Targeting Human Capital: Investing in Performance and Results

Talent hits a target no one else can hit; Genius hits a target no one else can see.

― Artur Schopenhauer

My friend Pat makes it happen. Not a perfect leader, but has a track record of growing businesses and getting results.

Consider these statements:

·       Get Pat on the assignment,...Pat’s the best business development person we have.

·       When you want to get something done you gotta talk to her.

·       When you want out of the box thinking, she’s the one who always has a unique take.

·       He’s the best person we have at getting teams to work together across the enterprise.

Sound familiar? Move the pro-nouns around and substitute names you know. It’s statements like these that are the shorthand often use to define the high-value human capital assets of our businesses and organizations.  Who contributes what on a regular basis? Who are the go-to people for solving tough problems? Who do you and others pick to work on opportunities that matter? Both individually and in aggregate, these are the resources that drive our businesses forward and are the critical equity elements in the overall worth of the enterprise. It’s also statements like these that can lead to a discussion of what’s missing.

It’s not the financial and other tangible assets that cause an enterprise to reach its full potential. It's the people.

As investors, we look to past business performance to identify gaps and unrealized opportunities to enhance enterprise value. Market opportunities, product enhancements, process efficiencies, etc., all contribute to those calculations. However, it’s the key human resource assets- Human Capital Equity (HCE) that provides the engine to realizing that potential and poses one of the greatest risks to the investment when those assets are not present. Just as a high-performance precision tool without a suitable operator fails to achieve its potential so does a company without the high performing HCE necessary to drive future growth and EBIDTA.

Valuing contributions versus competencies.

Figuring out Human Capital Equity (HCE) is less about individual competencies and more about the past, current and future contributions that people make. Individual Competencies are too granular to assess the core contributions that are essential for business performance. While useful from an individual diagnostic, coaching and development perspective, they are not sufficiently holistic to judge if the whole is greater than the sum of the parts. What we really want to know is who are the go-to people that make the enterprise what it is and what it might become. AND, where are the gaps?

Think about people you have worked with. Some simply have more value to the business than others due to their leadership, their ability to control finances, to innovate or to sell. It is commonsense and it dictates the decisions we make minute to minute in organizations. Why wouldn’t we get a head start by making decisions about human capital equity when engineering a path toward future growth?

Eight Core Human Capital Business Drivers.

Based on our research with investors and business leaders, HCE contributions center around eight core business drivers. While there may be others that are unique to a specific company, without these eight, there are likely to be critical talent gaps in driving a business to reach its full potential. Below, we've listed each HCE Business Driver along with its Contribution to Enterprise Value. Working in concert, these drivers result in an enterprise engine that has the potential to perform at or above expectations:

1. Leadership

   Engaged, directed and inspired stakeholders

2.  Teamwork

   Collaborative, inclusive, productive and trusting internal relationships

3.  Execution

   Things get done reliably, consistently and efficiently

4. Financial Acumen

   Prediction, judgment, and control of costs and revenue

5. Industry / Market Relationships

   Insights and opportunities to grow and expand in the market

6.  Business Development

   Predictable revenue from existing and new sources

7. Technical Innovation / Improvement

   Thought leadership for invention or creation of processes, products, services, or markets

8. Functional / Subject Matter Expertise

   Knowledge of job specific expertise (e.g., Operations, sales/marketing, Law, HR, Finance, etc.)

9. Unique to Company

   Unique equity that is essential to the enterprise value in the investment hypothesis

Want to know who in a business is contributing what? Ask the people who know!

Reputational Assessment. At TA-DA we’ve been working on methods for measuring HCE at the enterprise level. Reputational Assessment is a systematic process of sorting out who contributes what to enterprise value. Using our proprietary reputational assessment tools, TA-DA askes key stakeholders who they see as the go-to people around eight core human capital business drivers, aggregates the findings and provides a rapid overview of Enterprise Human Capital Equity.

Human Capital Equity Potential. The best evidence of capability is a track record of success. But, sometimes that  Is not available. Starting with the HCEs above we have worked out algorithms of abilities and natural tendencies, gathered with psychometrics and interviews, to predict future performance. Prediction is always imperfect but when combined with past reputation and a laser focus on what matters for business we increase the odds.

Call us if you’d like to know how!