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CIPD launches project to develop human capital framework

Arvind Hickman , 08 Nov 2013

Peter Cheese

A new initiative has been launched to develop a human capital framework that will help businesses measure the impact and value of workers.

Valuing your Talent, announced yesterday at the CIPD Annual Conference, aims to create practical tools and a indicators to help business leaders, investors and other stakeholders assess an organisations workforce and the value they contribute.

Ultimately, the aim is to shift human capital from being a cost on the profit and loss account to being an asset on the balance sheet, providing investors with more meaningful and comparable information about a company’s often-largest intangible asset.

“The objectives are to better understand how developing and managing people better releases and drives value in an enterprise,” CIPD chief executive Peter Cheese (pictured) said. “It also aims to define much more clearly the basic people metrics to promote agreement and consistency and how those measures are used.”

To emphasise the need for consistency, Cheese asked the audience if there was a common definition of headcount.

“We can’t even agree [on a definition of headcount] inside the organisation with HR saying ‘I think it’s this number’, and finance often saying ‘I think it’s a different number’, because they are not using the same basis to report that number,” he said.

“We cannot go on debating issues on what on earth our headcount is, or not expecting any of this stuff to be reported, or not having real visibility and making the intangible more tangible.”

Bringing in stakeholders

Efforts to create human capital metrics are by no means new, but most past attempts have failed. In the US, SHRM’s project to create standards and common metrics has received a lukewarm response due to worries of metrics putting an increased and unnecessary bureaucratic burden on companies.

A difference with this initiative it involves key reporting stakeholders, including finance and senior management. The project is a joint effort between the CIPD, Commission for Employment and Skills (UKCES), the Chartered Institute of Management Accountants (CIMA), the Chartered Management Institute (CMI), Investors in People (IIP) and the Royal Society for the Arts (RSA).

Anthony Hesketh, a senior lecturer at Lancaster University Management School, is leading research for the project. He said the development of the framework and indicators reflects a growing need to measure intangible assets; prior to the Lehman Brothers collapse, companies were storing vast amounts of market capitalisation value under intangible assets.

“For the first time, rather than just simply talking about an asset as being a source of economic resource that’s coming in or out which is tangible, we are now talking about the notion of an asset being a resource,” he said. “About 60% to 70% of the value of a business is intangible, a lot of it is estimated.”

“The idea of human resources is about potentiality. The notion of human capital is capturing that resource and capitalising it, and that is the challenge we have set ourselves... how can we transform humans from being a cost to an asset?”

The initiative received a mixed response from the audience.

OD consultant Megan Peppin questioned whether it was possible to develop a set of metrics to measure “messy and unpredictable” assets such as humans, and that imposing metrics could affect the adaptability required for good HR.

“This sounds like finance finally getting their hands on HR,” she said.

Hesketh said the project doesn’t attempt to redefine good HR practice. Rather, it is attempt to provide clarity on how good HR is driving value in a business in a consistent and comparable language that investors and reporting stakeholders understand.

To take part in the project, visit cipd.co.uk/valuingyourtalent

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Really

Teresa Ewington 21 Jan 2014

I'm not sure now if I'm 'human capital', 'real or unreal' or just plain 'messy' after reading this. When did the language all get so weird? Is there any chance that seeing none of us are actually aliens we could talk about ourselves in a better way? Problem is it gets in the way of what sounds like something good to talk about.

Off putting

Carol H Scott 28 Jan 2014

I wonder if the CIPD could find anything more off putting and likely to alienate the average employee than Human Capital and associated 'white noise' of words. Somewhere within this is a grain of sense, but it looks like another initiative designed to justify the HR department's existence.

CIPD launches project to develop human capital framework

Abraham Cohen 09 Apr 2014

It is quite heartening to read about this noble project and intention initiated by CIPD and to quote: "Ultimately, the aim is to shift human capital from being a cost on the profit and loss account to being an asset on the balance sheet, providing investors with more meaningful and comparable information about a company’s often-largest intangible asset". For many years now, authors on Resource Management, particularly on Human Resources, have been advocating to employers and organizations to regard human resources as "Strategic Assets". This entails, of course, recruiting the most suitable candidates, providing them with the best training available, developing and cultivating staff, treating them very well and retaining them. Needless to say what the accrued resultant benefits to the organizations/employers would be. The ability of all organizations/employers to generate sufficient/acceptable level of revenue, resulting in acceptable level of net profit, to cope well with the competition, to invent and innovate are all depended to a very large extent on the quality of the human resources at the service of the organizations/employers. The secret lies in the highly skilled and well trained employees who through fair and honest treatment would be highly motivated, loyal, dedicated, efficient and competitive. These kind of employees would contribute enormously to generation of revenue, cost-cutting and minimization of employees turnover. As an accountant, lecturer in Accounting, Business, Finance, Strategic Management and Resource Management, I welcome the initiative taken by CIPD. It seems that some readers might have misunderstood the intention on this initiative. It is good for both the employees and employers, as employees would be treated and valued more and employers would be able to demonstrate the true value of their organizations, thanks to "human capital" in the Balance Sheet under Intangible Fixed Assets, rather than a "cost" under "Expenses" in the Profit & Loss Account. It would be acceptable to all fair-minded that the true value of an organization (going concern)is not merely the aggregate of values of its physical assets. Some would argue about the difficulties in putting value on the "Human Capital" (the usual, perennial and contentious issue of evaluation) because of inevitable disagreements among accountant and government representatives. Perhaps this noble concept is still in its infancy, but with good will on the parts of all concerned there would be a way to see the project brought to its successful conclusion. I wish good luck to all parties involved.

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