The state of human capital reporting in the UK part 1

What is the state of reporting on human capital in the UK? There is not a lot of comment out there on this. A Technocrati blog search for “human capital reporting” in all blogs, any authority yields 13 matches, a search for “elearning software” generates 275. So in response to that, and to useful posts such as those of Dennis Howlett on overhauling financial reporting and of Thomas Otter and others, I thought I would give my perspective on HC reporting in the UK, and get the ball rolling.

Here’s my sense of where we are now:

  • Human capital is seen as important by business and government, but reporting is not compulsory
  • There is no coherent set of reporting metrics out there – yet
  • Tactially, people are doing bits of HCM / Talent Management without bothering to report on it

Plenty of research and thinking has been done on the sort of metrics that would be useful for HC reporting, and it’s likely that at some point this top-down view will meet up with the tactical practitioners. Then we’ll begin to see real reporting, and finally a consensus will develop on a set of the most useful metrics to use. I’m not an expert in this area, but I aim to get some guest blogs up in the next few weeks from people who are.

Human Capital: important not compulsory
In the Labour party’s political broadcast for the last election, Tony Blair and Gordon Brown were shot sitting at a table, sharing a pot of tea and talking about how important human capital was for Britain. I was delighted. Unfortunately, a few months later, Gordon Brown summarily canned the requirement for some form of Human Capital reporting in the OFR (see previous post). Yet the reasons for establishing the Accounting for People task force (AfP) haven’t gone away; we still need to understand, develop and deploy our people effectively in order for the UK economy to flourish, as was recognised by the recent Leitch review.

No coherent set of metrics
If you want to know your current stock of human capital – as a government or an employer – what metrics would you like? Realistically, they should be:

  • Operationally useful (or they will never be produced)
  • Easily understood
  • Not impossibly difficult to collate

There’s never going to be a silver bullet metric that will be suitable for all purposes for all companies, although that’s not to say that there aren’t single measures that are useful for the big picture. The HCM arm of PwC, Saratoga , uses Human Capital Return on Investment:

(Revenue – non-wage costs) / (number of FTEs*average pay)

– and uses it very effectively in the report June 06 report Key Trends in Human Capital, to compare human capital between countries.

Also starting from a point of cost and value is Andrew Mayo, of Mayo Learning International and Middlesex University Business School. In his The Human Value of the Enterprise, he proposes the Human Capital Monitor:

People Contribution to Added Value = Human Asset Worth + People Motivation & Commitment

where Human Asset Worth is a factor of the cost of employment and the capability, potential, contribution and alignment of employees. In other words, this is an attempt – as with Satatoga – to produce an overall view of the human capital of an organisation, but using delving into the depth of detail at corporate level to provide a deal of extra insight.

Reading the reports of the AfP task force, one senses a wish that there could be a single measure useful both tactically and for reporting to the markets and to government. In reality, at the tactical level below the big picture HC metrics, is a plethora of suggested metrics, not all of them equally insightful.

Professor William Scott-Jackson’s Measures of Workforce Capability for Future Performance, published in July 06 by the Chartered Management Institute, suggests that the metrics fall into 3 levels of reporting.

  1. Basic HR measures (hygiene factors such as staff turnover)
  2. Tactical / analytical measures (comparable across organisations)
  3. Strategic HR value measures (unique to organisations, used for long term planning)

This 3-way split differentiation is echoed in the CIPD factsheet on HCM. This position recognises that measures such as training days per employee are not highly valuable measures of human capital. In fact, without supporting information, they are useless (is it better to deliver lots of poor quality training, or a little of high quality. What about lots of high-quality training not aligned to business needs?). They are, however, useful measure of HR activity, which any organisation ought to be able to report on. Most organisations can’t, however, report on them. Personnel Today on 5 Dec, reported that:

In a recent survey of 200 HR managers … most admitted they have difficulty providing even the most basic performance metrics. Given a week’s notice, just half (49%) could provide a report on staff turnover, 44% could report on HR budgets and a paltry 11% could provide information on employee satisfaction.

– a useful reality check. It seems there’s a lot of talk on providing everyone with a human capital map, and they don’t even know which street they’re standing on.

Who is actually doing this? 

So what is actually happening on the ground – is anyone doing this stuff? Yes, of course. Usually, though, they don’t call it HCM or even Talent Management, they just call it doing their job better. The absence of a reporting requirement doesn’t affect them at all, because that’s not their driver. They’re doing it for operational success.

I’ll have a look at some case studies in part two of this post, including the much publicised success of RBS Group, reported in Personnel Today on 15th November, under the fabulous headline People metrics are tipped to be ‘next big thing’ in HR. No, really? So what else has HR been doing all this time?

Declaration of interest: I am a director of InfoBasis Limited, which produces software that can help organisations report on their human capital. Neither InfoBasis nor I has any commercial relationship with any individuals or organisations mentioned in this post.

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5 responses to “The state of human capital reporting in the UK part 1

  1. This is all good stuff Donald and thanks for the ping. I don’t think we’re anything like prepared for the kind of HCM reporting, analysis and what not. I don’t think we know what we should be measuring and how that will relate to both individuals and the businesses they work in. There’s lots to do and new voices are always a welcome addition.

  2. Donald. Very interesting post/article and quite thought provoking, and some useful references too. I agree that the lack of real metrics is a big limitation in moving the perception of people value in business. Our research also shows that most organisations do not even understand their basic data very well, let alone be sophisticated enough to really understand added value in either performance or human capability.

    But even if the lack of metrics is a problem (which it is), I do not believe it is the cause of the problem, just an effect. The real challenge is in getting business leaders to truly understand the relationship between human capital (if that is the term we want to use) and business performance – both current and future.

    In the majority, business leaders are simple animals. Their behaviour (as opposed to rhetoric!) is largely linked to what will drive results. If they know (as opposed to believe) that investment in people improves bottom line results more than cutting costs or increasing marketing then they will do it more often. Unfortunately they don’t really know that, although plenty of people may try to tell them. In this sense, the human capital debate is in more of the “faith” business (like marketing in some sense) than it would like to be.

    Metrics and models help to develop the discussion and start to provide a robust basis for moving from faith to evidence. But this is a long road, and, at least in the short term, simple is better!

    David

  3. Thanks for the post, David. Yes, Elearnity’s research is spot on in suggesting that most businesses just don’t have a handle on their most basic HR measures – such as their number of FTEs.

    Finding some believable metrics for HCM is not enough by itself, you’re right, but I’m not sure that it’s just an effect either. I think that moving from faith to evidence requires something tangible – such as metrics – combined with what will really persuade people: some well-documented case studies of success. I aim to dig up some of these over the next couple of months.

  4. Pingback: The state of human capital reporting in the UK - more « Donald H Taylor

  5. Pingback: The state of human capital in the UK part 3 « Donald H Taylor

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