Gaps in human capital data leave managers at a loss

Jul 13 2006 by Nic Paton Print This Article

Although a consensus is emerging on the best way to measure the value and performance of a workforce, there is often a gap between what managers want to measure and the data available to them, a new British report has found.

Employers are still often inconsistent in how they measure human capital and use systems and methods that are too complicated and confusing, the study by Chartered Management Institute argues.

The research looked at the key measures of human capital management that investors and directors should use 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, said the CMI.

There are, it said, five key areas of Human Capital Management reporting that investors, directors and stakeholders believe are most likely to affect an organisation's long-term sustainability.

What's more, if HCM metrics could be proven to be delivered on a dependable and comparable basis, many more directors and investors would use them.

The research was based on interviews with 259 senior directors and 20 investment houses.

The overwhelming majority of these directors (some 86 per cent) agreed that employees were their key asset and the same amount also viewed the effectiveness of their top team as important to future performance.

Given this high agreement, however, it was surprising that a clear gap existed between what was valued and what was actually analysed.

A clear gap emerged between what was valued and what was actually analysed
Only 68 per cent measured the contribution made by the whole workforce and fewer still (53 per cent) focused on the impact of senior management.

The survey explored 45 different workforce factors, but while more than eight out 10 respondents claimed to examine static measurements such as "total employment cost", just two out of 10 measured dynamic indicators such as "evidence of absence management" or "talent management".

These low levels of measurement were admitted despite respondents believing that each issue had strategic importance to future performance, said CMI.

It also suggested that a wide gap exists between the priorities of those managing and monitoring organisations and the data available for them to do so, it added.

Unsurprisingly, owing to the high levels of inconsistent reporting, just five per cent of investors currently took 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 that were likely to impact on future financial performance.

These were identified as: leadership, employee motivation, training and development, performance improvement and pay and reward structures.

It recommended the creation of a three-tier model for better understanding the different levels, types and application of metrics.

This started 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).

It also recommended the establishment of an employer-led group, the Human Capital Reporting Forum, with aim of building on work already begun in the area of HCM reporting and push forward the testing and applications of measures across all industry sectors.

Mary Chapman, CMI chief executive, said: "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," she added.