New report reveals agreement on the human capital measures that matter most

Citation

(2006), "New report reveals agreement on the human capital measures that matter most", Women in Management Review, Vol. 21 No. 8. https://doi.org/10.1108/wimr.2006.05321hab.004

New report reveals agreement on the human capital measures that matter most

A new report outlines the key measures of human capital management (HCM) that investors and directors would find useful when it comes to assessing future financial performance.

Board directors and the investment community are finally reaching agreement on the human capital measures that matter most for assessing an organisation's future performance. According to a report published today by the Chartered Management Institute there are five key areas of HCM reporting that investors, directors and stakeholders believe are most likely to affect an organisation's long-term sustainability.

The report, published in association with Oracle UK and the Centre for Applied HR Research at Oxford Brookes University (CAHRR), shows inconsistent approaches to HCM measurement but also reveals that both directors and investors would use HCM metrics if they were delivered on a dependable and comparable basis.

“Measures of workforce capability for future performance” is based on research conducted amongst 259 senior directors and in-depth interviews with 20 investment houses. Key findings include:

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  Asset management. Eighty-six percent of directors agree that employees are their key asset and the same amount also view the effectiveness of their top team as important to future performance. Given this high agreement it is surprising that a clear gap exists between what is valued and what is actually analysed. Only 68 percent measure the contribution made by the whole workforce and fewer still (53 percent) focus on the impact of senior management.

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  Complicated and confusing. The survey explored 45 different workforce factors^* but while more than eight in ten respondents claimed to examine static measurements such as “total employment cost” only two in ten measured dynamic indicators such as “evidence of absence management” or “talent management.” These low levels of measurement are admitted despite respondents believing that each issue has strategic importance to future performance. It suggests that a wide gap exists between the priorities of those managing and monitoring organisations and the data available for them to do so.

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  Five facets for future forecasts. Unsurprisingly, owing to the high levels of inconsistent reporting, only 5 percent of investors currently take HCM metrics into account when valuing a company. However, analysts focusing on investments with an exit strategy of five years plus rated strategic HCM measures more highly. Investors also agreed with directors on the five key areas relating to HCM are likely to impact on future financial performance. These were identified as leadership, employee motivation, training and development, performance improvement and pay and reward structures.

With such a wide variety of measures, inconsistent adoption and no prospect of commonly accepted standards for reporting HCM metrics the report makes two recommendations:

(1) Framework for three-tier model of measurement. A three-tier model could provide a useful framework for better understanding the different levels, types and application of metrics. The model identifies three levels, starting out with basic HR and workplace measures (such as employee profile statistics) graduating to comparable analysis (performance indicators) and finally through to organisation-specific strategic measures of workforce capability (demonstrating alignment of capability to business strategy).

(2) Reporting forum. The establishment of an employer-led group, the Human Capital Reporting Forum. Its aim would be to build on the work already begun in the area of HCM Reporting and drive the trialling and applications of measures across all industry sectors.

Mary Chapman, Chief Executive of the Chartered Management Institute, says:

The report provides an initial framework which will evolve with use. After all, for stakeholders to take a view of future performance based on the workforce, they will want access to reliable, transparent and widely adopted measures. A framework like this would also mean that companies can clearly differentiate themselves and offer potential investors and stakeholders a more accurate insight into future performance.

Ian Smith, Senior Vice President and UK Managing Director at Oracle UK, comments:

I warmly welcome this work and the Human Capital Reporting Forum recommended by the Chartered Management Institute. As employers in a global competitive world, attracting and retaining the best people is critical for our current and future success. An initiative, such as this that helps us work with our Customers in Partnership to measure the value of our Human Capital and make solid business justifications for investment in that capital is very encouraging indeed. As the Global and UK leader in HCM software it additionally offers Oracle a valuable insight for us to continually learn from our Customers as we design and build each existing HCM product line and our new generation of HCM Applications.

“Measures of Workforce Capability for Future Performance” is the latest report produced by the Chartered Management Institute, Oracle UK and CAHRR^**.