While intangible assets like human capital and culture are increasingly at the forefront of employers’ concerns, frameworks to manage these factors are lagging, according to a new paper by Willis Towers Watson and the World Economic Forum.
As the world resets to a new reality amid the ongoing coronavirus pandemic, it noted, it will be critical to an organization’s success to create concrete methods for measuring the performance of these factors.
The crisis allows for comparisons of different employers’ reactions in terms of their human capital, said the paper. Where government supports allowed, such as in the European Union, employers typically held on to their workforces as much as possible. In other cases, it became necessary to put workers on furlough, with most employers choosing not to set specific time limits on those arrangements. Others set up reduced work weeks, among many ad hoc solutions. And these actions were accompanied by pay cuts, with more organizations cutting C-suite salaries than workers’ compensation at large.
With this backdrop, employers are rethinking “how, where and by whom work is done,” the paper said. “By designing with the constraints of today’s business environment in mind, organizations are able to unlock innovative ways of reimagining work and to build more sustainable business models; however, cost-effective and sustainable work redesign requires effective human capital accounting to provide measures for valuing all talent, including contingent workers, as an asset.”
The paper listed several ways to shift thinking on human capital. Instead of focusing on profit, defined as value for a narrow group of stakeholders, it suggested companies instead look at purpose, where value is shared between workers and a broader group of other stakeholders. Rather than thinking of the business as a stand-alone entity, the paper recommended that employers see their enterprise as part of a larger ecosystem. And instead of looking at the workforce merely as an expense, employers should see it as an asset.
Further, work is being accomplished in increasingly diverse ways, including contingent work, artificial intelligence, process automation, robotics and outsourcing. As options grow, the paper noted employers should see their organization as a combination of people, work to be done and specific skills, rather than simply workers with jobs.
As well, a focus on short-term profit creates an environment where employers are most concerned with a company’s performance from quarter to quarter, said the paper. “This has caused some companies to overcapitalize, engage in share buybacks and dividend policies at the expense of capital reserves and embark on cost-cutting exercises (such as job cuts) to manage profitability over the short term. Better human capital accounting would expose the costs of such decisions.”
The paper outlined a number of creative solutions companies have undertaken during the pandemic to better maintain their valuable human capital. In one example, McDonald’s Corp. was facing job cuts as lockdowns came into effect, while German grocery chain Aldi suddenly required more workers due to higher demand. Rather than lay off workers, McDonald’s signed an agreement with Aldi that allowed workers to voluntarily switch jobs on a temporary basis, while still under the same employment conditions. “As a result, McDonald’s avoided lay-offs, enabling it to preserve its human capital and Aldi was able to satisfy its customers due to this win-win cross-industry partnership.”
Solutions that take a longer-term view establish a workplace culture where employees see themselves as actors in a broader ecosystem, with a clearly defined level of social responsibility, added the paper.