How much is human capital, the measure of the economic value of an employee’s knowledge, personality, social attributes and skill set, actually worth? It’s an important question. Think of all the money people and companies spend on education, not to mention the opportunity cost of getting some sort of tertiary qualification instead of working.
Lots has been written about it. According to CFO magazine, two metrics – Return on Human Capital Investment and Total Cost of Workforce to net operating profit, which includes all direct and indirect cash and equity compensation for employees, employee benefits, perks and rewards, retirement costs and costs of training, recruiting, employee relations, severance and legal settlements – are powerful predictors of a company’s value.
So your workers add value to the organisation through their productivity, services and creating products. How do you measure it?
If you don’t know the answer, you could be wasting money.
First, it has to be said that it’s a hellishly complex area. It’s an area where the answers aren’t that clear and most companies can’t do it on their own and need help.
A lot of it comes down to the company’s ability to use technology to measure and track productivity on a regular basis, be it weekly, monthly or annually. The kicker is having an action plan that can analyse, review, score the progress and adjust where necessary. That’s the point when most companies fail. It’s not just about the capital expenditure to roll them. The company has to invest in maintaining and supporting the systems. And that’s a long-term expense.
The Saratoga Institute, which is part of Spherion's Human Capital Consulting Group, proposes a number of metrics to measure human capital. These include Human Capital ROI (the ratio of dollars spent on pay and benefits calculated against the profit figure), Separation Cost (how many people are leaving and from which areas) and training investment.
Sounds complicated? Read on, there are solutions.
Don’t count on HR
Most companies say they value human capital but few are run that way. The managers in the organisation who are supposed to be the experts in utilising and managing people, the folks in the HR department, are usually mired in administrative tasks to do the value-add work. Managers have to look elsewhere.
For those who want to work out how much it’s worth, there’s always software around like Kronos, ADP, SAP, Oracle, Workday, SumTotal Systems, Workforce Software
NetSuite, HCM, Infor, UltiPro and Ciber. All of these are handy to have as they measure the full gamut of items, not just talent but payroll management. The beauty of the software is it can measure what you’re getting. But it requires investment.
There are great tools on the Web for measuring and managing human capital.
One is satisfactionatwork.com which allows managers to track how engaged your people, or if they’re not. Their engagement at work is measured through a simple questionnaire which then produces a map outlines their fulfilment levels based on Maslow's Hierarchy of Needs. It’s a system that also offers individual- and team-building activities to improve any weak spots.
Other popular web-based tools, like Mercer’s HC Scan, charge a fee but they are worth looking at. It’s a web-based questionnaire followed by structured interviews.
Human capital, the talent within, is the area that will make the company stand out from the pack. Measuring it however more often than not requires some serious investment. How much ROI will really depend on how seriously the company takes it.
Written by Paul Podbury @ Locomote