Human capital: management or measurement?

There’s been a surge in interest in human capital management (HCM) in recent times – not just from the HR profession, but from City analysts and business commentators alike. So it’s safe to assume we all know what it is, right? Well wrong, actually.

Having digested almost everything written on this topic, it’s clear that the term HCM is often used interchangeably to refer to human capital management or human capital measurement. These are different, but related, fields. Worse, many writers neglect to differentiate between the two.

So what’s the difference?

At Standard Chartered, we use the term human capital (HC) to simply refer to the talents, skills and knowledge of our employees. So, not surprisingly, HC management is about what we’re doing to grow and productively use these capabilities to deliver business performance and long-term strategic goals. HC measurement, on the other hand, focuses on the analytical tools we use to measure and report on how we’re doing managing our human capital.

Which leads us to the thorny issue of what companies should be measuring.

A lot of rubbish is spoken about this, which the Accounting for People Taskforce did little to resolve. But at Standard Chartered, there are three different types of measurement. And there is a direct link between their relative degrees of sophistication, and the insights they can give HR to help it become a truly strategic player.

Some companies fail to get off the first level of producing data on the efficiency of the HR function, or on what’s easy to measure. Measuring the ratio of HR people to total staff, say, or the average number of training days per employee, are typical favourites, but tell you nothing about quality, nor the impact on business performance. In fact, these merely tell us about HR productivity.

Better to focus on the second element: the effectiveness of your people management processes, products and interventions that support your business strategy. Work out the capabilities that underpin your business performance, formulate the questions that will help you assess how well you’re building these capabilities, develop the right metrics to judge how you’re doing, report on these regularly and, above all, hold the right people accountable for them.

Some of the things we measure tell us whether our processes result in better ratios of high-potential people and successors for key roles whether and at what rate our highly talented people progress more quickly than others and how we’re doing at retaining our high-performing, high-potential people. It’s critical to know whether what we do adds value. Otherwise, what’s the point of doing it?

Of even more value is the third element: measuring what elements of your people strategy are leading indicators of improved business performance. At Standard Chartered, we know that boosting staff engagement is a lead indicator of a range of desirable business outcomes – including higher revenue and staff retention. That’s why we continue to invest heavily in driving engagement. We know engagement drives performance. We also know that managers have a pivotal impact on team engagement. But so what? Unless you can translate this into action to materially influence these lead indicators, this just remains interesting data.

The ‘so what?’ for us is that we’ve studied our best managers, and worked out what they do that is different that has a material impact on their teams’ engagement. And we’re translating this into how we select and train managers to replicate these behaviours.

This leads us on to another related challenge – the skills and inclination of HR people.

Measurement capability calls for skills not usually associated with HR – analytical, evaluative and research-based disciplines. And after all, how many of us have heard colleagues say “I didn’t come into HR to work with numbers”?

By Debbie Whitaker, group head, people product management, Standard Chartered Bank

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