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Unformatted text preview: Seminar 8 Managing Employee Value and Intellectual Capital 1 External environment Internal environment Strategy analysis & formulation Performance Measurement BSC Are we creating Shareholder Value? EVA Suppliers Seminar 9 Environment/Society You are here! Seminar 7 Customers Seminar 6 TCO Seminar 8 Employees/IC CPA CRM ABC ABC Strategic Risk Management & Control Seminars 10 & 11 2 Learning Objectives By the end of this seminar you should… 1. Understand and be able to explain the definition of intellectual capital; 2. Understand and be able to explain the importance of the managing and reporting intellectual capital and, its subset, human capital; 3. Understand and be able to explain the use of Sveiby’s “intangible asset monitor” framework to manage and report intangible assets; and 4. Understand and be able to explain the use of Kaplan and Norton’s “human capital readiness” framework to manage human capital. 3 1 Required Readings • In the supplementary materials: – Reading 8.1 [Accounting for People Report] – Reading 8.2 [Kaplan & Norton, 2004] – Reading 8.3 [Sveiby, 1997] 4 Seminar Question 1 “Employees are our most valuable assets” Paton (1922) observed that, “a well-organised and loyal personnel may be a more important ‘asset’ than a stock of merchandise”. 5 Intellectual capital statements Tangible Resources: Technological/ Organisational non-financial indicators Intangible Resources: Human/Innovation/Reputation Human asset accounting 1960 Costly to imitate unique historical conditions(unique and valuable historic culture) causal ambiguity(causes of competencies unclear) social complexity(based on inter-relationship and trust among stakeholders) Today Human resource accounting To help organisations implement their strategy 6 Knowledge is the base of competition as it allow firms to quadinate and combine resources in new and distinctive ways 2 What is Intellectual Capital? Human capital: know how Capabilities, skills, experience,expertise Relational or customer capital: any of the conections outside of the firm customer loyalty, market share Structual/organisational capital: system/network within the orgnazation intellectual property: paints, copyrights 7 • Definition by Karl Sveiby (1998) – “Intangible Asset Monitor” framework • external structure; • internal structure; • employee competence. competence – Note that: • Sveiby’s intangible assets = intellectual capital; • intangible resources (from seminar 2) is not equivalent to Sveiby’s intangible assets. 8 Why is it Important to Manage and Report Intellectual Capital? 9 3 • Internal reasons: – – To help firms manage their strategic process, i.e., to formulate and implement their strategy; To use measures as a basis for compensation. • External reasons: – – To help shareholders and creditors (capital providers) assess the “true value” of the firm; To help current and potential employees to understand how they contribute to overall performance and how their skills are developed and valued across organisations. 10 Labour shortages Stregth and oppotunities: firms competing for staff, labour shortages and govt regulations Internal Reasons: Strategic Management Process 1. Strategy formulation Identify opportunities, threats, strengths, & weaknesses 2. Strategy implementation Certain tasks must be performed Must have skills to perform those tasks •job analysis & design, •recruitment & selection systems, •learning & development programs acquire develop, allocate Motivated to use those skills to perform tasks •performance management systems •reward systems •industrial relations 11 External Reasons Market value vs. net book value Financial statements doesnt show the true value of the firm especially when there is a lot integeble assets which is why the investors are left gussing the share value tends to be volatile what is the true value of firm Source: From “The New Organizational Wealth” by Karl Sveiby (1997), p. 5 12 4 Current Practices in Managing Intellectual Capital Accounting for People – Admin role strategic role – focuses on human capital management (HCM) – the main ideas in HCM are: • • • treating people management as a high level strategic issue by linking a firm’s human capital practices and policies to its business strategy and performance; to be able to do that, it seeks to systematically analyse, measure, evaluate and report on a firm’s human capital practices; these measures should be balanced, objective, comparable over time, and meet standardised definitions. 13 Current Practices in Managing Intellectual Capital • Why does a strategic focus mean? people can affect the performance HCM Strategy Performance Measuring and evaluating in key areas: •Recruitment, •training & skill development, •remuneration, •job design to encourage teamwork & info sharing, •open and participative culture 14 Current Practices in Managing Intellectual Capital • The Accounting for People Report surveyed current practices of HCM in the UK and overseas and found that most common measures used include: • • • • • • • • • • • workforce profile workforce turnover retention rates absenteeism employee performance and productivity employee engagement training (amount, cost, effectiveness) leadership/career development revenue/profit per employee remuneration policies may also include data required due to govt. regulations; e.g. workforce demographics 15 5 An Example: Westpac ‘Pact’ ‐ Issue 10 . May 2009 OUR PEOPLE Strategic Objectives: • Attract the most skilled and engaged people; • Build an achievement culture; and • Support reliable operations, systems and processes. Indicator (%) • • • » Latest Available 2008 2007 2006 2005 Employee turnover (total) 17 19 17 17 16 Employee engagement (% employee reporting a positive score) » 78 78 – – – Lost Time Injury Frequency Rate (Group) (Injuries per one million hours worked) 3.0 3.4 3.8 5.2 5.8 16 Current Practices in Managing Intellectual Capital • The link between people and performance should be made visible (measures) and available to all stakeholders (reporting). • Reporting on HCM practices seek to combine ‘narrative and hard data’. • Framework/methodologies used to report HCM: – Intangible Asset Monitor (Sveiby) – Balance/HR Scorecard – Skandia Navigator/IC index 17 Tangible assets minus tangible debt (Net book book value) Intangible assets (Share price premium) External structure Internal structure Employee competence brands, customer & supplier relations management, legal structure, manual systems, attitudes, education, experience R&D, software Source: Adapted from “The New Organizational Wealth” by Karl Sveiby (1997) 18 6 Source: Kaplan and Norton, 1992 19 Objectives Measures Targets Initiatives Financial perspective Customer perspective Internal process perspective Learning and growth perspective How will we change and grow? Consider: • human resources (employee competencies) • information technology • organisational culture and alignment 20 21 7 How to Manage Intellectual Capital? (i) Sveiby’s “Intangible Asset Monitor” framework (ii) Kaplan & Norton “Human Capital Readiness” framework 22 Sveiby’s Intangible Asset Monitor • According to Sveiby, employees use their competence to create value internally (for the organisation) and externally (for customers): EXTERNAL STRUCTURES INTERNAL STRUCTURE EMPLOYEE COMPETENCE Includes brand names, image, and relationships with suppliers and customers Includes support staff, patents, concepts, models, and computer and administrative systems The competence of individual professional staff - people who plan, produce, process or present the product or solutions the support staff are not directly involve in dealing with customers Eg:reception Tangible assets minus tangible debt (Net book book value) 23 Intangible assets (Share price premium) External structure Internal structure Employee competence brands, customer & supplier relations management, legal structure, manual systems, corporate culture, education, experience R&D, software Indicators of: • growth/renewal • efficiency/effectiveness • stability Source: Adapted from “The New Organizational Wealth” by Karl Sveiby (1997) 24 8 Applying Sveiby’s Intangible Asset Monitor: ASB Example External Structure Profitability per customer (ASB: Fee revenue per MBA student) Customer satisfaction index Customer (ASB: evaluations from MBA students) Stability Proportion of big customers (ASB: proportion of executive program students coming from the same companies) Growth & Renewal Efficiency 25 Applying Sveiby’s Intangible Asset Monitor: ASB Example Internal Structure Investment in information processing systems (ASB: investments in Vista and MyUNSW) Value add per support staff (ASB: student fee per non‐academic admin staff) Stability Rookie ratio (ASB: no. of IT staff with less than 2 years experience) Support staff turnover (ASB: turnover rate of administrative staff) Growth & Renewal Efficiency 26 Applying Sveiby’s Intangible Asset Monitor: ASB Example Growth & Renewal Efficiency Stability Employee Competence Number of years in the profession (ASB: No. of years in the accounting discipline) Training and education costs (ASB: costs associated with research conferences) Proportion of professional staff (ASB: % academics) Value added per professional (ASB: net student fee per academic staff) Seniority (ASB: average no. of years in ASB) Average age (ASB: average age of academic staff) 27 9 Applying Sveiby’s Intangible Asset Monitor: Coles/Woolworth Seminar Question 2: Think of one grocery store chain such as Coles or Woolworth’s supermarkets, and use the Sveiby’s 1997 intangible asset monitor model to identify measures for the company’s human competence, internal structure, and external structure. Your answers should include at least one growth/renewal measure, one stability measure, and one efficiency measure for each of the three categories (i.e. identify at least 9 measures). Your measures should be specific to the supermarket’s business context. Briefly explain why these measures are important to the supermarket chain identified. internal: Accoutants/ IT system stock system: just in time external customer satisfaction rate profir margin/ proportion of customers who are profitavle 28 Kaplan and Norton’s “Human Capital Readiness” Framework • Kaplan and Norton’s “human capital readiness” framework: • It’s about assessing the availability of employee skills, talent and know‐how to perform the internal processes critical to the strategy’s success; • Enables organisations to identify human capital requirements, estimate gaps and current employee readiness, and build programs to close the gap. 29 Kaplan and Norton’s “Human Capital Readiness” Framework • Summary: • Human Capital must be aligned to strategy if organisation is to gain value from employee competencies. • Strategy map identifies critical internal processes from which strategic job families are identified. • Competency profiles for strategic job families • Measure human capital readiness and strategic competency gaps. • Human capital development programs. 30 10 What is Human Capital Readiness? Objectives Measures Targets Initiatives Financial perspective Customer perspective Internal process perspective Learning and growth perspective Employee capabilities • Need to consider the availability of employees’ skills, talents and know‐how required to perform the internal processes that are critical to the strategy’s success. 31 Human Capital Readiness in Action • Human Capital Readiness at Global Restaurant Franchise Autogrill by Judith A Ross (Jan 15, 2007. Harvard Business Publishing) "Our people are everything." How many companies give this notion lip service? Some, however, like Autogrill, live and breathe it. The Italian‐based global leader in travelers' restaurants is a pioneering practitioner of the strategic job families and human capital readiness concepts. Striving to seek ways to grow despite inroads by competitors and new regulation, the company focused on identifying strategically critical jobs, skills‐‐and gaps. 32 Steps Required to Measure Human Capital Readiness 1. 2. 3. 4. Identify strategic families; Build the competency profile; Assess human capital readiness; Invest in human capital development program. 33 11 Step 1: Identify Strategic Job Families • The critical few jobs that have the greatest impact on strategy – Tie in with strategic themes and the related internal business processes – For example, two strategic themes of a particular business school in Australia may be: • Destination of choice for students in the Asian‐Pacific region • Grow international research reputation 34 Grow int’l research reputation Int bus process Customer Destination of choice for students Provide outstanding learning experience Provide excellent career prospect Innovation process Adopt innovative Adopt innovative teaching methods Design practical, practical contemporary course Teaching staff (30) Course developers (5) Build research profile Operation process, customer mgt process etc Strategic job families 35 Step 2: Build Competency Profile • “A competency profile describes the knowledge, skills and values required by successful occupants in a position.” (8.2.6) e.g. for “teaching staff”: – Knowledge – job specific and surrounding e.g. understanding of the discipline i.e. auditing – Skills – complement knowledge e.g. presentation and communication skills – Values – characteristics or behaviours e.g. value diversity and scholarship 36 12 Step 3: Assess Human Capital Readiness • Assess current capabilities and competencies of the employees in the strategic job families what we should have v what we have at the moment Requiement v current capabilities the gap is called compentency gap firm want to reduce this gap Part of staff review and feedback process – Do strategic job families required currently exist? – Are they currently being hired? 37 Int bus process Step 3: Assess Human Capital Readiness Innovation process Adopt innovative teaching methods Design practical, contemporary course Teaching staff staff (30) Course developers (5) 27 3 No. qualified 90% 60% Human capital readiness No. required 38 Step 4: Human Capital Development Program • The path to strategic alignment – Use of strategy map – adds focus to program • Recruitment • Training • Career planning – Focus on strategic jobs – more effective spending – faster results 39 13 Step 4: Human Capital Development Program (contd.) • Two Operational Approaches (exclusive K & N) • Strategic job families model – Specific investments in strategic job families to reduce the capability gap • Strategic values model – Strategy is everyone’s job – Cascade strategic value from top to bottom 40 Seminar Question 3: Dizzy Easy Catering specialises in special events corporate functions such as Halloween parties, Melbourne Cup office parties, project completion celebrations and End-of-Financial-Year parties. A majority of Dizzy Easy’s customers are repeat customers, and thus, relationship-building plays a significant role in Dizzy Easy’s success. It is crucial for Dizzy Easy to have a thorough understanding of their regular customers’ preferences when organizing corporate events. To distinguish themselves from the regular office caters, Dizzy Easy focuses on introducing new, innovative menus using only the freshest ingredients. In addition, their food is nutritiously balanced; each menu item has a calorie count and fat/cholesterol rating to allow their clients to make informed choices when choosing their menus. To promote their brand, Dizzy Easy recently launched a brand new website, where existing and new customers can access comprehensive information about their products. building and maintaining the relationships customer relationship manager customer survices stuff perople skills knowleges of customer needs communication skills ability to sell knowleges of the meal ability to meet the target per months nutritiones dietitian chef ablity to cook/ hygine/ being creative Required: (a) Based on Kaplan and Norton’s 2004 model, outline the steps required for assessing Dizzy Easy’s human capital readiness. 4 steps (b) Based on the above case information, identify two strategic job families for Dizzy Easy. Briefly discuss the skills and knowledge required for these jobs. Explain your answers. 41 Learning Objectives By the end of this seminar you should… 1. Understand and be able to explain the definition of intellectual capital; 2. Understand and be able to explain the importance of the managing and reporting intellectual capital and, its subset, human capital; 3. Understand and be able to explain the use of Sveiby’s “intangible asset monitor” framework to manage and report intangible assets; and 4. Understand and be able to explain the use of Kaplan and Norton’s “human capital readiness” framework to manage human capital. 42 14 External environment Internal environment Strategy analysis & formulation Performance Measurement Are we creating Shareholder Value? Seminar 9 Environment/Society Suppliers You are here! Seminar 7 Seminar 8 Customers Seminar 6 Employees/IC Strategic Risk Management & Control Seminars 10 & 11 43 15 ...
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