With organisations being asked for their thoughts on measuring their people policies, Personnel Today asked Brett Walsh, UK head of Human Capital at Deloitte & Touche, to outline HR's role in measuring and managing human capital. We also look at two companies already measuring the impact of their people policies
The past 25 years has seen a dramatic change in the way in which a company is valued. In 1978, the book value of an organisation represented approximately 95 per cent of its stock market value. Today, a high proportion of business market value is driven by intangible assets, such as human capital, that do not appear on the balance sheet.
The financial reporting framework has not yet adjusted fully to accommodate this change and currently there is no recognised procedure for organisations to illustrate the return on investment in people. As a result, investors and available staff cannot effectively judge how one organisation differs from another in terms of how their human capital is managed. This is set to change.
Last autumn, Deloitte & Touche launched a survey of human resources professionals in conjunction with Personnel Today, which found that three-quarters of organisations already measure human capital, using a variety of methods, but very few believe the methods they use are effective. The overall conclusion was that if human capital is to become a tool by which different stakeholders can assess an organisation, a standard approach must be developed, with clearer metrics that are simple to understand and based on easily collectable data.
The Accounting for People Task Force, led by Competition Commission deputy chairman Denise Kingsmill, was established earlier this year to look at how organisations can measure the quality and effectiveness of their human capital management and how this can be reflected in the annual report and accounts.
The taskforce is expected to issue some initial thoughts for consultation in the early summer, before presenting ideas to the Government later this year. The outcome could dramatically change the status of HR from a supporting service to a direct contributor to company profitability.
One objective of the taskforce is that hum