As has been observed by more and more commentators, we are unequivocally in the ‘age of talent’, where the biggest opportunities and challenges lie with how we develop and build the right organisations with the right people, right skills and capabilities, and right motivations and alignment. We are in a context where despite sustained high youth unemployment, many businesses struggle to find the skills they need. There are concerns about productivity, about under-utilisation of skills and of low wage and low job prospects, concerns about our leadership and management and consequently levels of staff engagement, and we are also debating the challenge of changing behaviours and corporate cultures in many sectors.

It is extraordinary then that we have no common way of measuring or understanding people or human capital. We have no common definition of even the most basic metrics such as headcount and often end up in disagreement between the HR and Finance functions. There is therefore also no common expectation of external reporting, and whilst more businesses are reporting more about their people and their organisation, there is no consistency. Arguably its not for the want of trying given the wide base of research, the focus now on ‘big data’ and analytics, and initiatives such as the BIS/DTI sponsored Accounting for People initiative of 2003.

That is why we initiated the Valuing your Talent research program. We wanted to work together between HR and Finance and other business stakeholders to try and move the agenda forward, to develop a common framework and base of understanding of measurement of people or human capital and to create a positive movement for change. Executives and Boards need to be able to ask the questions and get better answers about the health, performance, sustainability, and agility of their organisations and over time to be able to benchmark and compare. And for external stakeholders, be they shareholders, regulators, analysts or even potential employees, there are many calls for greater transparency – from the make up or demographics of organisations, investments in their workforces, or how or whether their cultures really are changing.

Such metrics are not easy and will consist of both qualitative and quantitative data. Much of this data is hard to make direct connections or causal links with traditional measures of business performance such as profitability or revenue growth. There are lags between investments such as training, and outcomes, and for the most part we will be looking for correlations. We also have to be very mindful of Einstein’s famous quote that ‘not everything that can be counted counts, and not everything that counts can be counted.’

The CIPD working with CIMA and the CMI, with sponsorship and support from UKCES, Investors in People and the RSA are all collaborating on the Valuing your Talent program. The work to date has pulled together and reflected on the state of research and practice and conducted over 100 interviews with CEOs, CFOs, HRDs in more than 50 organisations, as well as with investors and analysts, the risk community, and many of the leading consultants and human capital researchers in this field. We also ran an open forum online collaboration event with the RSA over several months to invite a wider community to participate in the debate.

The intent is to be able to build on what has been done, to find the common ground, to promote a common framework and way of defining the human capital measurement space, and work towards a common language and lexicon which we believe is now critically needed. We have found throughout a great appetite for this and much encouragement in what we are trying to do, but it is also true to say there are disparate views and challenges as well, including some who say that even trying to find commonality of thinking or measurement is unachievable given the huge range of businesses and contexts that exist.

The finance profession is moving squarely in this direction with movements such as integrated reporting <IR> clearly identifying the need to better measure and understand the human, organisational and social aspects of business and how they contribute to performance and outcomes. There is little doubt that the HR community needs to develop more insights and measures on people value and there have been too many criticisms in the past of HR’s inability to measure and provide insight.

We set out initially looking at 3 major ‘lenses’ through which to link measures of human capital:

• how measures of human capital can link to business performance and outcomes
• how, hopefully the same essential measures, can also be viewed or analysed from a risk perspective
• how such measures can also be used to value human capital for organisations.

 

Of these 3 views, we have focused mostly on the first one to date, with useful insight but more work to do on the second one on risk.

The third area around human capital valuation is certainly the most contentious. Whilst there are advocates for this within the accounting profession, there are many detractors and those who believe this is a pipe dream. We have not pursued this particular debate any further at this stage, but the debate has certainly been interesting. 

Our report on the work to date, Managing the Value of your Talent, has just been released. It pulls together our work and thinking to date, and proposes a common framework to define the different areas of human capital measurement and the kinds of measures or metrics that can be used. We are developing surveys and other tools to support the understanding and use of the framework and will be continuing this journey with we hope an extending collaboration and debate. This has to continue to be open and non-proprietary, and therefore must continue to be open to challenge and refinement, but we believe it is a positive start. As the key professional bodies and representatives of our communities in HR, management accounting and management practice, we are committed to keep moving this debate forwards and hopefully we will arrive at a common destination.

 

Peter Cheese is Chief Executive of the CIPD