Human Capital: The unsung hero of execution
CEOs rate the most important element of execution capabilities the lowest.
Line-of-SightSM helps companies execute better by measuring and managing five critical capabilities necessary for successful execution (or KSEs): strategic understanding, leadership, balanced metrics, activities & structure, and human capital; it also assesses market discipline – the ability to execute in a way that remains true to the strategic intent. These factors are aggregated to form an overall Organizational Health index measured on a scale from 0 to 100.
Line-of-Sight led a survey of more than 100 CEOs to measure how they evaluated the execution capabilities of their organization. This survey took place in Q1 2021, when most businesses were pivoting to take advantage of post-pandemic economic growth.
The results indicate that among all five key execution success metrics, CEOs rate their capabilities related to human capital the lowest at 64, 7 points lower than the average organization health index at 71.
The survey asked CEOs to evaluate 3 dimensions related to Human Capital:
- How well training & development are aligned with the company strategy
- How well knowledge is shared across the organization to create unique customer value
- Perception of how well the company is able to attract and retain the right talent to sustain its competitive advantage
The data is certainly counter-intuitive: during the pandemic, companies had to double down on their employees, both to address the impact of the crisis on work organization and processes, and to fight the mental toll of the pandemic on employees’ well-being and engagement (the Economist, in its April 10 edition, quotes Monica Kang, a workplace culture expert: “Before the pandemic, we forgot that people are people first”.)
So, we would expect that CEOs, coming out of a year of unprecedented change, would give themselves high marks on their ability to execute through their human capital. Yet, this is clearly not the case. Why? The answer lies in the impact growth and size have on CEOs’ ability to manage human capital.
CEOs who lead growing companies rate their human capital performance the lowest, with a 59 index for companies growing at a moderate pace (5 to 50%) and 60 for companies growing at a high pace (more than 50% year-over-year). Both ratings are well below the average, and are strikingly lower than those CEOs of stagnant organizations give themselves: 63 for companies experiencing a contraction, and 73 for companies whose performance stayed the same.
Similarly, company size influences how well CEOs manage their human capital asset: CEOs of larger companies (more than 500 employees) rate their execution performance the lowest among their peers with 54 points, a whopping 13 points lower than CEOs of small companies (less than 150 employees). CEOs of midsize companies are in the middle, with 62 points.
In 2020 business leaders were reminded that human capital was their company’s most valuable asset, so we would expect significantly higher ratings. However, growing companies, and especially those that experienced surges in demand in the pandemic, faced very unique challenges that explain why CEOs rated their human capital performance so low:
- Remote work moved from being a fringe setup to being the reference model for all employees, a move that was made without pre-planning and with initially the possibility of it lasting for an indefinite period. Growing companies felt the strain more acutely because demand surges taxed communication and collaboration when employees are scattered.
- Jobs changed during the pandemic across all functions, from sales to supply chain to marketing to HR, making the job-employee fit and therefore productivity more challenging to maintain
- Growing companies trying to meet surging demand had to accelerate their operations, a shift which creates tension in organizations but is also a factor of long-term resilience, as McKinsey has shown in the 2008 recession and again in the 2020 pandemic.
- Large organizations experienced all of the above with even more acute pain, as their size brought greater complexity that in turn required even greater resources.
For CEOs, the take-aways of the Line-of-Sight survey are clear:
- Human Capital is the company’s most precious asset and it must be treated as such as a CxO-level priority. To bring it to the fore, the HR function can manage the transactional aspects of performance management and regulatory compliance, but only the C-suite is accountable for aligning human capital with the strategy execution
- Leaders who want to shore up their human capital practices can take action: develop a thoughtful back-to-work plan that takes into consideration employees preferences; acknowledge the burnout employees experienced by training managers to be empathetic and by making it acceptable to talk about mental health at work; keep the high-productivity practices (such as shorter, 15-min standup meetings) that proved effective in the crisis; re-invest into employee training and development; and redefine jobs to ensure a good fit with employees’ skills and behaviors.
- If you are the leader of a growing organization or one that passed the 500-employee threshold, you should make human capital even more of a priority. Indeed, data shows that your peers are struggling to maximize the value of their human capital, and it is the one area that weighs down their ability to execute the strategy.
In many ways, the data Line-of-Sight collected is a wake-up call for all leaders: as the post-pandemic economy picks up, most CEOs will soon be faced with growing demand and a return to some form of normalcy in their organization, and face the same strain on human capital that their peers growing through the pandemic experienced first.
Upcoming blogs will continue to mine Line-of-Sight execution data to provide actionable advice for leaders seeking to maximize their organization’s execution capabilities.
How well is your business executing? To find out, please reach out to us and we will initiate an assessment of your execution capabilities. Learn more here: Line-of-Site