Andrew Mayo is kicking off the afternoon sessions of the conference with a left brained review of measurement in people management (I’m on after him). His presentation:
- We know people our most important asset but business leaders don’t always act this way. It’s HR’s job not just to say these statements but to turn them into action. One way of helping make this shift is through better measurement.
- Even today, an organisation’s intellectual capital (customer, structural and human capital) can be worth 20 times as much as its tangible assets (financial and physical capital). Human capital is the greatest of these – even though some people are liabilities!
- Human capital thinking treats people as assets to drive the value chain:
- Inputs = money, people and technology
- Passing through a system = leadership, policy and strategy, tools, processes, systems, values, culture
- Designed to convert these input outcomes = value provided to stakeholders.
- So we need to know what our assets are. It’s different to human resource thinking which treats people as costs. HR thinking is a problem and to avoid it, we need to be able to provide people plans to sit alongside the balance sheet
- Accountants are very good at measuring tangible assets and if people really are the greatest value in our organisations we need to be better at measuring them.
- The problem is that it’s jolly difficult!
- The real test of measures is that they are useful rather than just interesting.
Andrew suggested four basic measures – the first two dealing with the effectiveness of people, and the last two the HR department:
- Workforce statistics and ratios including financial implications - analytics resulting from our management of people
- A human capital index providing results of the value chain – dealing with people as drivers of performance (human capital value x engagement = performance)
- ROI on HR programmes and initiatives
- HR operational effectiveness – service levels, support, policies, processes.
Andrew’s human capital index deals with the distinguising qualities of people that make them valuable in the value chain. Value is both current and future (current value = culmulative capability as of today and their performance; future value = potential to do something bigger or broader in the future).
Andrew’s formula for value = personal attitudes, capability, contribution, values, potential. How would we weight the components we have identified?
Andrew suggests that we can use these measures to manage in a way that increases the value of people in team. For more explanation of all of this, see his book, the Human Value of the Enterprise.
My book, of course, deals with much of the same ground, but from a different perspective.
I do completely agree with Andrew that we need to treat people as individuals rather than heads or human resources. But I’m not sure that human capital / intellectual capital IS still more valuable than financial capital / tangible assets – although the situation has definitely improved since I wrote this post.
And I don’t believe we need to valuate people in order to be able to manage them effectively – we should measure the effectiveness of our management, not the people themselves (measure the management, not manage the measurement).
My worry about too sophisticated a level of measurement is that it will obscure, rather than clarify, the focus on people as providers of critical human capital.
But for people / organisations that do want to do this, Andrew’s approach still provides a useful guide.