How strong is your company’s risk management plan? How strong is your human capital risk management plan? Recent research out of The Conference Board found companies do not incorporate human capital risk management issues into overall risk-management plans.
“At most companies, human capital accounts for at least half of operating costs and can have a significant impact on business results. However, the study finds that human capital risk (HCR) — which can range from unionization/labor relations to offshoring and outsourcing to staffing in a pandemic — tends to be siloed in human resources departments, away from the companywide assessment and mitigation processes of enterprise risk management (ERM). This arrangement prevents information about HCR from having a role in the comprehensive, aggregate view of risks, root causes, interactions and impacts through which leaders set priorities and determine overall strategy.
“‘Executives clearly recognize that human capital can have a make-or-break impact on business performance,’ [Mary B.] Young, [principal researcher at the Conference Board], said. ‘Yet few companies have a systematic process or structure in place to ensure that the full spectrum of human capital risks — not just a few, top-of-the-house issues like succession planning or the leadership pipeline — is considered as part of enterprise-level risk assessment and management.’”
I’m not surprised in the slightest by this finding. While the Conference Board report specifically looked at the negative side of the equation – risks, our own experience with organizations around the world has found the same to be true on the positive side with recognition and rewards.
As Eric Mosley, my CEO and co-author with me of Winning with a Culture of Recognition, say in that book:
If an investor asked, “What’s your strategic plan?” You roll out sixty-slide decks filled with product plans, customer profiles, marketing plans, and financial performance data. This planning is good. Yet when we ask executives, “Tell me about your recognition strategy,” they have no binder, no deck of slides, no metrics, no execution plan. Recognition, for all its importance, is an outlier, not subject to the same rigorous planning and monitoring as other management practices. Why is this?
Done strategically, recognition can be planned and executed in a company like any other management practice, and therein lies the opportunity for competitive advantage. Most of your competitors punt all responsibility for recognition to “Bob and Mary,” mid-level workers in the HR department. Bob and Mary are not required to operate recognition as a strategic practice, yet recognition is one of the few practices left that offers competitive advantage. Others, like compensation, financial discipline, and quality control are so well established that your competition manages these in essentially the same way as you. If you elevate recognition to the level of other strategic practices, you create a fresh competitive advantage.
How integrated are your people strategies – for both risk management and recognition and reward? Integrating the latter can go a long way towards reducing the need for the former.