Microsoft’s surprise swoop to buy social networking firm LinkedIn highlights the fast-rising importance of human capital management.

Until recently the deployment, development and supervision of people was a peripheral support service at most organizations. Now, as a result of the rapid advances of digital technology, it’s becoming a core business function and a competitive differentiator.

Microsoft has set its sights on strengthening its stronghold on the business technology market. Its Office productivity products, Windows operating systems and Azure cloud service already give it plenty of clout in this environment. By adding LinkedIn’s human capital capabilities to its portfolio it can take a strong position in the emerging digital business services sector.

LinkedIn offers Microsoft some valuable human capital assets:

  • A global social network of 434 million business professionals.
  • A lucrative talent solutions business with annual revenues of $1.8 billion.
  • The Lynda on line education service, acquired last year for $1.5 billion.
  • Vast pools of data about its users and customers as well as related algorithms that track the value and traffic of this information.

Microsoft seems likely to let LinkedIn operate independently, at least for a while, but it’s eager to integrate some of the company’s capabilities within its own product set. It has already disclosed its intention to incorporate LinkedIn’s talent solutions technology and expertise into its Dynamics customer relationship management (CRM) software. Microsoft is also looking to link some of its Office applications to the Lynda online education facility.

Expect Microsoft to use LinkedIn’s knowledge and resources to substantially strengthen the social networking capabilities of its business products and services. It will almost certainly use LinkedIn’s extensive data assets to enhance its marketing and product development. The backing of Microsoft is likely to add much-needed impetus to LinkedIn’s drive to create an economic graph that profiles millions of workers and employers around the world and plots global skills resources and requirements.

It’s clear that Microsoft recognizes that human capital management is going to be a key concern for successful digital businesses. The ascent of human capital management, and its closer alignment with business strategy, is being driven by several forces. They include:

  • The rapid growth of the mobile, distributed, often freelance, “liquid” workforces that need to be managed, developed and motivated in new ways.
  • The rise of digital ecosystems and platform businesses that require greater collaboration between partner companies and their workforces.
  • The increasing use of intelligent and robotic systems to support and collaborate with knowledge workers.
  • The devolution of responsibility for human capital to empowered operating units that are required to make quick and far-reaching business decisions.
  • The integration of increasingly digital human resources systems, particularly cloud-based applications, with core business information services.
  • The growing need to source and retain increasingly scare, and frequently changing, digital skills.

Microsoft has agreed to pay $26.2 billion for LinkedIn. It’s a big price. Many observers doubt Microsoft’s ability to realize the value it sees in LinkedIn. Its earlier big-ticket acquisitions of Nokia’s handset business and digital marketing company aQuantive have come short. Furthermore, Microsoft’s 2012 purchase of social networking firm, Yammer, has done little to increase the company’s muscle in this sector.

However, Microsoft has enormous technology and financial resources and its strategy of focusing on human capital is spot on. Its proposed purchase of LinkedIn is a powerful affirmation that effective human capital management is vital for the success of business in the digital economy.

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