Look beyond profits to identify best strategies

The Newbury Index – a system for rating how well organisations manage to capitalise on their people – came under heavy scrutiny on these pages following Personnel Today’s report (7 June). The index is designed to set a very tough standard and, as a result, some of the ‘household names’ in HR circles only managed relatively low ratings.

A review of recent headlines provides a check on the accuracy of Newbury Index ratings and whether they help to discern any trends or lessons for HR observers.

Probably the most interesting headlines were provided by the strike at in-flight caterer Gate Gourmet, which, through secondary action, brought British Airways (BA) to a standstill. We gave the airline a very low C- rating and one of our key considerations was BA’s inability to get to grips with its poor employee relations and confrontational union/management environment.

Our rating went contrary to City analysts’ views of the performance of BA under chief executive Sir Rod Eddington. The City simply looked at the financial data that showed BA was the most profitable airline in the world. Yet it was obvious to any shrewd, strategic HR analyst that you can no longer evaluate a company’s performance just on the basis of short-term profits in the absence of any assessment of its underlying people issues.

More worryingly for the wider HR community have been the headlines on B&Q. This business has dominated the DIY market with a sparkling performance in terms of growth and profit and its progressive HR policies have been linked to this success, particularly its constant monitoring of employee engagement. It received a B on the Newbury Index, as we were not entirely convinced of the connection between its HR efforts and these results.

Since then, it has announced a sharp drop in sales, redundancies, and its HR director, Mike Cutt, has moved on to Boots. So what techniques should he take to his new employer to raise its lowly C rating and help it regain a competitive edge against the large supermarket chains that have eaten into its marketshare? What HR strategies are appropriate for such different circumstances?

More importantly, what do HR directors who subscribe to the theory of the employee-customer profit chain do with this cornerstone of their business and HR strategies when the graphs start sliding in the wrong direction?

Alongside these big questions, global companies such as Ford and GM (both rated C-), with armies of HR specialists and ‘progressive’ people practices, continue to drown in debt while their erstwhile, upstart challengers (Toyota/A+ and Honda/A) go from strength to strength.

The measurement of human capital is starting to deliver clear indicators of the sort of HR strategies that provide genuinely, sustainable advantages. HR directors would do well to make sure they put developing their own skills in this emerging discipline at the top of their agenda.

For more on the Newbury human capital management league table, go to www.personneltoday.com/30194.article

By Paul Kearns, director, PWL

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