The study states that corporate leaders today are more likely to realize that human capital can make or break the sustained viability and success of their business and must make it a priority.

It is a well known fact that the quality and success of a business hinge on the quality of its human capital. However, the management of this capital has not always been a priority.

The Confederation of Indian Industry (CII) and Suresh Neotia Centre of Excellence for Leadership (SNCEL), in association with risk management company Willis Towers Watson, on Monday released a study, The State of Human Capital Risk in India, which emphasizes the importance of human capital.

The study states that corporate leaders today are more likely to realise that human capital can make or break the sustained viability and success of their business and must make it a priority.

Pointing out that human capital risk (HCR) management is only going to grow in importance, the report finds that three out of four respondents plan to invest additional resources in HCR management over the next five years.

At the root of many strategic and operational risks is the mismanagement of HCR, according to Shatrunjay Krishna, director rewards, talent and communication at Willis Towers Watson, and the lead author of the report.

Citing media reports and company announcements of mass layoffs, he said: “The question is—given that business models are constantly changing, companies are moving from one sector to another rapidly—are the firms keeping pace with the human capital re-alignment? If they do not, then it can lead to other risks like reputation damage and even loss of investor confidence.”

The study is based on views of nearly 100 chief executive officers, chief human resource officers and other senior executives in India spanning industry sectors.

It has identified 17 human resource (HR) challenges like workforce planning, retention, succession planning and skill gaps.

The study finds that 62% companies indicate HCR to be an urgent board-level concern, yet only one in three respondents has a formally defined risk mitigation or control strategy in place. Very few firms, just over 40%, believe they are effective at HCR management and in this category multinational corporations appear to be more effective than domestic organisations.

Highlighting the current poor state of HCR management, the study goes on to trace a shifting trend among firms. It suggests that till just a few years back ‘managing HCR’ rarely figured on the agenda of a firm’s board but today Indian company boards are recognising their crucial role in matters around human capital.

Sharing perspectives on the study’s findings, Chandrajit Banerjee, director general, CII, said, “with companies undergoing remarkable business transformations such as globalizing, M&A and restructuring, being informed and prepared to deal with emerging HCRs will be a key determinant of sustenance and success.”

Adil Malia, group president-HR at Essar Group, cited different risks that firms need to take cognizance of and act upon. For instance, Malia believes the biggest HCR facing firms are a digitally challenged top leadership, lack of learning mindset and the culture of organizations to be self-perpetuating.

“The need of the hour is to know that there is no one knowledge or skill set. Technology and science is constantly changing around us. Therefore, for an organization to be sustainable, it needs to develop a learning mindset,” said Malia.