Measuring Human Capital

August 27 2007 - A recent report from the Chartered Institute of Personnel and Development (CIPD) suggests that the majority of employers are failing to provide relevant information about their human capital thereby denying potential investors and other stakeholders the opportunity to fully assess the likely impact on future performance.

The report highlights disparities between what is needed and what is available. It calls for a standardized framework for measuring human capital but cautions that this should be set within the individual organizational context. Demonstrating the ability of senior managers to develop and implement strategy effectively is a primary concern. The report argues that the basic nature of most data is insufficient for investors.

Angela Baron, CIPD organization and resourcing adviser said:

"UK productivity has been a problem for many years but most employers are still failing to effectively report on people-related data so that they can make better informed business decisions. So rather than branding the Operating and Financial Review (OFR) as needless red tape and scrapping it in 2005, the government should have embraced the opportunity to stimulate the take-up of productive people management practices by encouraging companies to measure and display their impact on business performance.

"The alternative Business Review requirement, introduced by the government in December 2005, leaves to directors' discretion what they report on the performance and management of people. In effect this means that directors will only report meaningful information if they believe there is a demand for it.

"Even if company directors don't necessarily appreciate the value of making fuller disclosure from a corporate perspective, the hope is that they will feel obliged to make such disclosures in order to meet investors' demand for better information. However the kind of information investors would find useful, such as organizational measures of performance, are not always available because organizations struggle to translate their people information into business outcomes.

"Changing the attitudes of directors on the use of human-capital-related data in decision-making could bring real performance benefits for UK businesses. But in the coming years it seems certain that investors will demand information on human capital management as it becomes an even greater differentiator between successful and unsuccessful businesses.

"Directors and managers that use human capital evaluation as a key analytical technique in running their businesses and link it to strategic objectives will have advantage over their competitors as they seek to influence investors and analysts."

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