Business must use people delay to make sure people count

Following the Accounting for People report last year, the Department of Trade and Industry (DTI) published draft regulations for operating and financial reviews (OFRs). These stated that, by January 2005, all listed companies must provide shareholders with an overview of strategy, performance and future prospects, including information about employees – or explain why they have not provided the information.

Following intense lobbying by employers over the timing of the changes, that deadline has now been delayed – possibly by up to three months.

However, even given the delay until early next year, the Measuring Human Capital Value 2004 survey by Personnel Today and Deloitte still shows that a significant percentage of companies are not doing anything in terms of human capital measurement.

The most common reasons cited were a lack of time and/or resources (43 per cent), measurement not being regarded as a priority for the business (42 per cent), along with a lack of clarity as to the business benefits (36 per cent) and doubts over what should be measured (32 per cent).

However, the overall picture is more positive than it was in the 2002 survey, with more organisations now measuring human capital. In addition, the survey says, the business benefits being gained from measurement have generally increased.

Many organisations have made changes that enable them to collate human capital data, including collecting quantitative data, and specific activities such as exit interviews and regular employee surveys.
A quarter of all organisations use more than one of the main methodologies, with 6 per cent using three or more. In common with 2002, HR benchmarking and HR metrics and the Balanced Scorecard methodology are the most commonly used approaches (47 per cent and 29 per cent respectively).

The use of human capital measurement appears to be related to an organisation’s size. Seventy-four per cent of companies with more than 10,000 employees use HR benchmarking and HR metrics, and 60 per cent use the Balanced Scorecard. Accountancy-based valuation models are most commonly used by smaller organisations – typically with fewer than 1,000 staff.

Since 2002, organisations have been achieving an increasing return on investment on their chosen approaches. This indicates the use of these approaches is improving, perhaps due to lessons learned from previous years. It also shows that increasing resources are being invested and the availability of HR information is improving.

The survey also asked respondents to identify the benefits of human capital reporting, as well as measurement. Only 21 per cent regard “being able to adhere to the Accounting for People taskforce recommendations” as a key benefit.

Organisations are more likely to appreciate “the ability to evaluate the contribution of human capital management on overall organisation performance” (77 per cent) and “demonstrate to stakeholders that the organisation is focusing on all drivers of value” (72 per cent).

This illustrates that either organisations are looking beyond the taskforce’s requirements, or are unaware of the recommendations and what they need to do to comply.

Deloitte has drawn a number of conclusions based on the survey. First, too many organisations are delaying the inevitable, and still not using any approach to measure their human capital value. Given the potential statutory requirements for OFRs, this could be a “dangerous omission”.

Existing approaches are leading to proven benefits, it says, and since the 2002 survey organisations seem to have become more effective in their use of measurement approaches.

Senior executives also need much stronger guidance about how OFRs should be used, as well as a clear statement of the recommendations of the Accounting for People taskforce. Larger organisations appear to be more focused on this task.

Ultimately, the survey concludes, clarity is the key priority. Organisations must focus on achieving greater clarification of the benefits and outputs of all approaches to measuring human capital, and the forthcoming requirements of OFRs and the Accounting for People taskforce.

HCM: common measures

– HR benchmarking and HR metrics

– Balanced scorecard methodology

– HR practice effectiveness models

– Accountancy-based valuation

– Economic value-added approaches

For a copy of the report, go to www.personneltoday.com/indepth


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