Failing to crack the HCM code

How long is a piece of string? Put it against a ruler and you’ll find out. A much more challenging question is: how do you measure the extent to which a company is getting the most from its staff?

Evaluating human capital management (HCM) has baffled HR for years – and now a report has found that not a single listed company in the FTSE 350 is doing it to an acceptable level.

Cracking the Human Capital Code shows lots of companies make appalling attempts to measure staff output management, while many do not bother at all. Published by consultancy Valuentis, the report looks at how firms are managing their human capital, as well as how they are evaluating these processes.

“HCM itself is average across the UK,” said Valuentis chief executive, Nick Higgins, on the report’s findings. “Some firms are doing it well, but many more are not getting the most from the money they spend on staff. This impacts on the performance of the company.”

Top spot

Barclays came top in the index, but the banking giant said it was too early to form an opinion on why. “It is a mathematical equation and made up of so many factors that we cannot really say what in particular made us come out on top,” said a spokeswoman.

The company is set to meet Valuentis this week to discuss the report. But maybe the bank should not expect too much back-slapping. “Barclays is top of what is a poor index,” said Higgins.

“Much of the reporting of HCM in the UK is nonsensical lots of companies are thinking about it, talking about it and publishing policies about it, but they don’t know what difference it makes. It is qualitative rather than quantitative. In other words, it is all talk.”

Jackie Lanham, director of HR services at insurer Norwich Union, agreed with this frank assessment. “We don’t see a lot of organisations establishing a measurement of HCM,” she said.

“But much of what I have seen previously risks making the area too complex. We could end up having to employ people to churn out data that no-one has the time or space to do anything with. It is important that companies measure what is important to them.”

The Valuentis report introduces a concept called the Human Capital Composite Index (HCCI), which ranks companies in order of their total score over a range of HCM criteria (see box, above right). Firms are measured on HCM and their reporting of it, as well as the results of these policies.

The consultancy hopes it will become a standard way of measuring HCM, giving organisations the opportunity to benchmark themselves year-on-year and with their competitors.

“Giving standard, quantitative data allows for much more insightful analysis than is currently being carried out,” said Higgins.

The logic is that if a firm’s machine breaks down, it is fair to assume it will be repaired, and that if the repair work is not acceptable, a different repair company will be called in next time. But with people, it seems management is left much more to chance.

“More than £30bn is spent annually in the UK on training, yet no-one knows if it is working,” said Higgins.

“The HCCI is designed to allow companies to evaluate the value of a specific training course – or an overtime crackdown, free toast in the mornings or any other HCM policy.”

Be cautious

However, Lanham urged caution. “Benchmarking is good for giving a sense of how an organisation is doing against an industry standard,” she said. “But you risk just replicating the competition. If you want to create something for your own organisation, you have to look at the specific change you want to cause internally.”

So who should be responsible for the measurement process? The report argues the job is beyond the scope of the current HR director role, and should lead to the creation of a chief human capital officer (CHCO).

“This is already being talked about in the US. It’s just a matter of time before it happens here,” said Higgins.

“A CHCO would be on equal footing with the chief financial officer. It is about generating harder, more measurement-focused HR. We don’t believe there is much strategic HR at all. It is focused on the day-to-day running of a company, so there is a need for a strategic position at board level.”

But Lanham is unconvinced this will happen. “I am cynical about this role. If we make it too expensive and complex then it will not work,” she said.

“I think HR staff need to focus on what is important to their business. HCM can be achieved simply, but in HR we love to over-complicate issues.”

HCCI: Top 10 firms

  1. Barclays
  2. Northern Rock
  3. GlaxoSmithKline
  4. BG Group
  5. Bradford & Bingley
  6. Royal Bank of Scotland
  7. Rio Tinto
  8. Alliance & Leicester
  9. Kelda
  10. Standard Chartered

Source: Valuentis report

How the HCCI works

The Human Capital Composite Index (HCCI) “seeks to acknowledge the multiple parameters required to assess effectively differences in organisational performance and HCM within companies”, the Valuentis report said. “Unlike previous attempts at constructing a meaningful index or ranking – which typically focus on a single parameter such as employee satisfaction, work environment or value contribution – this enables different perspectives to be incorporated into a single assessment,” it added.

Nine parameters are used to form the overall HCCI. Companies are judged on their return on investment in people (HCIR) their HCIR relative to other firms their HCIR per employee their profit attributable to human capital per employee their reporting of HCM the tax they pay per employee their total people costs their VB-HR rating from a separate Valuentis index and their human capital leverage.

Investors in People HCM research


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