Peter
Cheese, global managing partner of human performance at consultancy Accenture,
looks at the work his company has carried out to prove that workforce
performance investment delivers returns
Accenture
recently conducted a major study called The High Performance Workforce1. The
findings, based on a cross-industry survey of 200 executives worldwide, made
interesting – and in some cases, alarming – reading.
We
found that 57 per cent of participating companies rarely or never measure how their
training initiatives affect factors such as employee turnover. The same
percentage rarely or never measures the impact of their HR initiatives on
employee satisfaction. And about 70 per cent rarely or never measure the impact
of HR or training initiatives on innovation in their business.
Such
findings underline the extent to which investments in people performance are
being made in the dark. Even in today’s connected, information-rich companies,
evidence about the relationship between human capital investments and the
business’ financial performance remains largely anecdotal. As competition
intensifies and stakeholders’ vigilance increases, this approach is not only
inefficient, but increasingly unsustainable.
Finding
tools for the job
What
companies need are robust diagnostic tools to show the real return on
investment (ROI) from human capital development initiatives, and to provide
practical guidance over which investments will yield the greatest return. A
team of researchers led by the Accenture Institute for High Performance
Business has been tackling this issue – and has already made significant
progress.
The
project has been a two-stage effort. In the first stage, the team developed and
field-tested what Accenture calls the Human Capital Development Framework. This
enables an organisation to diagnose its strengths and weaknesses in key human
capital practices, prioritise investments to bolster the strengths and address
the weaknesses, and to track the results. The framework does this by combining best
practices in the fields of human resource development, learning and knowledge
management, with state-of-the-art measurement techniques to identify specific
needs and target interventions.
The
second stage, based on initial work with companies, is now underway, and aims
to establish the empirical link between human capital investments and
shareholder value. Though results from the second stage are preliminary, they
are nonetheless encouraging about the validity of the Accenture’s Human Capital
Development Framework, both as a diagnostic tool and as a predictive model.
Making
the case for measurement
Before
starting the project, the case has to be made for why such measurements are
important. So Accenture’s team began by studying existing experience and research
to identify five guiding principles governing the relationship between an
organisation’s human capital assets and its financial performance. These are:
1.
Staff who value their work and working environment respond with a level of
effort and contribution that enables an organisation to create higher levels of
shareholder return. Positive individual attitudes and supportive organisational
culture make a real difference to financial performance.
2.
Investments in processes such as learning and training must be thoughtfully
deployed and targeted to have a positive effect on employees’ sense of
engagement. Increased spending will not help if the investment does not reach
the right places.
3.
Organisations whose HR and human capital development practices are valued by
staff and aligned with business strategy achieve superior results under
measures such as productivity, innovation and customer satisfaction. However,
improvements tend to occur incrementally, indirectly and over time, rather than
being direct and instantaneous.
4.
Organisations invest in human capital development to enhance their capabilities
in key areas – for example, their ability to change in response to shifts in
critical markets, or take full advantage of new technologies, by flexing, expanding,
contracting and accelerating as necessary. These capabilities are rarely
measured or managed directly.
5.
Organisations that achieve superior performance – both capital efficiency and
growth – in productivity, innovation and customer satisfaction, are rewarded in
the marketplace through higher ratings from investors and analysts.
Armed
with these general principles, the team then set out to develop a conceptual
framework and methodology to allow an organisation to evaluate the
effectiveness of its current human capital initiatives, establish metrics for
spending and return on investment, and then design and deliver human capital
programmes that realise a better financial return.
Keeping
score
The
result is the Accenture Human Capital Development Framework – an analytical
measurement and planning tool that enables an organisation to identify and
measure the human capital factors that directly or indirectly affect
organisational performance.
It
does all this by using four distinct levels of measurement to reach an
assessment of an organisation’s human capital practices and investments, and
determine the resulting benefits. These four levels are:
•
Tier 1 Business unit results, consisting of measures of organisational
performance.
•
Tier 2 Dealing with key performance drivers that directly contribute to
business unit and/or enterprise results, often captured on a balanced scorecard.
•
Tier 3 Human capital capabilities, consisting of the most immediate and visible
(though not always measured) people-related qualities needed for achieving
critical business outcomes.
•
Tier 4 Human capital processes, consisting of granular measures of the
processes that drive human capital capabilities. It focuses on process maturity
rather than just budgetary allocations.
Data
is collected at all four tiers of the framework. Business results and financial
metrics (tiers 1 and 2) are collected through an electronic survey of finance
and line executives, supplemented by publicly available reports. Data from
tiers 3 and 4 are mostly collected through online questionnaires from HR and
frontline employees.
The
result is a human capital development scorecard clearly depicting an
organisation’s ability to use human capital to generate value. The results are
presented in numeric and graphic terms suitable for benchmarking against the
same company’s previous scorecards, against another business unit in the same
company, or against other companies in the human capital development
benchmarking database. With the scorecard, an organisation can diagnose its
strengths and weaknesses in key human capital processes – and then prioritise
investments, track performance and evaluate the overall impact of those
investments on the business.
Conclusion:
replacing guesswork with certainty
The
Accenture Human Capital Development Framework gives organisations a fact-based
foundation for assessing their delivery of value from human capital, and for
assisting them in making development and management decisions that deliver
improved business results.
1
The Accenture High-Performance Workforce Study 2002/2003. This explores
Accenture’s recommendations for steps that companies should take to become
‘human performance leaders’.
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