SUMMARY OF BOOK

Judul Buku STRATEGIC HUMAN CAPITAL

Creating Value through People
Author Jon Ingham
Nama Jurnal Elsevier
1st Edition 2007
Diringkas oleh Kosasih & Anna Murtiana (Kelompok 5)

Preface
Hal-1
HCM is about managing people in a way that leads to the optimal accumulation of
human capital:
for the individuals who are investing it;
the organizations which are using it
the financial investors who are funding it.
In fact, HCM provides a way of reconciling the views of people in economic and in
human terms
Hal-2
The complete opposite of the people-centred approach to HCM is now being seen as a
decision science (Boudreau and Ramstad, 2004) in which people management is
focused on the financial worth of individual employees and the organization as a
whole.
Actions are only taken if it is predicted that the resulting increase in financial worth will
provide an appropriate return on investment (ROI). This is an approach I describe as
‘managing the measurement’ because the financial measures become the main focus of
decision-making.
1. Accounting for People
The key point in this chapter is that if measurement is to provide useful
information for management and reporting, if it’s going to inform managers and
investors, then we need to think about using information and particularly knowledge,
rather than just data. The use of accountant’s language; playing the numbers
game; the use of data and financial metrics; return on investment: they’re all useful
to a point. But I think human capital and HCM takes us past this point. So we need to
use our judgement and our wisdom in understanding and dealing with HCM.
I have used the difficulty experienced by Accounting for People in wanting both
strategic and standardized reporting, and PwC’s corporate transparency model, to
illustrate these points. I’ve also suggested that we should update PwC’s triangle,
and call its three levels: data, information and knowledge. This will now form the
basis for the key model in the book. In each chapter, we’ll be taking a look at the three
levels in this triangle from a slightly different point of view.

2. People Management Dynamics

We also need to pay attention to the way that human capital is created and,
given that this is about people, this seems to me to require an acknowledgement that
we are dealing with complexity.This involves treating people as individuals;
understanding that the future cannot always be predicted; recognizing that
measurements of today or yesterday may provide a poor guide to tomorrow; and
realizing that organizations need to be ready to take advantage of often new and
surprising opportunities.
Complexity does not mean that measurement is unimportant but, linked to
Chapter 1, it emphasizes the need to focus on knowledge that can form the basis for
productive conversation rather than on pure data. It also means that we need to be
clear what we want from our measures. Simply mining data to look for correlations –
an approach I refer to as going on a fishing trip as you just want to catch something
but don’t care too much about what you catch – is likely to result in correlations
that may or may not have strategic significance and could be dangerous to use as lead
indicators of future performance. In summary, the need is to measure less rather than
more, and get deeper into the meaning behind results rather than just focusing on
what lies on the surface.
Organized in business will inevitably have to change. And the time to make this
change is before we have to. Of course, given complexity, there is no way we can prove
the need to make this change. But there is plenty of evidence to suggest that the way
we are doing things now is not working particularly well. For example, various different
surveys show that there are more disengaged people working in our organizations
than there are people who are highly engaged.
A strategic approach to people management means recognizing that people work
in an environment of complexity rather than causality which means that managers need
to focus on the way that people participate in organizational dynamics. This of
course means that people need to be more central to strategy, emphasizing the
importance of complexity, and so on. So there is potentially a virtuous circle
(positive feedback) here and if this does exist it’s going to help accelerate change.
I would like to think that HCM points to another way of doing things, based upon
a different paradigm about organizations, in which the driver of what we do and how we
do it really is about developing people and human capital. For me, the main
paradox that results from a complexity view of human capital is that managing for
capital requires us to get even closer to our people.’
3. Best People Management Practise
the three case studies demonstrate some important points about best fit.The
Siemens case study shows how fit varies according to business unit within a diversified
group. In contrast, Motorola’s experience demonstrates how a particular fit can apply
across a number of business units. (These are relatively similar businesses but I think
there is also an element of best practice bundling here.) In this case study, fit refers to
both the way Motorola manages and develops people to support ‘One Motorola’, and
more significantly, to how the company’s philosophy to managing people mirrors
the approach and the language of the business, through the use of the six
sigma/DMAIC process. I am not suggesting that all companies should use DMAIC or
that six sigma is the best way to manage people for human capital. Indeed, although I
support some of the perspectives of this approach, particularly its focus on the future
state, I have some concerns about its heavy focus on measurement and in particular,
the way it seeks to quantify future benefits. However, in the same way that
RBS’s and T-Mobile’s approaches are well aligned with those businesses and their
competitive environments, Motorola’s DMAIC approach seems to be very well aligned
for them. So to me, this is an example of best fit in HCM, rather than an example of
what HCM must be.
 Lastly, the Yahoo! case study demonstrates how a broad range of processes
including organization development, recruitment, retention and reward have all
been very specifically focused on Yahoo!’s stage of development, employee base
and business strategy. So they are three very different case studies. But I think, and
although it is difficult to prove it statistically, that together with the research we covered
earlier they do seem to provide convincing evidence for best fit.The key to me is
Huselid’s graph. Although again there is no proof, it seems clear to me that there is
something different going on below the twentieth and above the sixtieth percentiles.
These are qualitative changes, they are not just about more of the same thing.’

4. Intangible Capability through People

‘The formal definition of intangibles is that they are things which are incapable of
being realized or defined. They’re without physical substance, they’re non-monetary
and they cannot be seen or touched. They behave in a very different way to tangible
assets. So, for example, physical resources can only be used for one activity at a time.
Intangibles can be deployed for various purposes at the same time.Tangible assets
depreciate with use and get used up through production, so they have limited numbers
of applications. Intangibles have multiple applications without any reduction in their
value and some intangibles like knowledge even appreciate and develop the more they
are used.
Human capital and the other internal intangible capabilities listed above display the
attributes of intangible value that were described earlier, that is they appreciate with
use. This is one reason for human capital’s growing importance in organizations.
There are actually three ways that tangible assets and intangibles can provide value in
alignment with the strategy. Each of these impacts on the business and generates
financial results in different ways. The three levels are value for money, added value
and created value:
 Value for money. Value for money refers to basic, largely tangible value that may
represent increased efficiency; incremental improvements in effectiveness;
meeting compliance requirements or other basic standards. It is useful value but
is not necessarily about meeting business objectives or providing customer
satisfaction. It has a direct impact on financial outcomes but this is fairly
insubstantial and is mostly limited to reducing costs.
 Added value. Added value represents capabilities required to meet business
needs. These capabilities can relate to major improvements in efficiency but are
more likely to be about increased effectiveness leading to growth, change and
development. Added value typically has an indirect impact on financial results by
acting through improvements in operational processes, customer satisfaction and
so on.
 Created value. Created value represents capabilities that offer the potential to
sustain and transform the way the business works and to create new
opportunities for competitive advantage. The principle of created value is that
continuous improvements are no longer enough. Created value capabilities are
needed to surprise competitors and change the nature of the competition.
Like the capabilities in Strategic Human Capital Management

5. Creating Value in People Management

James Walker (1992), founder of the HR Planning Society, identifies three main
methods for developing people management strategy: a separate process; an aligned
process and an integrated process.
Level of People Management Strategy Development:
A Separate Process (Personnel)
This level of people management strategy is associated with the selfstanding Personnel
function of the 1980s. At this level, top management sets the overall business strategy
and then Personnel develops a distinct people management plan to support it. This plan
ensures that business priorities are implemented through a set of basic people
management practices supporting the generic employee life cycle.

An Aligned Process (HRM)

At the aligned level, people management strategy is developed alongside the
business strategy, helping the business achieve its objectives through the capabilities of
people and the processes required to produce this capability.

An Integrated Process (HCM)

Walker (1992) explains that, at the top level of strategy development, people
management is integrated into the business strategy along with other functional
strategies. The discussion within business and people strategy development is not
about people management processes but business issues that people management can
support. In fact, at this point the HCM strategy and the business strategy become so
aligned and integrated that they are no longer distinct.
6. Managing and Measuring Human Capital
The balanced scorecard was developed by Kaplan and Norton (1992) to provide a
basket of performance indicators balancing traditional but lagging financial
measures with three other non-financial perspectives: customer, business processes
and learning and growth. perspective focuses on what Kaplan and Norton believe are
the three main categories of intangible capabilities: human, organization and
information capital. A slightly different version of the scorecard is provided for the
public and not-for-profit sectors in which ultimate success is measured by an
organization’s performance in achieving its mission, rather than just financial results,
and the customer perspective is split between customer-stakeholders, and those other
stakeholders, whether donors or taxpayers, who provide funding.

John Boudreau from the University of Southern California and Pete Ramstad from
consultancy, PDI, outline a much better management and measurement framework
they call ‘HC BRidge®’, supported by a strategic approach to people management they
call ‘talentship’. HC BRidge® provides a value map ‘to articulate the logical connections
between investments, changes in the nature or deployment of workforce talents,
and sustainable strategic success’ (Boudreau and Ramstad, 2004). It involves three
stages: efficiency, effectiveness and impact:
 Efficiency is the area closest to what HR is currently doing with
measurement and answers the question, ‘How much are we spending and on
what?’ This is where most of today’s HR measurements lie.
 Effectiveness calls for questions such as ‘Do our investments in programs
and practices enhance employees’ capability, opportunity and motivation to
contribute?’ Effectiveness measures (such as employee performance and
attitudes) are commonly collected but not organized to reflect connections
between investments and employee outcomes, nor that different initiatives are all
aimed at common ends. Effectiveness measures should let you know if the
staffing practices are working in concert with the compensation practices and so
on.
  Assessing the impact of talent reflects questions like, ‘What difference does it
make to have high performers rather than average performers in this role?’
Impact measures (such as profit margin and new product success) are often
located outside the HR function.

The HCM value chain describes a transformation in which a number of inputs, including
the existing capability of people in the organization, progress through a series of
activities based on the organization’s people management practices to provide
tangible and intangible resources and capabilities.

Figure 6.3 describes how the two value chains are linked.
The split between the two value chains marks the interface between the people
management system and the business system. This split is the reason why most
balanced scorecards fail to make clear linkages between the objectives and measures
in the learning and growth perspective and the other perspectives.