adminMatthias Ruziwa H R Issues
Business managers are increasingly interested in how to use HR concepts more effectively. Recognition of how data on people, performance and behaviours links to financial performance and business success is key. Human capital forms a significant part of the competitive advantage of twenty-
first-century organisations, and yet remains out of view in most firms.
While some organisations do present people-related data in their monthly and annual reports e.g. corporate social responsibility reports, recent research (Hesketh 2014) revealed that very few companies communicate an integrated understanding of the capacity of their business to deliver sustained value-creation through their people.
Human capital clearly matters given that it is directly linked to the creation of value. Toxic organisational culture, poor people management and inadequate training do play significant roles in numerous corporate failures and as such the value of intangible assets within organisations, such as human capital has increased significantly in recent years as the global economy has become more knowledge intensive.
“Human capital” is a term widely used in the HR fraternity to describe people at work and their collective knowledge, skills, abilities and capacity to develop and innovate. It’s now commonly accepted that the value of organisations is drawn from a mixture of tangible assets such as equipment, money, land or other physical objects and intangible assets.
According to Beer and Noria (2011) research has revealed that there is need to synthesise the economic value of the organisation with organisational capability in order to improve the shareholders` wealth or profitability of the organisation.
Human capital reporting aims to provide quantitative, as well as qualitative, data on a range of measures (such as labour turnover or employee engagement levels) to help identify which sort of HR practices will drive business performance. From my experience, the value given to HR is not the same in all organisations but in most cases HR data tends to revolve around the following;
Workforce composition: demographics data including age, gender and ethnicity
Recruitment and retention: number of resignations/vacancies/applications, length of service
Skills, qualifications and competencies: levels of expenditure on training, types of training provided, length of time to reach competence levels, data on training needs
Performance management: performance management results, productivity and profitability data, targets set and met, levels of customer satisfaction, customer loyalty
Employee relations and voice: findings from employee attitude surveys
Pay and benefits: overall wage bill costs, distribution of individual performance-related pay awards, level of total reward package
Regulatory compliance: includes data on the compliance of employees to established standards and guidelines for working practices in particular disciplines
Organisation development and design: includes data on spans of control, skills mix and talent pipelines.
Fundamentally, Hesketh (2014) finds that the data is there, but the understanding and meaning of it is not articulated.
In my view HR data needs to be measured in terms of inputs, activities, outputs and outcomes, which relates to their position in the business value creation cycle.
Given the increasing importance of measuring and evaluating the human capital aspect of the organisation, it is more likely that business leaders and HR practitioners do face the following challenges;
The contribution of people is difficult to isolate from other factors such as the economic situation, market forces and customer or social trends.
The value of people is often expressed in qualitative rather than quantitative terms that make it difficult to represent in traditional accountancy models.
HR data has traditionally been collected for administrative rather than evaluation purposes.
HR practitioners do not always have the skills or resources to interpret or explain data to evaluate the contribution of people to business performance.
The above challenges in my view make it difficult for various stakeholders to the organisation to evaluate how well companies are managed for the long term. To enable human capital to be fully and effectively valued in business decision-making, there must be a change in mind set, competency, and culture within business at all levels.
Recognition of how data on people, performance and behaviours links to financial performance and business success is key. It follows that there must be adequate competence within the finance and HR professions to recognise, develop and act on this insight.
Human capital management enables organisations to make more productive use of people through measurements, analysis and evaluation rather than guesswork.
It provides guidance on the development of HR and business strategies that enable improvements in levels of employee engagement and business performance by such means as better selection, training and leadership.
Organisations should report a narrative with some common underlying metrics that gives insight on the makeup of the current organisation and workforce (headcount and demographic type data, labour costs), how it is changing (for example, recruitment, retention rates), how it is developing (for example, investments in training, progression rates), and some insight on the cultural and organisational dynamic which engagement can be an indicator of (Hesketh 2014). There are three clear levels of data collection and analysis for human capital data namely;
Operational data analysis – simple monitoring data with no analysis, for example, reporting absence and retention data.
Basic insights – basic data is analysed and correlations are explored between types of data to draw simple human capital insights.
Insights driving performance – human capital data is triangulated with other business data to identify performance drivers; and may be used to illustrate how organisations can leverage human capital to drive performance more effectively.
Once HR data has been analysed, it can then either be used for internal or external reporting. Internal reporting is far more prevalent than external reporting, as this is important in the evaluation of the effectiveness of HR interventions and guiding future HR strategy.
Different types of information will be of value to different stakeholder groups; leaders are interested in understanding how effective employees are at creating value for the organisation, and whether people enable the organisation to be sustainable over the long term, shareholders seek information on the employee attributes or behaviours that are likely to influence short- or long-term financial performance, investors are interested in knowing how organisations value and grow their pools of talent, and whether long-term decision making takes place with people in mind, customers wish to know if they will get good service and after-sales support, employees want to know if their jobs are secure and how they can develop themselves and their skills and managers require information on which actions they can take to improve the performance of their business units.
In conclusion I would like to emphasise that HR’s role in collecting, analysing and communicating information on the value of people and their contribution to the business is vital and does assist in the design and implementation of HR policies and practices that enable organisations to achieve long-term sustainable business performance.
Disclaimer: Opinions expressed herein are solely those of the author.
- Matthias Ruziwa is an experienced and progressing Strategic Human Resource Practitioner based in the Midlands Province, City of Kwekwe.
- You can contact Matthias at the following email address: [email protected]/whatsapp 0773 470 368.
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