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Key reasons why human capital is important to business

Nuanced approach to people and

performance management

Top down information on

people

Quantify business benefits of better people

management

Drives the decision making process

Input in to business strategy and direction

Valuation of HR’s role in the business

2

It’s the business model, stupid! The structural capitals

3

‘On day one of economics A-level, you learn that there are three factors of production: land, labour and capital. Why is it we don’t measure labour? There is a much greater willingness in the UK, a kind of encouragement even, to talk about what the business model is, what the risks to it are, and so on. It feels to me that you’ve got to talk about the value of your people when you talk about that.’

Stephen Haddrill, CEO, The Financial Reporting Council

‘The really smart analysts spent 10 minutes talking about our business results and 40–50 minutes talking about people.’

Doug Baillie, Unilever

Three factors of production:

4

Understanding the Value Creation Process:

5

Valuing your Talent to date

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Valuing your Talent

Objectives 1. Develop a broad framework of HR Metrics for measuring human capital.

2. Showcase current practice.3. Develop a tool / methodology.

Members of the steering group:

Findings 1. People are material – but how material?2. Transparency – greater understanding of performance to

illustrate people’s role in value creation3. Common language for HR and Finance4. Line-of-sight to the value people create is needed – greater

awareness of the impact of culture on value. 5. Combination of “hard and soft” illustrates value drivers -

Leadership craft is how organizations use insight to achieve sustainable business performance. 6

• To provide the means to better understand how developing and managing people drives value.

• To define a common language of human capital measurement and to promote agreement in how such measures are used.

• To develop framework against which executives, employees, the investment community and other stakeholders can assess how businesses are developing their people to drive sustained and higher levels of performance.

Valuing your Talent Overview – Three objectives:

7

Valuing your Talent partners and influencers:

8

• BITC, City HR and E4S

Research methodology

3 Focus groups

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80+ Semi-structured interviews

Literature review of 100 articles

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Measuring the value of talent

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Organisations face 4 challenges moving forward

Driver Material Issue

The Ascendancy

Of People

Recognition of the centrality of capability and the need to align talent and its management with people’s aspirations

and expectations

The Anatomy of Organisation

Recognition of the materiality of an integrated approach to human capital in the formulation, implementation and

delivery of company business model and strategy

Human Capital

Measurement

Recognition of the need to obtain analytical clarity around the role of human capital in delivering sustainable value,

its direction of travel, investment and optimisation

TheEconomies of

Materiality

Recognising the requirements of the organisation’s expectations of employees, investors, shareholders,

customers and other stakeholders for enhanced transparency and reporting

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The Return on Insight (ROI)

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The Valuing your Talent Framework

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Indicative algorithms

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A new lexicon

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Case study: Unilever

#VyT

“We have spent an enormous amount of time examining whether we have the talent engine to sustain an 80 billion euro revenue business. There is a significant amount of talent analytics done around the kinds of people we have, the quality, quantity, where the gaps are, how we’re going to close the gap, etc. We track and see how we are doing across all of these areas. We examine the skills, talent and culture to see if we have what it takes to be the 80 billion euro business we want to be.

This is one of the essential roles HR plays in the business by ensuring any gaps in the skills, talent or culture across the business that might harm our 80 billion euro aspirations are covered. It’s all about three years from now; five years from now. We are future-proofing the business.”

Leena Nair, Unilever

Some organizations are able to predict their talent capability over the short and long term, and begin to forecast impacts on the bottom line:

16August 2014

The End of the Beginning?

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‘It’s a chicken and egg problem. Investors expect companies to guide them in terms of their KPIs and the key issues to judge them on. […] The emphasis should come from companies in terms of their saying, “these are the human capital metrics which we think are absolutely fundamental; these are the ones which we keep track of; and these are the ones that you should look at.” It’s a process of the education of investors.’

Investment analyst

• Getting the measurement plane in the air

• The business of HR is business

• The human capital architectures of value

• Increasing integration

Conclusion:

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Discussion

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• How can HR and Finance better work

together to define and report on people

data?

• Which measures are most valuable?

• Who is responsible for understanding them?

• Do strategic barriers exist?

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• What are the barriers to collaboration

between the two functions?

• Where are the barriers?

• What impact are they having?

• How can they be overcome?

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• What are the potential “wins” from

collaboration between the two functions?

• What outcomes should HR and finance focus on

in the short, medium and long-term?

• Do any common objectives exist between them?

• What kind of small projects may help

demonstrate the value of collaboration?

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Thanks for listening

Edward HoughtonResearch Advisor, Human Capital and

Metrics,CIPD

e.houghton@cipd.co.uk

@EhoughtonCIPD

#Valuingyourtalent