Clients frequently come to us with concerns about their people: “I wasn’t expecting her to jump ship.” “He looked so good when we hired him, but since then, it’s been a nightmare.” “I think my team is great, but my boss says they don’t connect to the rest of the business.”
These clients say they want to do better in hiring good people, developing their potential, and creating effective teams. They value these “soft skills,” but as one client put it, “It is more important to focus on running the business.” It’s a hazardous distinction. Managing people is not a soft skill. It’s about maximizing the return on investment (ROI) on the significant investment in human capital.
Human capital may sound cold or like bizspeak. However, the people side of the business is expensive and has still not gotten the attention it deserves. People are the biggest investment in most organizations—an investment that could be far better managed by applying the same due diligence as what’s applied to managing other capital resources.
How can ROI be maximized on people?
There are four important components of human capital: individual performance, individual talent, team effectiveness, and team and organizational culture.
1) Individual Performance
Managing individuals’ performance is fairly straightforward. It is focused on what people produce. Most organizations have processes in place to plan and manage the performance of people in their current roles. What they should be equally focused on is talent, which is what people are capable of producing. That’s more difficult to define and manage. But because it’s harder doesn’t mean it’s not important to do systematically.
2) Individual Talent
Talent is too often principally defined by the person’s past performance and experience—the past is viewed as the best guide to the future. Talent definition needs to also include the underlying abilities, drive, and personal insights that, when added to the person’s history, provide a far better indicator of future success.
To gauge their talent capital, executives should clarify where their organizations are headed and rigorously define the talents they need to get there. They then should evaluate the current state of the talent in key roles by assessing the strengths and gaps of the people in those roles. If gaps are found in those people, what actions should be taken—role changes, mentoring, coaching, even separation?
If you systematically follow this process, including tracking outcomes, then important talent-related improvements will emerge around planning for succession and maximizing bench strength for the future. Clearer answers surface to questions such as:
• Who has the bandwidth to take on more?
• Who is not ready to scale but is a valuable player we should help be well engaged where they are?
• What specific capabilities will be looked for in new people? What’s the best way to hire and onboard them?
3) Team Effectiveness
Managing team effectiveness too often involves intuitive gut decisions. Many executives don’t take time to analyze what makes a good team; they may think it is too complex. But there are well-known components of an effective team. By asking some relevant questions about those components, executives can harvest significant improvements from their teams.
A good team starts with having a good leader. What experience and talent do they need in order to maximize the team’s success? A good team has a rational structure. Do the most-important roles have direct and timely access to the leader and to one another? Equally important: how well does the team focus and agree on business priorities? Do the allocations of their time, resources, and energy align with the organization’s stated priorities and strategies? How do decisions get made and communicated throughout the organization?
4) Team and organizational culture
Culture is a powerful lever of human capital. It’s the difference that enables everyone the opportunity to maximize their performance and potential. Without a culture of belonging, return on human capital will undoubtedly fall short. We know from our own research that organizations with a higher sense of belonging have higher employee engagement and are better in terms of new product development and innovation, their quality of services, and, importantly, profitability.
Evaluating your culture allows to ask questions such as:
• How are decisions made, and how is work distributed?
• To what extent do ingroups and outgroups exist with differing levels of influence?
• Do all team members have the opportunity to be visible?
• Are there safe spaces for employees to provide feedback?
• Do leaders lean into curiosity, collaboration, and compassion?
By focusing a sharp eye on all of these components of the human capital equation—performance, talent, culture, and teamwork—leaders create a better picture of what it takes to run their organizations and minimize unpleasant surprises, and they are more likely to maximize the ROI of their most important capital: people.