Choosing measurement methods
| DOI | https://doi.org/10.1108/14754390580000584 |
| Pages | 7-7 |
| Date | 01 January 2005 |
| Published date | 01 January 2005 |
| Subject Matter | HR & organizational behaviour |
7
Volume 4 Issue 2 January/February 2005
METRICS
,
The latest ideas on how to approach
measurement and evaluation of HR activities
Choosing measurement methods
M
ore than 40 percent of
organizations don’t see human
capital measurement as a
priority for their business and a fifth of
large firms never expect to report on it
within their annual reports, according to
research by Deloitte. Its survey of over
800 UK HR directors finds that a year
after the recommendations of the
Accounting for People Taskforce,many
companies are still not undertaking any
measurement of their human capital.
Just 12 percent expect to report on
human capital in their Operating and
Financial Reviews (OFRs).
There are several reasons that may
explain this. Businesses have been
responding to a period of
unprecedented regulatory change and
for many, human capital issues have
been put on a back burner. There’s also
a lack of clarity about what’s actually
expected, which serves to make the
issue slip down the agenda. An
additional barrier is the availability of
data. Some organizations have made
changes that enable them to collate
human capital data, including collecting
quantitative information and specific
activities such as exit interviews and
employee surveys. For some approaches,
HR technology will help greatly.
The importance of measurement
However, with employment costs
typically accounting for between 40 and
67 percent of most organizations’ cost
base, it’s surprising that measuring the
value of human capital is so low on
most companies’ business agendas.
This isn’t, after all, just a regulatory
issue. In a tight labor market where skill
shortages are more acute, the
knowledge gained through human
capital measurement provides
organizations with vital information to
help them develop innovative people
strategies. Reporting also provides
employers an additional shop window
for would-be recruits to differentiate
between competing offers.
Pick-and-mix measurement
The survey questioned respondents
about the most common measurement
techniques (see Figure 1, below). A
blend of HR benchmarking and metrics is
the most popular choice, followed by the
balanced scorecard. Some approaches
such as economic value-added and HR
practice effectiveness aren’t used by
many respondents, but those that do use
them rate them as highly effective.
There’s a perceived difficulty around
these methods, but they are becoming
more popular. One factor may be that
they are difficult for someone without
an accounting background to grasp.
This is an area where HR needs to build
its capabilities. It’s not enough to just
provide a narrative; reporting needs to
be more financial and quantitative.
Owing to limitations associated with
each technique, over a quarter of
organizations are using more than one
DEPARTMENTS AT A GLANCE
STRATEGIC COMMENTARY
,
e-HR
,
HOW TO…
,
PRACTITIONER PROFILE
METRICS
HR AT WORK
REWARDS
,
RESEARCH AND RESULTS
,
,
,
,
DELOITTE
approach. Using a variety of approaches
to augment each other can be effective.
But if they are used in a haphazard, ad
hoc way the full benefits won’t be
gained. Companies must ensure they are
measuring what’s meaningful for them,
there is no one-size-fits-all solution.
Don’t just measure, act
HR should think about what they want
the data for, who they want to
communicate it to – employees,
investors, an external report, or internal
management – and then choose an
appropriate method.
As OFRs become more standard they
will be used to differentiate
organizations in terms of investment
decisions, and as the employment
market tightens, jobseekers may use
them to examine how much emphasis a
company puts on its people.
It’s essential that organizations get a
much clearer picture of the different
measurement approaches that are
available, how they can be used and
how they can add wider value to the
organization. Of course, what is of
upmost importance is that data is not
only gathered, but then reported and
acted upon.
References
1. See www.accountingforpeople.gov.uk for more information
Deloitte is one of the world’s largest HR
consulting firms with over 6,000 staff in
400 locations. For more information on its
report, Measuring Human Capital Value,
contact Brett Walsh at
bcwalsh@deloitte.co.uk
0 10 20 30 40 50%
HR benchmarking
and metrics
Balanced scorecard
HR effectiveness
model
Accountancy-based
valuation model
29%
28% 47%
7%
4%
Figure 1. Most popular human capital measurement
approaches
© Melcrum Publishing Ltd. 2005. For more information, go to www.melcrum.com or e-mail info@melcrum.com
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