Creating a Scenario for New Value Creation by Realizing Human Capital Management as a Driving Force for Business Portfolio Transformation
The business environment is rapidly changing. The environment is not allowing companies to remain “as they are” due to the discontinuous progress of technology as represented by generative AI, the shift in macro trends such as the shift from product to service consumption, intensifying competition across industry boundaries due to global big tech, and increasingly sophisticated demands from stakeholders to balance the pursuit of profit and sustainability. In order to adapt to change and survive, the transformation of business portfolios and the transformation of the HR portfolios that support them are unavoidable management issues. Through the realization of human capital management, we can create a scenario that leads to successful corporate transformation by procuring talented HR, expanding their activities, and increasing their productivity.
Japanese companies must maximize human capital to achieve sustained growth
“Human capital management” has spread rapidly since it first appeared in the Ministry of Economy, Trade and Industry report published in 2020. Many companies initially focused on the legal compliance aspect, such as human capital information disclosures in securities reports, and on the aspect an activity for contributing social value. The thought that “doing the minimum is enough” or that this would be a “nice-to-have” was not uncommon.
But there is a growing awareness that human capital management is a "sine qua non” for success in the sort of business portfolio transformation essential to corporate survival. Rather than incremental improvements, companies must attract, invest in, and maximize the value of their HR more than ever before to drive business model transformation, new business development, fundamental improvements in profit structure, and evolution of business management.
Building a human capital value creation story that ties into the business strategy and identifies the most important HR challenges
Human capital management requires companies to formulate a clear vision of how they will “invest” in the “human resources” who make up the core (capital) supporting the management of the business. Companies must also get a buy-in from stakeholders for that vision. The first thing is to define the key HR challenges, i.e., the HR materialities, that need to be resolved.
Companies must consider how to manage their HR portfolio in terms of what kind and how many HR they will need to achieve their medium-term management strategies, business strategies, and long-term sustainability goals. They must attain their vision, ensuring business viability and general competitiveness. On that basis, companies set KGIs that serve as numerical targets for identified HR materialities, formulate HR strategies and measures to achieve these goals, and set KPIs to measure progress. This coalesces into a total, consistent story for how to appeale those measures externally while accounting for the particular interests of external stakeholders. This is what we mean by the “human capital value creation story.” This unyielding axis will drive your company’s human capital management forward.
Implementing “framework” and “emotive” measures that support HR procurement and productivity enhancement
“People, things, and money” are a company’s “three great management resources.” But only people have minds of their own. There is a biggest difference between human capital management and management methods focused on things and money.
Human capital management has to concern itself with both the “frameworks” for achieving goals and how to move people “emotive.” To achieve the “human capital value creation story” and address HR materialities, companies require human measures. It is important to implement HR procurement measures to secure the skills, experience, and headcount required, and to implement the productivity enhancement measures to maximize the value produced by those HR. To succeed in those measures, companies must prepare HR systems, IT foundations, and turn themselves into places where people are proud to work and are excited about what they are doing. These human measures must have the marketing, branding, and creativity to become the “emotive” that moves people.
Preparing monitoring foundations and establishing an improvement cycle to help companies escape from reliance on experience and intuition
The blurrier the locations and destinations of the “human capital value creation story,” the more confused their internal HR will be about in which direction to move. Companies must specify their destination once they address their HR materialities, quantify them, and set appropriate KGIs.
There are two kinds of KGIs for this task: sustainability goals (long-term) and business strategies (short- to medium-term). The former are set to broaden the discussion around what kind of company management wants the business to become. The latter is the fill-rate for the HR the business needs. To fulfil the HR needs of the business, companies must ascertain where they currently are and formulate a procurement strategy to fulfill their HR needs. This involves: (1) refining priority business strategy issues, (2) clarifying the HR and roles required for these refined issues, and (3) constructing a “dynamic HR portfolio” that identifies the quantitative and qualitative (skills, productivity etc.) fulfillment of those HR needs. Building a HR portfolio, and identifying HR that can produce after reskilling and resource shifting are the keys to success in these projects.
ABeam Consulting provides side-by-side support to clients seeking a human capital management approach. Our support ranges from identifying the most important HR challenges and achieving a business portfolio transformation, to formulating a transformation vision, proposing and executing specific measures.
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