Valuing Your Talent is dead - long live VyT? ~ Strategic Human Capital Management (HCM) Blog

Friday, 9 May 2014

Valuing Your Talent is dead - long live VyT?

I’ve posted previously on the CIPD’sattempt to restart moves to improve external reporting on people management,and potentially to try and include people on the balance sheet.

The attempt was launched at the CIPD conference in November and was met with a largely critical response. My own challenges were that firstly capitalising people on the balance sheet can’t and shouldn’t be done, and secondly that nothing material had changed from previous failed attempts at this, and I couldn’t see why this would result in anything different.

Since then I’ve played my own small part in helping the attempt to fail. There are a few different reasons for this. Firstly I think a botched approach to measurement and reporting will be worse than no more reporting at all, and there were definite signs of botching going on with this. Secondly I think the potential benefits are pretty small. Yes, businesses do need to value their talent more than they do, but they can value without more measurement, and more measurement will have very little impact on how much they value. Thirdly, the CIPD wanted to create a movement, but they launched their attempt in a way which acted as a brake rather than an accelerator. I reacted in a way that most people will to something that is being imposed rather than involving me in its development, and probably significantly more positively than this. (I’ll be posting on how you do form a movement within the next few days.)

So I’m actually very pleased the attempt has failed. I suggested issuing deathnotices on the RSA’s site for VyT a couple of weeks ago and this week HRMagazine declared that Vyt has scrapped its ambition to capitalise staff. It will now ‘focus instead on helping organisations be more sustainable and maximise their workforce potential.’ Fine – who can argue against that?

By the way, HR Magazine also suggests that VyT faced passionate criticism from practitioners with ethical concerns or those who feel jaded based on similar attempts in the past. Now I’ll own up to passionate criticism and I’m generally fairly passionate in most of what I do. And I do think the history of attempts to improve external reporting are important to build upon. But I don’t think I’m jaded, and don’t see a connection to ethical concerns. My central objection has simply been about the capitalisation idea, and concern about the potential of making firms do something which isn’t just ‘currently difficult’ but is actually conceptually impossible. I think that’s a very valid and important challenge to make!

My secondary objection was that the CIPD’s framework (shown above) was too rigid and that prescribed standards would take companies away from a strategic approach. This strikes me as a valid and important concern as well. And in fact, this challenge does also seem to have been taken on board:

“Although details have not been finalised, the framework will be modelled on an organisation’s value chain, a common approach in finance (see chart). This organises human capital data into ‘buckets’ across the four phases of a business model: inputs, activities, outputs and outcomes. An input could be retention; an activity might be recruitment; an output could be workforce capability; and an outcome might be productivity.”

So VyT may not quite be dead, but it’s certainly been lobotomized and is now a much less dangerous beast. In fact we’re left with something smaller and but broader which may actually be quite useful.

There are still a couple of important changes before we end up with the right framework though. Take another look at the paragraph from HR Magazine I’ve included above before I explain -

First, we have to realise that the value chain isn’t just a common approach in finance – it’s a common approach in business, including HR. VyT are talking about exactly the same value chain as Kaplan and Norton in their strategy map. It’s just that we’ve repurposed it for our own use. See this comparison from my Strategic HCM book:

Secondly, we should see the four parts of the value chain / strategy map as steps not buckets. That’s why today, Kaplan and Norton’s strategy map is the more popular tool than the balanced business scorecard. The sense of flow between the four perspectives is important as it’s this that provides the ability to differentiate lead and lag indicators.

And it’s the linking of objectives and measures between the steps in the strategy map which is important, so the measures shouldn’t be predefined standards as this would detract from the linking process, but should come from the strategy (and this isn’t just about how to measure value but also refers to where metrics should be applied.)

Finally, we really do need to relabel VyT’s outputs as outcomes and outcomes and business impacts, as in my diagram above. The third step in the value chain consists of outcomes not outputs firstly because these aren’t just results but they really are something vital and important. And secondly, the fourth step isn’t just outcomes resulting from outputs, but a completely new set of results based upon a complex set of business processes as well as the outcomes which HR provides. Referring to people and cultural value like workforce capability as mere outputs rather than outcomes detracts rather than contributes to the way talent is valued.

If VyT makes these additional small changes then it will end up with the HCM Value Chain I described in my 2005 book, Strategic Human Capital Management: Creating Value through People.

Which I’m still convinced is the best framework for measurement and reporting.

It's just a shame the CIPD didn’t come straight to me about this. Two years agoI told the CIPD that Peter should be their CEO but they still shelled out for a head hunter to ‘find’ him. Now Peter’s paid out for Lancaster University to do completely unnecessary research when he could just have paid £25 for my book!