In spite of the considerable investment and development around the preservation of assets and the mitigation of risks across conventional corporate assets such as facilities, information, equipment and products, the same methodology and motivation remains far less advanced in regards to human capital.
Before any organization even explores risk management strategies for their human capital it is fundamentally important that they first determine the value at risk. Not only is it a case of valuing the contributions of the individual or groups of personnel but differentiating the value in which they contribute to the company, whether it be through the provision of specific skills and services or the commercial value they present the company. These distinctions also need to be made between job functions or management/executive levels. No two individuals are contributing to the company in the same manner, much less two diverse business functions. How many companies even know this definitive financial value of their people?
Following the basics of valuation, and any other unique considerations that the company may have (mobile work force, fixed laborers, knowledge capital, research and development) a unit cost can then be applied for prioritizing strategies or expenditure. For example, an individual that reflects a unit cost/investment per hour of $1 will be less likely to addressed as a priority when compared to an individually that presents a unit cost/investment per hour of $100. However, if there are significant numbers of the basic unit cost of $1 at risk, that group as a whole may be a greater priority than that of a single or limited $100 per unit cost individual.
Threats and residual risks associated with human capital are many and varied. Over time a detailed and thorough analysis can be conducted to determine the probability, velocity of onset and other governing factors that will provide a single or annual loss expectancy to the company. A single loss expectancy, such as death, may cost the company significantly more than just the forecast value identified in the first stages. Conversely, an annual loss expectancy, especially in light of the fact many companies are unable to even quantify this loss, may equate to millions of dollars in lost productivity, administrative burden or opportune costs.
To truly understand or appreciate the current or potential losses to a company through their human capital it is imperative to model the disruptions and time loss (inclusive of management and departmental support) to a cellular and group level. If someone falls ill, how long are they unproductive? What does it cost the company? Should the become a victim of crime or their business activity disrupted due to a natural disaster, what is the cost to the company? When applied to our entire human capital asset base, what is our single and annual loss expectancy?
“You can’t improve what you can’t measure” If you are making a truly informed decision on where your assets are distributed, you can then make informed decisions around strategies to preserve their value. You also enjoy the benefits of comparative investment/management. Most companies are surprised to discover that despite their commitment to their people, they actually devalue their contribution by not acknowledging them as an asset and preserving it accordingly. Are you one of those companies?
Companies that have undertaken to approach the management of their human capital consistent with other corporate assets have found the process highly rewarding and very confronting. Conversely, those adverse to such strategies or behind the curve continue to loose more money than the cost of such preparation and mitigation. They too find over time that penny wise turned out to be pound foolish.
.. (of the acquired company) left despite G-to-G intervention.
So, how to address such risk :-
a) "Culture of Identity" (which will lead to "Identity Politics") as opposed to Culture of Shared Beliefs),
b) avoid engaging in M&A activities with companies under CME, or
c) acquisition must be 100% ownership of the acquired company.
Thanks for your generous comments, pal.
Since your comments touch on Culture, I would like to expand further on the "Culture of Shared Beliefs" with you including members of the Community.
The challenge to the "Culture of Shared Beliefs" (CSB) is all about people's preferences and cultural background, and CSB is used for post-merger activities since during the course of action or the way of doing things, their members - who care about the success of the merged firm - may openly disagree on the best approach. To eliminate this is by way of a well-defined "shared beliefs and values on the merged entity's behaviour & performance". However, this course of action, as per illustrations contained in my earlier comments, will result in coordination taking more time to realise, influence activities will increase and overall distortion of communication will increase by and among employees from different pre-merger firms. If this is not managed properly it will lead to Culture Clash which is quite common especially when one of the pre-merger entities is from countries with coordinated market economies (CME) that display strong undercurrents of nationalism eg Germany, France, China, Japan and South Korea, amongst others. I've seen few mergers involving companies (both of established names within which one from the West and the other from the East) under CME resulted in culture clash with cost of clash felt immediately at operational level and ended up in controlling shareholder acquiring more shares in the merged entity whilst the senior management (of th
Thank you for your compliments, but aren't we moving a little bit too far away from the original topic? May I suggest to go back to the 'what is missing' part? A lot of great things have been said in this thread? As WK Chan correctly mentioned ''In my view, any model that is human invented is subject to intellectual abstractions designed to manipulate arbitrarily chosen, and that believing in the model may blind themselves. ''
This sentence gives much food for thought, actually it says that we should be careful relying too much on human invented models, which I agree. I think WK Chan practical examples are interesting, especially because of the introduction of the impact of cultural aspects. In my experience human behavior is often based on past experience, assumptions, perceptions and personal interpretations. When not managed properly, this can easily lead to a lot of misunderstandings, conflicts, etc.
So in my opinion, the only effective thing a company can do is to create the right circumstances, a business culture, that offer people the freedom to freely and openly communicate, collaborate, educate and develop themselves (both personally as business wise). In a multi cultural environment it is of the utmost importance, that internal communication is focused on strong common goals and commonly shared and lived values.
Ultimately, by doing so, over time you will build a strong, stable and sustainable business culture and equally workforce. According to Sun Zi, change is a permanent and constant factor in life, and there is no guarantee of a dominant state that will last forever. As such, excellent high value workers may leave the company (and with it a lot of knowledge and experience), but if they do it in a good way and talk positively about your company, then the damage is limited. Don't make it too complicated and focus on what you want to achieve
Excellent comments everyone! No exceptions. Quantum science explorations are now telling us about emergent properties of living systems the never before existed. Cutting edge explorers are now also "Strongly Suggesting" that even the electron exhibits properties "Attributes" of life like Awareness and the ability to adapt ie ... energy is aware, it reacts to its environment and maintains its survival status in ever changing contextual fields. And since everything is energy … this would imply that belief systems also think ... and perhaps ... just perhaps ... has man totally fooled ... and has man's thoughts totally under their control. And has man totally convinced that he is the sum total of his belief systems “Opinion Libraries.”
Think not? Answer this. "Since words are symbols for beliefs … and negated-beliefs …. Can you think and reason without any beliefs?" Now muse over that for a few meditative sessions and get a real kick out of life … that is … if you dare to follow that rabbit.
L Carson “Seeking to listen to God’s thoughts.”
Robert, Marcel and Wk Chan,
My goodness, this is truly turning out to be a very interesting thought-transporting … “group think” session. I thank you all for raising my level of curiosity upon embarking upon am new path of discovery.
With my last 10 years of focused research in mind and brain matters I have come to - and have proceeded past the fork in the road of human evolution. Many so called “scientists” are still bound by the notion that it is the effect that drives the source of thought causation. To say this in conventional terms, it seems to me that the bulk of neurologists are still captivated (imprisoned) by the “notion” that its brain neurology that sires the mental states of human thought. This would both reverse as well as make a mockery of the very cause-effect direction declared by Louis Sullivan’s’ famous quote (Frank Lloyd Wright’s mentor) … “That form ever follows function.” (Slow down a moment and deeply reflect upon his insightful words. Our problem is that we rarely recognize flashes of insight and genius when they appear.)
Instead of titling Rock's new book, "Your Brain at Work" … as suggested in the article we were just revered to (an excellent read and I thank you) … perhaps it should have been entitled “Your Mind’s Predominate Influence on How Your Brain Works.” It is a matter of “Mind over Matter” and not brain over mind. So bringing this philosophical discourse down deep into the realm of practical applications in our lives, what does this really mean in terms of how we can better understand the nature of this topic “Human Capital Risk Management-What’s Missing?”
Risk vs. Opportunity. What are the drivers of both and how do they relate to the cosmic energy generator of change? What are vs. what can become … the architectural forces of man’s fate and what should those forces of intelligence be focusing upon in order to engineer higher human states of dignity, peace and joy in the world we all are desperately seeking?
So what is the purpose of life on this planetary speck and who has sufficient agency to declare the answer? Of what value does the power of thought have … if our lenses of awareness … are back biased with ancient assessorial belief systems? And finally, is the brain mass the temporal source of the mind field … or is it an issue of … mind over matter?
If we fail to go Meta to our inherited behavioral driven cognitive thinking, emoting and behavioral habits … we shall go nowhere of elevated value. The pervasive question is perhaps … what is the true nature of life … and our role therein? After standing upon the pillars of those Universal Principiums … risk and opportunity becomes mere child’s play with rolling, fancy collared marbles.
Thanks Gents. Your shared notions have served as thought-transporters for this explorer and I love where they have taken me. I now have a new set of multi-colored purees.
Good point about the difficulty and risks of managing . Did you know that 88% of al risks
are caused bij the human factor. In my opnion mostly where people have to communicate (tactical and strategic risks). The problem with human capital issues are there is a bad communication between the board and the HR departments. Do they realy understand each-other? Can you realy modelling human capital? Do you really measuring emotions?
I like your argumentation and the direction this discussion is heading towards, just as I like the more analytical approach of Wk Chan . Thank you for sharing your knowledge and ideas. About what drives human behavior or should we say Human Value at Risk is nicely described in an article about Neuroscience by David Rock (http://www.edbatista.com/2010/03/scarf.html ). The SCARF model (Status, Certainty, Autonomy, Relatedness ,Fairness) model gives a rather structured limbic - neuroscience - answer to the question why so many people and organisations have difficulties with dealing with change.
Many organizations and people are stuck in the traditional way their business processes and procedures are being set up. It is how we perceive risk and respond to it. We have to change the mindset, think and act in terms of what we like to achieve / see / happen not what we don't want to achieve / see / happen. A more positive and collaborative approach of the term risk so to speak would be the first step to universal improvement. You just need some good graphical models to explain it and spread the news.