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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