What is an HR Portfolio? How They Are Made, What Lies Behind Their Increasing Importance and Examining a Case Study

An HR portfolio is a framework for systematically visualizing and analyzing the personnel a company needs from the perspectives of quantity and quality, with the aim being to effectively realize the company’s corporate and business strategies.
Here, “quantity” refers to the headcount each organization, area of operations and role requires. This perspective would ask a company to quantitatively understand, for example, how many people are needed in a sales department, or how many engineers need to be deployed to a development department.
“Quality,” meanwhile, is an indicator evaluating how well current personnel match up to the skills and expertise required of each role. This is not just checking whether someone has qualifications and how many years of experience they have. Rather, it requires an understanding that includes multifaceted capabilities such as practical ability on the ground, leadership and digital skills.

Creating an HR portfolio allows companies to see at a glance how many people they have employed in which roles at each business or organization, and to see the extent of their skills and experience (see Figure 1). For example, this would allow a company to see at a glance that a particular organization was comprised mainly of experienced personnel, or that it had many personnel who lacked skills. We can thus view HR portfolios as important tools for visualizing and optimizing HR management oriented towards the sustainable growth of companies.

An HR portfolio is also more than just a tool for organizing HR information. It also delivers the following benefits as a platform for supporting strategic decision making and career development. We organize them here from three perspectives, those of: leadership, business units and employees.

1. The leadership perspective: More readily ascertaining the sufficiency of skills among key personnel and productivity per organization
2. The business unit perspective: Enabling the consideration of the hiring, deployment and development of personnel in terms of “skill quality” and not just headcount
3. The employee perspective: Providing the opportunity to take action to recognize gaps in one’s own abilities and to develop skills for autonomous career development, by clarifying the sorts of skills companies and business units demand

Recent years have seen a dramatic increase in the importance of HR portfolios. Behind this lie not only sudden changes in the external environment surrounding companies, but also the compounding demands coming from leadership, business units and employees (see Figure 2).

In this context, HR portfolios have gone beyond HR management to take on a role as strategic tools supporting the core of human capital management.
Here, we organize the reasons why HR portfolios have risen in importance from three main perspectives.

The concept of “human capital management” received major focus thanks to the “Ito Report for Human Capital Management,” which was released by METI in 2020. The report made clear that companies should understand personnel as a form of “capital” in the same way as financial capital, and strategically invest in and make use of human capital in order to achieve sustainable medium- to long-term growth.

In particular, with companies facing calls to revise their business portfolios, attention fell on the personnel who are the protagonists of carrying out such transformations. The nature of such management has thus been positioned as an essential challenge for leadership. The need to put in place HR portfolios as frameworks for visualizing both the quality and quality of human resources, and for strategically deploying and developing them, has been highlighted as key to realizing such human capital management.

Furthermore, the importance of “dynamic HR portfolios” in corporate transformation was reaffirmed in the “Ito Report for Human Capital Management 2.0,” released in 2022. The Ito Report stated that dynamic HR portfolios are one of the five common factors comprising human capital management.

Related Insight: What is Human Capital Management? An easy-to-understand explanation of the background to and benefits of an approach that is in the spotlight, and how to put it into practice and make relevant disclosures

ISO30414 is an international standard for disclosure of information related to human capital management. It serves as a set of guidelines for the external disclosure by companies of important human capital indicators. As attention falls on human capital management, these guidelines function as a framework for ensuring transparency and reliability in initiatives taken by companies in this domain.

However, simply disclosing the numbers on HR-related indicators in a fragmentary manner is unlikely to do a good enough job of conveying a company’s genuine efforts in human capital management. The important thing is to paint an ideal HR portfolio (a vision) in line with the change in the business portfolio, clarify the gap between this and the status quo, and construct a “transformation story” that ties this to real measures.

ISO30414 indicators should thus be used as tools to give a stationary measurement of a company’s progress through such a story. Genuinely meaningful information for internal and external stakeholders comes in a form that shows the intentions and direction of a company in a context that lines up with its strategy, rather than a mere enumeration of indicators.

Related Insight: What is human capital management disclosure?  We go over the 19 items across 7 areas requiring disclosure and why they are mandatory, and explain key points in performing disclosure

Another factor that has increased the need for HR portfolios is the dramatically increasing levels of change in the business environment itself. The external environment that firms confront is changing day by day, as seen in the advance of technology, responses to decarbonization and ESG, and heightened geopolitical risks.

Such an environment has been termed an age of “VUCA.” VUCA, an acronym of “volatility, uncertainty, complexity and ambiguity,” refers to circumstances where predicting the future is exceptionally difficult.

In a VUCA environment, companies cannot expect to deal with change using their traditional, fixed organizations and personnel compositions. This makes HR portfolios that align with strategy and that can be flexibly reconstructed essential. As the speed with which skills become outdated accelerates, frameworks for continuously updating necessary skills and experience and for optimally deploying personnel have become the foundation supporting the companies’ competitive edge.

The importance of HR portfolios is thus rising rapidly from the three perspectives of the growing attention on human capital management, compliance with international standards, and dealing with an uncertain VUCA management environment. It would thus be fair to say that we are entering an era when constructing and operating HR portfolios should be at the core of HR strategy in order to help companies adapt to change and achieve sustainable growth.

HR portfolios serve as something akin to a schematic for connecting business strategy and HR strategy, and creating one requires following a consistent set of steps. Rather than simply collecting HR information, the process requires companies to structurally understand what duties are occupied by personnel with what skills and at what levels.

Here we present five practical steps for companies to follow to construct an HR portfolio.

The first thing companies should do is to clearly define as “duties” the roles that employees take on across organizations. “Defining duties” is something that must be done on the basis of information about the division of responsibilities and roles, even in the membership-style employment traditionally common in Japan.

What matters here is “defining duties granularly (in detail).” For example, even if a duty is simply termed “sales,” there will still be wide differentiation in the actual details of the work and the skills required depending on the products dealt with (product or service, existing or new product) and the type of clients being managed (large or SMEs, corporations or individuals). In such cases, it is useful to break up a duty and define it in more detail as, for example, “new business corporate sales” or “route sales for SMEs.”

However, in cases where despite dealing in different products the skills required and the nature of the work are largely the same, the decision could also be made to define the jobs as a single, unified duty. For example, if the details of the work and the negotiation processes are largely the same outside of product knowledge, grouping together the roles into a “sales (generic)” classification could facilitate analysis and the consideration of personnel deployment across the organization.

Going overboard in chasing detailed definitions of duties for each department would thus make a company run the risk of falling into excessive fragmentation and harming overall optimization. For this reason, it is important to design the definitions of duties from a top-down, company-wide perspective, rather than optimizing each definition individually.

The next step is to sort out which employees are actually responsible for the duties that have been defined. In doing so, it is important to arrange the information taking into account factors such as secondary duties to properly include proportions of responsibility. Doing this allows companies to properly ascertain how much of the human resources are assigned to each duty.

Next comes defining the ideal personnel and the personnel requirements needed for each duty. A key point here is for the organization side to have an accurate grasp of what the company’s strengths and standout features are, and what skills are essential to the duty.

In the process of defining skills, companies drill down to the skills needed to execute each duty, and set the level of mastery needed for each (the skill level). Companies should set two levels of standards, as described below.

The company uses this to visualize the skills possessed by their employees. In cases where employees fail to reach the level required of employees who can be immediate assets, the company defines such employees as “personnel with potential” or “personnel who require improvement,” depending on how well they satisfy the skill requirements. It is also important for companies to put in place a framework that allows for cross-organizational comparisons, while adjusting for differences in required level due to differences in duties even where the same skill level applies, in anticipation of company-wide rollout.

Next, companies evaluate how well employees actually display which skills. A key point in such evaluations is that they refer not to personnel evaluations based on grade, but to absolute evaluations based on behaviors and outcomes actually demonstrated.

Such evaluations are performed with the aim of ascertaining where the company’s capabilities lie, deploying personnel, and formulating development policies, rather than being directly tied to promotions and advancement. This makes it so the evaluations get solid buy in from employees and contribute to supporting growth.

Finally, companies make judgments about the level to which duties are being executed based on how well each individual employee fulfills the skill requirements of each individual duty. This enables them to categorize individual personnel as follows.

• Model personnel (meeting the highest standards of skill definition)
• Personnel ready to make an immediate impact (capable of executing work autonomously)
• Personnel with potential (fulfils some standards but further growth expected)
• Personnel who require improvement (lacks skills and needs development or support)

This categorization forms a shared understanding for people on the ground and HR, and can help HR to accurately deploy, develop and support employees.

Following these five steps will allow companies to construct “strategic HR portfolios” that go beyond simply collecting information, and are able to be applied to real-world decision making and policy formulation. This allows companies to clarify who the ideal personnel are for executing their corporate strategies, and to build up sustainable competitive edges through the fostering and optimal deployment of personnel.

Lastly, we would like to take a look at the case study of a company that sought to visualize and make optimal use of its human resources in order to achieve sustainable growth.
One manufacturer had adopted a structure in which it had multiple business segments, which in turn each had multiple units and business divisions. Previously, each business division had pursued optimization in isolation. While they had achieved growth based on a dependence on outstanding personnel, the lack of coordination among business divisions and insufficient information sharing had invited growing inflexibility into the organization.
In response to these circumstances, the company’s leadership felt a growing sense of urgency around the “feasibility of the business” if things continued as they were, and thus set out on the introduction of an HR portfolio.

At present, the introduction of an HR portfolio is being trialed in a few departments, and some impacts have already begun to be felt through the process. Specifically, by establishing a shared personnel vision and skill requirements across business divisions, the company has created a perspective from which it can understand its employees across departments. It is now, therefore, making progress on moving away from its former, separately optimized personnel deployments.
The project also surfaced the company’s skill fulfillment situation and thus brought into relief issues in the evaluation system, which had been biased to only “maximizing economic value,” and thus interfered with personnel development. This accelerated discussions aimed at revising the nature of personnel evaluations and personnel development policies. Now, in response to these moves, efforts to deploy the framework to the entire company are gathering steam. The company is steadily making progress on switching to strategic HR management organized around its HR portfolio.

In this article, we have covered how HR portfolios are created, and some points to be aware of in doing so. For readers who wish to learn about this in greater detail, we recommend HR Materialities: Human Capital Management Through Selection and Focus, published by ABeam Consulting.
This book carefully explains from a practical perspective the importance of HR portfolios and how to make use of them in realizing human capital management. HR Materialities isolates growth areas and HR challenges (“HR materialities”) in corporate strategy, and systematically demonstrates the core approach of human capital management, which is to invest in people by “selecting and focusing” from within limited human resources.
As the book also covers a wealth of real-world case studies of companies that adopted such approaches, we recommend it not only for corporate leaders and HR departments undertaking human capital management, but also for anyone aspiring to strategic HR management.