Members of the C-suite know human capital can put their business at risk, but they also realise it can also hold the key to their success, writes Ingrid Selene
Human capital risks
CEOs, CFOs and other executives are extremely aware of the risks in
not managing an organisation’s human capital well. An annual study
by Aon has consistently found that human resources is one of the top
five risk concerns year after year.
Similarly, a survey of executives by the Economist Intelligence Unit
in 2007 found that 60 per cent rated the threat to their organisation of
human capital risks as very high or high. That was the risk with the
highest threat rating. It exceeded other risks such as reputational risk
(53 per cent), market risk (41 per cent), credit risk (34 per cent) and nat
ural hazard risk, including climate change, (19 per cent).
But only one in three executives (34 per cent) in the survey said
they were effective or very effective in managing the threat of human
capital risks. This was the risk with the second-lowest rating of ef
fective management, with ratings for other risks being reputational
risk (59 per cent), market risk (58 per cent), credit risk (64 per cent)
and natural hazard risk (24 per cent)
While the results relating to credit risk would no doubt be a little
different in 2009, it’s unlikely that the GFC has had a big impact in
Australia on ratings for human capital risks.
Australian CEOs not only regard human
capital as a key risk, they recognise it is a
significant asset for achieving business re
sults. In one survey, they rated recruiting and
retaining skilled employees as the most im
portant factor for their business success and
employing and developing leaders as the
third most important. Second was increas
ing customer satisfaction.
Increased importance of human capital
CEOs’ attitudes have arguably changed be
cause human capital has become more and
more important for achieving business suc
cess because of the following factors.
1. Demographic trends caused by the
Baby Boomer phenomenon. This will
continue to put pressure on the demand
for labour for a number of years, despite
the economic downturn of 2008 and 2009.
2. Changes in the workforce as a result of
changes in social values and expecta
tions. The workforce is now more diverse,
with more women working, more dual-
earner couples and more part-time work
ers. The motivators for attracting and re
taining talent have also shifted as social
values and expectations have changed.
For example, while salary is still the most
important factor in causing people to leave
a job, it is closely followed by the desire
for career development opportunities and
a desire for work/life balance.
3. Changes in the nature of business. The
developed world’s economies are now
mainly based on services and information.
This means that people are the critical asset
and competitiveness increasingly derives
from knowhow: the abilities, skills and com
petence of an organisation’s people.
In Australia, 40 years ago 55 per cent of
employees worked in service industries and
45 per cent in production. Today, that split is
75/25, with three in four employees working
in service industries.
Impact on the HR function
Despite CEOs’ increasing focus on human
capital, the HR profession has made little
progress in gaining recognition for the value
that HR strategies and programs can bring to
the business. The lack of clear measures that
demonstrate this value remains a key road
block and frustration for many HR managers.
By Ingrid Selene, Principal at Aon Consulting AustraliaTel: 02 9253 7738 or email firstname.lastname@example.org