Chapter 3: Developing a Human Capital Strategy

OVERVIEW

In the first two chapters we discussed human capital, its role in the federal government, and the ensuing federal human capital crisis. We now turn to how to develop a human capital strategy for a federal agency. Within the past year, several human capital strategy models have been presented by various U.S. federal agencies, as Brian Friel points out in his Government Executive article "Reality Check" (May 15, 2002):

• As part of the Bush administration's management agenda, the OMB (Office of Management and Budget) and the Office of Personnel Management (OPM) issued a human capital scorecard using red, yellow, and green lights to rate agencies on their strategic management of human capital.

• The governmentwide Human Resources Management Council developed a scorecard that covers more specific measures than does the OMB scorecard, including training effectiveness, diversity, recruitment and retention targets, and distribution of workers to frontline service positions rather than to backend administration jobs.

• The General Accounting Office produced a "maturity model" that agencies can use to measure themselves on a three-level scale for eight factors.

• OPM developed a 113-question survey about employees' satisfaction with workforce management at their agencies.

Bush's fiscal 2003 budget proposal assigned red lights to human resources management at all but three agencies: the Social Security Administration, Labor Department, and OPM got yellow lights (http://207.27.3.29/features/fpp/fppo2/s3.htm). Most U.S. federal agencies have quite a way to go in order to improve their human capital strategic management rating to green. Some of the questions to consider for rating are (http://207.27.3.29/features/fpp/fppo2/s3.htm):

• Does the agency have sufficient numbers of people with the right skills and abilities to carry out the mission?

• Is the agency able to allocate its personnel, by mission or geographically, in a way that maximizes its ability to achieve its mission?

• Does the agency engage in workforce planning that is designed to determine future human resource requirements, and are employees and stakeholders involved in these planning efforts?

• To what extent does the agency provide line managers with the capability to hire, fire, reward, and train the people who work for them?

Human capital is the key strategic asset to an organization. In the private sector, human capital has been directly linked to shareholder value. According to the Watson Wyatt Research Report on Human Capital Index, superior human capital practices are not only correlated with financial returns; they are, in fact, a leading indicator of increased shareholder value (http://www.watsonwyatt.com/research). The key message is that if a company's goal is to improve shareholder value, a key priority must be its approach to human capital. The results from the Watson Wyatt's 2001 Human Capital Index study of more than 750 North American companies and 250 European companies indicate that the better an organization is doing in managing its human capital, the better its returns for shareholders. Those in the low group averaged a 21 percent five-year return; the medium group averaged 39 percent; the high Human Capital Index scores returned 64 percent over five years. The study also showed that a significant improvement in 43 key human resources practices is associated with an increase of 47 percent in market value. The key links between human capital and shareholder value creation are shown in the following table:

PRACTICE	IMPACT ON MARKET VALUE
Total rewards and accountability	16.5%
Collegial, flexible workplace	9.0%
Recruiting and retention excellence	7.9%
Communication integrity	7.1%
Focused HR service technologies	6.5%

From this study, it appears that the evidence clearly favors human capital practices as a leading indicator of business success.

Highlights of the conference notes from "The 2001 Human Capital Summit on Recruitment and Retention for Government Agencies (July 19–20, 2001)," prepared by Boni Bigornia with the Recruitment Task Force, suggest that the U.S. federal agencies have a variety of recruitment and retention strategies as part of their overall human capital strategy. For example, the Forest Service now has a workforce plan and a five-year recruiting strategy. In the past, their workforce planning was not linked with their strategy and budget, and there was no recruiting coordination. At the Social Security Administration, every employee is supposed to have a mentor. The Treasury Department offers "shadow days" to help mentor new employees.