Business leaders all seem to be united by the same response when asked to identify the most valuable part of their business.
“Our people are our most important asset,” they say. But do they treat them that way?
Companies spend a considerable amount of time and money developing, managing and measuring the business impact of their critical assets - their properties, site materials and information systems.
So why are they less careful with their people?
Often, it is because they may not fully understand them. They do not feel they have a reliable yardstick for people issues, even though it is possible to measure return on investment in people just like any other asset.
Smart organisations achieve competitive advantage through greater flexibility, reward for high performance, succession planning, remedying poor performance, recruitment and, most crucially, identifying and retaining talent.
The challenges include:
Managing a contingent workforce, such as contractors, to drive higher productivity.
Improving the employer brand to attract talented staff.
Developing higher workforce capability and maintaining an engaged and motivated staff.
Ensuring that the workforce is structured for any potential economic down-turn.
Currently, many companies struggle to track and interpret the most basic people metrics.
When they do, they often choose the wrong ones. When asked how much they have invested in training and what the effect of that training has been, only a fraction would be able to reply.
If you cannot measure the benefits of an investment, it is no surprise it is the first budget to get slashed.
Measuring ‘human capital’
The human capital benchmarkers have their work cut out too. It is undeniable that people measurement is not always a popular concept.
For some the term ‘human capital measurement’ conjures up Orwellian images of control, others do not like being called an ‘asset’.
This barrier is not to be underestimated, but on the other hand if people are measured properly the likelihood is they will feel more valued.
Some suitable measurements for the sector would be:
Impact and productivity: Profit per full-time employee, which is ultimately the return on the organisation’s human capital investment.
Engagement and behaviours: Resignation rate - the level of voluntary losses as a proportion of the total headcount.
Resourcing and brand: Acceptance rate - the percentage of formal job offers accepted against the total offers made.
Career development: Total investment in training per full-time employee.
Using evidenced-based information to help the business execute the right corporate strategy will enable people managers to help organisations become more self-aware and adaptable.
The tools are there. It remains for business leaders to pick them up and use them.
Michael Rendell is global human resource service leader at PricewaterhouseCoopers