Six Essential Factors

Human capital strategy consists of six factors that most affect business results (Figure P-1). For details on the empirical basis for these factors, see Appendix A, “The Research Roots of the Six -Factor Framework.”

Figure P-1: Six-factor Framework 2003, Mercer Human Resource Consulting LLC

1. People

From the executive suite to the mail room, the nature and quality of individuals in the workforce obviously influence the performance of an organization. Specifically, this factor represents the human capital itself, the collective mix of attributes individuals bring into the company and then develop over time.

2. Work Processes

Dominant work processes have both direct and indirect effects on organizational performance. Two companies in the same industry may organize their work quite differently; for example, General Electric builds jet engines on an assembly line, and Allison builds them in small work groups. Those differences often require different kinds of talent.

3. Managerial Structure

This factor characterizes how organizations direct the work of employees across dimensions of managerial direction (high control) versus individual discretion (low control).

4. Information and Knowledge

The flow of information and knowledge in an organization also drives productivity. This factor includes both internal dynamics (up, down, across) and external dynamics (to and from customers, suppliers, regulators, etc.).

5. Decision Making

This factor focuses on important business decisions (not on day-to-day job-level decisions) that affect major areas of strategy, operations, finance, marketing, and sales.

6. Rewards

The motivational component of human capital strategy is reflected in an organization’s reward structure: both the financial and the non-financial motivators that influence employees to work hard, innovate, and develop.

All organizations have a human capital strategy made up of these six elements, whether intended or not. The factors come together in unique combinations to fit the individual companies; thus different patterns work best for different enterprises (Figure P-2).

Figure P-2: Symbolic Best Fit Patterns 2003, Mercer Human Resource Consulting LLC

Some drivers are critical for success, but all of them always are in play. At its best, a company’s unique human capital strategy is a major barrier to competitors.