All counting for nothing

Where has the Government’s brief flirtation with human capital management led us? And what’s happened to its report?

The gaping hole in last November’s Accounting for People report was that it did not recommend any specific set of measures for how organisations should gather information on human capital.

The reason was that measures useful in one sector might be less relevant in another – employee turnover is essential for retail, but is it so essential for management consultancy? The taskforce, led by Denise Kingsmill, did not want to be too prescriptive. And besides, no official body likes to spike its publicity by advocating new obligations. So, in heroic bureaucratese, the report supported ‘an evolutionary approach’ to human capital management (HCM).

The consequences have been plain ever since. Without any agreement on what HCM means, let alone common standards on how to measure it, confusion abounds. Both HR departments, and personnel-minded managers and accountants, can see the importance of collecting human capital-related information – just think of the advantages of knowing for sure when you’re wasting tens of thousands on a training programme. But they are stuck for how to begin turning it into practical measures, and anxious to avoid generating lots of pointless statistics.

Meanwhile, their patience is being tested as every other week a new authority on human capital rushes into print convinced that the whole world is wrong and that only they hold the key to the magical mystery of HCM. As with many HR fields that descend into a quack’s paradise, it is tempting to cover your ears and cry ‘not listening, not listening’.

Naturally, all the usual gullible flunkies thought they ought to be seen cooing at the Kingsmill report. So coo they did. But now the Government has finally got around to responding to it, it should be apparent that an evolutionary approach of the kind advocated by Kingsmill is difficult to distinguish from sitting on your hands. Just listen to the way Patricia Hewitt welcomed the taskforce’s report: “[The] group’s work will form useful guidance to help companies ensure that their OFRs [Operating and Financial Reviews] reflect how the management and development of their people impacts on the performance of their business,” she said.

It is words like these that make you wonder if the Government actually reads the reports it commissions. Whatever qualities it might have, ‘useful guidance’ is not one of them. Listen more carefully, and you may be able to catch the rustling sound of a report being buried under skyscrapers of Whitehall paper.

Perhaps the greatest mistake of the Kingsmill taskforce was to think that because an idea is developing quite quickly, it is not possible to have any consensus on it.

It is true that there are many diverse approaches to HCM. A quick survey of Watson Wyatt’s Human Capital Index (which purports to link HR practices to financial performance), Penna Consulting’s ‘strategic measures’ (things like employee motivation levels and leadership abilities), and Mercer Human Resource Consulting’s ‘internal labour market analysis’ (a bid to track patterns in employee behaviour statistically) is enough to prove the point. But that is not to say you can’t have common standards around which a debate can mature.

Consensus does happen in human capital. For example, since 1984, the Saratoga Institute has successfully established itself as the leading authority on comparative HR measures, gathering more than 100 different benchmarks by sector and company size through which some 2,000 subscribers can compare themselves.

Rather than assert, as the taskforce did, that organisations should come up with whatever measures they fancy – not much use for anyone interested in comparison – it would have been preferable if it had thrown its weight behind building just a small HCM-related consensus. A prime candidate would be ending the culture of counting heads, for instance.

Many leading writers on human capital agree that the predominance of the headcount has several pernicious repercussions. It suggests one head is more or less equal to the next. It offers an occasional incentive to cut staff to make productivity figures look better. Possibly, it even warps the very foundations of productivity statistics, since output tends to be divided by full-time equivalent staff, when an organisation could be using an invisible army of casuals.

Instead, in a flexible labour market, the figure that matters is the total spending on human capital – including temporary staff, subcontractors, consultants, freelancers and all the other flotsam that travels under the name of ‘human resources’. From this, a universally valuable statistic could be derived: revenue per total spending on human capital.

From all the confusion around the subject of human capital, it is easy to think the field must be very new. Actually, it is roughly as old as the contraceptive pill. But despite all the uncertainty, it remains important to keep reminding ourselves why it is worth the effort.

The words of Andrew Mayo, a human capital expert who wrote a guide on the subject for the Institute of Chartered Accountants in England and Wales, cannot, in my view, be improved upon: “To regard training and development as an ‘act of faith’, or to use the vague generalities of words like ‘talent’, or to have little idea of the value people bring and create – these are inconsistent with the avowed desire to grow shareholder value.”

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