People data needs more rigour

by 18 Sep 2007

MOST EMPLOYERS are failing to communicate their people-related data effectively and in ways that are relevant and accessible to business decision-makers to help them run the business, according to a recent report from the UK.

Furthermore, effectively reporting on their human capital – providing information about the value of people, and crucially how that is translated into organisational value – could help businesses convince potential investors and other stakeholders of their likely future performance.

The report looks at investors’ views on the contribution of people to business, and focuses on the challenge to close the gap between what investors need and what companies are able to provide.

These include the development of standardised frameworks for measuring human capital and the need for such data to be explained on context, while investors and analysts also need to focus on senior managers and their ability to develop and implement strategy effectively.

Other challenges lie in the quality of human capital data. It is often very basic but higher levels of data are likely to be more useful to the investment community, particularly those that can give insight into business drivers.

“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,” said Angela Baron, organisation and resourcing adviser for the Chartered Institute of Personnel and Development (CIPD), which released the report.

Changing the attitudes of directors on the use of human capital-related data in decision-making could bring real performance benefits for businesses, Baron said.

The most significant implication for HR professionals is that human capital management implies a fundamental shift in the ethos of managing people, Baron said.

“Once they are viewed as resources to be maximised rather than costs to be minimised, people move from one side of the balance sheet to the other. HR decisions become investment rather than cost decision and this has implications for how people are recruited and retained [by] the organisation,” she said.

It also has implications for how HR is viewed internally – as a value generating rather than cost generating function, she added.

There are also implications for the skills of HR. To manage human capital effectively, Baron said HR professionals need to be able to analyse and interpret figures and relate these to business factors.

“They do not necessarily need detailed statistical knowledge, but they certainly need to be able to explain a variety of statistics and understand how they can be correlated against other data,” she said.

“They also need significant analytical skills and business understanding to relate human capital to business information to develop organisational level measures that will have significance to the outside world.”

There are a number of steps companies can take to improve reporting around human capital data, according to Baron. At the most basic level, tracking data on issues such as absence, retention, training take-up and spend can be useful in identifying patterns, benchmarking to determine position against competitors and demonstrating the capability of the HR function to provide reliable data.

As data collection and analysis becomes more sophisticated, she said correlations with customer or business data can identify the likely consequences of improving on particular issues and further up the scale performances underpinning KPIs can be produced.

“Companies will start at different points depending on their experiences. The important thing is to get started and develop and ethos of measurement which begins to demonstrate the real contribution of people to the business,” she said.

“Perhaps the most important thing is to ensure accuracy, reliability and usability. Only if managers really believe the data they are given and find it useful to their day-to-day management activities will they be prepared to act on it to make a difference and to engage in activity to generate more sophisticated data.”

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