Date: 24/07/14 Duration: 00:21:06
“At the heart of every business is people; how they create value is the key issue that CEOs are struggling with today” – Charles Tilley, CEO, CIMA
“We’ve got to move beyond short-term financial metrics if we’re going to create growth and come out of the recession strongly” – Ann Francke, CEO, CMI
“There’s a lot of art to HR. This is not about putting every dimension of people into some quantifiable figure” – Peter Cheese, CEO, CIPD
Last year, a collaboration of organisations, including the CIPD, the Chartered Institute of Management Accountants (CIMA), and the Chartered Management Institute (CMI), launched Valuing your Talent, with the aim of encouraging ‘more businesses to measure the impact that investing in people has on their organisational performance’. The multi-disciplinary project group and the open, collaborative approach were deliberate attempts to overcome obstacles that have foiled previous attempts to provide a framework for measuring human capital.
The project has now been underway for several months, and, as the report and framework are published, we give the Chief Executives of the participating professional bodies a chance to address some of the issues that have been raised, and to clarify their vision for the project, and the part that each of their professions has to play.
Philippa Lamb chairs the discussion between Peter Cheese of the CIPD, Charles Tilley of CIMA and Ann Francke of CMI.
To discuss this on social media, please use the hashtags #cipdpodcasts and #valuingyourtalent.
To listen to some HR data experts discuss how their organisations collect and use people metrics, visit our HR data stories page.
Philippa Lamb: Last year three professional organisations joined forces to launch a new project called Valuing Your Talent. Working together the CIPD, CIMA and the CMI planned to create a framework for measuring human capital. It’s a challenging idea: can people be measured like any other business asset? Some sceptics have yet to be convinced that they can, or indeed should.
Today, six months into the project, the chief executives of the three bodies are gathered here to discuss the way forward.
Peter Cheese is CEO of The Chartered Institute of Personnel and Development. Ann Francke is CEO of The Chartered Management Institute. And Charles Tilley is CEO of The Chartered Institute of Management Accountants. Thanks for joining me.
I'm going to start by asking each of you to just briefly explain why your organisation is involved in this project and what you feel it brings to the table. Peter.
Peter Cheese: I think for the profession that we represent, which is HR and learning, we have long debated the need to have better insight, better measures, better understanding of the connections between how we invest in people and the outcomes and value that it creates to the enterprises we serve.
And that has been a long-standing challenge and we don’t at this point in time even have really common definitions, common terminology, common dictionary of terms and so for us this is a really vital agenda in helping to position better understanding of people in organisations, how we bring people together to create a greater contribution and value outcome, how we invest in them and all these sorts of questions which are very much at the heart of the profession which we represent.
But as you will hear from the others this is not just about an HR agenda this is fundamentally about a business agenda which we all contribute to.
PL: Yeah I mean that brings me neatly to Charles actually. I mean you’re a vocal advocate for reforming corporate reporting: how important do you think this issue is of finding an acceptable way to measure human capital?
Charles Tilley: It’s absolutely vital and I think the profession that I represent, the accounting profession and particularly the management accounting profession, we’ve been a bit slow in recognising the change in business or reacting to the change in business; we’ve appreciated it but we haven’t reacted to it. 30 years ago 80% of the value of a business sat on its balance sheet, today that figure is under 20% and going down and so we need to think about the metrics that relate to what is actually creating value and at the heart of every business are people; the customers are people, the suppliers are people, the business itself is people. So how they create value and understanding how they create value is the key issue that chief executives are struggling with today so that they maximise the benefit of their workforce.
PL: Ann your background is corporate isn’t it? Senior roles at Boots, Mars, Procter & Gamble.. when did this issue first strike you as a significant gap?
Ann Francke: Well I think it’s always been a significant gap and a significant challenge. What we know is what drives growth is the quality of management, the quality of people, and yet so much of what our attention is focused on in boards and at chief executive level are short-term financial metrics and we’ve simply got to move beyond those short-term metrics to people metrics if we are going to continue to create sustainable growth and come out of the recession strongly and not lapse back into those bad, short-termist habits. So this project is a real attempt to try and drive that.
PL: Now you all head chartered institutes don’t you. Do you feel a responsibility to your members? Do all of you feel a responsibility to your members to solve this long-standing problem?
CT: We did a survey two years ago and the number one issue from that survey - which was 300 top chief executives around the world - was that issue, so it’s absolutely at the forefront of their minds but it’s also, as Peter said earlier, this is a business issue, this is critical for business and therefore it’s in the public interest, it’s relevant to absolutely everybody.
PC: It is a vital thing for our members, I mean they’re professionals working in the HR domain and they need help, we need help as a profession to get greater clarity: where’s the best practice? Where do we find these, as I said before, common terms that we can work from? How do we create a framework which will help guide people to provide better insight and more consistency in what we measure and how we measure these things?
AF: And from our perspective we have three and a half million managers, less than one in five of them are trained, for example, so we don’t have any consistent practices when it comes to any other aspect of business besides accounting. Now, it’s great that we have that framework for accounting but really if we’re going to constantly improve and maintain the UK’s competitive positioning globally we do need to get more accurate and consistent in how we measure some of these other areas.
PL: It’s worth mentioning at this point there is a fourth organisation involved here isn’t it, the RSA, what’s their role?
PC: They’ve been helping us facilitate some of the wider debate because we recognise this is not just about us as professional institutes, but encouraging a wider debate amongst business communities and business leaders and all sorts of different professions on this issue. So for example we’re talking to investor communities, we’re talking to the risk communities and the RSA have been very helpful I think in helping to facilitate some of those wider discussions and debates and bring some of this stuff to life.
PL: I mean you described it as complex, I think Charles as one of the challenge participants commented, ‘battle lines have been drawn between accountants and economists on the one hand and those with a more humanistic or HR perspective on the other’. This is strong language isn’t it? Why do you think this debate has become so adversarial?
CT: I don't think it has at all - I mean that's just rubbish. I mean the fact is that Peter and I are working together representing our two institutes because we recognise the importance of the HR function and the accounting function working together. One of the other issues, there were four, was actually how do you develop and drive an organisation as one organisation rather than a series of silos? So this is where we need to break down those silos and this initiative is very much a part of that, you know, covering all of the different aspects that we all represent here around the table.
PL: Well clearly there's consensus around the table, where does the tension lie then?
CT: There's an element of tension in terms of what is that measurement and where does it sit? Inferring that maybe the value of these people actually sit on the balance sheet – that is not an area where I would want to go. This is about understanding how people drive value, not putting what will ultimately be very subjective figures onto the balance sheet and making things complex and difficult to understand and actually infuriating stakeholders rather than benefitting them. PL: So this is management rather than financial reporting.
AF: And at the CMI we see, and other organisations have demonstrated this as well, that if you slightly improve your management - so a one point improvement, that can be the equivalent of a 25% increase in your workforce, or a dramatic increase in working capital. People do drive results and yet we do know that we need to get better in our own respect of and measurement of, for example, the amount of time we spend preparing people for management roles, the measurements asked of CEOs other than hitting the shorter-term financial metrics, and investing in the future, so our ties with young people. Now, you know those are three examples of areas that we currently don’t systematically measure where arguably we should, we’d get better business results.
PC: There is certainly a concern in areas of, I suppose HR in particular, that you can't quantify everything to do with people and it is certainly true that is the case and we will talk sometimes about the balance between, if you will, the ‘science of HR’ and the ‘art of HR’ because the reality is that in any organisation there is a lot of art to HR, a lot of judgement calls have to be made and all sorts of things. So this is not about putting absolutely every dimension of people and how people are managed into some quantifiable figure and certainly not ultimately, although it may prove over the longer-term, but not at this point in time, in trying to put human capital onto the balance sheet. But I do think it’s trying to get a better foundation from which we can understand what is going on, what are the practices, how do we encourage the right sorts of behaviours and so on. But it is for sure therefore making sure we continue to keep this balance between a recognition of what you can quantify, what is equally measures that are qualitative and provide insight but still recognise and acknowledge that there's an awful lot of art to this process as well in terms of good people management.
PL: And as you say we already measure don’t we? We pay according to perceived value, so the metrics are an extension of that aren’t they? Is there a fear and suspicion about metrics at the heart of this?
PC: Yes I think to some degree there is. I sometimes describe it as ‘finance is from Mars and HR is from Venus’ and we come from different spaces, but as we’re all acknowledging and we can certainly see a very widespread move for this now that we are sharing some very common agendas and understanding, as we’ve articulated, where does value really come from? And it’s vital that as an HR profession we don’t get too anxious about that and too anxious about somehow this is all going to be reduced to a bunch of numbers on a spreadsheet or a balance statement. So I think it’s important in any discussion about the future of business that we do break down silos, as Charles has said, that we recognise there’s areas of compromise and collective understanding which we’ve got to reach. PL: Do you think perhaps some of the resistance to this comes from the language that’s being used?
CT: That is very important. We’re all very good at developing our own language, especially so nobody else can understand what we’re talking about. Ultimately it comes down to being pretty simple, it’s about what is your customer focus? What is it you’re selling? How does that differentiate from the competition? How do you manage your costs as effectively as possible and how do you manage risk? And all of that is driven by people and the more effective that people are then the more successful your organisation is going to be. And so understanding how you can make your people as effective as possible is absolutely what every chief executive, all boards, want to achieve and they need the tools and levers to be able to do that which is something which is a common agenda between HR and finance, it is not separate and we need to use the same language.
AF: I do personally think that maybe the whole human capital thing puts people off and this can be as simple as in your organisation do you have a mechanism where you as the CEO can hear bad news from every level? Do you have a coaching and mentoring programme? Do you have a return to work programme for people that have career breaks? These are simple questions you can answer yes or no and they’re metrics, right? If the answer is ‘no’, well then how do you turn it into a ‘yes’?
PL: And organisations have no trouble about measuring that.
AF: That's right.
CT: But that is where the issue then goes from there to if the answer is no how much should I invest in that and what is the value that I'm going to get out of it? And it’s achieving that balance of being able to understand what are the best levers and being able to measure the effectiveness of those levers in getting a really great workforce.
PL: But it seems to me it is very much about how you’re selling the concept because what we’ve been discussing now is common sense for anyone running an organisation isn’t it?
PC: Well it is but common sense is not necessarily common practice and a lot of what we’re talking about here are some quite complex ideas. I mean if we take at the highest level this debate that's going on so widespread now about ‘how do we create the right corporate cultures and the right leadership from the top?’ and ‘how do we engage our people effectively?’ and all these sorts of debates.. Well there aren’t single measures for any of those things. There are multiple variables and multiple interactions that come together to create a true organisational culture and leadership culture and engagement of the workforce. So the high level, the good news is these are being talked about which is really important because they are absolutely fundamental to good business and we haven’t always paid attention to them but it also says that if we are making statements as many businesses are now that we’re changing the corporate culture then you have to be saying, but how do you know? I mean what kind of measures are you using? And although it’s not, as we said, a precise science on these sorts of things what we’re trying to do is gather examples and ways in which you can get insight of those high level or higher order ideas about business but at the same time acknowledging down at the most basic levels of measurement that when we are in a position as we are still in 2014 when we have not got a common definition of what we mean by headcount and there is no common reporting of even the most basic data on an organisation you think we have got to progress this agenda.
PL: It’s not the first time it’s been attempted is it that sort of lack of common definitions that stood in the way before or is it something more fundamental?
PC: I think it’s various things. One of the issues quite honestly and I would say this that if it was easy to do it would have been done, it isn’t all that easy to do and it does require a very collective debate and a bit of determination. I think what we’ve had in the past is good rhetoric and good reporting and good analysis and surveys and say this is important but it’s been at the rhetoric level and now what we’re saying is well that's all good and we believe those things extremely profoundly but what we’re trying to provide in a sense is more of a common dictionary, a common framework which we can all work from and this is a journey, it’s not like we’re trying to proscribe things here but that we can evolve the discussion into something a bit more material where we have a more collective understanding of these things and we bring out good practice and we share it consistently.
CT: Coming back to the fact that now the value of the business is very little of it is on the balance sheet and instead it’s in the people and what they’re able to deliver. It is increasingly important therefore that investors, as one particular audience, have a real understanding of the value of the people and the resilience of that workforce.
PL: I'm interested, you've all been discussing this, well clearly for a long time but in a very prominent way for the last six months, have you heard specific objections and anxieties from your members or other areas and if so what are they?
PC: There are concerns that what we’re trying to do is turn some areas of judgement and art and craft into something very specific and measurable and quantifiable and we’re not trying to do that.
AF: I think the other objection has come, and to some degree it’s justifiable, from the SME community because ‘I'm a small business how do I do this?’ How do I make time for this I barely have time to eat lunch? So I think there is an aspect that we have to always remind ourselves of look we need to keep this simple and provide a series of steps, you can't go from zero to 100 when you’re trying to build a business. So it’s about making it accessible as well and I think that's valuable feedback.
PL: Yes and the idea that the complexity evolves as the organisation grows.
PC: If we’re honest I mean the base of data that we have on a lot of this stuff is very confused. We’ve spent time trying to rationalise systems in HR and that aspect of the business well for quite some time but we still in many cases have a long way to go in having a sensible base of data from which we can then report these things on a regular and easy basis. So it’s all the way from having a framework and structure but calling out some key metrics that perhaps everybody might be interested in and keeping it fairly simple but also acknowledging that the bigger the organisation gets the harder it is to pull all these sources of data together and make sense of them. But then I think at the same time that should also point to something that says, well okay if we haven’t even got the basic data right then maybe we do need to focus more energy on that so that you get the data, then you can start to get the insights from it, from which you can then make better business decisions.
CT: And we’re talking about a framework here and then from that we will need to flow the metrics. But if you look at what is the responsibility of any board of a company it is the long-term success of the organisation and if the framework does nothing more than to help focus on the long-term and in particular to raise the questions about the effectiveness of your people onto the board agenda rather than just sticking to the financials and regulation issues and short-term issues generally we will have made quite a lot of progress.
PL: Okay well we’ve talked about some of the issues that are coming out of this, I’d be interested to know what you all feel your ideal outcome for the project would be at this stage, because clearly this is an ongoing initiative?
PC: I think the ideal outcome at this stage is that we’re on a journey and then we are taking the first steps of that. So an outcome is that we can demonstrate that we’re making some progress, that what we have come up with makes some sense to date and that from that we can start to build some momentum and energy around this. So we’re looking at all sorts of ways and saying, well this is not just about writing a report and saying, right that's great, we’ve done it, we’ve uncovered best practice and made up some framework, it really is the start of a journey. So I think how we communicate this, how we share it with people, how we use social media and other such platforms to engage wider communities on the debate and what we have created. It’s all open source. It needs to continue to be open source and we need to engage a wide community in this debate. So I would say this is a first step and if from this work that we’ve done today we can create some momentum for some real movement forwards then that is what we need to accomplish.
AF: I mean for me the success is recognising that we have a problem in the first place and we know from our recent management benchmarking that we’re still in a situation where two thirds of organisations are still too short-termist. And this is about saying, okay we recognise here we have a problem so let’s look collectively for the solution. Let’s start doing that. And I think for me the exciting thing about this is that it represents an attempt to do just that.
CT: I think we are going to come up with a framework which is consistent with an understanding of the business model of the organisation. So what does the business do? What are its outputs and what are its outcomes? And how does that then link to the people? And that linkage is really important. And that then gives you the focus on the long-term as well, the short to the long-term. So that’s incredibly positive. It’s answering the question, or starting to answer the question that my 300 chief executives were asking and it is a framework which can be used by anybody. I mean we talked earlier about the size of organisation, it doesn’t matter what sector you’re in, private or public, it doesn’t matter which country you’re in and it really doesn’t matter what size of organisation you’re in, the complexity will come when we start moving onto the metrics themselves.
PL: Now that we’ve set the precedent for the three organisations working together do you see yourselves collaborating on other such initiatives in the future?
CT: Yeah like we were talking about earlier about silos it is so important that HR and finance, management generally works together absolutely critical and we’ve got a long journey to go with just the metrics let alone anything else.
PC: I would of course echo that and the reality is I think in many businesses there have been functions which have been too siloed and even within the functions we can be too siloed and the reality is businesses and organisations are complex things, there are interaction and multiple variables and multiple interventions and we need to work across these different functions to understand that but also to bring our respective skill sets together more so that the more financial understanding, analytical understanding, numerate understanding that finance has together with the kind of, if you like, more of the art and the craft of understanding organisations and behaviour that HR bring, are extremely important.
So I think as professional bodies we owe it to our members, we owe it to business and community at large if you will to collaborate more on some of these bigger questions and to help shine a light and a bit of a direction forwards.
PL: Thank you all very much indeed.
CT: Thank you.
PC: Thank you