No more sitting on the sidelines

Three large employers joining forces to tackle health care shows inaction is not a strategy to create an irresistible employee experience and optimize your Human Capital Balance Sheet

Posted by Robert A. Dicks, Erica Volini, and David Buck on March 5, 2018.

When three large employers announced they’ve partnered to upend how their employees receive health care, it was a wake-up call for many organizations to rethink the traditional boundaries for how and where they can affect change and drive greater value—not just for the bottom line, but also to help create better experiences for their workforce. The opportunity is immense: Opening the aperture on health care helps create the ability to drive enterprise value and reward shareholders at the same time as hitting the employee trifecta:

  • Derive greater value from every dollar of human capital investment
  • Provide greater value to the workforce
  • Demonstrate commitment to improving employee experience

This move signals that inaction is not a viable strategy, and many leading-edge companies will cross traditional boundaries to curate their employees’ experience while investing in and building human capital as an asset on their balance sheet.

In a world where tangible assets aren’t holding value and are not creating differentiation between winners and losers, human capital is enduring. Companies that win tend to build on the following concepts:

  • Human capital differentiates—It’s about value, not just driving down cost. Building the Human Capital Balance Sheet™1 is about optimizing the value for a given amount of spend, and using that investment to drive efficient, effective returns.
  • C-Suite 3.0—Siloed executive leadership is a losing proposition—companies are positioned to win when executives team together. Powerful combinations of CHROs, CFOs, CIOs, and Chief Strategy Officers can see through intractable issues to leverage ideas from across the enterprise.
  • Partnerships and creative thinking—Think outside the four walls of your organization and get comfortable working with nontraditional partners, including other companies and potentially even competitors, to find better solutions. Doing so may create economies of scale, leverage better technology smarter and faster, or provide other values often unachievable if just left exclusively to one individual organization.

Health care is just one example of a human capital challenge that is sometimes considered an “HR” issue. However, this narrow thinking is limiting, because to really affect change, an issue as large as health care needs to be solved for across the organization—with leadership from the CHRO in partnership with the CFO and beyond.

Health care costs make up about 7.5 percent of total employee compensation2 or about $10,000 per employee annually3—easily adding up to billions of dollars for large employers. Executives getting off the sidelines and reaching out across silos to address these types of challenges is just the beginning of a shift we’re seeing for organizations to take a bolder, business-driven, balance-sheet approach to their decisions about optimizing human capital investments.

What do we mean by a “balance-sheet” approach? The Human Capital Balance Sheet (which we introduced in this post) is a way to gain visibility into how human capital investments can translate into value for the organization. Optimizing the Human Capital Balance Sheet involves taking a much more holistic and practical view of workforce investments than is typically applied—all to better understand the value of human capital spend and to optimize that value as a business asset. The Human Capital Balance Sheet concept provides opportunities to increase collaboration across the C-suite as leaders ponder human capital investment decisions.

Human Capital Balance Sheet optimization in action
Let’s consider the recent “ripped from the headlines” example: Three major employers decided that what’s available in today’s health care market was not working for them and have announced they are collaborating to build a new solution of their own. Initially, the new company they are forming will focus on technology to give employees easier access to high-quality health care with greater transparency and reasonable cost.4

We see this as a leading-edge example of companies trying to optimize their Human Capital Balance Sheet, even taking matters into their own hands to bridge the gap where the market is costly and inefficient. The reward is clear for this effort. Successful companies have the opportunity to derive greater value from their workforce investment and to provide greater value to their workforce, while demonstrating a commitment to improving the employee experience even as they work to reward shareholders.

A sign of the times
Today’s reality is that the workforce necessary to deliver business results is changing, and winning companies are adapting the makeup of their workforce (including individuals, robots, crowd) to build their products and deliver their services. A key component of this is rethinking, from the ground up, the most efficient and effective way to develop and motivate the workforce while managing risk in this new complex model.

The Human Capital Efficient Frontier™5 is a tool to help guide the optimization effort. It’s a way to visualize the impact of human capital investments to better understand if they are worth the time, effort, and dollars or if those resources would be better served elsewhere.

Source: Deloitte Consulting LLP

The Human Capital Efficient Frontier can help companies by giving them the means to:

  • Evaluate workforce decisions and human capital investments across the dimensions of “How much value are we deriving?” and “How do we manage the cost and risk of the decision?”
  • Free up the constraints of outmoded delivery models to create opportunities for the C-suite to build solutions, within a company or across external partnerships, that deliver maximum benefit to the workforce while improving the ROI on spending.
  • Align company spend with employee preferences, using technology to truly understand what employees value and delivering that in a more customized manner, instead of the ”peanut butter” approach seen with “one size fits all” programs typical today.
  • Truly optimize their Human Capital Balance Sheet.

Where else might this happen?
We have now seen a great example of this in the health care space. Where else might this happen?

  • Compensation? Who will be creative? The basics of base salary, bonus and equity/ownership as options essentially haven’t changed in 100 years. Is there a fundamentally new way to reward employees for the value they create?
  • Retirement? Is the 401(k) model where employees bear risk for funding retirement really working for the workforce? What could replace it?
  • Diversity or professional development? Could we see a model where scarce talent is intentionally shared across companies as a development tool?
  • Staffing? What if a similar method of workforce sharing was used to meet demand at critical times or staff more efficiently all the time? Could this extend across companies that choose to partner together to share their best and brightest employees, while curating development paths that extend beyond what one company could offer?

In a world where the problems are increasingly large and complex, and the reward for being innovative is substantial (potentially changing the game on multibillion-dollar-spend line items), forward-thinking companies will likely come together and drive disruption themselves. They will identify problems and come up with solutions, breaking the mold of going it alone to solve them internally and moving to an external collaboration competition model. In fact, they have already started.

Robert A. Dicks is a Deloitte Consulting LLP principal and the leader for Human Capital’s CFO Services market offering.
Erica Volini is the US Human Capital leader for Deloitte Consulting LLP.
David Buck is a principal in Deloitte Consulting LLP and the national leader of the Actuarial, Rewards, & Analytics service line.

1 The Human Capital Balance Sheet™ is a trademark of Deloitte Consulting LLP.

2 Employer Costs for Employee Compensation – September 2017, News Release, Bureau of Labor Statistics, US Department of Labor, December 15, 2017.

3 2017 Health Care Benchmarking Report, SHRM, December 2017.

4 “Amazon, Berkshire Hathaway and JPMorgan Chase & Co. to partner on U.S. employee healthcare,” BusinessWire, January 30, 2018.

5 The Human Capital Efficient Frontier™ is a trademark of Deloitte Consulting LLP.

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