Human, not financial, capital must be the starting point and ongoing foundation of a successful strategy.
Most managers today understand the strategic implications of the information-based, knowledge-driven, service-intensive economy. They know what the new game requires: speed, flexibility and continuous self-renewal. They even are recognizing that skilled and motivated people are central to the operations of any company that wishes to flourish in the new age.
And yet, a decade of organizational delayering, destaffing, restructuring and reengineering has produced employees who are more exhausted than empowered, more cynical than self-renewing. Worse still, in many companies only marginal managerial attention — if that— is focused on the problems of employee capability and motivation. Somewhere between theory and practice, precious human capital is being misused, wasted or lost.
Having studied more than 20 companies in the process of trying to transform themselves, we have concluded that although structure is undoubtedly an impediment to the process, an even bigger barrier is managers’ outdated understanding of strategy.(See “The Evolving Focus of Strategy.”) At the heart of the problem is a failure to recognize that although the past three decades have brought dramatic changes in both external strategic imperatives and internal strategic resources, many companies continue to have outmoded strategic perspectives.
In the competitive-strategy model in which many of today’s leaders were trained, sophisticated strategic-planning systems were supposed to help senior managers decide which businesses to grow and which to harvest.1 Unfortunately, all the planning and investment were unable to stop the competition from imitating or leapfrogging their carefully developed product-market positions.
In the late 1980s, the search for more dynamic, adaptive and sustainable advantage led many to supplement their analysis of external competition with an internal-competency assessment. They recognized that development of resources and capabilities would be more difficult to imitate: The core-competency perspective focused attention on the importance of knowledge creation and building learning processes for competitive advantage.2 But this approach, too, faced limits as companies recognized that their people were not equal to the new knowledge-intensive tasks. By definition, competency-based strategies are dependent on people: Scarce knowledge and expertise drive new-product development, and personal relationships with key clients are at the core of flexible market responsiveness. In short, people are the key strategic resource, and strategy must be built on a human-resource foundation. As more and more companies come to that conclusion, competition for scarce human resources heats up.