linking human capital to business performance

Can Changes in Human Capital

Metrics explain Movements in

Organisations’ Value?

Linking Human Capital to Business Performance

Gail Sturgess – Workforce Architect / Human Capital Strategist

1 Linking Human Capital to Business Performance

How I Got Here

IT background– Business Analyst – Financial Systems

– Financial Modeller

But What about People?– There’s GOT to be a better way!

2 Linking Human Capital to Business Performance

www.hcminst.com

What CEOs Want

Business Analytics

– Customer Intelligence

– Competitive Intelligence

– Workforce and Productivity

E-Commerce

Customer Experience

Business Reporting

Cloud Business Case

Business Process ImprovementSource: Gartner

3 Linking Human Capital to Business Performance

What CEO’s Want

Workforce and Productivity

– North America – 8%

– APAC – 4%

– EMEA - <1%

4 Linking Human Capital to Business Performance

Shocking Fact!

Linking Human Capital to Business Performance5

How Do You Know?

Linking Human Capital to Business Performance6

How do you Know?

How will you Know when you get there?

If you Can’t Quantify ...

Linking Human Capital to Business Performance7

The Truth ...

Linking Human Capital to Business Performance8

The Truth ...

Linking Human Capital to Business Performance9

HCMI Research

HCMI

– Better ways of measuring investments in Human Capital

– Transform Workforce data – Source of Value

Drives fact-based decision-making

Research

– Pepperdine University GSB

– Late 2012

– 16 year analysis period (1996 – 2011)

– Over 50000 companies included in the analysis

– 17 Variables Included

6 Human Capital Variables

– 12 of 13 industry sectors

Linking Human Capital to Business Performance10

Key Questions

Can Human Capital be valued and contribution

Quantified?

Can Return on Human Capital be definitively

Linked to Business Results?

Can Changes in Human Capital Metrics

PREDICT Company Performance?

Linking Human Capital to Business Performance11

Key Findings

Varies by Industry

• Average• 10% Human Capital

Metrics

• -.7% to 29% Share Price

Gain

Linking Human Capital to Business Performance12

Key Findings

Human Capital

Contributions are Clearly

Linked to Share Price

• Top 25%• HC Metrics – 51%

• Share Price – 4%

• Others

• HC Metrics - -52%

• Share Price - -1.1%

Linking Human Capital to Business Performance13

Share Price Performance

Finance and Insurance Sector

Key Findings

TCOW Superior than

FTE

– Revenue / FTE

– Profit / FTE

Return on Human

Capital Investment

(Return on HCI)

– Most Significant

– Across Sectors

Linking Human Capital to Business Performance14

Human Capital

Metrics

– 35% to 64% Share

Price Change

– 1% by Net Income

Human Capital

Metrics

– Show Different Picture

– “False” winners

– “False” losers

Three Key Human Capital Metrics

TCOW (Total Cost of Workforce)– ALL costs associated with the workforce

– Including HR

Return on Human Capital Investment (Return on

HCI)– Compares TCOW with NOP

– Shows expected return of R1 HC investment

– All other factors the same

Human Capital ROI Ratio (HC ROI Ratio)– Measures Ratio of Return on Revenue (net of TCOW) versus

TCOW

– Measure of expected return on R1 invested in Workforce

Linking Human Capital to Business Performance15

Traditional Financial Performance Metrics

Linking Human Capital to Business Performance16

New Productivity Insights

Linking Human Capital to Business Performance17

The Big Picture

Linking Human Capital to Business Performance18

The Biggest Winners / Losers

Linking Human Capital to Business Performance19

WinnersAdmin, Support & Waste Mgmt

Mining

Wholesale Trade

Transportation & Warehousing

Accommodation & Food Services

False Winners

Professional and Technical Services

Healthcare

Surprise Winners

Manufacturing

Utilities

Losers

Finance & Insurance

Arts & Entertainment

Observations and Insights

Low HC-intensive

– HC Costs are significant

– But not largest

– High Returns possible on small changes

High HC-intensive Service-driven

– Greatest potential to increase Productivity

– Without increasing HC costs

Increase Commodity Prices

– Drive gains in HC ROI Ratio

– Without large HC increase

Linking Human Capital to Business Performance20

Industry Focus

Finance and Insurance

Transportation and Warehousing

Linking Human Capital to Business Performance21

Finance & Insurance - Traditional

Linking Human Capital to Business Performance22

Finance & Insurance - New

Linking Human Capital to Business Performance23

Vive la Difference – Finance & Insurance

Linking Human Capital to Business Performance24

The Problem – Paying More for Less

Transportation & Warehousing - Traditional

Linking Human Capital to Business Performance25

Transportation & Warehousing - New

Linking Human Capital to Business Performance26

Vive la Difference – Transportation & Warehousing

Linking Human Capital to Business Performance27

What’s in it for ME?

Linking Human Capital to Business Performance28

Scope of HR Today

Linking Human Capital to Business Performance29

Personnel

• Control

• Compliance

• Administration

• Payroll

Service

• Recruitment

• Remuneration

• Talent Management

• Performance Appraisal

DecisionSupport

• Return on Investment

• Organisational Performance

Expense Generator of Capital

Questions

Linking Human Capital to Business Performance30

Do we have the right number of Employees?

What is the right Workforce Cost?

What is the Marginal Return of R1 invested in the Workforce?

What is the ROi on our training investment?

Where does our Best Talent come from?

What percent of our Workforce is customer-facing or revenue-generating?

Is the ROI on Human Capital higher than the ROI for other business capital?

What are the Leading Indicators of Employee Turnover?

Are Management effectively managing our Human Capital?

Are we loosing the right people, or the wrong people?

Is internal mobility a source of value creation or turnover and cost?

What percent of the Workforce has a Defined Career Path?

Where can an investment in training improve productivity and profitability?

What is the ACTUAL Cost of Turnover to our Business?

What is our optimal pay/performance mix?

Is Productivity increasing/decreasing/static?

The Amazing Race!

Linking Human Capital to Business Performance31

The Right Questions

Linking Human Capital to Business Performance32

Platform for Human Capital Management

Linking Human Capital to Business Performance33

A Final Thought

Linking Human Capital to Business Performance34

“Consider the discipline with which companies measure, manage, and grow

financial Capital. Now – think of how they manage Human Capital. The ‘most important asset’ is largely unmanaged.”

“The New Human Capital Strategy” Bradley W Hall

Linking Human Capital to Business Performance35

LinkedIn: za.linkedin.com/in/gailsturgess/Skype: gailsturgess

Twitter: @gailsturgessFacebook: http://facebook.com/Gail.L.Sturgess

083 654 6480Website: www.talentalign.comEmail: gails@talentalign.comBlog: http://ithrguru.com

Gail Sturgess