Emotional capital: engage the emotions and intellect of staff to deliver business performance

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To maintain a productive culture in the current business climate, the balance sheet has to include not only financial and intellectual capital but emotional capital too.

Capitalism has long had its critics but it has taken even more of a beating of late with the stream of revelations about the greed and excesses of the business and financial world. The view that the system is unfair has been given further credence as workers in recession-hit companies are asked to accept pay cuts and freezes simply to hold on to rapidly diminishing jobs. It's hardly a recipe for a happy workforce and few would deny engaged and motivated employees are vital for a healthy bottom line. But recognising the importance of human capital to the balance sheet and understanding what motivates people may give capitalism a more acceptable face - and this is where HR comes in.

HR practitioners already face awkward questions. Some are omnipresent - such as how to incentivise staff and keep them engaged, or how to mobilise employees or stop the best talent being poached or leaving for other reasons. But at a time when capital is scarce, and companies are struggling to respond to change, these questions become even more crucial to answer.

Managing human capital more effectively could be the answer. Recent reports from the likes of the Harvard Business School and labour consultants Accenture, Randstad and Hudson argue that managing human capital is the urgent priority for businesses that want to remain competitive.

Accenture, for example, finds more than two-thirds of executives are deeply worried about the threat of not being able to recruit and retain the best talent. Recession or not, people - their talent, creativity and intellectual capital - are all there really is in business. No wonder its survey of more than 850 top executives from the US, UK, Italy, France, Germany, Spain, Japan and China found worries about talent management were growing: some 67% put it second only to competition as a key threat. In this same survey, nearly half of British executives said they were worried about the effect of low employee morale. Almost a third also said instability at the top was a major concern.

It appears that in the current business context, HR has to deal with a new balance sheet - financial and intellectual capital is simply not enough. The answer to maintaining a productive corporate culture is to focus on a new kind of currency: emotional capital.

HR leaders must build an emotional enterprise, not just a rational one. They do this by creating external emotional capital so that people buy into the brand and organisation. Customers want to buy from organisations they like and that are like them. They also create internal emotional capital by treating employees as intellectual and emotional investors. The primary role for an HR leader is to create emotional wealth for competitive advantage.

What emerged strongly from the reports was the focus employees place on company relationships. Relationships represent a unique strategic resource. In today's competitive environment they often signify the only real competitive advantage of many businesses.

These latest findings confirm earlier research by Gallup which found no single factor predicts the productivity of an employee more clearly than his or her relationship with a direct supervisor. More specifically, Gallup found the main drivers of productivity for employees were feeling cared for by their supervisor or someone at work and receiving recognition or praise in the previous seven days. Both demand regular encouragement of development.

The challenge for an HR leader is to engage hearts and minds, the emotions and intellects of their people to deliver superior service and business performance. Establishing, building and maintaining well-planned and well-managed relationships are fundamental to the success of any business.

According to the Randstad report, two-thirds of jobseekers are not willing to compromise their idea of an acceptable work-life balance. As a result, companies willing to tailor work arrangements to match the changing needs of employees are likely to have a happier, more satisfied workforce and, consequently, higher staff retention.

People are at their best when they have the opportunity to maximise their skills and interests. Gallup found the most satisfied workers answered yes when asked: 'Does your job allow you every day to do what you are truly best at?' Work that creates opportunities for people to shine ultimately leads to increased productivity.

When leaders appeal to their employees' strengths they engage the primary driver of human performance - values. The real drivers of performance are not sticks and carrots but values and vibes. The things that really matter to people are feeling valued and having the chance to contribute value.

The factors isolated by the reports are those associated with emotional intelligence. Successful leaders in the new economy are those with advanced social and emotional skills. In essence they are emotional capitalists.

I recently surveyed a group of elite business and community leaders from Australia using the Emotional Capital Inventory - the first psychometrically reliable tool designed to measure emotional intelligence and leadership abil-ity. These leaders scored higher than average on every scale of emotional intelligence. The highest scores were on self-awareness (including the ability to recognise how their emotions impact on their opinions, attitudes and judgments); optimism (as a strategy for dealing with difficulties and sensing opportunities); relationship skills (the knack of establishing and maintaining mutually satisfying relationships characterised by positive expectations); and empathy (being able to grasp the emotional dimension of a business situation and create resonant connections).

Building emotional capital as an HR strategy adds real value to the balance sheet. HR leaders who are high in emotional capital create value and influence through their capacity to identify with the aspirations of their staff and build shared identities with them. They are able to establish trust because they understand people's need to belong to a group. They create and communicate compelling visions, they develop blueprints for action and they lead through their ability to motivate people to act together. In short, emotional capitalists represent leaders with an advanced capacity to incentivise staff by engaging with their prime motivators - emotion.

In tough times there is a great need for organisations to focus on building real wealth in the business - high qual- ity workplace relationships and passionate cultures. In other words, you need to build emotional capital.

Key HR strategies

- Treat people as investors - provide recognition and praise regularly;

- Encourage professional development for everyone;

- Build and maintain well-planned and managed relationships;

- Tailor work arrangements to match the changing needs of employees;

- Appeal to employees' strengths - provide tasks that present creative challenges, clear goals and a sense of control;

- Benchmark talent - measure emotional capital in the business;

- Recognise people's need to belong to a group - provide team activities;

- Establish a climate of trust - communicate what's going on regularly, to everybody;

- Create and communicate compelling visions and develop blueprints for action.

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