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Optimising the role of Human ‘Capital’: a more coherent approach

The contributions from human labour or ‘human capital’ (as contrasted vs financial capital) have traditionally been treated in discrete silos such talent, teams, and leadership, with different approaches adopted when assessing their contributions to innovation and commercial development. For example, the development of new ideas is usually associated with human talent and technology expertise while leadership is seen as the driving force behind commercialisation, with less attention paid to how the organisation of human resources holds the key to successful commercialisation.

This fragmented approach has resulted in discussions about entrepreneurial orientation on the one hand and the need for employees in mature corporations to behave differently. In contrast, the impact of financial capital on the commercialisation journey has been treated in a more unified way, albeit with simplistic segmentation into different rounds of investment classified as Series A, B, C and D.

We believe that a more integrated approach to understanding how the various aspects of human resources influence the commercialisation trajectory is needed. We group these issues into a single vector called Human Capital, which needs to sit at the same level of importance as Financial Capital, because both these vectors are critical for commercial success.

Human Capital consists of five sub-vectors:

  1. Talent covers three key variables: the core competences provided by human resources; the ‘entrepreneurial orientation’ of these people; and the width and depth of knowledge embodied by a single individual, usually embodied by T-shaped expertise (with one deep area of expertise and several less deep areas).

  2. Teams covers how groups of individuals are organised and covers the following areas: psychometric profiling of individuals, roles and processes with teams, and team performance management and optimisation.

  3. Organisational Structure and Management is different from talent and teams are covers how responsibilities are manifested in practice. This includes size vs structure trade-offs; control systems at an organisational level; and how communications are handled inside the company.

  4. Leadership is a distinct category not to be confused with other things. There are actually three main types of leadership styles, although the conventional leader-follower paradigm is the most well-known, especially because it is favoured by most investors. There is increases awareness of the power of flat structures based on the DAC Paradigm (Direction, Alignment and Commitment); with many emerging leadership models preferring a hybrid approach which combines hierarchical and flatter approaches.

  5. Culture is the often-neglected component, which can have a significant impact on commercial success. This needs to address several things in a consistent way: the overall company narrative (the ‘stories and myths’ about the company; the real power structures in the company; and the actual system of remuneration and rewards.

When looking at human capital, probably the most critical thing to understand is that the relative importance of the sub-vectors and variables typically changes with maturity. At the earliest stages of the innovation journey, talent and teams may be critically important; as things progress the style of leadership, and how resources are organised becomes more important. Many companies struggle because they (and often their investors) fail to appreciate these differences.

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