How To Transform Human Capital Into Competitive Advantage

- that′s the ultimate opportunity that companies with soul leverage everyday. McKinsey have looked into this - and BCG compares geographical difference in the age of skill-based hiring. Enjoy the read!

Why Are Women More Likely To Cite A Toxic Culture?

Good question – but Donald and Charlie Sull know the answer. Of course, they studied Glassdoor reviews and found out, that women are 41% more likely to experience toxic culture than men in the free text of their Glassdoor reviews in the first year of the pandemic.

They ranked the 20 topics with the largest sentiment gaps between women and men and found that gender equity had the biggest gap among all topics they measured. Women were 2.8 times more likely than men to speak negatively about sexual bias, discrimination, or gender-related exclusion in the workplace.

Topics related to toxic culture dominate the list of cultural components with the largest sentiment gaps between women and men. Fourteen of the 20 cultural elements with the largest sentiment gaps are components of the toxic culture measure. Other topics with the largest culture gaps — including mental well-being, supportive colleagues, and supportive leaders — are related to toxicity as well. Here′s their conclusion: “The bottom line: Any way you cut the data, there is a yawning gap between women and men when it comes to toxic workplace culture.”

Here′s the link to the full article.

Competence Over Credentials: The Rise of Skills-Based Hiring

BCG recently shared insights on what makes skills-based hiring successful. They are providing five practical tips “for employers seeking to widen their hiring lens” - interesting tips at a time where skills-based hiring is making headlines all over the world.

Challenge the biases in your talent strategy “Be more open-minded. Is a degree really required for a specific job? Our data indicates that the paper ceiling is vanishing even in jobs that traditionally called for a degree. Tradition can be hard to overcome, of course. So, employers must ask themselves, If this job seeker has the skills we need, does it matter how they acquired those skills??As an example, Goldman Sachs recently shifted to what it calls a ”skillset recruiting” approach. Through the company’s new online platform, candidates don’t apply for jobs—they apply to specific skill areas, then participate in skill testing and get referred for the most relevant jobs based on their skillsets.

Know the skills you need

Our research shows that skills-based job ads include a higher number of skills than traditional job ads. Traditional data-scientist job ads, for example, list approximately 28 needed skills, whereas skills-based ads for the same role will list as many as 37. Skills-based ads especially overindex on transferrable skills, such as collaboration and communication, which can be a foundation for success in any job. So employers hiring on the basis of skills must have a deep understanding of those skills and advertise for them. This involves being able to dynamically forecast skill needs as well as a deep understanding of current and future skill profiles.

Up your skill assessment game

The big risk when hiring based on skills rather than a degree, especially a degree from a tried-and-true institution, is the lack of “proxy proof” of candidates’ qualifications. Instead, employers have to obtain that proof by assessing and testing candidates’ skills, which they often aren’t prepared to do or don’t know how to do efficiently. They can look at other proxies: microcredentials (learning badges from short, often digital, courses), completion of online courses, recommendations, or the results of specific projects. They can also test candidates by asking them to demonstrate skills: writing code, participating in a trial period, or playing a game-based simulation that will test skills, for example. New tools leveraging GenAI are able to simulate real interactions to a high degree with little effort required on the employer’s end; they can be a useful way to efficiently assess thousands of candidates.

Support integration and an inclusive culture

Sometimes, the main barrier to skills-based hiring is cultural. Managers want to hire people who went to the same schools they did. Recruiters don’t want to take a risk on people from nontraditional backgrounds. Many company leaders followed traditional routes and expect their successors to do the same. In such an environment, skills-based hires may feel discriminated against or just not welcome.

Just as employers are increasingly conscious of their diversity, equity, and inclusion agenda with regard to gender, race, and more, they might also aim for diversity in employees' educational and career backgrounds. Some practices to consider would be ensuring that members of recruiting panels have diverse educational backgrounds, information regarding degrees from candidate CVs, training managers on avoiding unconscious bias, or even setting targets for alternatively skilled candidates.

Keep being skills-based—it’s not just about hiring

After they’ve brought skills-based hires onto their teams, employers should continue to support those employees’ career progression. Promotions should be based on skills, as should other internal moves and talent decisions.?Several talent marketplace tools help to facilitate this. Novartis’s AI-powered internal talent marketplace uses information on employees’ skills and goals to predict, match, and offer roles and projects, for example.

However, a move like this requires a significant mindset shift in the organization—from ”talent hoarding” to ”talent sharing.” Managers as well as the HR function need to get comfortable with enabling skills-based, flexible career paths, and senior leaders have a major part to play as role models." If you want to find out more, here′s the link

Identifying Defining Career Moments Is A Successful Strategy For Employers

Investment in an employee’s professional development significantly improves the quality of the employee-employer relationship – that′s the key result of a study from by Keystone Partners. They have researched data from 305 respondents across all levels. In addition, they have looked at the four dominant generations in the workplace.

While it is true for all that investment in professional development is valued, the experiences with and expectations towards the employer show vast differences from generation to generation.

In a nutshell: Employees who receive employer investment at defining moments have significantly better employee experiences, perceptions of their employers, and employment outcomes. These directly contribute to overall resilience.

Plus: employees have a clear expectation towards their employer when it comes to people investments:

Two examples:

• Employees who receive professional development are 22% more likely to perceive employer-employee relationships as reciprocal, i.e., as having an equitable balance of give and take.
• Employees who received employer-provided career transition services were even more positive, being 33% more likely, and a staggering 87% of employees who received both career development and career transition services felt their relationships with their employers were reciprocal.

What is even more important is the right moment for these investments to happen. The best moment is just before a crucial transition into a new role is about to happen. If you think about it, it makes perfect sense. As Nicolas Bebhahani, who shared this piece of research with me puts it: “Moments of transition are when employees are at their most vulnerable, in unfamiliar territory, and most in need of guidance from their organizations. Most of us remember our first day on the job or our first meeting as a division leader because it was a defining moment not only for our careers, but for us as individuals.”

How To Transform Human Capital Into Competitive Advantage

It′s all about performance through people. Leveraging staff skills really pays off. According to McKinsey & Co., companies that emphasize skill development support workers significantly: “Skills learned on the job contribute 46 percent of the average person’s lifetime earnings, and companies that build human capital are more likely to propel their employees into higher earnings brackets over the course of a career.

Building human capital also pays off for firms in the form of more consistent earnings and greater resilience during crisis. In addition to being more consistent than their sector peers, human capital builders are better at retaining talent, with attrition rates that are about 5 percentage points lower.”

McKinsey created a four-box logic separating a) performance-driven companies from b) typical performers, c) people focused companies and people + performance (P+P) winners. Those companies (“People + Performance Winners”) prioritize developing their employees and manage to deliver top-tier profitability at the same time. According to McKinsey, they “are more likely to become large-scale “superstars.” They exist in all sectors and average more than $1 billion in economic profit.

People + Performance Winners have a distinctive organizational signature that challenges and empowers employees while fostering bottom-up innovation. This form of organizational capital contrasts with that of other top-performing firms, which tend to be more top-down and transactional. This management style seems to activate human capital and create a tangible competitive advantage.”?

They studied data from 1,800 large companies across sectors in 15 countries, sorting them based on two factors:

1. how much they focus on developing human capital and
2. whether they financially outperform their sector peers.

Here′s the summary: “P+P Winners distinguish themselves from Performance-Driven Companies in two important ways. They achieve more consistent results and have greater earnings resilience, and they also have a superior ability to attract and retain talent (Exhibit 1). These are important advantages at a time when companies are facing economic headwinds and labor shortages.”

The chart below details the scores of those four categories by:

• Profitability and size
• Consistency and resilience, and
• Talent attraction and retention

Building Corporate Soul is all about high-performance cultures. This piece of research confirms the thesis: “In the two segments that are not top performers financially, People-Focused Companies demonstrated greater stability than Typical Performers. Typical Performers were 1.5 times more likely than an average firm in our sample to remain in the bottom quintile of profitability in nine out of ten years, while People-Focused Companies were only 1.1 to 1.3 times as likely. The latter also demonstrated greater resilience during the pandemic, growing their revenue twice as fast as Typical Performers (6 percent versus 3 percent) from 2019 to 2021.”

One of the key challenges for high-performance companies is attracting great talent. According to McKinsey, “P+P Winners are also talent magnets, with attrition rates almost five percentage points lower than those of Performance-Driven Companies. Their employees report higher job satisfaction and are 1.3 times more likely to move into higher lifetime earnings brackets than employees of Performance-Driven Companies. People-Focused Companies have similarly high levels of employee satisfaction and even lower attrition than P+P Winners, although not with the same stellar financial performance.” The combination of a challenging, collaborative and nurturing culture is hard to beat. Read this fascinating study here.

Stakeholder Primacy Is Also Ruthlessly Profitable

Peter Georgescu serves as a board member at the US non-proft JUST Capital. He recently published an article on stakeholder capitalism that is worth reading.

“We live in discordant times. A few business schools are offering courses that teach the fundamentals of stakeholder capitalism now, and that’s wonderful. At the same time, many critics refer to it as socialist economics or woke capitalism. What we’ve got here, to borrow from Cool Hand Luke, is a failure to communicate. Most opposition is founded on a shallow understanding of stakeholder capitalism. It isn’t opposed to profit. When it is done well, it increases profits, so even Milton Friedman would approve if he were shown how it has yielded amazing results a few short years after its adoption in many companies that embrace it.

Stakeholder capitalism embodies a wisdom as old as Henry Ford on creating a thriving market for highly profitable products and services in a way that’s mindful of the long-term future of the economy and society. In other words, it understands that no company is an island. Without a thriving society where the many have some discretionary spending, the economy will not have the elasticity to grow, and profits will suffer. It’s that simple: the natural world has to thrive, the working and middle class, ditto, and communities, the nation and the globe all need to prosper. If they don’t, the market for products and services won’t grow.

When you put a product up for sale, it’s like planting a seed: if it falls on rocks and dirt, or into a marsh, it won’t take root and grow. The society surrounding a company needs to be healthy and happy enough to simply provide demand for a new product. And buyers need to be affluent enough to buy it. Henry Ford paid his workers far more than the going rate for labor because he wanted them to have enough money in the bank to buy his cars. He could easily have paid them less; they would have continued doing their jobs. But he didn’t, and his company grew as a result. Companies able to nurture the lives of their employees and suppliers and customers, as well as the prosperity of their communities, will make big profits.

(…) Stakeholder capitalists are actually interested in making more money than ever by enhancing people's lives in more universal ways—and that’s why they are stakeholder capitalists. They are simply wiser about making more profit, both in the short term and in the long-term value creation. There is no actual divide between higher profits and social responsibility: large earnings depend on an improving world. That’s all it amounts to. The new capitalism is simply a smarter and eventually more lucrative version of capitalism than what has prevailed over the past four decades and which created the dangerous social instability that confronts us today.

The rewards take a little time, that’s all. To borrow a truism from gardening, anyone who has ever planted a bush or a tree knows that three stages follow planting. In the first year, they sleep, in the second, they creep, and in the third, they leap. It can take a new leadership culture a bit of time to leap when it’s transplanted into companies struggling under short-term principles. But the goal is to make them thrive as they never have before, not to turn a firm into a good, well-behaved citizen simply. Being good for everyone isn’t the objective, but it’s an inevitable byproduct of the higher profitability that results.” Read the entire article here.

The Contingent Relationship Between Purpose and Profits?

Claudine Gartenberg is an Assistant Professor of Management at the Wharton School of the University of Pennsylvania. Her research focuses on corporate purpose and pay inequality, and the implications of both for firm strategy and competitiveness. She recently published this article in the “Strategy Science Special Issue” on Corporate Purpose. This is the abstract:

When do for-profit corporations pursue both purpose and profits and when do they prioritize one over the other? This study explores this question, measuring the strength of purpose based on the perceptions of nearly 1 million employees across 635 U.S. public companies within 14 industry categories. Two main findings emerge. First, the relationship between purpose and profits varies widely across companies and industries. Second, companies with higher levels of innovation intensity, intangible capital, or long-term investors tend to pursue both purpose and profits, whereas companies with lower levels of these factors tend to prioritize one over the other. This evidence suggests that purpose and profits are compatible in settings that rely on innovation and long temporal horizons for value creation and opposed in settings that do not. For everybody interested in this space, here′s the link:

This is the end of newsletter #57 ?- please continue to help making soulless companies a thing of the past this year! The next edition of the Building Corporate Soul newsletter will be in your mailbox on February 18.?