The Six-Factor Framework - The Essence of a Human Capital Strategy

The Six-Factor Framework—The Essence of a Human Capital Strategy

Mercer’s six human capital factors driving organization results are:

1. People. Those who are in the organization (including its leaders), what skills and competencies they bring with them when hired, what skills and competencies they develop through training and experience, their qualifications (such as prior experience and education), and the extent to which they embody firm-specific and generalized human capital.

2. Work processes. How work gets done, indicated by such things as the extent to which work is team-based, flexibility in production and service delivery, the degree of interdependence among organizational units, and the role of technology in shaping how work is performed.

3. Managerial structure. What balance is struck between employee discretion and management direction and control? High managerial control is indicated by such things as a strong emphasis on performance review and management (e.g., frequent reviews), narrow spans of control, and widespread standardization of work procedures.

4. Information and knowledge. All aspects of how information and knowledge are communicated, including how much information/knowledge is exchanged among employees, how it is exchanged (vertically, laterally, through formal and informal means), and the extent to which information is exchanged between a company and its environment.

5. Decision making. How important business decisions get made and who makes them. Decentralization (i.e., pushing responsibility for decisions into lower levels), participation, and timeliness in decision making are ways in which organizations differ in how decisions are made.

6. Rewards. How monetary and non-monetary inducements are used in an organization. This driver has many relevant aspects – including the extent to which pay is at risk, whether the risk is controllable, whose performance (e.g., individual versus groups) is rewarded, the extent to which rewards are “backloaded” (paid later in one’s career) versus paid here-and-now, and the extent to which the work itself is a source of motivation.

The implications of these six factors can only be weighed and acted upon in the context of each organization —its marketplace (competitors, vendors, regulators, etc.), its business model, and its management of physical assets (including technology).

Here is a sampling of research findings that illustrate the six factors:

• People. Firms that extensively trained employees experienced net sales per employee advantages of nearly 20 percent over firms that did not train, after statistically controlling for differences in company size, unionization, capital investments, employee occupations and education levels, and industry in a sample of several hundred firms.

• Work processes. Radical (quantum) reorganization was associated with higher ROA than incremental reorganization for three matched pairs of firms from three industries.

• Managerial structure. A metals company experienced significant increases in weekly tonnage in 10 mines following a program of increased managerial control through weekly production goals and review.

• Information and knowledge. The greater the employee participation and access to information, the greater the net sales per employee in 495 business units over two years.

• Decision-making. Health care planning groups produced higher quality and more innovative plans when planners fully communicated with each other and participated throughout the planning process, compared to planning groups following procedures intended to make their planning process more efficient.

• Rewards. A study of 52 engineering firms in the United Kingdom over five years showed that those firms with profit-sharing plans gained 3 to 8 percent in value added over those firms without such plans.