Learn about defining, measuring and reporting human capital, and how HR can use human capital information to drive performance
Date: 01/02/11 Duration: 00:21:24
In this podcast Max Blumberg, Research Fellow at Goldsmiths, University of London, Alison Hilton, Director of HR Service Delivery at Openreach BT, My-Linh Ngo, Associate Director, SRI Research at Henderson Global Investors and Angela Baron, CIPD Adviser OD and Engagement discuss how metrics can be used to drive the value organisations generate from their people.
View the full podcast transcript
“We’re the same as most organisations where we have an absolute plethora of data. We have spreadsheets galore. I think the real nuggets are gained when you truly immerse yourself. It’s not just about statistics, it’s actually about what’s the wider environment telling you as well and how can you bring all of that information together, what’s it telling you – so it’s the analytics involved in that – what’s it telling you so that you can truly make a difference to the profitability of your organisation?”
Philippa Lamb: And that’s what this podcast is all about. How and why we can use metrics to drive the value organisations generate from their people.
The speaker you heard there was Alison Hilton at BT Openreach and we’ll be hearing more from her in a moment. First though, let’s take a look at how measuring human capital has evolved. It’s not new but in recent years it’s grown far more sophisticated. Here’s Max Blumberg who’s Research Fellow at Goldsmiths, University of London.
Max Blumberg: I think human capital, people, have been viewed as expenses to an organisation, in much the same way as any other kind of overhead. What we used to do was look at things that reduced the cost of people in the old days, as opposed to now where we look at the value that they add into the organisation. We looked at things like absence days, turnover of employees and you looked at trying to reduce all of the cost aspects and the cost drivers, that’s how we used to measure human capital because we looked at it as a cost.
PL: And now?
MB: And now we are starting to get into the idea. Although, we don’t own the asset like other assets, if we pretend that people are an asset and treat them like an asset, then we start looking at the return that we get on our investment in recruiting the right person; in training and developing them into the organisation and so we don’t baulk so much at the money we spend and try to minimise how much we spend on them. We now say “Right, we are prepared to spend quite a bit provided that a return can be demonstrated”, which is very different to the old days where we simply try to minimise what we spent.
PL: Angela Baron is the CIPD’s Organisation Development and Engagement Advisor. She agrees with Max Blumberg that it’s a discipline which is becoming more sophisticated.
Angela Baron: Measuring has come along a great deal in the last ten years or so. We’ve seen a move from organisations where they struggled to even find out how many people worked for them, to where organisations are now mostly in a situation where they’re pretty comfortable with data; where they’re able to access some data which gives them some indications about things like skill levels, about skill shortages, about how difficult or how easy it is to recruit, some information about the culture maybe, how satisfied people are, how engaged they are, performance data etc. Where the difficulties are found is in translating that data into real measures that are linked to business outcomes. So, in understanding what that actually means for some of the drivers of sustainable performance. Things like organisational agility, organisational capability, the capacity to innovate, those kind of things.
PL: So the measuring, most people have got their head round; it’s the idea of getting a real insight out of it and feeding into strategy.
AB: Well the information and the data I think people have got their head around. They’ve got their head around that there are some important data which can give them some important information and it can be correlated in many instances to things like customer satisfaction, sales, whatever. It can tell them a number of things, particularly about internal management, about things maybe they ought to be addressing to make sure that people are performing at their best.
PL: So, if converting all the data into useful information is the big challenge then the first step must be to collect the right data, but what exactly is the right data? Max Blumberg again.
MB: Well, that’s the million dollar question you see; if you could answer that today. I just don’t think we know the answer to that question yet.
PL: It depends on the organisation.
MB: It depends on the organisation, it depends on the stakeholder, it depends on the part of the world that you’re in or global region, it depends on a myriad of factors that you’re looking for. It depends on the market conditions that you’re working in.
PL: If people are thinking about this, how would they start that thought process then?
MB: How I typically start a project like this is I look at a particular industry or a particular sector in a particular part of the world and then I start by standing on the shoulders of giants and I look at what previous research has shown is a good predictor of total shareholder return because I think that’s the winner of the game. I look at the factors that they viewed, so if they found that engagement and employee productivity, and spend on learning and development can be proven to do those, I’ll take what they’ve done, I’ll then speak to people in the organisation that we’re working with and ask them what they believe is and create a hypothesis. Say if somebody says “Yes and I think flexible working hours is key” I’ll say I don’t take that as a given, I’ll then test that to see whether people who are flexible add more than people who don’t have flexible working hours for example.
PL: As Max says, the information has to be tailored to the stakeholders, both the internal ones and the external ones. Here’s Angela Baron.
AB: How you use that data to measure things which are important to the bottom line of the business is a step further. One of the approaches that some organisations take is they use that data to try to understand how well they’re implementing their strategy. If their strategy for example is to improve customer service then they can use data on skills and performance to look at how well they’re doing against that key indicator.
PL: The idea that data on human capital can help HR sell ideas and proposals to the Board is old news to Alison Hilton. At BT Openreach they have a field force of 30,000 people and they collect business and people metrics. They measure on a week by week basis, the Board reviews the data weekly and the information feeds into business planning and strategy cycles. One of the things Openreach measures very carefully is sickness absence because it tells them so much about the business but when they look at the causes of absenteeism it’s not a simple equation.
AH: There’s no one cause actually is what’s come out. It will be different in different geographies and that will be for a variety of reasons. It could be because actually the work stack is high, it could be because we haven’t invested enough in our leadership training, it could be because there’s a particular difficult set of business circumstances in an area at any one time but what we gain by tracking is actually we can spot where it’s out of kilter then we can immerse ourselves into the reasons why and take the direct action to actually make sure that we get back on track.
PL: Now I know you’re using this data in your change management strategy as well, how does that work?
AH: That’s a really big learning for us, around the volume of change that we’ve got in our business is phenomenal. Over the six years that we’ve been going the marketplace has changed phenomenally. We’ve gone from being a monopoly to operating in a highly competitive environment. The volume of change we’ve put our business and our employees through has been quite phenomenal and what we’ve been able to see through tracking sickness absence is the correlation of increases in sick absence in areas where we’re doing the most change. What we’ve been able to learn from that is the way in which we deliver our change is hugely important. That means around changed sponsorship, around leadership capability, line management capability but actually really importantly is the engagement of our people in the design of the change. If the change is going to impact them but they’re involved in the design then we’re likely to be much more successful in landing the change and avoiding an increase in absence.
PL: This is the sort of real insight that feeds into business strategy. Nationwide Building Society understands the value of that and it’s been working very hard to make the data it gathers as user friendly and informative as possible. Here’s the Head of HR, Andrea Cartwright.
Andrea Cartwright: We have stopped focusing just on management information and trend data. There is this tendency of organisations that we produce huge amounts of quantity in terms of the sorts of data that we can turn out for managers and if you’re a day to day manager that’s the last things you want, is a tome landing on your desk or a huge email to land in your inbox full of spreadsheets and just information that you then have to interpret in the way that you see fit.
PL: So you give them news they can use.
AC: We do. We create the meaning, on behalf of the manager, by looking at the various elements, not only of the people metrics – the absence, the labour turnover, the disciplinaries, the grievances, the list goes on and on and on. What we are able to do is look at other metrics from, yes from a peoples perspective, so our engagement and our enablement measures that we do as an organisation, so both the emotional and rational things that drive peoples’ behaviour at work, but also actually what’s the outcome? We are running a business at the end of the day and what we need to understand is how do those things impact the outcome or is it the outcome impacting the driver behind absenteeism for example?
We have done a lot of work to correlate the people metrics with business metrics so we now start to understand what is it that drives higher sales lower risk? We’re a financial services business, treating customers fairly is incredibly dear to our hearts so we have to be able to demonstrate that we are meeting those sorts of requirements.
PL: All the effort that the Nationwide team put into gathering and analysing this data paid off when they produced results which weren’t quite what they were expecting. The data related to their Senior Executive Development Programme and involved the employees they’d identified as the performers with the highest potential.
AC: One piece of work we did, which has really surprised us, is by looking at their leadership style – we’ve run a climate/culture type survey with those people – and actually identified that they’re not as effective as we thought they might be, when you look at the sales and you look at the engagement data. Actually they probably are very effective in terms of a turnaround situation or perhaps a bit of crisis management but they’re long term impact of their leadership style will not drive the levels of engagement and enablement that we need as an organisation. Actually we need to adapt our investment in our Leadership Development Programme to help these leaders adapt their style to enable that kind of sustainable level of people performance, not just the kind of “Let’s get through the next nine months in terms of an economic crisis” or the kind of thing that we’ve just been through.
PL: So you’re getting really sophisticated outcomes with this aren’t you, which then feed into your strategy for all sorts of areas of your business.
AC: Absolutely, so what it’s enabling us to do is to constantly adapt and be agile around our people plan for example.
PL: Good examples there of how human capital measurement can be used effectively inside organisations. Externally, human capital data is an increasingly valuable commodity too but it’s been pretty slow to catch on and right now only a minority of organisations offer this sort of information to external stakeholders. Angela Baron.
AB: I think where there’s still a lot of difficulty is in trying to produce information that is relevant to external stakeholders such as investors. It’s about trying to provide information which informs them how well this organisation is likely to do in the future compared to other organisations in the same market.
PL: So tell me what reservations investors have about the data they’re being offered at the moment? They’re getting this data but it’s not presented to them in such a way and in such a context that they can make a clear, measurable link between the data they’re being given and what that might mean in terms of business outcomes.
AB: Well I’m not sure at the moment that they’re even getting the data. I think most human capital information data is used internally and used internally very well. What investors want is they want different kind of information. They want information that is actually rooted in context but explained in a way that enables them to make comparisons, so they accept that there’s not going to be a single figure, so if you can calculate it it’s going to give you an indication of which organisation is going to do better than others in the future but they do also know that comparability is the key. The secret is to provide information with enough narrative and explanation to link it to the things that are important to the business and the things that are going to be important to future business performance.
PL: My-Linh Ngo is an investment consultant at fund managers Hendersons, she focuses on ethical investment. She told me about the sort of organisational metrics they look for when they’re judging whether or not to invest in a company.
My-Linh Ngo: What we do is look at them across a range of what we call generic core issues, which is in regard of what sector you’re in, what size you’re in, what geographies you’re in; these issue are important. So issues about diversity for example, issues about employee communications and engagement matter regardless of what sector you’re in. But then we also apply on top of that maybe what we call sector specific analysis on human capital, so that’s where maybe there’s a particular issue that’s more pertinent for the company in that sector. Some examples of health and safety where you’ve got companies maybe they’re involved in manufacturing so physical health is an area that we would put a lot more emphasis on, on a company that does that versus that a company that is a software company where maybe my emphasis would be more on the training and development side because product innovation is.
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