Guest Post by Andrew Mayo: Human Capital Measures

If you wanted to invest in a company what would you like to know about its people? Would it matter to your decision? Or would you only look at its profit record and predictions?

Supposing you do believe that people are the most important assets an organisation has, unfortunately you will find very little information currently to help you. There will be the paragraphs about the Directors, and maybe some narrative reports on good things that have been done in the year, and that will be it.

Is that enough?

The aborted Kingsmill report attempted to lay down some items for standard reporting but the Government never took it seriously forward. A certain amount of interest has been lost in this aspect of human capital measurement – but fortunately there has been a drive from quite a different direction. This is much more internal within an organisation, and is about the links between engagement of people and performance parameters.

Some solid case studies now exist tracking this over time. Particularly in the retail and banking sectors, where multiple branches can be compared, some direct correlations have been derived which help to drive actions and predict future success.

The kind of data that serves the needs of the two audiences – external and internal – is quite different. That which is publicly published will be consolidated for the organisation as a whole and will inevitably be subject to some “spin”, casting it in the best light.

For internal use however, we need more detail and to choose the measures as being useful and relevant for managers to take action. Just as we distribute budget information and responsibility between departments, so we should do with the “people operating statement”. The goal is to take action, and we want the facts, warts and all.

There is one vital area that remains ungrasped by the interested practitioners and that is to have a system of valuing people, not financially but nevertheless quantifiably. This is a critical area since arguably the ultimate end of all HR “strategic” activity should be that the value of the human capital in the organisation increases year on year. The need for a balanced measure of people as assets to put alongside their costs is significant. We still have quite a way to go when it comes to human capital measurement….

This post was provided by Andrew Mayo, Programme Director at the Centre for Management Development at London Business School and Associate Professor of HRM at Middlesex Business School. Andrew was ranked 26th on HR Magazine’s top 100 most influential people. For more on Andrew, and to contact him, visit MLI.