Business success requires value-creation. Value-creation differs from profit – while profit is the difference between the purchase price and the cost of bringing to market, value-creation is the performance of actions that increase the worth of goods, services or business. Many business operators now focus on value creation both in the context of creating better value for customers as well as for shareholders. Traditionally, it has been easy to get the two confused.
Following this logic, as long as labor costs can be reduced, profits will improve while revenues stay steady. The business can manage capital, goods, and services, but it has not been so sure at controlling labor costs. Do not confuse this with value-creation. Value is driven by the intangible – motivation, goals, culture, ambition, knowledge, commitment, and innovation of the labor force.
Value is an input and an outcome.
Value is a human input that defies the management math you can bring to capital, goods, and services. Ideas, choices, and efficiencies are the values labor brings to the operation. Where knowledge and information are capital, 85 percent of value is created by the intangible.
So, the business that wants to improve its value position must manage its labor force differently than it manages its purchasing, maintenance, warehousing, or R&D burdens.
Human Capital Management (HCM) supports such goals:
- Aligns employee skills to the business’s strategic goals. With its heavy focus on recruiting the right employees for the right positions, HCM raises the ante on job analysis and placement.
- Matches employees to team and outcome needs. HCM will help match candidates and current employees to the appropriate team and value need. In doing so, it allows an objective placement of workers based on skills, knowledge, and abilities rather than a subjective placement based on personalities. HCM ensures placement of employees where they are most needed and effective.
- Helps employees to set their individual goals. HCM frames individual and team goals. It monitors and drives consistent assessment. The feedback improves employee self-assessment, and the employee carries that forward into performance.
- Keeps employees on the same page. HCM speaks a consistent language across the company. It allows for more open communication and keeps the big-picture in front of workers who have traditionally been limited to the details or the small picture.
- Trains and mentors employees. HCM values talent as a dynamic that needs fuel and fertilization. It schedules, evaluates, and integrates mentoring to map specific training to broader needs.
Profit is certainly a business value. It has been measured as the difference between costs and revenues. Profit can be manipulated by increasing the revenue and/or reducing the costs. The human assets that build value-creation are less tangible and maneuverable than tangible physical assets. Human Capital Management software orders management control and procedures while it enhances participant values towards value-creation.