Article: Unlocking HCM success with effective strategies from the BFSI leaders

Employee Relations

Unlocking HCM success with effective strategies from the BFSI leaders

Know successful strategies from BFSI leaders as they identify and address the gaps in integration of HCM as part of the company's shareholder value and overall performance.
Unlocking HCM success with effective strategies from the BFSI leaders

What is the key component that supports an organization's value and performance but is often missing from financial reporting? The answer is Human Capital Management. But how can organizations ensure that this asset, i.e., Human Capital Management (HCM), becomes visible as an integral part of a company's shareholder value and overall performance? What are the most effective strategies to help organizations bridge this gap and challenges in their financial reporting?

To explore answers to these questions, People Matters turned to leaders in the BFSI sector who shared insights into best practices and provided examples of integrating HCM into a company's shareholder value and overall performance. 

Key Components of HCM overlooked in traditional measures of Company Value and Performance

Sanjay Shetty, Director of Professional Search & Selection at Randstad India highlights, “The key components of human capital management that can be better leveraged are career progression and management. A lot of employees are caught up in the post-pandemic transition phase in the race to “go digital”. Today, there is a mix of techno-functional staff, people who are multitasking, and people who are dealing with the old versus new way of working in the age of digital transformation. Amidst all these, career progression planning can be tricky, and needs to be managed well.” 

“Companies and shareholders have long been singularly focused on human capital costs and productivity measures. Improved resource utilization and retention have been synonymous with a company’s perceived ability to generate higher value and demonstrate year-on-year growth. It is widely recognized that leadership and managerial capabilities (especially at mid-levels) are more critical determinants as well as true differentiators of organizational performance and future success,” said Harish Agarwal, COO at Edelweiss Alternatives. Adding, “However, most companies have not been able to appropriately measure these as a part of human capital management processes, and therefore are caught up with fulfilling the transactional elements. Also, the existing leadership and managerial frameworks inherently force-fit talent into contrasting dimensions, while the need of the hour is to define and develop niche skills across business and levels – built on agility and mass customization. Furthermore, in the post-pandemic era, employee engagement and alignment have assumed unparalleled importance, and become significant drivers of quality and pace of organizational performance.

Rashmi Priya, Head HR at IIFL Home Finance added, “Traditional financial measures such as revenues, profitability, and stock price are crucial as companies aim to optimize value for their shareholders. However, progressive businesses understand that certain crucial aspects of human capital should receive additional consideration when assessing a company’s total value and potential.”

She further explained, “Workplace culture, learning initiatives, leadership, succession planning, and employee engagement are all important yet intangible workforce investments that yield long-term returns. A company’s most valuable resource is its skilled and motivated workforce. A growing number of innovative Organizations are realizing that people's power must also be quantified. Surveys, talent analytics, and leadership evaluations all shed light on the state and potential of human capital. Because without measurement, it is impossible to manage. For a more comprehensive and balanced picture, it is desirable to include human capital measurements in standard financials. To achieve long-term success, people are just as crucial as money. At IIFL Home Loans, our employees are the most valuable asset for us, we make sure that our employee’s talent, personal attributes, skills and creativity are well nurtured. Human capital is therefore an essential building block for creating value.”

Shailesh Singh, Senior Director and Chief People Officer at Max Life Insurance shared, “Human resources serve as the bedrock of effective organizational management and remain an important ecosystem in any organization. Per a recent report, the global Human Capital Management (HCM) market was valued at USD 26.63 billion in 2022 and is projected to grow from USD 28.86 billion in 2023 to USD 53.61 billion by 2030, exhibiting a CAGR of 9.2% during the forecast period. In a dynamic sector like BFSI, we continue to face issues such as remote workforce management, change management, the implementation of automated HR processes, and digital dexterity. Implementation of digital tools and bridging skill developments continues to be a lingering issue, as those have not been used to the fullest. However, with careful planning, investment in a skilled workforce, and consideration of data privacy and security, organizations can successfully implement new HCM solutions and reap the associated benefits of improved efficiency and productivity.”

Identifying gaps between the importance of HCM and its representation in financial reporting

Explaining the gap, Sanjay said, “One of the key components of human capital management is the adequate and effective use of data and HR analytics. This can provide detailed and targeted insights into the utilization of human capital and its contribution to the financial goals of an organization. The correlation of certain HR metrics with productivity and profitability can be ascertained using HR analytics and leveraged accordingly. This aspect is not being completely leveraged in the BFSI sector which could be one of the reasons why there seems to be a gap between the perceived importance of human capital and its representation in financial reporting.”

Shailesh added, “There is a historical emphasis on tangible assets, making it challenging to recognize and quantify the intangible nature of human capital. The complex and multifaceted nature of workforce dynamics makes it difficult to establish standardized metrics. Cultural and regional variations further complicate the process; as human capital practices may vary across countries. With diverse talent around the corner, companies are now finding it difficult to have singular solutions for issues. Financial performance and targets take over the mental well-being and health of employees, which lets employees quit organizations. Thus, it becomes imperative to address these challenges, and there is an alarming need to shift the mindset of Human Resources leaders to ensure a healthy and stable working environment.”

Rashmi emphasized that financial reporting continues to take a backseat to human capital; this has been there for ages because of complex causes and standards-setters. Businesses can’t put people on the balance sheet like buildings and equipment. When they leave at night after work, sadly their value vanishes. Hard skills can be quantified, but soft skills like relationships and leadership remain intangibly crucial. She further explained, “This exclusion is especially conspicuous for talent-dependent organizations in the BFSI sector. In this field, long-term trust is the foundation of client relationships. Employees with experience are very hard to replace. The expense of employee training to keep up with the quickly evolving technologies is rising rather than falling. Although people are ultimately the source of all power, human capital investment is often subordinated to more observable costs such as technology infrastructure due to short-term performance expectations, complexity, and a lack of reporting standards. It’s still difficult to quantify human worth in absolute terms. However, investors, staff, and the bottom line would all gain from contextual, non-financial human capital measures included in yearly reports. One must give the intangible a physical form. Businesses need to start closing the reporting gap since their employees are their most valuable asset.”

Harish highlighted three factors leading to the gap: 

“a) limited ability of human capital practitioners to articulate talent quality and impact in quantitative/commercial terms;

b) shareholders overtly determining company performance basis short-term and traditional measures of employee costs, staffing and productivity, and not specifically seeking long-term measures defining organizational capabilities, robustness and resilience; and

c) lack of common reporting standard about human capital metrics which demonstrate direct correlation with company financials and performance.”

He further explained, “The BFSI sector operates on trust. This needs to be demonstrated at each employee level, and built upon by the company’s governance mechanisms. More than challenge, we see an emerging need for increased inclusion of human capital in financial reporting to protect client trust and respect, retain shareholder confidence and maintain the momentum of high-touch institutional businesses.”

Successful Strategies or Initiatives for effectively integrating HCM 

“We map employees across their life spans, and there is a harmonious co-relation between the business finance team, HR, and the business leaders to ensure that there is a healthy balance between the goals of the employees and the company,” said Sanjay. Adding, “HR business partners play an intervention role. One such example at Randstad India is the 4-day workweek policy for employees who achieve 100% of their yearly targets ahead of time. They get to enjoy a 4-day working week for the rest of the year. This way we are promoting a performance culture as well as rewarding employees with flexibility and more time to spend on various aspects of their life beyond regular work - be it upskilling, pursuing a hobby, or simply spending more time with their loved ones.”

Rashmi shared, “Our organization recognizes that human capital is indispensable for delivering long-term shareholder value. We have implemented several initiatives that seamlessly integrate robust human capital management (HCM) into our performance evaluation and value creation approach.” 

Sharing the effective strategies, she said, “Annual performance appraisals align individual employee goals with strategic priorities. By tying appraisals directly to the company’s objectives, we ensure the workforce is united in fulfilling our vision. Our continuous feedback mechanisms like the AMBER AI chatbot provide insights into employee sentiment that inform leadership decisions and foster a responsive, agile organization. Real-time pulse checks on employee satisfaction allow us to proactively address concerns. By investing heavily in learning and development programs, we are building our human capital for the future while empowering employees to maximize their potential today. These programs demonstrably enhance competencies and leadership abilities. Reward and recognition programs boost motivation and retain our top talent. Competitive compensation also ensures we can attract skilled talent across generations.”

Transparent, multidirectional communication channels give employees a voice while keeping them aligned to our strategic mission. This creates a shared sense of purpose. Overall, our HCM strategies realize the immense value of human capital and integrate it firmly into our approach for long-term success, competitive advantage, and maximizing shareholder value.”

“Edelweiss Alternatives has been a keen proponent of demonstrating human capital value to shareholders. This has been done through:

a) defining quantitative and meaningful measures for talent and related dimensions, including leadership, managerial capability and engagement;

b) imbibing internally employee levels that human capital is at the core of everything we do, and reinforcing through our vision, mission and PRIDE value system; 

c) ensuring a feed on talent in each of our reports (annual, ESG, CSR, etc.) comprising of both quantitative as well as qualitative dimensions; 

d) extensively communicating and showcasing our human capital and related processes to investors, shareholders and clients including investee companies; and 

e) continuously identifying opportunities for moving the needle on sharper talent positioning through direct engagement, surveys, town halls, and informal meetings. Our inherent focus on continually enhancing customers’ trust and respect, and making (human capital) processes more effective and efficient has led to successfully integrating HCM towards creating value for all our stakeholders,” said Harish sharing the most effective strategies within his organization. 

Sharing 4 effective strategies to address the challenges Shailesh shared, “Industry leaders in the BFSI sector can address the challenges by taking several strategic steps. 

  • Firstly, we need to establish a clear link between human capital development and financial performance. This can be achieved through effective talent management, training programs, and performance-based compensation systems. 
  • Secondly, they must measure employee engagement and well-being while recognizing their impact on productivity and customer satisfaction. 
  • Additionally, fostering diversity and inclusion initiatives can help tap into the full potential of a diverse workforce. 
  • Lastly, collaboration with HR and finance departments is crucial to ensuring human capital metrics are integrated into financial reporting and decision-making processes. In conclusion, a strategic, compassionate, and proactive approach to human capital management is the need of the hour to meet these challenges that the leaders should inherently focus upon.”

How can BFSI Industry Leaders advocate for the recognition of Human Capital as a vital asset in the eyes of Investors and Analysts?

“The BFSI sector, especially the institutional businesses and including alternatives asset management, are primarily and predominantly high-touch (people-centric). Therefore, retention of a performing employee at a mid/senior level will most likely translate to preservation (and maybe growth) of customer relationships. At the same time, the degree of commercial delivery hinging upon the aforesaid employee poses a risk of erosion in case of employee attrition. Shareholders, investors and analysts would be keen on knowing both aspects,’ said Harish. He added, “A company’s ability to successfully perform year-on-year will be ultimately determined by how many such employees it can attract, develop and retain. Also, the backbone of the operations is dependent on the robustness of processes, technology efficacy and governance. Hence, details of transformational talent at the helm of these units and in overall leadership are of particular interest to the shareholders. The good news is that BFSI industry leaders are already showcasing the efforts and successes of these human capital dimensions. The need is to create simpler, concise and consistent quantitative metrics – on talent capacity and quality – which can be reported alongside say P&L, and be able to accurately indicate organizational human capital health.”

“Some of the effective ways to recognize human capital as a critical asset for investors and analysts could be: ensuring HR representation on the board with a seat at the table for all kinds of decision-making, incorporating HR metrics like attrition, retention, ESAT into the bonus system aligned with KPIs using data and HR analytics to co-relate business performance with organizational health and diversity” advised Sanjay

“BFSI industry captains have a prime opportunity to spotlight human capital as a vital asset for investors and analysts. They must walk the talk within their organizations. Making significant investments in up-skilling, new capabilities building, leadership development, and diversity & inclusion sends a clear signal. Transparently sharing the ROI of such programs through financial disclosures builds credibility. Thought leadership is crucial. Publishing research reports quantifying the value derived from human capital strategies elevates the conversation. Engaging with mainstream business and financial media to emphasize talent competitiveness as a foremost priority provides visibility. Nurturing an eco-system that priories progressive HCM is impactful. Establishing partnerships with leading academic institutions to conduct relevant studies lends authority. Hosting high-profile BFSI-centric events focused on human capital best practices enables collective action,” explained Rashmi

She concluded, “Fundamentally, BFSI firms must compete fiercely on talent management for sustainable advantage. Industry leaders highlighting the rising importance of human capital through actions, advocacy and academia can profoundly shape the narrative. Given the sector’s reliance on intellectual prowess, viewing human resources through a strategic investment lens is smart management and savvy communication.”

Upcoming regulatory and reporting changes impact the integration of HCM in financial disclosures

Highlighting the past year's trends in the sector, Harish explained, “The recent years have witnessed regulations in BFSI, including in alternative asset management, calling for more transparency in practices and reporting. The additional disclosures not only drive accountability on the part of the company – they also increase investor awareness and confidence. We foresee the active inclusion of human capital measures in financial reporting over the coming years, especially those reflecting trust and financial prudence.

The gig economy is on the rise, and we may see workers with extremely niche skills shared across companies soon. Companies will need to reconsider resource utilization measures as traditional definitions of workday or shift may no longer be applicable. Also, as companies no longer hold exclusivity of talent in such cases, the human capital value and corresponding commercial performance value will need to be specifically defined and reported.”

Sanjay stated, “The proactiveness of most organizations across countries on the equity, diversity, and inclusion agenda could prove to be an important aspect in terms of factors like workforce diversity ratio, which could further influence the inclusion of HCM parameters on financial disclosures. For this to materialize, it would be important to make effective use of data and analytics to develop a correlation between HR metrics and financial profitability.”

Rashmi added, “Several emerging regulations signal a new era of human capital management (HCM)  reporting in India. The Securities and Exchange Board of India (SEBI) has mandated extensive Business Responsibility and Sustainability Reporting (BRSR) for the top 1000 listed companies. BRSR requires disclosure of workforce demographics, turnover, training data and more HCM metrics. 

Additionally, the Institute of Chartered Accountants of India (ICAI) issued an ESG reporting guide encouraging robust HCM disclosures. The new Indian Accounting Standards (Ind AS) also allow for human resource accounting on financial statements. Global influences like the World Economic Forum’s Stakeholder Capitalism Metrics, covering human capital indicators, are shaping thinking. As sustainability considerations rise, Indian regulators are rapidly embracing HCM reporting. Mandatory BRSR is a watershed moment. Combined with other guidelines, India has firmly set the stage for human capital management to become integral to financial reporting. Investor demand for non-financial disclosures continues growing. India’s regulatory shift cements human capital’s central role in business success."

What Metrics and Frameworks enhance Human Capital Value communication with Shareholders and Stakeholders?

Sanjay highlighted, “There are some key HR metrics that can enable organizations to quantify the value of their human capital. One of those is the Return on Investment (ROI) for Human Capital, which allows organizations to assess the cost of acquiring, developing, and retaining employees in comparison to the benefits they generate, such as increased productivity, reduced turnover, and innovation. This ROI provides a clear understanding of how effectively human capital contributes to profitability.”

Adding further he said, “They can also closely monitor the Human Capital ROI Ratio, which measures the net profit against the total human capital cost. This ratio offers a transparent view of the organization's effectiveness in leveraging its human capital for financial gain. Moreover, they calculate Employee Lifetime Value (ELTV) to assess the long-term value each employee brings to the company, considering their contributions to revenue, cost savings, and innovation. Additionally, productivity metrics, including revenue per employee and profit per employee, provide insights into how efficiently the organization utilizes its human capital resources. 

Moreover, frameworks like “Balanced Scorecard” which integrates financial, customer, internal process, and learning and growth perspectives can also help understand and communicate how human capital affects various aspects of the business.”

Highlighting the metrics for organisations to better call out their human capital to shareholders value, Harish said, “First and foremost, the leadership and managerial frameworks of the company will create the most significant impact on its human capital and organizational performance. Rather than a unidimensional measure, the leadership/managerial quotient has become a composite of business acumen, emotional intelligence, and the ability to create experience and demonstrate openness and agility to diverse thoughts and beliefs. Similarly, employee engagement is no longer just a score from the voice of an employee or dipstick or pulse survey – rather an amalgamated reflection of purpose, clarity, alignment, empowerment, ownership and entrepreneurship. Lastly, with the emergence of generative technology, the level of automation becomes a critical indicator of how and where human efforts are being directed. This also reflects the pace of technology adoption in the organization, and the quantum of risk posed by employee turnover at the junior levels.

“Quantifying human capital is key for organizations today. Metrics like Employee Net Promoter Score show employee loyalty and satisfaction. Employee Lifetime Value captures an employee’s total productivity and innovation contributions. Return on Training Investment evaluates training effectiveness by weighing costs versus benefits. The turnover rate provides insights into employee alignment with company values. The Balanced Scorecard strategically aligns financials, customers, processes and human capital growth. The Talent Management Framework traces the employee journey to connect human strategies to business goals. At IIFL Home Loans, we have been enabling our teams to build and cater to such metrics from time to time to ensure consistency is maintained and it reaches greater heights,” said Rashmi sharing her experience. 

Unlocking shareholder value: Lessons from organizations harnessing HCM

Sharing the examples, Rashmi explained. “Leading organizations like Google, Unilever and Accenture exemplify successfully embedding human capital management (HCM) into core financial and strategic decisions.

  • Google’s Initiatives show commitment to understanding human dynamics through research. Consumer goods giant Unilever’s ‘Future Leaders’ program highlights the dividends reaped by investing in human capital. Management consulting firm Accenture has pioneered a modern approach to performance feedback.
  • In, the BFSI sector, IIFL Home Loans serves as a notable example of effectively embracing Human Capital Management (HCM) as a driver of shareholder value. We, being a prominent player in the Indian financial market, recognise the significance of our workforce in driving business growth and ensuring customer satisfaction. One of the key lessons drawn from our experience is the emphasis on talent acquisition and retention. By investing in recruiting skilled professionals and retaining them through competitive compensation packages and a positive work environment, we were able to build a team of dedicated experts.
  • Moreover, we focused on continuous training and development programs for our employees. By enhancing the skills and knowledge of our workforce, we ensured that employees were equipped to adapt to the rapidly changing landscape of the BFSI sector. This proactive approach not only increased employee satisfaction but also positively impacted customer experience, leading to higher shareholder value.
  • We foster a culture of innovation and collaboration. By encouraging employees to share ideas and work together on innovative projects, IIFL Home Loans created a dynamic work environment that promoted creativity and problem-solving. Furthermore, we leveraged technology to enhance HR processes. By implementing advanced HR management systems, data analytics, and automation, the organization streamlined HR operations, enabling efficient talent management, performance evaluation, and strategic workforce planning. This data-driven approach allowed us to make informed decisions about our human capital, aligning with the workforce to the organization’s strategic goals and, ultimately, enhancing shareholder value.”
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Topics: Employee Relations, Strategic HR, #HRTech, #HRCommunity

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