Their Most Valued Asset? Seriously?

Conscious of how much of their future success will depend on their human fabric, more and more companies enter a war for talent consequence of the imbalances of the labor market.

We all know the story: on one hand, there is a growing disconnect between the skills produced by the educational system and what companies need today due to technological innovation, new business models, and globalization. On the other hand, demographic trends, in particular the ageing and decline of working population, are already limiting the supply of employable individuals in some territories.

Subsequently, for many companies the time it takes to fill a vacancy is now longer than ever before, while some of them end up taking suboptimal hiring decisions because they can’t find (or can’t attract) their dream candidates.

At the end of the day it is a war, and not everyone can win…

In the meantime, we have learned that some of the factors that enable a person to achieve an outstanding performance in an organization are not 100% portable from one company to another. Thus, companies run the risk of hiring candidates whose performance is outstanding in their current (or past) organizations but who (surprise, surprise!) might not achieve a comparable level of performance in a different one.

If you are a business leader: How would you feel if the utilisation of the assets on your balance sheet would be similar to the level of utilisation of the human potential of your organisation?

In summary, today’s organizations face a double challenge in the field of talent management: They need to be capable of attracting and selecting the best professionals available in the market while cultivating organizational contexts that enable those professionals to work at their best, i.e. converting their potential into performance.

However, I have the feeling that companies are not aware enough that the second part of this challenge is way more decisive than the first, since it has a greater impact on their results. Maybe the situation would be different if business leaders better understood what that potential is made of, and how its components relate to each other:

a) Knowledge and skills

Traditionally, companies considered a person’s potential was made of the knowledge and skills she mastered, plus new knowledge and skills the person could learn in the future. The value of that knowledge and those skills for the company determined the potential of the individual for that specific organization.

Yet, we need to keep in mind that in today’s volatile and uncertain environment excessively specialized professional profiles can become a source of rigidity for an organization, apart from being a risk for professionals whose knowledge can become obsolete because of an unexpected technological change.

In a previous post we argued that a company’s competitiveness is no longer a matter of securing the control of valuable, rare, inimitable and non-substitutable resources that allow strategies that are difficult for competitors to copy, but a matter of being able to renew its capabilities in line with the changing business environment, adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competences to match the requirements of a volatile, uncertain world.

Similarly, the potential of a person today doesn’t depend exclusively on the possession of certain knowledge or skills but on her capacity of learning, renewing her capabilities, and adapting to new scenarios. That is the advantage of the so-called T-shaped profiles, which combine a vertical specialization with a horizontal perspective that allows a professional understand how her specialty is connected with others. Or of π-shaped or comb-shaped profiles: people who besides a transversal view possess several vertical specialties that make them even more versatile.

b) Social capital

In addition to possessing a set of knowledge and skills that matches the organization’s needs, and being capable of learning new ones, in a volatile context where people need from the collaboration of other people to learn, interpret the many changes they experience, and get things done, a person’s potential increasingly depends on her social capital.

In short, the social capital of an individual is the economic value of “who the person knows”. Likewise, the social capital of an organization is the addition of the social capital of all its members.

Different authors have analyzed where the value embedded in those relational networks comes from. For instance, how social capital may help individuals (and their organizations) scan their environment to detect threats and opportunities. Other studies have focused on how social ties may influence decision-makers inside and outside the organization, reflect an individual’s accessibility to resources, and contribute to communicate the value proposition of the organization into the market. And there are also evidences of the positive impact social capital has both on HR areas, such as career success, turnover, executive compensation, and job search help, and on organizational areas, such as inter-unit resource exchange, entrepreneurship, supplier relations, regional production networks, and intercompany learning (Adler and Kwon, 2002).

c) Psychological capital

But still, in this scenario where companies require from their employees capacities such as influence, creativity, adaptability, and initiative, and also try to capture the value embedded in their relational networks, firm leaders need to understand one important thing: people will apply those competencies and relationships to their professional activity with more or less intensity depending on their mindset at work.

As Gary Hamel says: “In a world where customers wake up every morning asking ‘what’s new, what’s different and what’s amazing?’ success depends on a company’s ability to unleash the initiative, imagination and passion of employees of all levels –and this can only happen if all these folks are connected heart and soul to their work, their company and its mission”.

This is the turn of psychological capital, a third component of human potential that catalyzes the other two since it modulates employee attitudes, behaviors, and performance.

Fred Luthans, former President of the Academy of Management and father of this construct, defines it as an individual’s positive psychological state of development characterized by: (1) having confidence (self-efficacy) to take on and put in the necessary effort to succeed at challenging tasks; (2) making a positive attribution (optimism) about succeeding now and in the future; (3) persevering toward goals, and when necessary, redirecting paths to goals (hope) in order to succeed; and (4) when beset by problems and adversity, sustaining and bouncing back and even beyond (resiliency) to attain success (Luthans, Youssef, & Avolio, 2006).

It seems, therefore, that here are strong reasons for an organization to invest in its psychological capital. On her book “Happiness at work: maximizing your psychological capital for success” (2011), Jessica Pryce-Jones explains that “psychological capital matters particularly in a pressured and stressed service economy which requires motivation, creative thinking, and perseverance”, while Luthans argues that employees who are more hopeful, optimistic, efficacious, and resilient may be more likely to “weather the storm” of the type of dynamic, global environmental contexts confronting most organizations today better than their counterparts with lower positive psychological capital.

Notwithstanding, reality is very very different out there. And you know it.

Available market information on employee engagement / mindset / happiness at work is devastating, revealing that psychological capital is not a priority for most companies. We just need to take a look at Gallup’s figures: worldwide less than one fourth of employees are engaged at work, while the vast majority are “not engaged” or “actively disengaged”, meaning they are emotionally disconnected from their work and their employers, and less likely to be productive.

Considering many studies, including our own research at iOpener Institute, show that employee engagement / mindset / happiness at work is strongly connected to individual performance and business results, I wonder how much human potential remains unused, and how much value companies are wasting just because they don’t pay enough attention to their psychological capital, their people’s mindset at work.

If you are a business leader think for a moment how would you feel if the level of utilization of the assets listed on your balance sheet would be similar to the level of utilization of the human potential of your organisation. Would you be happy? Would your shareholders be happy?

And, above and beyond that, think about what we may be missing as individuals and as society. What stage of development may we have reached only if we had managed our human potential more carefully?

Photo by Thomas Leuthard under a creative common license.