Human capital needs a standard measure

Despite
the frequently stated mantra that ‘people are a business’ greatest asset’, no
single approach exists that enables organisations to consistently quantify the
benefits of their investments in people.

As
a business leader, human capital sits at the top of my agenda at Deloitte &
Touche. Yet questions of how to assess it can be very difficult to answer, and
I’m sure I am not alone in this predicament.  

While
the complexities of how to put a ‘balance sheet value’ on people-related issues
have attracted attention at board level, there is limited consensus as to how
this challenge should be addressed. Human capital is presently the only major
asset that UK listed companies are not required to update their stakeholders on
in their annual reports. But in a recent speech, the Secretary of State for
Trade and Industry, Patricia Hewitt, suggested such statutory requirements may
not be far away.   

Research
published today by Deloitte & Touche and Personnel Today suggests that
before the Government introduces such requirements, techniques for consistently
measuring human capital, and the ways in which boards understand and apply such
techniques, will have to improve significantly.

The
research examines how companies measure human capital and how these results are
interpreted and used. While the findings show that firms are beginning to
embrace this challenge, they also demonstrate that companies are still unclear
on how to use these outputs to reliably assist the decision-making process.

The
research shows that businesses believe in the importance of measuring human
capital, but I expect many would struggle to find a convincing, user friendly
and practical means of doing so. More than half the companies surveyed say
their most frequently used measurement methods are ineffective, which could
well explain why current approaches appear to unsuccessful at driving changes
in management behaviour.

But
the benefits of meeting these challenges are also clear. A recognised method
that puts a financial value on the effectiveness of people management will
highlight its real business impact on the company as a whole, and combined with
the consequent interest from stakeholders that this will generate, the board
will need to quickly develop its understanding of this area.  

Deloitte
& Touche is currently forming a consortium to work towards developing a
solution that meets the needs of companies and their stakeholders.

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Once
a standard is established, the board must partner with HR to improve the
organisation’s return on investment in people, and to increase its competitive
advantage in the marketplace.

By
John Connolly, Chief executive and senior partner, Deloitte & Touche