Library: McKinsey – Performance through people: Transforming human capital into competitive advantage

February 2023 featured report:

We’ve featured this theme in previous featured reports, but it bears repeating.The insurance industry must undergo digital transformation if it is to become – or remain – feasible, relevant, profitable, etc.

Digital transformation is about people as much as technology 

However, digital transformation alone is not enough and the most profitable insurance businesses are those that improve both their performance but also bring their people with them and improve their performance and conditions, too.

Invest in people to get ahead

Businesses that achieve this stand out in two important ways, say the authors of this report.

The first is that they have greater earnings resilience and are better able to attract and retain talent – a key skill in these times. Not only do they build skills, but they also have a distinct organisational capital that comes from the marriage of their management practices, systems and culture.

As the authors say: “They challenge and empower employees, while fostering bottom up innovation to make their human capital investments pay off.”

You can be successful just from financial returns, but investing in human capital can yield longer term benefits according to this report.

How do you measure up?

The report looked at 1,800 large companies across all sectors in 15 countries and sorted them into four categories based on markers of human capital development and financial performance in the 10 years before the pandemic.

“People+performance winners” (P+P winners) as this report refers to them, excel in both capital development and financial performance. They deliver profit and returns on investment similar to firms in the second category, which is “performance driven companies”.

These P+P winners have a greater focus on talent and invest more in training for their employees.

The third group – people focused companies – emphasise talent development but they just don’t deliver strong financial performance.

The final group are ‘typical performance’ companies and don’t do well in either the people or performance categories.

Where it matters

While P+P winners deliver similar shareholder return and profitability as performance driven companies, they are more likely – 1.5 times more likely – to remain high performers over time with about half earnings volatility.

When the pandemic arrived, they maintained profitability and revenues grew at double the rate of performance driven companies.

Developing human capital will lead to greater recruitment and retention of key staff, with 5% more sticking around than those at the performance driven companies.

People at these companies enjoy their jobs more and are 1.3 times more likely to move into higher earnings brackets than those in performance driven companies.

People focused companies can compete on job satisfaction and low turnover, but without the financial performance.

Return on investment is a key metric for the successful business. P+P winners achieve almost a third (30%) higher revenue growth for every dollar invested in human and organisational spending than both performance driven and people focused companies.

R&D sales and marketing investment is where performance driven companies generate higher returns, but could do better by optimising spending on human/organisational capital.

Fit as a butcher’s dog

McKinsey runs its Organisational Health Index over the companies in this report. Perhaps unsurprisingly, the P+P winners get higher scores largely from having: “consultative and challenging leadership, bottom up innovation and collaboration; positive inclusive work environments; and rewards and advancement opportunities for employees”.

Similar leadership styles can be found at performance driven companies, but they’re mostly focused on customers and competitors.

People focused companies are similar to P+P winners, but they don’t emphasise bottom up innovation.

The final analysis

What the report authors want you to understand is that you’ll be missing a trick if you don’t develop human and organisational capital alongside transformation of technology. People are a company’s core asset, the authors say, but they won’t realise their potential unless the principles governing how they work, assist them.

Effective organisational practices will not sacrifice performance. Instead, people-centric systems are likely to boost bottom lines in the long run. As employees are generally more satisfied and better understand their role in an organisation better this tends to make businesses more resilient – and therefore sustainable – when occasional shocks come along.

During uncertain times, like now, when talent is thin on the ground. Insurance leaders should be doing everything they can to ensure their organisations work for their employees just as much as their employees work for the organisation.

For more, see the full report.

Link to Full Article:: click here

Link to Source:: click here