You say tomato, I say tomahto

By Ben Willmott, Head of Public Policy, CIPD

The term Human Capital Management (HCM) arouses strong feelings, amongst HR professionals at least! In one corner it represents an attempt to categorise people as mere widgets in a machine in order to understand how to minimise their costs. In the other corner (and I have to hold my hand up here) HCM is a means of trying to understand the value of the contribution that people make to organisational performance.

>HR metrics enable organisations to make more productive use of people through measurement, analysis and evaluation rather than guesswork

One thing both camps agree on is that the measurement of people is difficult and the world of HR metrics is an imperfect science. However, just because something is difficult or because it won't necessarily provide all of the answers in itself is not a reason to not do it all.

The term 'Human Capital' is widely used to describe the value of people at work and their collective knowledge, skills, abilities and capacity to develop and innovate. Critics of the term accuse proponents of overlooking the intrinsic humanistic side of business - I would argue that only improved practice in this area can over-time ensure a future where the whole business understands the value (and sometimes risk) people represent, not just HR professionals.

While some people argue that there is little difference between the concept of 'human capital' and that of 'human resources', the key distinction is that the focus of human capital is on the value of employees, and how this may be measured, rather than on the HR function itself. What often gets lost in the debate is that people on both sides ultimately agree that it is important to be able to measure the contribution HR/people management makes to positive business/organisational outcomes.

Taken to the extreme, if organisations don't measure anything people-related, the things that are measured, for example workforce costs, profit margin, shareholder return, become the sole and over-riding preoccupation of the board. This was demonstrated to graphic effect at Mid Staffs NHS Trust where the board's blinkered focus on financial matters and waiting times led to catastrophic failings in patient care. The people data at Mid Staffs NHS Trust was over-looked or did not exist. A telling piece of information that did exist was that some members of staff had not had a performance appraisal for five years. Now that piece of data on its own should have been a cause for concern for senior managers, as should have been the high level of stress and absence among the nursing staff. In this instance we are talking about the very basics of HR information that most organisations should be collecting and analysing but even this data, when taken with other information, including anecdotal, can start arming HR with the sort of insights that can resonate with business leaders. Analysis of NHS staff survey data by Professor Michael West has shown a strong link between employee engagement and patient satisfaction and patient mortality rates. It is this type of data that has placed employee engagement at the centre of the debate about how to change culture in the NHS post-Mid Staffs, which anyone involved in people management and development would have to agree is a good thing.

Good quality HR metrics can enable HR to speak to chief finance officers and chief executives in a language they understand and help make the case for greater investment in people. This is one of the objectives of the Valuing your talent research CIPD is leading on with the UK Commission for Employment and Skills, the Chartered Institute of Management Accountants and the Chartered Management Institute.  The project is designed to shine a light on how some organisations are attempting to value the contribution of their people and at the same time develop greater shared understanding between the HR and finance functions of the combination of hard and soft HR metrics that can support better executive decision making.

HR metrics enable organisations to make more productive use of people through measurement, analysis and evaluation rather than guesswork. This does not mean sweating human assets to the nth degree - on the contrary this means ensuring that how people are led and managed supports their engagement, health and wellbeing - not putting them under so much pressure that they burn out, make mistakes or cause accidents.

Whether or not 'human capital' is the right term to use to describe all this valuable management information related to the value and risk people bring to organisations is another debate, but ultimately it's an established term and a convenient way to get these important issues on board room agendas alongside the other 'capitals' that drive business decisions. 

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  • Organisations that recognise that their employees are 'the difference that makes the difference' should consider the value that good metrics can offer.  Typically HR professionals are often accused of measuring too much, often not providing any 'real' value.  It is clear that we need to  take a more assertive approach to identify what will drive success in organisations so that an accurate and consistent measure can be defined; only then will the HR profession be taken seriously.