THE HIDDEN LEVERAGE OF

HUMAN CAPITAL
BY
JEFFERY A.OXMAN
JULY 15, 2002

SLOAN MANAGEMENT REVIEW

GROUP MEMBERS

 GULNAWAZ
 HINA BASAR
 BILAL AHMAD
 BINYAMIN
 IMRAN
 INTRODUCTION
Leveraging human capital boils down to the
concept that everyone has strengths and
weaknesses.
Being able to quantify these strengths and
weaknesses is what gives you a
competitive advantage in building a world-
class organization.
Getting people into positions where they
naturally fit, then focusing on their personal
strengths dramatically improves
productivity and performance
 If you’ve heard it once, you’ve heard it a thousand
times that:
“Company’s best assets walking out the door
every night.”

 The frequency and depth of layoffs today suggest

that many managers still view human capital
primarily as a variable cost rather than a value-
producing asset.

 Managers manage what they can measure and

they find it hard to measure people.

 They typically don’t have the tools to determine

causal relationships: why valued employees really
leave?
Jack Welch 20-70-10 Differentiation
Rule
Differentiation is designed to reward the top 20%
or your stars. You continue to focus on training,
developing and coaching the middle 70% and
requires you to raise the performance of the
bottom 10% or move them out, allowing you to
bring in better talent.
Differentiation continually raises the performance
bar, increasing a company’s competitiveness year
after year. The fact is People are behind every
process, product, decision or sale. The better the
People the better the results.
In tough times what happens. Often the
rewards for the top 20% are cut. Training
and development budgets for the middle
70% frozen and the bottom 10% get a pass
because of the economy.
In some extreme cases, some of the top
20%, end up being downsized because
they make too much money. Or they leave
because of corporate politics.
More than 20,000 times last year in
the United States, according to the
Bureau of Labor Statistics, midsize
and large companies responded to
adversity by slashing on average
about 100 staff members at a time.
Considering all the news coverage
about the economic downturn and the
poor job market .
Did circumstances always merit the
drastic actions?
If so, were the actions taken
deliberately and carefully, with all
appropriate respect toward the people
involved?
What sorts of provisions were made
to ensure that key talent was
protected?
It is a safe assumption that many of these
20,000 organizations did destroy value
somewhere along the way by cutting
capacity that they soon had to replace.

By making poor choices as to who should

go and who should stay.

By being careless in communicating the

rationale for change and protecting the
motivation levels of surviving employees.
Organizations such as Wal-Mart Stores,
Cisco, Charles Schwab and even American
Airlines have recently tried to rehire laid-
off employees.
But in so doing, employees becomes
demoralize and create an environmental
uncertainty that compromises staff
engagement, loyalty, customer service and
ultimately, company performance.
 ISSUES
 Is there a right way to manage a company
through a time of challenge or tepid
economic growth?
 What general guidelines can be discerned
from the lessons of the past?
 And what sorts of decisions can managers
take today to improve the odds that their
companies will emerge as the winners of
tomorrow?
 SLASH AND BURN: RE-
ENGINEERING AND CORE
COMPETENCIES
Reengineering is a management tool that became
popular in the late 1980s and early 1990s. Like
many such tools, it aims to cut costs while at the
same time increasing productivity and providing
higher levels of service.

Getting rid of excess staff members is an obvious

and many times painful way to cut costs. When this
happens, the layoffs should be handled in such a
fashion as to not strike fear into the main employee
base, causing the company to lose its competitive
edge.
THE FORMER HEAD OF SCOTT
PAPER Co., “Chainsaw” Al Dunlap
Starting in May 1994, in an effort to rebuild
shareholder value, he let go more than
11,000 employees and shrank the company by
selling off and outsourcing various business units
and functions.
Ultimately it became clear that the way the
restructuring had been handled rendered it difficult
for the company to deliver sustained performance,
and Scott Paper had to realistically evaluate its
ability to survive as an independent entity. In 1995, it
reached a conclusion — the company was sold to
Kimberly-Clark, a longtime rival.
 RE-ENGIEERING SUCCESS
STORY
Jack Welch at General Electric Co.
While restructuring and selling
underperforming units, made significant
investments in management development
and training.

Communicated to employees the logical

and rallying message that GE should be
number one or two in any business in
which it competed.
Archie Norman at Asda, the U.K.
Supermarket Group
Averted bankruptcy by both flattening the
organizational structure and articulating a
clear long-term strategy based on everyday
low pricing.

In so doing, he embarked on creating an

atmosphere of trust and openness.
A Broader Leadership Model for
the New Millennium

Strengthening key relationships
across customers, employees and shareholders
Leveraging downtime by capitalizing on
underutilized staff for innovation initiatives.
Refocusing staff on what’s important at the
company by prioritizing strategic roles and
clarifying individual goals.
Building return on compensation by forging
stronger links between the pay people get and the
results they achieve.
Strengthening Key Relationships

Strengthening key relationships starts with keeping

a finger on the pulse of frequently changing
customer and employee needs.
A good way to embark upon pulse taking is
executing well-designed, customized surveys.
The real value of customized surveys is to help
focus company resources on
those customers and employees for whom
company efforts yield the highest returns.
In a challenging environment, follow-
through on relationships means doing
more than just surveying.
Since customers and employees believe
that companies reveal their true colors at a
time of crisis, poor survey follow-up, or
indeed any perceived mistreatment, can
alienate those stakeholders permanently.
Relationships are best fueled by face to face
contact. E-mail and social networking sites are no
substitute for real relationship-building.
People are your best sources of information, best
advocates for your success, and best connection to
positive energy to keep you going. Leverage them.
Get together with your staff or people in your
network to brainstorm opportunities for thriving
during difficult times.
View networks as possibilities.
Focus on productivity.
Talent and Performance management.
Ongoing training and development.
Increase workforce flexibility.
Communication across customers,
employees and shareholders.
Bear in mind that those companies with
strong customer bonds have the best
chances of weathering the storm.
Leveraging Downtime