Launched last month at the CIPD annual conference, the Valuing your Talent project aims to create practical tools and indicators to help business leaders, investors and other stakeholders assess an organisation’s workforce and the value it contributes.
When CIPD chief executive Peter Cheese unveiled the initiative’s framework, it received a lukewarm response from the audience, with many questioning how you can value an intangible asset such as people.
The CIPD said the aim is to develop an open framework for measuring human capital that will make good people management and HR practices more visible.
Helen Giles, HR director of charity Broadway, welcomed the initiative and said it should be “compulsory” for organisations to publish key human capital metrics in their annual reports.
“I see so many organisations wasting the potential to be far greater at their core business and grow that sustainably because investment in leadership and people management is seen as a cost rather than an essential investment,” Giles said.
“The trouble is too many people in this exercise will make it more complicated than it needs to be. That is what scuppered previous attempts to take this forward. Don’t leave it to professional bodies, academics and consultants alone to come up with the recommendations – involve senior HR practitioners from all sectors, and some enlightened CEOs.”
Can talent be capitalised?
OD consultant Megan Peppin questioned whether it was possible to develop a set of metrics to measure “messy and unpredictable” assets such as humans.
“We don’t need to develop another set of consistent metrics as we have data already,” she added.“We know enough already to know that adaptive organisations are the ones that survive.”
The CIPD hopes the initiative will define basic metrics for valuing talent and promote consistency in reporting human capital metrics.
Jon Ingham, HR blogger and strategic consultant, said the report is quite balanced, but HR will still find it hard to measure something that doesn’t have a financial value.
“I struggle to see how things have practically moved on since the Accounting for People report or since SHRM did their investigation in 2002,” Ingham said.
“Many people in HR understand you can’t measure somebody in purely financial terms. The value people provide is potential value, it doesn’t exist until it’s transmitted through business operations.
“It isn’t about the reluctance to see people costed and put on the balance sheet, the issue is there is a view that it’s not possible...in the way you value your tangible assets.”
Why metrics are needed
Anthony Hesketh, a senior lecturer at Lancaster University Management School, is leading the research. He said the framework and indicators reflect a growing need to measure intangible assets.
“About 60% to 70% of the value of a business is intangible, a lot is estimated. The notion of human capital is capturing that resource and capitalising it, and that is the challenge...how can we transform humans from a cost to an asset?”
Hesketh said the project doesn’t attempt to redefine good HR practice. Rather, it is an attempt to provide clarity on how good HR is driving value in a business in a language that investors and reporting stakeholders understand.
“We are not talking about humans as metrics in a hard-nosed econometric form,” he said. “We are trying to take accounting techniques and see if we can have a grown-up conversation about what the value of people looks like.”