Even organizations that are well-equipped with deep reserves of capital won’t be able to survive, let alone thrive, without talented employees who can help turn that capital into new products and those new products into profits and growth. In fact, as Bain’s Eric Garton points out in a recent article in the Harvard Business Review, human capital—not financial capital—is a company’s most valuable resource. Despite this, Garton says, many companies aren’t nearly as effective at managing human capital as they are at managing financial capital, which deprives them of a key strategic advantage and limits their organizational capabilities.
Garton acknowledges that part of organizations’ preoccupation with financial capital may derive from the fact that financial capital is easier to track and measure. Garton offers some advice on how companies and managers can do a better job evaluating their employees’ contributions. By using the productive power index, for example, leaders can determine the toll organizational drag takes on employees and how they can boost productivity through more effective management. Tools like these can help companies to identify problems weighing on their workforce and better manage them with the help of data-driven insights.
Measuring employees’ productivity also leads to a better understanding of employee behavior. When leaders know how their employees act and approach their tasks, they can figure out how to increase efficiency. Do employees tend to turn to their managers whenever they come to a bump in the road? Perhaps decentralizing teams and providing employees with additional resources will make them more self-sufficient and free up managers’ time. By the same token, understanding employee behavior can help managers to highlight the skills and practices of their top performers and teach those skills to the rest of their team.
Lastly, Garton recommends that organizations offer some form of reward or recognition for excellent management. Effective managers, he says, should be rewarded for how well they support and inspire their existing employees as well as their “talent balance sheet” of high-potential or high-achieving employees that they’ve recruited, developed, and retained.
Financial capital has typically been the primary determinant of success or failure for many organizations, and consequently, those organizations have developed complex models and systems to manage it. However, as Garton explains, refocusing on talent and human capital allows organizations to unleash the true potential of their most valuable resource: employees.