not be needed.  You may need to honor the constructs of thinking by any traditional-influenced employees. They may benefit from the ‘middle’ for their own transitioning.

One massive question remains: Is it possible to shift a legacy organization away from traditional methods that are barriers to human capital value realization? Or is it only possible to start new organizations differently where humans are valued in practice from the start?

Our research would indicate that there are legacy organizations that are poised to develop a Human Value Transition Strategy. The following are the most important and all can be measured:

1. Senior leadership (+BOD) believes and serves humans as core to organizational value.
2. High degrees of trust exist in the culture.
3. High degrees of autonomy in decision-making exist in the culture.  
4. Strategic decisions are skewed toward long-term future impacts of 20-50 years.

We don’t have one answer as to why we have yet to fully demonstrate and acknowledge humans as true assets in our organizations.  The provocative and human oriented discoveries of McGregor and others have yet to convince strategic decision-makers that structure, culture and strategy must be aligned to this imperative. So, what will?  Maybe thinking and acting in transition practices will permit us to finally act on these socially astute indicators. To learn as we go and to develop ambassadors of new ways of reconciling our most important asset.

Next in Valuing Human Capital

In our next blog leading up to New Metrics ’17, we will discuss Hidden Assets as defined by traditional accounting. A company brand is the most widely known intangible asset (a category of Hidden Asset.)  By nature of intangibles, we are limited in how we connect, manage and improve them. By making them tangible we believe we can better support change – we can measure them.

Making something tangible that is intangible creates an interesting tension. Do we invariably change what makes them unique and special to begin with? Are we trying to fit intangible assets/value into a tangible world when we should fit tangibles into an intangible world? More in a couple of weeks!

Steph Sharma
Managing Director
The Human Value Institute
October 16, 2017