journal of inaugural issue applied h capital management · • an annual 3-day cpd event also takes...

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Journal of Applied Human Capital Management Volume 1 No 1 2007

Features

13 THOUGHT LEADERSHIP Competitive Advantage through Strategic

Human Capital Management Nicholas J Higgins 34 Devising an HCM Strategy: The Strategic HCM Toolkit Nicholas J Higgins 43 Employee Engagement Graeme Cohen & Nicholas J Higgins 59 Human Capital Measurement: A retrospective viewpoint Maurice Phelps 64 Brave New HR World - Part I

Nicholas J Higgins 73 SPOTLIGHT THE VB-HR™ Rating HCM100 Study 91 PRACTITIONER FOCUS Employee Engagement – A review of the recent London conference Eric Welburn 99 View from the frontline: Management matters at the British Library: An interview with Mary Canavan 102 INDUSTRY FOCUS: PUBLIC SECTOR

People management in Local Government: The VB-HR™ Rating consortium

Focus on the first issue......

Journal of Applied Human Capital Management

‘Organisation performance through a human capital lens’

www.ISHCM.com

INAUGURAL ISSUE

Volume 1 Number 1 2007

© ISHCM 2007 3


www.HCMIglobal.org

© ISHCM 2007 4


The

AccreditedQualification

“A new Standard for those who want to be the best”

“Rigour and quality surpasses that of traditional programmes”

‘Excellence is as excellence does’

“A Masters-equivalent level qualification delivered in a ‘lean’ format for practitioners”

The first 2007 programme will commence in September 2007 with completion due in July 2008. From 2008, programmes will also commence in January and complete in November.

Enterprise Governance & Business Ethics

FOUNDATION MODULE Organisation and human capital evolution – a retrospective evaluation

INTEGRATED HCM MODULE Where required

COMPLETION MODULE Organisation performance – technical application

ANNUAL CPD MODULE

Enterprise Strategy & Finance

Strategic Human Capital Management HR Operational Excellence

Workforce Intelligence Human Capital Reporting

Human Capital Management Audit & Assurance

The Role of the Chief Human Capital Officer

Individual project: opt for either

(a) internal consultancy assignment

MHCMI AWARD

Timeline

July 2007

Submit individual project proposalSep 2007

Oct 2007

Jan 2008

Apr 2008

Jul 2008

Aug 2008

Sep 2008

Submit final dissertation and presentation

Annual various dates

1 paper, 1 individual assignment, 2 group assignments with presentation

1 paper, 2 individual assignments, 2 group assignments




1 paper, 1 individual assignment, 3 group assignments

documented case study on organisation

Or

(b)

THE HCMI PROGRAMME

• The pre-requisite ‘integrated HCM module’ for those practitioners who do not have sufficient technical background

• The foundation module ‘Organisation & HCM evolution – a retrospective evaluation’ is designed to provide a consistent and level basis for completion of the eight core modules and also includes an introduction to the course.

• The eight core modules are designed to combine elements of technical and practical knowledge, supported with leading field research and new/emerging developments, providing practitioners with professional insight and competence.

• The technical application module ‘Organisation performance’ is designed for practitioners to apply their multi-disciplined knowledge, having an appreciation for typical issues and challenges faced using a portfolio of case studies from global/international and domestic organisations.

• All participants also complete a parallel project on their own organisation, either as an internal consultancy assignment or as a reported case study, depending upon choice.

• There is both an ongoing and final assessment for the award of the MHCMI.

• An annual 3-day CPD event also takes place as a mandatory fulfilment of ensuring HCMI qualification relevance and importance.

Programme durationThe HCMI qualification (to the level of MHCMI) is expected to take 12 months to complete to allow for work commitments.

Structure and progressionAs indicated there are several stages to the HCMI qualification:

DesignThe HCMI programme incorporates a modular structure for optimal delivery.

The design incorporates a blended learning approach which combines workshops for individual and group learning, self study and on-line support.

There is a combination of group case-based activities, structured dialogue, assignments, papers, presentations, (action) learning exercises and support networking.

Group learning

Case based exercises

Presentations

Self-study

Assignments/ papers

Support

Networking

Dialogue

www.ISHCM.com

Overview of the HCMI qualification and philosophyThe field of HR, or human capital management as it is increasingly known, is expanding at a growing rate. The body of knowledge required to be a professional in HR is growing as the profession continues to integrate with business requirements, having moved considerably from the days of personnel administration.

The aim of the HCMI qualification is to enhance the importance of human capital management and develop HR professionals and line managers into value-add practitioners (see inset) of effective human capital management, building on existing qualifications/ certificates that provide technical or academic understanding of the role of human capital management within organisations.

The ‘thinking’ and ‘expert’ practitioner utilises a range of personal behaviours with associated standards (underpinning the technical aspects of the qualification), including:

•Achievement orientation and commercial awareness•Client-focus with concern for quality, accuracy and compliance•Impactful and influential in a co-operative manner•People-relational and development orientation•Sound, confident analysis and judgement•Adaptability and use of own initiative.

The concept of the 'thinking’ and ‘expert’ practitioners

The concepts of the ‘thinking’ and ‘expert’ practitioners underline our Professional Standards. Our levels of qualification and our supporting CPD programme provide the necessary infrastructure to HCMI members.

In practice, the thinking/ expert practitioner is expected to:

•Utilise multiple perspectives and avoid reliance on a single perspective based on experience •Ensure that his/her knowledge is up to date and also aware of any significant new developments whether in terms of research/legislation and/or contemporary organisational practice •Pursue evidence/ fact-based inquiry (where possible) challenging ‘perceived wisdom’ or simplistic or naïve assumptions where necessary; whilst avoiding the provision of potentially misleading or ‘unsafe’ advice or actions •Evaluate critically the current context, demonstrating an appreciation for political and ethical considerations •Incorporate a continuous-improvement mindset •Demonstrate willingness to think and act along the operational-strategic spectrum, i.e. big and small picture.

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Features 7 Editorial 9 Executive summaries 13 THOUGHT LEADERSHIP

Competitive Advantage through Strategic Human Capital Management Nicholas J Higgins 34 The Strategic Human Capital Management toolkit (part II) Nicholas J Higgins 43 Employee Engagement Graeme Cohen & Nicholas J Higgins 59 Human Capital Measurement: A retrospective viewpoint

Maurice Phelps 64 Brave New HR World Part I

Nicholas J Higgins

73 SPOTLIGHT

VB-HR™ Rating HCM100 Study 91 Employee Engagement – A review of the recent London conference

Eric Welburn 99 View from the frontline:

Management matters at the British Library An interview with Mary Canavan 102 ASSIGNMENTS:

People management in Local Government: The VB-HR™ Rating consortium 108 In the news........

1st Quarter 2007

© ISHCM 2007 6


Sponsorship and advertising opportunities.

Here.

Contact our Marketing and Events Manager Charles Williams on +44 (0)20 7887 6121 for details.

© ISHCM 2007 7


Editorial

Every so often you get the chance to be involved in something exciting and new, and something you believe may leave its mark in terms of its contribution to an industry or a profession. The Journal of Applied Human Capital Management is, I think, just such a project. The new quarterly Journal breaks new ground in HR and for organisations who are serious about people management, with its more technically grounded applications of human capital management. It has been three years in the making since the original idea was floated at one of those classic ‘end of day’ meetings.

For that, we are indebted to the Dean of International School of Human Capital Management whose passion for people management and the HR profession is, I believe unrivalled and whose technical input has been invaluable.

The reason for the Journal is simple – there is no current publication which looks to provide applied knowledge in HR (from now on named Human Capital Management) with the degree of technical know-how or indeed intellectual thought leadership. There has been a wave of new or emerging concepts and I would consider it a dereliction of duty if the profession did not somehow acknowledge these. I am talking here of things like – ‘employee engagement’, ‘talent management’, ‘human capital’ and ‘human capital management’ (of course), ‘human capital reporting’, ‘workforce intelligence’, ‘HCM architecture and so on. It is hard to realise that the term ‘human capital’ has actually been around for over 50 years!

These should be exciting times for HR as it finally ‘grows’ into a complete profession. I do hope that HR professionals and senior management embrace these developments, for it is they who need to take responsibility and educate organisations to the advantages of these new applications.

Also, we should not be put-off by new words; in many instances these applied concepts strengthen the day-to-day things that people in HR do. More importantly, they provide organisations with a means to understanding why people management is so important – HR shouldn’t have to justify why it exists – the argument has moved on.

Thus, it is perhaps fitting, that given the inaugural edition, the primary thought leadership article is from the Dean himself and what I hope becomes seen as a definitive ‘tour de force’.

The first part applies a framework to what

‘strategic human capital management’ means that with its set of premises and insight offered, CEOs and CFOs should find this of equal importance to those of us in HR. The second part describes a toolkit from which all HR functions/organisations can benefit. With it, HR strategy, sorry, HCM strategy takes on new meaning.

Next up is a retrospective on human capital measurement and I am delighted to introduce the contribution of Maurice Phelps, former founder of EP First Saratoga (now part of PwC), who was largely responsible for getting human capital measurement off the ground in Europe which was no easy feat. Again, it is fitting to appear in the inaugural edition of this Journal.

Following on, is another definitive paper on employee engagement, describing the Why? What and How? in a practical manner. There have been a number of published articles on this subject but none that comprehensively explains the fundamentals in such a way - from concept through definition, and measurement through to application. Again, this is based on applied work (though it makes use of theoretic constructs like all good applied work).

To complete the thought leadership set is another article from the Dean entitled ‘Brave New HR World’ which focuses on the HR function specifically and complements the lead article. This has already created some market reaction – we trust that its message provides a catalyst for HR functions going forward.

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Our research piece publishes openly, for the first time, findings from the groundbreaking VB-HR™ Rating study carried out in 2005. Our conference section introduces our ‘roving reporter’ Eric Welburn who provides an excellent overview on the recent Employee Engagement conference held in London. Eric also provides a transcript of an interview with Mary Canavan of the British Library in our ‘View from the frontline series’. Our final (but certainly not least) article is a review of people management in UK local government and the recent VB-HR™ Rating consortium exercise.

So, there it is – the first edition. I trust you find it insightful, and hopefully much, much more. Of course, our next edition will feature a ‘letters to the editor’ section in anticipation of receiving any correspondence from you in the interim.

I look forward to receiving your comments, please e-mail me: [email protected].

Heidi Sinclair Assistant editor

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Effective HC management: The performance-reward-decision rights triangleAssessing the effectiveness of the HR value propositionHC modelling analytics: Linking HC metrics to provide performance based assessmentAn introduction to risk: A human capital perspectiveEstablishing and applying an employer brand (index)HR service excellence: From good to great - principles and methods to effect performanceHR outsourcing: Determining the business case Technology options for HR: Upgrading HR functional capability and performanceStrategic leadership for HR

Advanced HC Practitioner

Cer

tifica

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An introduction to human capital managementAn introduction to human capital measurementMeasuring and assessing employee engagementMeasuring HR effectivenessSuccessful business case construction for human capital strategy & interventionUnderstanding business models with an introduction to industry analysis

Human Capital Practitioner

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term

edia

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VB-HR™ Rating Practitioner

Cer

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Human Capital Reporting: Standards and operating principlesCreating and publishing a human capital reportConducting human capital ratio analysisAn introduction to human capital measurementHC modelling analytics: Linking HC metrics to provide performance based assessmentDesigning a value-based HC scorecard

HC Reporting Practitioner

Cer

tifica

te

The Open Professional series

HC Measurement

VB-HR™ Rating series

HC Reporting series

HCM Effectiveness

HCM Architecture series

HR function effectiveness series

HC Professional skills series

Strategy & Management

Strategy series

Management series

For course details visit www.ISHCM.com

Module 1CHCO as organisation architectStrategic leadership of HREffective HR governance

Module 2Structuring the HR function to create valuePerformance managing the HR functionConducting an effective HR audit

Module 3Optimising organisation capabilities for high performance The concept and application of LeanHR®Implementing an HR ‘work-out’ programme

Module 4An introduction to value based managementM&A: The human capital management perspectiveEffective enterprise governance

Value-based management developmentValue-based performance/talent managementValue-based resourcingDeveloping a value-based reward strategyValue-based retention managementValue-based HR procurement

Level 1 CertificateAn introduction to human capital managementIntroduction to the VB-HR™ RatingImplementing VB-HR™ Rating across the organisation I

Level 2 CertificateVB-HR™ Rating in organisations: Six degrees of evaluationAssessing the effectiveness of the HR value propositionAn introduction to risk: A human capital perspective

Level 3 CertificateConducting human capital ratio analysisHC modelling analytics: Linking HC metrics to provide performance based assessmentImplementing VB-HR™ Rating across the organisation II

Level 4 CertificateCreating a value-based HCM strategyUnderstanding business models with an introduction to industry analysisDesigning a value-based HC scorecard

Chief Human Capital Officer

Cer

tifica

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Adva

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Effective HC management: The performance-reward-decision rights triangleAssessing the effectiveness of the HR value propositionHC modelling analytics: Linking HC metrics to provide performance based assessmentAn introduction to risk: A human capital perspectiveEstablishing and applying an employer brand (index)HR service excellence: From good to great - principles and methods to effect performanceHR outsourcing: Determining the business case Technology options for HR: Upgrading HR functional capability and performanceStrategic leadership for HR

Advanced HC Practitioner

Cer

tifica

te

An introduction to human capital managementAn introduction to human capital measurementMeasuring and assessing employee engagementMeasuring HR effectivenessSuccessful business case construction for human capital strategy & interventionUnderstanding business models with an introduction to industry analysis

Human Capital Practitioner

Cer

tifica

teIn

term

edia

teCer

tifica

te

VB-HR™ Rating Practitioner

Cer

tifica

te

Human Capital Reporting: Standards and operating principlesCreating and publishing a human capital reportConducting human capital ratio analysisAn introduction to human capital measurementHC modelling analytics: Linking HC metrics to provide performance based assessmentDesigning a value-based HC scorecard

HC Reporting Practitioner

Cer

tifica

te

The Open Professional series

HC Measurement

VB-HR™ Rating series

HC Reporting series

HCM Effectiveness

HCM Architecture series

HR function effectiveness series

HC Professional skills series

Strategy & Management

Strategy series

Management series

For course details visit www.ISHCM.com

Module 1CHCO as organisation architectStrategic leadership of HREffective HR governance

Module 2Structuring the HR function to create valuePerformance managing the HR functionConducting an effective HR audit

Module 3Optimising organisation capabilities for high performance The concept and application of LeanHR®Implementing an HR ‘work-out’ programme

Module 4An introduction to value based managementM&A: The human capital management perspectiveEffective enterprise governance

Value-based management developmentValue-based performance/talent managementValue-based resourcingDeveloping a value-based reward strategyValue-based retention managementValue-based HR procurement

Level 1 CertificateAn introduction to human capital managementIntroduction to the VB-HR™ RatingImplementing VB-HR™ Rating across the organisation I

Level 2 CertificateVB-HR™ Rating in organisations: Six degrees of evaluationAssessing the effectiveness of the HR value propositionAn introduction to risk: A human capital perspective

Level 3 CertificateConducting human capital ratio analysisHC modelling analytics: Linking HC metrics to provide performance based assessmentImplementing VB-HR™ Rating across the organisation II

Level 4 CertificateCreating a value-based HCM strategyUnderstanding business models with an introduction to industry analysisDesigning a value-based HC scorecard

Chief Human Capital Officer

Cer

tifica

tes

ImpactOur programmes deliver exceptional learning experiences that are designed for practical implementation. We provide tools and knowledge drawn from rigorous research and practical experience to enable changes in organisational performance. We believe that the various course options provide the most attractive offer, which we term ‘progressive flexibility’ – the ability to choose one-off appropriate learning but with the option of structuring combinations to allow for sought-after accreditation.

InnovationOur ethos is to combine rigorous, analytical research together with actual client-related project experience to generate thinking that is at the forefront, and structured content that produces leading edge application-based knowledge. As a result we are able to offer unrivalled course content that is delivered in an effective modular-based format. We focus beyond ‘best practice’ using our fundamental ‘why-what-how’ approach that is transforming the way in which we have traditionally managed people and measured their contribution.

Individual focusThe course content and facilitation is designed to provide continuing professional development with a learning environment that is both supportive and challenging, backed up with peer networking. The essence of this focus is to enhance individual capabilities and critical thinking – that links with organisational performance. All school delegates are automatically enrolled with the Human Capital Management Institute (HCMIglobal.com).

2nd Floor Berkeley Square HouseBerkeley Square London

W1J 6BD





W1J 6BD





W1J 6BD

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Executive summaries Competitive Advantage through Strategic Human Capital Management Nicholas J Higgins Sustained competitive advantage is often talked about, often strived for but for many organisations it remains an elusive goal. Organisations are increasingly realising that the only real differentiator in performance terms is people, since finance, IT/systems, marketing, supply chains and global reach can all be replicated. Public sector organisations are also increasingly exposed to the rules of market dynamics. As such, strategic human capital management is becoming the ‘new science’, with its focus on employer branding, employee engagement, talent management, human capital reporting and other emerging disciplines. This paper, taken from the forthcoming publication ‘The Human Capital Management Manifesto’ provides a ground-breaking framework for HR leaders to analyse their external and internal environments to provide a truly strategic view of human capital, its management and contribution to an organisation’s competitive advantage (whether public or private). The Strategic Human Capital Management toolkit (part II) Nicholas J Higgins Part I explained the underlying HCM industry analysis and the 34 premises that were subsequently derived to explain current industry developments and to set a current agenda for strategic human capital management. Part II describes the components of a strategic HCM toolkit which senior executives and HR leaders will find of prime importance in applying to their particular organisational context. Of particular importance is the existence of generic human capital strategies and their influence on deriving a HCM strategy. The toolkit provides a development process (‘the ten commandments’) and examples of measurement. An introductory exercise entitled ‘Human Capital Management: How strategic are you? is also provided to complete and provide a quick means of assessing current organisational/HR function status. Employee Engagement: The secret of highly performing organisations Graeme Cohen & Nicholas J Higgins This article sets out how organisations from public, private and not-for-profit sectors can evaluate and enhance the degree to which their employees are engaged. Employees who are highly engaged (i.e. aligned with corporate values and objectives, and display appropriate commitment to the organisation) display a greater propensity for productivity and individual performance/output than those whose

engagement levels are below optimum. In seeking to optimise their productivity, organisations should address two core questions: How many of our people are highly engaged? How many of these highly engaged people are in core positions? Through measuring the underlying factors of engagement at organisational, departmental and employee level with use of specific measurement and supporting modelling analytics approaches, organisations can ensure appropriate coverage of ‘highly engaged’ staff and address ‘partial engagement’ and its negative impact on productivity. Human Capital Measurement: A retrospective viewpoint Maurice Phelps Human capital measurement has been on the management agenda for some time now. But despite all the attention and rhetoric given to the subject, organisations still seem to be some way off from the ‘promised land’ so often referred to. Here, one of the measurement industry’s veterans provides a retrospective insight into what has slowed progress and why, with suggestions on how the ‘human capital measurement movement’ should now go forward. Brave New HR World Part I Nicholas J Higgins This article is the first of three looking at human capital management and organisational performance. Part I provides HR functions with a manifesto to organise themselves into a ‘front-facing’ unit with a corresponding value proposition. The article seeks to explain why HR functions continue to struggle with mainstream recognition and why restructuring through shared services and/or outsourcing is not the panacea it is expected to be. The article introduces the new HR-star delivery model and the HR Value Chain to underpin the move to a more proactive, performance driven HR function from which an organisation can benefit. It does this through promoting a change in mindset and working with current HR roles and structures rather than promoting wholesale change. Welcome to the brave new HR world........... VB-HR™ Rating HCM100 Study: extracts from the groundbreaking report This article presents extracts from the VB-HR™ Rating HCM100 study, undertaken in October 2005. It shows how the ratings were distributed across the sample, with specific insights drawn out at ‘macro level’ – public sector and private sector aggregates – as well as at the level of particular industry clusters. Its findings suggest differentials in the effectiveness of approaches to human

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capital management at particular sectoral level (even given organisation specifics) with particular differentials at the level of the eight HCM value drivers. The HCM100 initial benchmark group included 100 private- and public-sector organisations drawn from 24 sectors. The subject of this article is to provide a summary of the sector findings which have been extracted from the main report. Employee Engagement – A review of the recent London conference Eric Welburn The recent Employee Engagement conference held by Symposium Events in London provided insight into where the current ‘state of play’ is with regards to employee engagement given the topics presented. The review is split into two parts – part (I) provides a running commentary including observations of the presentation outputs on the day, whilst in part (II) one of the original panel members is asked to revisit the ‘floor’ questions put forward by the various network groups in the afternoon session. Management matters at the British Library An interview with Mary Canavan A transcript of the ensuing conversation regarding management matters at the British Library is reproduced here. People management in Local Government: The VB-HR™ Rating consortium Graeme Cohen, Programme Director This article sets out the experiences of working with a consortium of 8 London boroughs to evaluate and compare people management practice through use of the VB-HR™ Rating approach. It sets out the different ways in which participating councils have applied the Rating; presents their feedback and project experiences and outlines how the Rating approach has been upgraded in light of these.

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JOURNAL of APPLIED HUMAN CAPITAL MANAGEMENT

TECHNICAL EDITOR Nicholas J Higgins

ASSISTANT EDITOR

Heidi Sinclair

CONTRIBUTING STAFF Eric Welburn

Maurice Phelps Dr Shira Schnitzer

MARKETING & EVENTS MANAGER

Charlie Williams

ONLINE WEBSITE www.ishcm.com /

www.valuentis.com

SUBSCRIPTIONS ON-LINE [email protected]

Hard copies of the Journal are available on request at a cost of £39.75. Discounts apply on multiple copy orders. Please contact the School on 020 7887 6121 for further information.

“Our mission is to provide managers and HR professionals the knowledge, skills and insight required for leadership and success in a demanding global economy.”

The School currently offers four main types of practical-based programmes containing over 60 course electives with various accreditation-based options.

They are: The Executive series includes seminars, masterclasses and bootcamps and is aimed at Director level. The Chief Human Capital Officer series is a dynamic option for aspiring HR leaders and is based on an emerging role in HR. The HC Practitioner series contains four further accredited options:

• HC Reporting Practitioner • VB-HR™ Rating Practitioner • HC Practitioner • Advanced HC Practitioner

The Professional series is aimed at a wider professional audience including Management, HR, Accounting, Audit, Communications, Education and Health and includes a variety of course electives with options for accreditation. The School launched the new HCMI qualification………………

Berkeley Square Campus 2nd Floor

Berkeley Square House Berkeley Square

London

W1J 6BD

Tel: +44 20 7887 6121 Fax: +44 20 7887 6100

for further information download our course programme guide at:

www.ISHCM.com

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Here.


© ISHCM 2007 13


Thought leadership

Competitive Advantage through Strategic Human Capital Management By Nicholas J Higgins DrHCMI MSc Fin (LBS) MBA (OBS) MCMI Dean, International School of Human Capital Management, London & CEO, VaLUENTiS Sustained competitive advantage is often talked about, often strived for but for many organisations it remains an elusive goal. Organisations are increasingly realising that the only real differentiator in performance terms is people, since finance, IT/systems, marketing, supply chains and global reach can all be replicated. Public sector organisations are also increasingly exposed to the rules of market dynamics. As such, strategic human capital management is becoming the ‘new science’, with its focus on employer branding, employee engagement, talent management, human capital reporting and other emerging disciplines. This paper, taken from the forthcoming publication ‘The Human Capital Management Manifesto’ provides a ground-breaking framework for HR leaders to analyse their external and internal environments to provide a truly strategic view of human capital, its management and contribution to an organisation’s competitive advantage (whether public or private), drawing on existing concepts. Of particular importance is the existence of generic human capital strategies and their influence on deriving a HR strategy. The article goes on to describe the components of a strategic HCM toolkit which senior executives and HR leaders will find of prime importance in applying to their particular organisational context. The article is divided into two parts, part I sets out the underpinning framework and observations – the Why? Part II looks at the What? and the How? through the strategic HCM toolkit.

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Part I All organisations employ people. All organisations

have some form of strategy. Thus logic dictates that all organisations should have some form of people strategy, whether it is implicit or explicit, which provides a means for the said organisation to carry out its strategy. But is HR strategy as we know it the same as strategic human capital management (HCM)? The answer is actually no. HR strategy is in fact a derivative of strategic HCM, an output of a simple yet robust framework for which this article puts forward. The limitations of current HR strategies

All organisations, whether public, private or NFP, operate within a given ‘industry’ or subset of an ‘industry’, each having its own operating model (or models) with which people form a central component. Thus, strategic human capital management must take into consideration the prevailing ‘industry’ context for providing any ensuing organisational strategy with regard to people.

Rewinding for a moment, to allow ourselves to form a picture of what HR strategy currently looks like, we can see that, for many, HR strategy is really a collection of objectives/tasks that have been assembled from interaction with the ‘line’, (though some are still done in isolation). This HR strategy is really a collection of operational objectives, reflecting the roots of HR as an operationally focused function. This has served many well to the point of its limitations. For others, HR strategy has been nothing more than an inarticulated phrase of intention.

Until recent times, these manifestations of HR strategy have served their, albeit, limited purpose providing HR functions with a certain raison d’etre. However, lately, there have been a number of developments which have the inexorable mark of becoming mainstay elements of human capital management going forward.

For example, these include such concepts as employee engagement, talent, employer brand, human capital management architecture, workforce intelligence and human capital itself; all becoming everyday items in the lexicon of people management. Added to this, has been the

increasing focus on human capital measurement & reporting, and the search for an intangible model of how human capital relates to organisation value or organisational service delivery (in place of value).

Suddenly the world of people management has got ‘complex’. Actually, that’s not true. Managing people and optimising their performance in an organisational context has always been complex, it’s just that we have preferred to treat it too simply, too often. In the whirl of organisational and industry dynamics, organisations and their HR functions need to make sense of all the competing elements – never has the concept of spinning plates had such a metaphorical reality. The importance of human capital

For the real reason that organisations, and their C-class executives need to ‘get it’, is that, in our increasingly knowledge-based economies, competitive advantage is increasingly derived

through people and their respective talents, and in a number of cases it is the only reason, for example in professional service firms, such as law or accounting, and many public sector organisations.

A few further examples would serve to illustrate the point. Ask any organisation which has invested in CRM technology, and they will tell you that ultimately it is the reliance on employees to leverage it to best effect, in B2C models like retail banking - in terms of cross-selling products at branch level; or in B2B models such as that employed in pharmaceuticals where getting sales

Suddenly the world of people management has got ‘complex’. Actually, that’s not true. Managing people and optimising their performance in an organisational context has always been complex, it’s just that we have preferred to treat it too simply, too often.

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Strategic HCM Industry Analysis

Human capital

Market/ stakeholder

recognition of HC value

Leveraged organisation architecture

The investment in organisation design and HCM architecture needed

The contribution of HC to an organisation’sintangible value

Threat of particular jobs/roles substitute or obsolescence

Bargaining power

Talent ‘rivalry’, ‘org’ performance

and competitive advantage amongst existing

firms

HC Replacement propensity

teams to input knowledge through client management is a key challenge.

On a wider note, staying on the pharmaceuticals theme, drugs are developed by R&D teams, not by computers. Car design still requires human input, even though manufacturing can be done by robots. Robots are both designed and maintained by human input.

Computer mainframes themselves require human monitoring. Similarly, no matter what technology is brought into health services, it still requires people to know when and how to use it and, more importantly, to interpret the data. And so on. The differentiating point is people. All organisations can access finance, acquire the same technology and software, route the different channels to market, the same lean supply chains, and access buildings and transport. No - what makes the difference is people and organisational leadership – which is itself a collective people interaction, and the execution of all of these organisational assets.

It is easy to forget that in the mega-trillion dollar industries that are business unit structured, multiple systems and technology-platformed; performance indicator-driven organisations, that human capital is the core element.

Somehow, collectively, we seem to have undergone selective memory loss when understanding human capital’s contribution. Therefore organisations need to be reminded that strategy, innovation and creativity, product development, customer service/delivery, financial market trading, goods distribution, call centre response, hospital care, social care, teaching all have one thing in common – human capital.

Thus acquisition and retention of talent, both locally and globally, and developing capability whilst stretching individual performance, is of paramount importance, whether the organisation is a global billion dollar S&P500 striving to attain higher shareholder value or a local government department meeting citizen-based delivery expectations. From a human capital management perspective, private and public sector organisations face many similar challenges. Strategic HCM

Each industry (and sub-industry) has its operating signatures, pressures and outputs. Each organisation within that industry has its unique set of capabilities and performance history and with it the requisite talent necessary for achieving

© ISHCM 2007 16


Talent ‘rivalry’,

organisation performance and

competitive advantage amongst existing

firms

Human capitalMarket/

stakeholder recognition of

HC value



1

both current and future expectations. Each competing cluster of organisations adds to the intensity of managing people well or risks the consequences. Thus the strategic HCM framework proposes to acknowledge this constant ‘push-pull’ of existing forces that determine the top performing organisations from the also-rans, whilst at the same time providing the ‘operating constraints’ with which organisations have to negotiate.

As such, it incorporates and adapts previous knowledge from social science disciplines. In particular, I wish to acknowledge the pioneering work of Michael Porter on his industry analysis and competitive strategy/value chain frameworks1. Thus, I present for the first time, what I believe to be a truly encompassing framework for deriving human capital management strategy for any organisation to use.

These ‘five HCM forces’ dictate the parameters of organisation performance through a human capital lens, providing a battleground over which organisations ‘fight’ for and manage talent, and determine the optimal trade-off on human capital leverage as against human capital investment, and its ensuing impact on overall organisation performance.

Those organisations getting it right ultimately gain sustainable competitive advantage, i.e. a higher rate of return from their human capital, no matter the other pieces of an organisation’s value proposition to its market-place/environment. The five HCM forces

To recap the ‘five HCM forces’ identified with strategic human capital management are:

Talent rivalry Human Capital Leveraged organisation architecture Market/stakeholder recognition (of HC derived

intangible value) Human capital replacement propensity

In effect, ‘Talent rivalry’ is impacted upon by

the interaction of the other four forces. It also, in turn, acts as the ‘primary’ force impacting on organisation performance and ensuing competitive intensity. To help understand the effect of these forces, each contains a set of Premises 2 . Supporting comment is provided, together with appropriate observations on what organisations and HR functions should focus their attention in relation to the Premise. These

1 See Competitive Strategy (1980) and Competitive Advantage (1985), Michael E. Porter, Free Press 2 There are a total of 34 premises spread across the five HCM forces. A list is provided at the end of this article for reference. Comment under each premise has been shortened for this particular article - for full version see The Human Capital Management Manifesto, forthcoming

premises also provide insight and explanation into observed market behaviour. It is important to note that in undertaking an HC industry analysis, the emphasis can be threefold:

• The analysis can be at industry or subset industry level as defined

• The analysis can be focused from the human capital perspective which may be multi-industry dependent upon the context

• The analysis can be undertaken from the job role/family cluster perspective

All of these analyses will provide the necessary

context for an organisation’s human capital management strategy where appropriate, though it is to be acknowledged that the job family/role analysis will normally be undertaken as a subsidiary exercise; providing deeper context on specific areas such as critical (core) roles to the organisation. 1 Talent rivalry and competitive

intensity

Starting with the core, the intensity created by

competing organisations and their predilection for talent; this force encapsulates the competing operational strategies, i.e. their individual human capital management (HCM) strategies and market positioning, their employer brand (EB), their employee value proposition (EVP) and subsequent delivery on EVP expectation - through measures such as employee and organisation engagement and human capital related performance. This force is split into six sections:

• Competitive rivalry • Human capital utilisation • Employee engagement • Employer brand • Organisation performance • Talent rivalry and retention.

© ISHCM 2007 17


(a) Competitive rivalry Premise [1]: That the number and size of

competing firms in an industry will impact the intensity of human capital rivalry and ultimately competitive advantage.

Competition in any industry or subset of industry will continually work to drive up human capital costs, whilst at the same time, driving down the potential returns on human capital similar to that as determined in the market – i.e. down to the free market rate.

As with the main economic theory of deriving economic profit, the more intense the competition, the more difficult to sustain adequate returns and this is the same for human capital. However, intense rivalry will also tend to drive up the costs of employing human capital as organisations jockey for premium employer value propositions (EVPs). Thus organisations potentially suffer a ‘double whammy’ in terms of human capital return.

However, more macroeconomic factors can influence the degree of intensity. For example, an industry which is experiencing market growth will mean that required talent (skill-sets) may become ‘scarce’ for organisations to acquisition thus further driving up costs of employment.

Conversely, organisations in a maturing or declining industry will potentially have human capital over-supply which has implications for costs of employment. Talent may well be in good supply but individuals may require further benefits to compensate (i.e. guaranteed pension or large pay-off entitlement should termination ensue).

Given the increasing sophistication of reward-benefits packages, organisations (through their HR functions) are increasingly turning towards optimisation analysis as a means of optimising reward profiles, i.e. the cost-efficiency of reward-benefit costs relative to best individual choice3. (Note this is from a reward perspective rather than the whole employee engagement perspective).

Premise [2]: The degree to which human

capital is paramount to an organisation’s operating model (HCI) will determine the intensity of talent rivalry.

Organisations utilise human capital to differing degrees 4 with some organisations more heavily dependent than others. Industries whose organisations have higher HCI ratios will, on average, incur more intense talent rivalry, than

3 Trade-off is achieved using conjoint analysis and then plotting against an efficiency frontier means that changes can be made in reward-benefit allocation, in terms of either reduced cost for same employee value proposition, or same cost for increased value proposition (maximising individual utility) 4 The correct term is HCI – Human Capital Intensity and is a measure of relativity between operating costs which are HC related versus non-HC treated – see ‘Cracking The Human Capital Code’ –downloadable at www.valuentis.com for further reference

firms who have much lower HCIs. That is not to say that human capital is not important in these organisations, merely the degree of intensity to which talent rivalry will occur.

Increasingly, organisations view their human capital population in a segmented fashion in terms of how human capital is viewed and categorised as either ‘core’, ‘support’ or ‘contracted’ (with further potential sub-classifications where appropriate). This assists in deriving specific strategies around areas such as employer branding, talent management and reward.

For HR functions, understanding how employee and management populations can be segmented is important. Traditionally this has been limited to demographic segmentation such as role, age and/or ethnicity categorisations. Increasingly, human capital segmentation needs to be viewed in further ways, i.e. role criticality, employee value proposition, development curve, communication network, degree of HR support etc. This provides far more insight to the perplexities of the organisation’s human capital operating models and in particular defining HR’s delivery and value contribution.

Premise [3]: Given the underlying industry profit/return signatures, organisations will gain competitive advantage though the most effective utilisation and management of human capital.

It is logical to reason that given any two identical organisations, the only difference being their human capital – then the organisation which gains higher productivity through the engagement of their employees and leadership of local and senior management will win out every time. Its return-cost ratio will always be higher and therefore overall performance also. To achieve competitive advantage, organisations need to ensure ‘core’ roles (these are not just in management) are matched with ‘best fit’ individuals and teams who are highly engaged (alphas).

It is important to remember that industry cost structures dictate the degree of profit signatures. Do organisations generate above market returns and therefore have higher HC return curves or are margins wafer-thin and/or indeed loss-making which accentuates cost-containment and lower HC return curves?

On a similar note, in industries where ‘barriers to exit’ are high, it is difficult for incumbent firms to exit with the HC performance-cost curve becoming particularly acute.

© ISHCM 2007 18


If so then pressure on costs will increase due to fact that the majority of incumbent human capital will tend towards ‘continuance commitment’ (with its associated productivity challenges). Thus, employee benefits will become a prominent issue as individual employment switching costs (being re-employed outside of industry and the issues of retraining/relocation) are higher. In these instances, individuals look to maximise future benefit utility rather than undergo the uncertainty inherent in switching. The UK and US car industries give good examples of this.

For organisations, understanding where and how, and to what degree human capital adds value in relation to the unique profit signature(s) is of primary importance. HR functions need to go further and provide modelling analytics 5 to demonstrate this value derivation/contribution. Thus, the degree to which HR functions can display or access competence in this area, the greater their explicitised contribution to an organisation’s competitive advantage (see also premise [30]). (b) Human capital utilisation

Premise [4]: That the organisation’s utilisation of human capital is dependent upon the organisation’s (or sub-unit’s) operating model.

The utilisation of human capital will always be dependent upon an organisation’s operating model and performance, i.e. the degree to which an organisation uses various ‘assets’ together and the degree to which an organisation can generate higher revenues/profits (or alternative output measures). Thus, there will always be a natural limit to the productivity leverage of human capital.

Organisations need to have an understanding of where this ‘HC leverage point’ is, as potential over-investment in HC initiatives may occur as much as under-investment.6 Again, as stated in Premise [3] HR functions have a core role, in conjunction with finance, in deriving the necessary analytics 7 to establish this type of organisational intelligence.

Premise [5]: Organisations deploy differing

resourcing strategies either recruiting in before market and developing or purchasing required skill-sets but at market cost.

Organisations operate hiring strategies that can be represented spread across a continuum with two generic strategies occupying each end from ‘hiring in and developing human capital’ through

5 For example refer to www.valuentis.com and www.vbhr.com; See also ‘Competing on Analytics’, Davenport T H & Harris J G, HBS Press (2007) 6 For further insight on the HC leverage model see ‘The VB-HR Rating HCM100 Report, VaLUENTiS, 2005 7 The term used to describe the methods of combining various people metrics and data together with other operational and financial data to provide insight

to purchasing-in specific human capital. In practice, organisations choose a ‘mix’ dependent upon roles being filled. However, this model serves the purpose for understanding differing HC investment curves and thus pay-offs, particularly given the use of part-time or reduced-time staff.

Quite often, the changing external environment subtly changes resourcing options and organisations, from a human capital resourcing standpoint, need to understand their operating model requirements, particularly given the investment. This is quite marked in the small to medium sized business segments.

For example, an organisation’s resourcing model is revealing in the potential transitory nature that employment may occur for individuals. This is the same for professional services firms as it is for leisure organisations. Understanding the resourcing model provides insight that may make certain reported HC metrics meaningless (i.e. turnover). The concept of HC return-cost curves for specific roles is still in its infancy with regard to industry practice.

This is a core fundamental for HR functions. Thus, understanding the operating model(s) in existence, evaluating current HC utilisation strategy and its implications for the organisation is paramount. Use of analytics is again helpful here in identifying any ‘disconnecting’ operational issues which are incurring unnecessary cost or vice versa – areas of under-investment.

Premise [6]: Human capital management is

a key component to best utilising human capital.

Human capital management is the collective term for optimising the capabilities and performance of management (as a separate subset) and employees 8 . Organisations can set the agenda for how high the ‘bar’ is in terms of managing human capital within their boundaries.

Thus, an integrated approach to human capital support mechanisms such as resourcing, training and development, organisation design, performance management, reward, employee communications, health and safety, payroll and HRIS can significantly leverage collective human capital productivity (through differing aspects of engagement).

However, for leverage to happen, all levels of organisational management need to execute to standards set. This is where effective HR functional expertise can have such an impact. Managers need to be reminded that they are ‘agents’ of many of the HC support processes.

8 Extracted from the definition by The International School of Human Capital Management 2006

© ISHCM 2007 19


(c) Employee engagement Premise [7]: Employee and management

engagement is a core platform to differentiated organisational performance.

The term employee engagement has been defined9 as:

“Employee (and management) engagement10 is

an ‘outcome-based’ concept. It is the term used to describe the degree to which employees can be ascribed as ‘aligned’ and ‘committed’ to an organisation such that they are at their most productive.”

Given human capital’s prominence in

organisation performance and that this is a result of the collective effort of all employees within the said organisation; then it is logical to deduce that given two organisations with identical operating models and outputs, an organisation with higher engagement as defined will be more productive and thus higher performing.

Engagement is the main driver for individual productivity. There are a number of studies that have looked at the linkage between employee engagement and organisation performance. One such meta-analysis showed certain positive relationships between employee engagement and certain business outcomes11.

Organisations are only just beginning to see the importance of engagement as a construct and, more importantly, as a driver of competitive advantage. As such defining and measuring engagement, to the technical standard required, is still very much in its infancy. Two organisations that are using engagement as a core driver in management terms are RBS and Standard Chartered, both coincidentally banking institutions.

Though a number of definitions are in existence in the market-place, many are specifically contextual or insufficient in terms of rigour. The International School of HCM having developed a universal definition, has since developed Standards 12 with associated measurement constructs.

HR functions need to understand that employee engagement is core to their existence and thus sufficient grasping of the concept, its measurement and application are of paramount importance in the workplace.

9 As defined by The International School of Human Capital Management – see also article in this issue on Employee Engagement for a more detailed treatise 10 I differentiate here the distinction between employees and people managers for purposes of analysis 11 Business unit level relationship between employee satisfaction, employee engagement and business outcomes: a meta-analysis, Harter, JK, Schmidt, FL & Hayes TL (2002) Journal of Applied Psychology. I would stress that the research is not conclusive and is open to interpretation, nevertheless there does appear certain positive outcome relationships 12 Refer to the ‘Employee Engagement’ paper in this Journal for more information

Premise [8]: The degree to which the workforce is engaged (relating to both critical and support positions) within an organisation contributes to high performance.

The key principle contained within this premise is that whilst organisations may find collectively that engagement is high or relatively high, a key differential is the degree to which the core roles as identified are populated by highly engaged individuals.

For example, in financial services, branch managers may be termed ‘core’ staff. A less engaged manager will have a less positive (more negative) impact on the team than a highly engaged manager. In industries employing call centres, highly engaged supervisors can have a big impact on team performance. Similarly, in hospitals, highly engaged core staff have a much more positive impact on patients than those less so. This is indeed a crucial element to many public sector services which have predominantly high human capital intensity.

Thus, apart from any corrective action required to eradicate poor engagement, HR functions need to utilise modelling analytics in which to express the differentials in productivity terms for management decision making and subsequent action. The education of the line is a critical component. Also, functions need to enhance their current organisational structure format into a ‘role value map’ emphasising the key roles and varying support roles that exist.

Premise [9]: Organisations which suffer

from lower employee engagement will conversely suffer a disadvantage from a productivity perspective to organisations with higher engaged workforces (other things being equal).

Lower employee engagement will result in an increase in the number of employees who display ‘continuance commitment’, 13 i.e. those that remain with their employer because switching costs are too high (e.g. better reward/benefits than perceived for similar role in the market-place, location/mobility etc). The danger for organisations is that their productivity-cost ratio will reduce with a corresponding deterioration in overall organisational performance, as derived by their operating model. Similar to premise [8], HR

13 For an insight into levels of engagement see ISHCM Employee Engagement presentation downloadable at http://www.ishcm.com/events.htm or see the ‘Employee Engagement’ paper in this journal

© ISHCM 2007 20


functions need to utilise modelling analytics to express the differentials in productivity terms caused by lower engagement for management decision making and subsequent action.

(d) Employer brand Premise [10]: To differentiate in the

market-place, organisations need to develop employer brands with associated employee value propositions.

In order to attract the talent that organisations have identified they require, each organisation needs to communicate to the market its particular message regarding its ‘treatment’ of human capital and therefore ‘brand’. This is synonymous with the way in which organisations explicitise their brand to customers/clients. The term that is used to encapsulate this brand is employee value proposition (EVP)14, what is essentially a ‘bundled’ promise to potential employees on a range of people items (e.g. specific reward/benefits, opportunities, policies etc).

Organisations, both large and small, are increasingly looking for a means of differentiating themselves. One method has been to be granted awards. Many of these are of dubious quality15 in both design and output but they at least provide some differentiation (or illusion thereof), however meaningless the award construct. ‘Employer of Choice’ (EOC) initiatives are another manifestation of this with many company websites proclaiming an ‘Employer of Choice’ monicker. Again, the term is open to many interpretations though attempts to define its properties and how to implement a strategy are in existence 16 . Diversity of job roles presents more challenges for the organisation particularly around branding in terms of what is deemed core and support, and the ensuing expectation differences with regard to employee value propositions. HR should be in a position to identify these.

One other key way for organisations to differentiate themselves is through human capital reporting which seems to have been greatly overlooked – (see Premise [29]).

HR functions are instinctively the guardians to drive this approach and thus need to have a good understanding of HC Reporting and the way in which it can enhance the employer brand. This may also provide a challenge as HC Reporting is viewed as separate to CSR reporting, where a number of HR functions have decided to pitch the organisation’s ‘HC wares’.

14 There may be more than one EVP in existence targeted at differing employee segments 15 See ‘Employer Branding – the good, the bad and the downright ugly’, VaLUENTiS white paper, forthcoming 16 See for example VaLUENTiS white paper ‘A Structured Approach to implementing an Employer of Choice strategy’ 2007

Premise [11]: Organisations, however, need to execute on the employee value proposition (EVP) to match the ‘experience’ to the ‘expectation’.

The previous premise put forward the case for an employer brand with associated employee value proposition(s) that is successful in attracting the right/appropriate calibre of talent to an organisation. However, once within the organisation, the value proposition and ‘brand’ is open to challenge if subsequent experience does not match to individual expectation.

This presents a very difficult challenge to the organisation, particularly where the brand may have been ‘stretched’ for recruiting purposes. Over-promising rarely works, but the chase for talent inevitably pulls organisations into this type of ‘lowballing’ practice. A number of organisations do appear to manage expectation well and this positively reinforces the employer brand which provides further differentiation, and is particularly noticeable in graduate recruitment scenarios. I would expect organisations, and particularly their HR functions, to continue to develop more sophisticated and scientific approaches to both employer branding and employee value propositions in future.

Premise [12]: Failure to match experience with expectation will erode the employer brand.

If an organisation cannot match ‘rhetoric’ with reality, then over time its brand in the market-place will erode as ‘experience’ leaks out amongst potential recruits (the concept of efficient markets with regard to information).

For organisations, warning signs of the ‘expectation gap’ show up in a variety of ways. A common example is high voluntary turnover in employees with less than two years tenure. Employee engagement is one way to provide overarching ‘evidence’ of expectation matching or not as the case may be.

One of the challenges for organisations, going forward, is externally reporting engagement data that provides a reality check in reinforcing the brand, whether positive or negative. This is a very significant management driver and one that again has been overlooked in external (or internal) HC reporting. The fact that the employer brand can be eroded through poor engagement data should ensure that organisational management is pro-actively engaged in good execution rather than waiting to put right what has gone wrong through poor practice.

© ISHCM 2007 21


Too many organisations still treat employee engagement (a.k.a. ‘surveys’) as a reactive event rather than as a scheduled proactive mechanism for evaluating and maintaining good management practice. As further evidence on the matter of employer brand, and one to which employer organisations need to be aware, there are a number of dedicated websites17 (and blogs) that provide market information on employer experience. For the organisation, any ‘expectation gap’ will pose a serious challenge to correct, and in many cases what would be ‘damage limitation’.

Another key role here for HR functions is in terms of their governance objective. The constant requirement of measuring and monitoring of employee engagement and its relation to employer brand experience, completely changes the traditional one-off positioning with which organisations and HR functions have viewed surveys and branding initiatives.

(e) Organisation performance Premise [13]: That the organisation

performance attributed to human capital, as defined by HCIR and HCIR/HCC measures, can be positively influenced by good management practice and high employee engagement.

No organisation can view human capital in isolation of performance. Over the last decade there has been a significant amount of effort in determining meaningful and reliable measures of organisation performance relating to human capital. Despite a number of advances 18 in the ‘science’ of human capital measurement, debate continues today as to the best measures19. For the purposes of this exercise I shall refer to those metrics generated under the Human Capital Composite Index (see inset overleaf).

As proposed under premise [4] the return on human capital is subject to the limitations of an organisation’s operating model. Organisations and HR functions need to be familiar with the various measurement approaches and standards in existence, in order to gauge the impact of good human capital management practice.

Premise [14]: Competitive advantage is, to

differing degrees, derived through employing and maintaining superior human capital performance across the organisation.

Employing the right and diverse20 talent relies

17 See for example http://www.vault.com/index.jsp 18 See for example www.HCCindex.com and VaLUENTiS report ‘Cracking The Human Capital Code’ (2006) – www.valuentis.com 19 See IRS report no 859, p20-21 20 The meaning of diverse here is ‘balance’ of teams, from differing experience and competency perspectives, rather than any ‘quota representation‘ driven interpretation. For insight into the advantages of diversity from this viewpoint see for example ‘The Difference’ Scott E Page, Princeton University Press (2007)

upon a good employer brand and effective resourcing practice, coupled with effective management practice. However, again using the analogy of the two identical organisations, the differentiation at this point (the margin) is the degree to which the core (critical) roles identified are staffed with highly engaged (HE) high performers (HP), and the percentage of ‘fit’ of supporting talent, i.e. the right people, in the right position at the right time, for the right reasons.

Thus, whatever the generator of competitive advantage, whether it is innovation, product quality, more efficient cost containment, higher profits per head etc., the critical people role inputs are HE-HP. In a similar vein, to support the critical roles, supporting roles need at least engaged performers (E-P), to avoid any unnecessary incurring of cost.

This presents the real challenge for organisations (and their HR functions) given their complexity of structures, roles and the organisational dynamics which are ever present. Talent management has different market interpretations but as an organisation there are three key challenges:

1. The degree of strength in depth (‘benchstrength’) to which core positions are covered - ,i.e. in other words there is always a ‘talent pool’ for any incumbent core role.

2. Core role vacancies should always be looked to be internally filled wherever possible given this strength. To ensure comparability with external individual capability, ‘competency mark to market’ should be used – i.e. organisations should always utilise external candidates through assessment centres to provide a comparison for any ‘core’ position.

3. To employ the innate talent of people in the best way possible through ‘individual-role ‘fit’ to guard against potential skill/knowledge atrophy (see also premise [32]) and ensure optimal engagement, allowing for other engagement factors.

Premise [15]: A well defined human capital

strategy which is executed accordingly contributes to overall organisational success

This is achieved through bringing the various strands of human capital management architecture and supporting HR capability into a cohesive and integrated whole which contributes

22


"HC Return Curve" - HCIR vs. HCC

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to superior human capital performance – (also refer to premise [6]). Again, using the ‘two identical organisations’ hypothesis, the organisation with a clear business focused and executed strategy (or collection of strategies) will result in higher organisational performance, given the preceding premises, than an organisation which poorly executes or which possesses an unfocused HCM strategy. There are several studies21 which have provided empirical evidence to support this premise.

The problem with Revenue per FTE

Revenue per FTE has been commonly used as an ‘output’ marker for human capital productivity. The equation is simple enough, but fundamentally flawed. Unless all organisations exhibit the same operating model with the same people cost to operating cost ratio, then this equation will be of little relevance. The HCIR metric however, can be calculated to better represent revenue generation attributed to people (or output based for public sector). It provides the most practical and accurate representation as using asset-based or shareholder value based calculations are far trickier operations fraught with complications and inconsistencies. In the Human Capital Operating Statement (HCOS), the revenue metric is adjusted to take account of the people contribution factor (i.e. percentage applied equal to people cost percentage of total operating costs – referred to as human capital intensity or ‘HCI’). The resulting metric is referred to as HCIR per FTE. (and similarly HC costs and HC return performance betas). This provides much more accurate performance comparison, taking account of organisational operating models. The use of HCIR/HCC and HC betas provides businesses with far greater comparative insight with linkage to HR functional and human capital management priorities. (see www.HCCIndex.com).

21 See for example, ‘The Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial Performance, Huselid, M, Academy of Management Journal Vol 38 No 3, pp635-672, 1995. Also see ‘The Impact of Human Resource Management Practices on Perceptions of Organizational Performance, Delaney J & Huselid M, Academy of Management Journal Vol 39 No 4, pp949-969 1996.

(f) Talent rivalry and retention Premise [16]: That organisations will

devise retention strategies to protect their core human ‘assets’ against being targeted by competing organisations.

Talent rivalry, requires organisations to devise defensive barriers around their ‘core’ human assets in terms of retention strategies, just as they do with key clients/customers. Organisations have, in the past, used loyalty-type bases for retention but there are issues, not least the unintended situation of employees displaying continuance commitment (i.e. switching costs are too high to move so employees do enough rather than be engaged/highly engaged). Pensions were (and still are) seen as a core component of retention strategy - even if unarticulated – but whose present day costs are increasingly prohibitive. Given the probability of ‘continuance commitment’ amongst the workforce, this can prove to be an expensive option without ensuring other retention elements (leaving aside the current legislative enforcement of pension provision).

Previous investment in talent development and/or disruption caused by loss of key talent provides the necessary rationale for appropriate retention strategies in place. In high intensity industries populated with identifiable talent, organisations are particularly vulnerable to ‘poaching’ (itself a dangerous strategy given the propensity for ‘poaching’ to occur again).

It should not be forgotten, that this type of ‘poaching’ and ‘defensive retaining’ goes on within multi-united businesses (again particularly those with decentralised fiefdom-type cultures). HR functions need to be wise to this type of internal ‘gaming’.

Organisations and HR functions need to look beyond the ‘raise pay’ defence as the only viable retention strategy’ and look to more ‘exotic options’. – see also Premise [24].

Premise [17]: That given an organisational

choice (in equilibrium), talent retention strategies will always be pursued before acquisition strategies

This is due to the increased market transaction costs associated with external acquisition. Thus, voluntary turnover of staff, particularly in any ‘core’ and/or ‘support’ roles which need to be replaced are costly and, also, of higher risk until a certain period of performance is observed – thus increasing internal opportunity cost of management time (excluding any training investment), i.e. retention strategies are of prime importance to organisations.

© ISHCM 2007 23


Human capital



firms

Market/ stakeholder




2

Premise [18]: That organisations are likely to retain average or even poor performers if mechanisms are absent in the market-place which guarantee the fact that adequate replacements can be found.

This may seem a counter-intuitive premise but evidence, in the main, bears out. The fact that the new hire market resembles a market for lemons (refer specifically to Premise [23]) bears out the fact that many organisations may countenance policies of ‘the devil you do’ as opposed to ‘the devil you don’t’ when it comes to exiting poor performers.

This prevailing attitude has perhaps been reinforced by the higher barrier put in place by various employment legislation in terms of due process which makes it more difficult to manage poor performance without corresponding rigour of process diligence (i.e. transaction/hassle costs are too high for local management unless in extreme cases).

The fact remains that many organisations still prefer poorly performing managers (at middle and junior levels) rather than replacement primarily because the ‘transaction costs’ of replacing are still seen as too high. One very much cited case of the forced exiting of poor performance has notably been GE who has routinely exited its bottom 10% performers. What isn’t evident from any published material is did their replacements fare any better? Or were they already above market average? It is an interesting question.

Senior executives have reportedly indicated that they would like to operate some form of annual quota for exiting poor performers but are concerned that skill shortages, a culture of fear and perceived damage to employer reputation would ensue22.

Of particular interest is the increasing frequency of C-class executive turnover. The market appears to have become more belligerent on poorly performing institutional performance, afforded by greater transparency of performance at individual level at the top of organisations.

Thus the challenge for HR functions is to provide a level of training and subsequent standards monitoring to negate the natural barriers to effective performance management and specifically the management of poor performance. Too often, where cases are escalated, HR’s involvement is back-ended rather than front-ended. Again smart HR functions are beginning to use analytics to identify drivers of poor performance in an effort to minimise their incidence. Pre-emption or effective pro-activity can significantly impact what is a collectively costly and wasteful use of time and resource.

22 A study by Hudson consultants as reported in the Financial Times, ‘Directors want staff cull every year’ January 12 2007

Comparative measures of talent & retention competitive advantage success

HC performance metrics23 Employee Engagement index Employer Brand index Talent Management index Execution of HCM strategy24 Organisation performance metrics

2 Human capital

This force relates to the pool of talent, both

local and global, that exists with each individual has certain bargaining power dependent upon his/her mix of education, experience, specificity of skills, location and relative role importance.

Hiring the right people who will be engaged rather than just committed to perform well, and who have innate talent to be developed rather than having threshold competency in order to just do the job in hand. This last point is an important point. To what end do organisations put stock on a job/role to be ‘filled’ versus the potential enrichment/enlargement of such roles and promotability outside of that?

The supply of human capital exerts a degree of ‘bargaining power’ on any hiring organisation though this is dependent upon a number of factors. Clearly, a prospective CEO who is headhunted has potentially more bargaining power than say a locally resourced contact centre staffed with hundreds of employees of similar role type.

Premise [19]: That all individuals will look

to maximise their job/role utility function. This is the propensity for individuals to choose

what they perceive to be their best employment strategy which in simple terms is to find the most ‘rewarding’ job. For example, this includes the

23 For example through GHCRS2006/HCCI portfolio 24 The EE,EB and TM indices can be calculated by quantitative and qualitative assessment, for example, through the VB-HR™ Rating organisation indicator portfolio

© ISHCM 2007 24


trade-off between reward, opportunities, work environment, immediate personal needs and longer term aspirations for the highest reward given their individual proposition to prospective employers and market conditions.

An individual’s proposition is interpreted here as a combination of skills, qualifications and experience together with knowledge specificity, mobility/flexibility and whether professional vocation or job based.

HR functions need to supply line management with an understanding of the reasons why individuals join organisations. A key challenge is the various trade-offs between the various utility drivers and HR possessing this type of intelligence, i.e. have access to modelling data that provides insight into future engagement outcomes.

Premise [20]: That the ‘market’ for talent

in terms of reward follows an ‘efficiency frontier’ based on perceived worth.

There is evidence that an efficiency frontier exists for a number of job roles. Collectively, at macro level, organisational human capital costs do follow an ‘efficiency frontier’, of which there is evidence25. However, this frontier remains subject to distortions. The existing gender inequality has been a distortion for far too long and has only recently been the subject of corrective action due in the main to legislation. The fact that legislation has been required and that this has been endemic across both public and private sectors asks poses some serious societal attitude questions (in the name of saving costs?). There are a number of macro-industry factors that (temporarily) distort this ‘efficiency frontier’

1. Hiring immediacy/skills shortage – is hiring required within a very short time-frame or is it part of a planned future event? Is there a talent shortage in particular skill-sets? Immediacy and or perceived talent shortages will put pressure on both hiring quality and employment costs.

2. Concentration of specialisation - is hiring focused on a small population of specialised roles or a large population of relatively lower skilled jobs? Again, a small population of specialisation will put upward pressure on costs, whereas a large population of lower skilled will keep downward pressure on costs, (subject to any national minimum wage thresholds).

3. Monopsony 26 (the existence of a single large employer in a location) – gives rise to potentially negative impacts on

25 See ‘Cracking The Human Capital Code’ report, VaLUENTiS-ISHCM 2006 26 For more on the monopsony topic see Labor Economics, Cahuc P & Zylberberg,(2004) MIT or for an extensive treatment see ‘Monopsony in motion: Imperfect competition in labor markets’, Manning A, (2003), Princeton University Press

individual reward in the immediate locality, though organisations may benefit. However, this may be short-lived if any other competing organisation locates within the catchment area.

The CEO market would neatly fit into the

‘concentration of specialisation’ category as debate rages over the issue of executive pay. There are a number of factors involved in this scenario. It does seem odd however, that given the ‘war for talent’ beneath CEO level, there seems to be an apparent small pool of talented CEOs. Is that true or is there some other ‘dark force’ at work?

Whatever, the role, whatever the location, organisations need market intelligence to set appropriate reward based packages to avoid paying ‘over the top’. Inappropriate reward strategies can have two main outcomes: (i) provide competitive disadvantage through higher costs if not matched with performance expectations, or (ii) inability to hire requisite talent or indeed lose talent over-time.

For organisations and their HR functions, the analysis and design of reward propositions is key particularly where any of the above distorting circumstances are in existence.

Premise [21]: That the market in terms of

matching capability to role is efficient. The evidence suggests the market for human

capital is less than efficient in terms of ‘fit’. This is down to a variety of reasons (one of which is discussed in Premise [23]). There are a number of differentiated ‘resourcing’ channels which include recruitment firms, headhunting, press advertisements, events, personal network, each with its own advantages and disadvantages from an effectiveness and cost perspective. The advent of e-recruitment has seen both advantages and disadvantages from an organisational perspective.

The greater degree of available information for matching potential employees with potential employers has become more transparent and more ‘efficient’ as a result.

The downside is that the inherent recruitment channels still act as potential barriers due to the inefficiencies caused by the differing agendas of selection bias. Also, some of the transaction cost advantages of e-advertising have been negated due to the higher volume of prospective applications and screening required. Recent regulation has also placed further burdens in terms of being able to differentiate potential applicants.

© ISHCM 2007 25


For HR functions, gaining access to the right talent in the market place is key. Thus resourcing strategies need to identify the various requirements of the organisation, the most effective channels, or combination of channels and the degree to which any of the recruitment processes are outsourced (intelligence and brand implications).

Premise [22]: That the ‘internal market’

relating to an organisation’s talent ‘fit’ in terms of individual performance and capability is efficient.

Evidence here suggests that organisation’s internal markets are at best patchy in terms of efficiency, and as a result, organisations incur increased costs and/or reduced productivity collectively. It is an area of increasing attention as evidenced by the increase in organisations’ documented talent strategies, succession planning and focus on management developmental options.

As stated under premise [14] employing talent optimally is a big challenge. Organisations need to spend more time focusing on this aspect. To illustrate the point, I refer to ‘the two identical teams’ hypothesis and the relation to performance given that one team employs talent to the full correctly, whilst the other misallocates resource in a variety of ways. The team performance is highly divergent. If we view organisations as a collection of teams, it is easier to see the prospective value destruction that takes place if the simple premise is not adhered to.

For HR functions, ensuring that performance (and development) management systems are effective is paramount. Organisations who view this process as ‘task’ rather than ‘value-adding’ with corresponding HR focus on completion rates rather than quality of assessment and feedback will suffer accordingly. HR needs to assess the degree to which individuals at an aggregate level feel ‘matched’ in terms of current capability, allowing for individual over-estimation (blindspots). This is easy to put in place if using some kind of survey instrument, allowing for cultural impediments.

Premise [23]: That the human capital

market displays similar characteristics to that as for ‘The Market for Lemons’27.

That is, the ‘recruitment market’, in terms of organisations looking to hire the requisite individual capability/performance28 , suffers from what is termed adverse selection problems caused by imperfect (asymmetrical) information, in most circumstances.

27 ‘The Market for Lemons: Quality Uncertainty and the Market Mechanism, G Ackerlof, 1970 28 The reverse can also be argued in that individuals seeking organisations suffer, to some degree, the same adverse selection issue

• No organisation can accurately assess the value or actual performance of a potential candidate through examination before contract offer is made (internship is a means of negating this)

• Competent individuals are more likely to have more knowledge/assessment of their value prior to contract offer rather than organisations

• Incentives exist for the individual to exaggerate their individual human capital (or pass off a lower skillset as a higher one)

• Organisations are limited in having reliable and credible disclosure (it is diffificult for individuals to differentiate with sufficient credibility)

• There are no guaranteed individual quality assurances (even with qualifications).

However, to compensate for this, organisations

use a number of mechanisms. There are no guarantees and educational qualifications are only partly informative as an indicator of performance.

The use of assessment centres is one way that organisations look to redress this asymmetrical information in providing evidence of capability, though again assessment centres and psychometrics only provide partially accurate insight. Personal recommendation/ headhunting is no real guarantee and still comes with risk attached, even in a CEO position. Some organisations use a process driven by multi-interviewing which may uncover more information but is costly in terms of management resource.

Thus organisations rely on an individual‘s organisational experience and in particular, well-known organisations act as a ‘quality’ proxy even though they do not, in itself, provide any real guarantee. Reference checks are really just ‘rubber-stamping’ compliance exercises rather than as measures of selection. Also, organisational politics can play a part in the process which may work against the most appropriate selection.

Premise [24]: Incumbent organisations

will evoke defence/retaliation strategies through targeted retention and/or counter-targeting competitive organisation talent which in turn drives up HC costs. Organisations are continually vulnerable to ‘poaching’ or ‘luring away’ of top talent in a variety of roles. Sales and/or senior management type roles appear to come under constant threat, where particular skill-set/knowledge and/or perceived high performance is required (reference to Premise [20] is particularly apt).

© ISHCM 2007 26





firms



HC value


3

Quite often there is an immediacy aspect which is itself caused by previous loss of talent. Thus the market can take on the appearance of a ‘domino effect’ in relation to a series of appointments across competing organisations. The end result is higher human capital costs for all.

Organisations, subject to ‘talent poaching’, will quite often look to acquisition any ‘high performing’ talent from rivals, as a retaliatory strike. Either way, this type of scenario will often lead to cost escalation. Some observers may say that this is just a ‘market mechanism’. However, if these actions are symptomatic of distortive factors, then this raises a serious question regarding ‘market efficiency’ in reward terms. (Note Premise [24] is based on a reactive strategy which differs to Premise [16] pro-active strategy). Comparative measures of human capital competitive advantage

Employee value proposition (EVP) in terms of percentage of selected candidates who accept offers

Brand – degree of differentiation (see talent rivalry)

Talent ‘fit’ index (external and internal) Overall resource effectiveness/efficiency ratio

(relating cost to minimising risk of poor hire vs maximising likelihood of good hire)

Resourcing index29. 3 Leveraged organisation architecture

The degree to which an organisation structures

itself can directly impact on human capital and thus organisational performance.

29 The Resourcing index can be calculated by quantitative and qualitative assessment, for example, through the VB-HR™ Rating organisation indicator portfolio

Premise [25]: That an organisation which displays effective organisation design in terms of efficient structure, role definition, process and decision rights allocation will produce higher organisation performance.

This premise essentially uses the baseline concept of internal efficiency to derive optimum output.

Organisations can structure themselves in many ways through business units/directorates for example, along product or country lines or increasingly, in hybrid matrix-type structures. These all present challenges in optimising output and promoting supporting behaviours rather than value destroying behaviours. The sub-structures around teams and functions, together with the appropriateness of decision rights (i.e. the allocation, trade-off and control of decision-making) and reporting channels should support and optimise the organisation’s value proposition to the market30. The referred to ‘architecture’ can also incorporate the use of supporting systems and platforms in this endeavour.

From a human capital perspective, the sophistication of human capital management architecture and organisation design and its effective execution enhances individual, team and middle management performance. To recap there is specific ‘architecture’, representing a collection of systems/processes and tasks (referred to as HCM architecture) that organisations invest in, and HR functions look to maintain, to optimise human capital performance and minimise operational risk.

Premise [26]: That appropriately designed

and integrated HR processes/systems, supported with ‘expert’ HR capability when executed well, enhances both individual and the collective organisational performance.

We have already stated that getting the best from people requires appropriate supporting mechanisms and effective management (refer to premise [6]).

Investment in HCM architecture, such as, payroll systems, training & development allocation, performance management, job design, resourcing reward, and case management provide the environment for optimal productivity (given any satisfactory standard of management practice), whilst minimising the risk of transgressing legal requirements demanded by employment legislation. This investment can also act as a ‘barrier to entry’ to organisations who wish to compete in the same talent space – what can be described as ‘needed to play’ requirement. To this

30 For more on this topic see ‘Managerial Economics and Organizational Architecture’ 4th Ed, Brickley, Smith & Zimmerman, McGrawHill (2007) and ‘Designing Organizations to Create Value’ by the same authors. Also ‘Designing Effective Organizations’, Goold and Campbell, Jossey Bass (2002).

© ISHCM 2007 27


extent organisations will have normally sunk investment and will incur certain maintenance or upgrading costs (normally monitored by the HR function) to ensure effectiveness.

An important precursor is the ‘integration’ of the architecture, i.e. the propensity for each HCM process component to link and mutually reinforce as opposed to non-linkage and the potential for unintended consequences, resulting in barriers to performance optimisation. An important cog in the HCM architecture is the HR function in terms of its expertise and capability, the procurement with which the function undertakes to maintain effectiveness and the degree to which management perceive HR ‘s contribution31.

This last point is of considerable importance. Organisations display different HCM architecture maturity, partly driven by industry context, partly through legacy and to a greater extent, the degree to which management views the importance of human capital performance. HR functions which are engaged primarily as ‘compliance units’ will be limited in both scope and contribution, and most likely the organisation is not deriving ‘best value’ from its people contribution.

Organisations that see the potential of human capital performance and its contribution to organisation performance will see HR function’s primary role as performance enhancing (with the compliance role as a subset) and will see management competence and capability as the key target32. Thus the HR function will be staffed with the requisite expertise and knowledge and their roles are regarded as ‘core’ rather than ‘support’ to the organisation.

For example, a performance management system can be used as both an enhancer of individual contribution and productivity with its emphasis on achieving objectives and individual developmental opportunities; whilst at the same time protecting the organisation through due diligence of the process by managers to address poor performance.

The problem for many organisations is that despite sunk investment in ‘automated PM systems’, the real investment needs to be made in those conducting assessments from a quality and accuracy perspective.

Further, for a ‘system’ 33 like performance management to work well, as its original intention, requires constant attention to protect against unwanted behaviours or outcomes such as ‘poor

31 For a more detailed analysis of HCM architecture and the HR Function’s contribution and structure see ‘Brave New HR World Part I in this Journal 32 For more on HR’s performance role also see the ‘Brave New HR World Part I’ paper in this journal 33 The use of the apostrophised term ‘system’ here is to denote that this is a collection of processes, activities and tasks as distinct from an actual IT system

framework design’, ‘gaming for reward’, ‘rating blindness’ ‘misappropriate allocation of training & development’, ‘poor performance avoidance’, and ‘inattention to individual recognition’ to name but a few of the inherent dangers lurking within such a ‘system’.

All of these human capital support ‘mechanisms’ (there are ten ‘domains’ identified as core containing 93 discrete activities 34 ) require appropriate ‘linkage’ i.e. each of these supporting ‘systems’ need to fit and reinforce each other rather than be disconnected and/or conflicting with unintended consequences.

For example, the links between performance management and reward, and performance management and development are important yet organisational practice invariably ends up with ‘muddled’ outcomes, an obvious one being a misalignment of timing. Good and effective organisation architecture and particularly HCM architecture can add significant employer performance/branding differentiation.

However, up until recently35, it has been difficult for organisations to measure or quantify this in any meaningful comparison.

Premise [27]: That appropriately designed

and integrated HR processes/systems with supporting policies and ‘expert’ HR capability minimise operational and reputational organisation risk.

In a similar vein to the previous premise good HCM architecture can help to minimise operational risk or organisational reputation risk.

Certain industries can be prone to more operational and reputational risk than others. The oil industry has a prime focus on health and safety. Good health and safety policies and a management culture that does not compromise on business expediency will ensure its business reputation. Those that don’t will be subject to increased risk and potential catastrophic fall-out36. The transport industry faces similar issues.

In financial services, the competency and subsequent performance of individuals is paramount to minimise the risk of mis-selling and reputational damage (plus the heavy penalties that can ensue). Thus induction, training, management, management control, performance assessment and incentivisation are all key inputs. There have been a number of recent ‘scandals’ with perhaps the most famous still being that of Barings.

34 Refer to VaLUENTiS VB-HR™ Global Profiler. The ten core domains are HR governance, Organisation design, Resourcing, Training & Development, Performance (talent) management, Reward/benefits, Employee relations & communications, Health & Safety, HRIS & Payroll. 35 That has changed since the arrival of the VB-HR™ Rating and its HCM evaluator engine which allows for deep and insightful analysis of HCM architecture. 36 Witness the recent events at BP’s Texan refinery – so long a company held up as a champion of industry. For an excellent commentary, see for example ‘BP - In their own words....’ The Economist March 2007.

© ISHCM 2007 28


Market/ stakeholder recognition of HC value



firms



Human capital 4

The fairly recent demise of Arthur Andersen in professional services also shows the extent to which an organisation can just disappear. Here the endemic culture was to ignore ethical considerations of the profession itself, and a breakdown in management control with the implied ‘complicity’ of partners to cover up rather than to exit what was, essentially, poor performance from a professional standpoint.

HR functions have a challenge in this area which ranges from ensuring ‘controls’ are in place for even the most basic of tasks which carry a degree of operational risk; whilst at the same time assuming the mantle of ethical considerations that are embedded within the operating culture which goes right to the top of the management pyramid. Comparative measures of leveraged organisation architecture competitive advantage

Effectiveness of HCM architecture Workforce intelligence HR capability & effectiveness Management capability & performance HCM risk index HR spend analysis/return37.

4 Market /stakeholder recognition

(of HC derived intangible value)

With regard to human capital, organisations will

be subject to the force generated by the general market and particular stakeholder recognition of human capital’s contribution to organisation performance as well as a potentially forward looking insight into future value creation.

The reporting of both internal and external measurement has a number of related outcomes including:

• Comparative analysis of organisational

37 HCM architecture effectiveness can be calculated by quantitative and qualitative assessment, for example, through the VB-HR™ Rating strategic indicator portfolio

performance from a human capital perspective

• Potential contribution to future value • Communication of HC related

information • Education of management and other

stakeholders regarding the importance of human capital and human capital management)

• The ability to communicate (and encapsulate) the employer brand

Premise [28]: That organisations report

human capital based information to inform the market and relevant stakeholders for comparative purposes and for insight into potential future performance (intangible value).

The current state of financial reporting has, for some time now, been viewed as limiting in its reflection of an organisation’s actual and potential future performance. There have been a number of attempts at providing intangible models and more specific human capital based models, which have met with limited success.

The Human Capital Reporting Standards (GHCRS2006) released in 200638 went some way to standardising the performance dynamics from a human capital perspective with its HC Operating, Peopleflow™ and Productivity statements.

However, fundamentally, potential investors or stakeholders should be as interested on current performance, and a means of comparative analysis, as much as any future performance (the two are linked), though the latter has tended to dominate the drive towards greater transparency of reporting. Intangible value attributed/derived by the contribution of human capital is a more complicated challenge; it is dependent upon the business model and the subsequent identity of ‘HC contribution streams’ and operational role specificity. The elements of operational and reputational risks are also included here, given their propensity for value destruction.

However, for organisations (both public and private) there is a trade-off between externally reporting these types of insights and releasing what can be termed ‘sensitive’ or confidential data to competitors.

For organisations, a key question regarding reporting is the ability to influence the decision-making of potential investors and/or stakeholders, i.e. would I invest/transact with this organisation from a human capital perspective?

Again, HR functions should be the natural guardians of this reporting premise, though the advent of CSR has provided an alternative

38 See original white paper on Human Capital Reporting, VaLUENTiS 2006. A new publication on the HCR Standards (GHCRS2006) is forthcoming.

© ISHCM 2007 29


(though contentious) vehicle for the organisation to report human capital related information39.

Premise [29]: Reporting human capital

related information externally helps to differentiate the overall brand and specifically the employer brand of an organisation.

Organisations are increasingly looking to differentiate themselves in the market-place from an employer brand perspective given the importance this has from both a corporate and a prospective recruitment platform.

As such, in the absence of definitive standards, organisations have engaged in seeking a cost-effective solution to ‘award mania’. Thus the market has produced a number of products that promote supposed differentiation from a human capital perspective.

For example, in the UK, Investors in People Standard has often become unwittingly used as a ‘badging’ exercise rather than as a bona fide human capital management Standard of Practice (which was its original intent). There is evidence that certain organisations have ’gamed’ the accreditation40exercise as a means of gaining the award, coupled with inconsistencies in the qualification process.

A number of HR awards are shown, indeed known to be unscientific and spurious in design41. However the market, does show, whatever the unsophistication, the ‘pull’ to differentiate through these awards.

The problem with spurious awards, or misapplication of Standards is that they both undermine the market-place, rendering differentiation by these channels meaningless, unless (a) a robust award construct is used, or (b) a Standard becomes more rigorous.

As an alternative, a well constructed human capital report can provide a differentiated employer brand message42.

Thus, for organisations, focus on effective human capital reporting may provide a far more cost-effective approach to differentiation in the external environment.

For HR Functions, the decision to follow a particular branding channel, whether by award, reporting or combination of both, is of prime importance, from both a professional and political standpoint. HR Functions, through their ‘governance hat’ should critically evaluate the

39 See comments re CSR/HR in VaLUENTiS white paper ‘Human Capital Reporting’ (2006) 40 See and example Saturday Guardian - Work Dear Jeremy: ’Should I blow the whistle on an Investors in People scam?’ as reported 17 June 2006...........Also for a more detailed assessment see ‘Investors in People: Emperor with no clothes’ study, ISHCM (2006) 41 see for example ‘Best Companies’ www.bestcompany.com’ and for more insight, see ‘Employer Branding – the good, the bad and the downright ugly - a summary evaluation’, ISHCM forthcoming 42 See for example, the Human Capital Reporting template, VaLUENTiS/ISHCM

various options and choose appropriately, resisting the temptation to go with the ‘easy route’ if analysis deems this to be sub-optimal.

Premise [30]: That organisations who

report good internal human capital intelligence focus more on good human capital management practice.

Essentially ‘what gets measured gets managed’ and the focus on internal reporting of human capital related measures, ensures that an organisation’s management applies a certain due diligence to executing effective people management practice. The preceding premises have provided a particularly robust case for the reason as to why this is important to most organisations, as if executed to the extent possible, they will benefit from superior competitive advantage.

Again the call for human capital reporting has been primarily driven from an external perspective. However, organisations should, to a great extent, focus on internal reporting and communication to its main target within, i.e. management.

Organisations and their HR functions should not underestimate the educative process that internal HC reporting can provide. The more management understand the potential pay-offs of good human capital management, particularly at the ‘margin’, the more likely the derived benefits of greater productivity, ensuing organisation performance, and ultimately, competitive advantage. Comparative measures of market and stakeholder recognition competitive advantage

Human capital reporting quality and differentiation43

Comparative HC related performance metrics44 HCM performance metrics portfolio HCM modelling analytics.

43 For example, as that evaluated under VaLUENTiS GHCRS2006 assessment as evaluated in HCC Index (www.HCCIndex.com) 44 For example see HC Operating Statement (GHCRS2006)

© ISHCM 2007 30




HC value





firms

5

5 Human capital replacement propensity

The degree to which market forces impact on

organisation jobs/roles through potential replacement by technology or redundancy caused by obsolescence or considered ‘at risk’ through adverse organisation performance

• Potential likelihood of jobs being replaced through technology/ reengineering

• Redundancy nature of role through potential skill and knowledge atrophy

• Redundancy nature of role through potential skill obsolescence

• Risk of role redundancy given adverse organisation performance

Premise [31]: There is a countervailing

market force to the bargaining power of human capital and the intensity of talent rivalry in the form of potential replaceability by technology.

Basically any human capital role is subject to market forces in terms of potential replaceability by technology. This replaceability can be viewed as the threat of ‘substitute’ assets – the potential for a particular role or cluster of roles that can be replaced by technology. Normally, low manual skill roles are more at risk of replacement, though this is not exclusive. Increasingly higher knowledge-based roles are at risk through knowledge codification or automated human intelligence. Two particular examples from finance and entertainment include fund management ‘trackers’, and the use of CGI to replace actors in movies.


market force to the bargaining power of human capital and the intensity of talent rivalry in the form of skill and knowledge atrophy.

All individuals possess innate talent in the form

of special skills or knowledge. As a result in fulfilling a role, individuals are subject to skill or knowledge atrophy, i.e. the natural wasting of talent if actions are not taken to maintain. This is particularly acute in knowledge based professions or roles. The concept of lifelong learning is deemed to be the antidote to individual maintenance of human capital talent.

Other potential ways in which atrophy may

occur is through long-term unemployment, career interruptions, or not using an individual’s skills set (i.e. in a role that doesn’t require the level of educational or experience attained). This last point is in the context of organisational talent management as previously identified.


market force to the bargaining power of human capital and the intensity of talent rivalry in the form of skill obsolescence.

Many human capital roles are subject to market forces in terms of potential skill obsolescence45. This premise is different to [31] in that it does not have to be technology driven, and different to [32] in that obsolescence is market or organisation driven whereas, skill atrophy, to a great extent is individually driven. They are not the same (though in certain instances they are linked).

Skill obsolescence can come about through specific industry or profession/vocation decline or potential reengineering of role design. They are subject to external forces of which organisations can run foul of if they are executing a poor business strategy or conducting inadequate workforce analyses (a.k.a. ‘planning’). History is unfortunately littered with many examples. In effect the skills ‘market’ operates like an efficient market in seeking out human capital skill inefficiencies.

Another example can be an organisational over-reliance on an individual’s skill specificity. This degree of skill specificity of an individual can distort perceived role value (i.e. mark-to-market finds over-value from an alternate use perspective).

Individuals in these circumstances will be of heightened value to organisations due to unique attributes (such as an ‘expert’ knowledge of internal bespoke system, or protecting particular organisational knowledge). However, should circumstances change, i.e. a change of system, or

45 For an insight into the types of skill atrophy and obsolescence, see for example ‘Evaluating Human Capital Obsolescence’, Andries de Grip, Research Centre for Education and the Labour Market, Maastricht University (2006)

© ISHCM 2007 31


the specific organisational knowledge deemed to be no longer of value, the individual may find their ‘talent’ seriously impaired and no longer of value to the organisation with a risk of substantial decrease in market worth (i.e. alternate use of specificity of skills of little value).

HR functions, through the course of their various analyses, should note the incidence of these ‘unique’ roles.

Premise [34]: There is the potential risk of

redundancy of any individual role through duplication (which is not caused by technology) and structural reorganisation caused by poor organisation performance, and/or a change of organisational strategy.

In addition to the market forces, there is an organisation-specific risk of potential job overlap caused by ineffectual organisation design, which can be exacerbated by merger and acquisition type transactions. For example, two HQs are superfluous from a corporate function perspective.

It must be remembered that any major organisational change initiative is costly to the organisation and should be viewed as such. In many ways, it is corrective action to a current faulty position (allowing for the fact that organisations should be aware of their external environment). Therefore, this can be viewed as an internal transaction cost.

Good human capital management therefore requires effective workforce planning, taking into account likely changes on the organisational horizon. Workforce planning is not a term to describe some large document for shelving. Rather it is an active means of reviewing current organisation design, matching the demands of the organisation, and in that respect has a dual focus – both short term and longer term, utilising modelling analytics where necessary.

On a final note, the onset of offshoring has made a big impact at the time of writing. The economic argument behind offshoring is really one of ‘arbitrage’, i.e. a specific human capital skillset has been replaced by the same skillset only at a cheaper cost. The market for human capital like any other market will move towards an equilibrium, with lower costs eventually rising to a point (the question is whether it is as high as the previously arbitraged level).

Organisations can only game this strategy so many times as the arbitrage advantage of offshoring is counterbalanced by the transaction costs of offshoring (especially when risk is taken into account). In a global economy, and from a localised country standpoint offshoring is really the reverse of labour importing to which the Western economies have historically benefited.

What is significant is the increasing supply of

skilled human capital from around the world which

may cause certain temporary/permanent ‘reward dips’ in traditionally high rewarding roles in localised environments (this relates back to classical supply-demand theory).

From HR’s point of view, the Function needs to be aware of the commercial environment and pressures which may already be or will impact. HR of course, in this instance has two roles, (i) with regard to the organisational focus re any specific restructure/reengineering and (ii) the HR function itself which may need to undergo transition or transformation as a result.

Comparative measures of HC replacement propensity competitive advantage

Organisational role risk Index Job evaluation index (incidence and cost

implications of ‘red spots’) People managers/people ratio (cross-

compared with effective HCM evaluation).

‘A management tour de force’ ‘Putting human capital at the heart of the

business agenda’

Due out: 2nd Quarter 2007 ISHCM Publications

Pre-order your copy on +44 (0) 20 7887 6121

and quoting reference: JAHCM001

The Human Capital Management

ManifestoNicholas J Higgins

The Human Capital Management

ManifestoNicholas J Higgins

© ISHCM 2007 32


Human Capital ‘Dominant’

Human Capital ‘Parity’

‘Human Resource’

‘Core’ human capital

‘Supporting’ human capital

DIFFERENTIATION

FOCUSED DIFFERENTIATION

COST CONTAINMENT

(TRANSACTIONAL)

DIFFERENTIATION

‘Contracted’ human capital


COST CONTAINMENT

(TRANSACTIONAL)

FOCUSED DIFFERENTIATION/

COST CONTAINMENT

(TRANSACTIONAL)

The ‘intensity’ of human capital related to the organisation’s operating model

The categorisation of an organisation’s human capital

Human Capital ‘Dominant’

Human Capital ‘Parity’

‘Human Resource’

‘Core’ human capital

‘Supporting’ human capital

DIFFERENTIATION


COST CONTAINMENT

(TRANSACTIONAL)

DIFFERENTIATION

‘Contracted’ human capital


COST CONTAINMENT

(TRANSACTIONAL)

FOCUSED DIFFERENTIATION/

COST CONTAINMENT

(TRANSACTIONAL)

The ‘intensity’ of human capital related to the organisation’s operating model

The categorisation of an organisation’s human capital

Deriving HC brand strategy and differing employee value propositions

We have seen from the HC industry analysis that employer brand and employee value propositions form key components of an organisation’s approach to acquisitioning of talent. Given the differing employee segmentation in terms of ‘core’, ‘support’, ‘contracted’ and further sub-divisions, it is useful to draw up a model that provides a set of generic strategies open to organisations.

The generic strategies are based on two competing axes: the intensity of human capital related to the organisation’s operating model (defined as the ratio of people costs to overall operating costs); and the categorisation of staff in terms of whether they are deemed core (critical), supporting, and/or those under various contracted arrangements.

Organisations whose human capital can be described as ‘dominant’ in their operating model (i.e. HCI is over 50%) will look to differentiate across both their ‘core’ and ‘support’ human capital in a clear branding exercise to the market. The advent of a ‘premium’ on certain aspects of the brand will be marketed. Those organisations whose human capital can be described as having ‘parity’ typically have human capital intensity of between 20 and 50%. Here full differentiation across the various role families/types is difficult to achieve, thus specific targeting of roles for differentiation is key, providing the necessary market differentiation.

Organisations whose human capital typically make-up less than 20% of the operating model or whose job design is limited to a large number of similar type roles will view human capital from a cost-containment perspective. It is important to note that this strategy does not preclude sophisticated reward/benefits packages or indeed investment in good working environments.

It is simply the prevailing philosophy of where

organisations interpret and position human capital management importance.

Organisations need to be clear which branding strategy they are following. Of significant note is that a ‘one size fits all’ strategy may be inappropriate. This may not fit comfortably with certain pro-employee representatives but as we have seen employer branding is an extremely important input into recruiting the right talent and, it should not be forgotten, the continuing proposition to the organisation’s existing employees (refer to Premises [10] & [11]).

This internal aspect of the employer brand is often overlooked in favour of the external aspect but is in fact the more important in terms of the fact that internal brand is tested everyday and needs to meet expectation or suffer erosion over time that will eventually ‘leak’ into the market. Employer brand maintenance (EBM) effectively requires more effort to maintain.

For many organisations, the lack of appropriate reporting vehicles and/or channels has provided difficulties in differentiating their employer brand. In order to solve this, a number of organisations have invested in various (and questionable) awards relating to human capital management as a means of differentiating, as previously stated.

However, these are very much focused on the EVP (reward/benefits/work environment) rather than any specific talent requirements. A much more meaningful way that any organisation can differentiate itself is by producing a meaningful human capital report as part of its natural financial reporting cycle. Prospective employees can garner a real insight into the organisation they wish to pursue. This aspect was explained in the Premise [29].

© ISHCM 2007 33


Summary to Part I

Thus, the ‘five HCM forces’ contain a total of 34 premises (see table below) on which organisations should consult when looking to analyse an industry from a human capital perspective or investigating specific role(s) analysis prior to deriving HCM strategy.

In this part I have provided a framework that explains the fundamentals, i.e. the Why of human capital and human capital management. Part II now looks at the What and the How through the use of a strategic HCM toolkit.

The 34 Human Capital Premises

1 That the number and size of competing firms will impact the intensity of human capital rivalry and ultimately competitive advantage.

2 The degree to which human capital is paramount to an organisation’s operating model (HCI) will determine the intensity of talent rivalry.

3 Given the underlying industry profit/return signatures, organisations will gain competitive advantage though the most effective utilisation and management of human capital.

4 That the organisation’s utilisation of human capital is dependent upon the organisation’s (or sub-unit’s) operating model. 5 Organisations deploy differing resourcing strategies either recruiting in before market and developing or purchasing

required skill-sets but at market cost. 6 Human capital management is a key component to best utilising human capital. 7 Employee and management engagement is a core platform to differentiated organisational performance. 8 The degree to which the workforce is engaged (relating to both critical and support positions) within an organisation

contributes to high performance. 9 Organisations which suffer from lower employee engagement will conversely suffer a disadvantage from a productivity

perspective to organisations with higher engaged workforces (other things being equal). 10 To differentiate in the market-place, organisations develop employer brands with associated employee value propositions. 11 Organisations, however, need to execute on the employee value proposition (EVP) to match the ‘experience’ to the

‘expectation’. 12 Failure to match experience with expectation will erode the employer brand. 13 That the organisation performance attributed to human capital, as defined by HCIR and HCIR/HCC measures, can be

positively influenced by good management practice and high employee engagement. 14 Competitive advantage is, to differing degrees, derived through employing and maintaining superior human capital

performance across the organisation. 15 A well defined human capital strategy which is executed accordingly contributes to overall organisational success. 16 That organisations will devise retention strategies to protect their core human ‘assets’ against being targeted by

competing organisations. 17 That given an organisational choice (in equilibrium), talent retention strategies will always be pursued before acquisition

strategies. 18 That organisations are likely to retain average or even poor performers if mechanisms are absent in the market-place

which guarantee the fact that adequate replacements can be found. 19 That all individuals will look to maximise their job/role utility function. 20 That the ‘market’ for talent in terms of reward follows an ‘efficiency frontier’ based on perceived worth. 21 That the market in terms of matching capability to role is efficient. 22 That the ‘internal market’ relating to an organisation’s talent ‘fit’ in terms of individual performance and capability is

efficient. 23 That the human capital market displays similar characteristics to that as for ‘The Market for Lemons’. 24 Incumbent organisations will evoke defence/retaliation strategies through targeted retention and/or counter-targeting

competitive organisation talent which in turn drives up HC costs. 25 That an organisation which displays effective organisation design in terms of efficient structure, role definition, process

and decision rights allocation will produce higher organisation performance. 26 That appropriately designed and integrated HR processes/systems, supported with ‘expert’ HR capability when executed

well, enhances both individual and the collective organisational performance. 27 That appropriately designed and integrated HR processes/systems with supporting policies and ‘expert’ HR capability

minimise operational and reputational organisation risk. 28 That organisations report human capital based information to inform the market and relevant stakeholders for

comparative purposes and for insight into potential future performance (intangible value). 29 Reporting human capital related information externally helps to differentiate the overall brand and specifically the

employer brand of an organisation 30 That organisations who report good internal human capital intelligence focus more on good human capital management

practice 31 There is a countervailing market force to the bargaining power of human capital and the intensity of talent rivalry in the

form of potential replaceability by technology. 32 There is a countervailing market force to the bargaining power of human capital and the intensity of talent rivalry in the

form of skill and knowledge atrophy. 33 There is a countervailing market force to the bargaining power of human capital and the intensity of talent rivalry in the

form of skill obsolescence. 34 There is the potential risk of redundancy of any individual role through duplication (which is not caused by technology)

and structural reorganisation caused by poor organisation performance, and/or a change of organisational strategy.

© ISHCM 2007 34


Thought leadership

Devising an HCM Strategy: The Strategic HCM Toolkit (Part II) By Nicholas J Higgins DrHCMI MSc Fin (LBS) MBA (OBS) MCMI Dean, International School of Human Capital Management, London & CEO, VaLUENTiS Part I explained the underlying HCM industry analysis and the 34 premises that were subsequently derived to explain current industry developments and to set a current agenda for strategic human capital management. Part II describes the components of a strategic HCM toolkit which senior executives and HR leaders will find of prime importance in applying to their particular organisational context. Of particular importance is the existence of generic human capital strategies and their influence on deriving a HCM strategy. The toolkit provides a development process (‘the ten commandments’) and examples of measurement. An introductory exercise entitled ‘Human Capital Management: How strategic are you? is also provided to complete and provide a quick means of assessing current organisational/HR function status.

© ISHCM 2007 35


Part II -

Devising an HCM strategy: the strategic HCM toolkit

The strategic HCM toolkit is designed to be used in conjunction with the framework and subsequent analysis presented in Part I. The rationale is to deliver a workable and comprehensive human capital management strategy that comprises a portfolio of integrated operational strategies that utilise evaluative measurement and which incorporates the HR function’s value proposition(s). A white paper published by the School and VaLUENTiS 46 articulated the main strategies organisations use in engaging employees and enhancing organisational performance.

There are sixteen such strategies which are:

• Employee engagement • Diversity • Employee centricity • Employer brand • Leadership • Organisation climate • Organisation communications • Organisation design • Performance orientation • Resourcing • Retention • Reward • Talent management • Training & development • HR governance • HR operational excellence.

This strategy configuration is normally referred

to as the 15+1 OE framework47. Thus, deriving an HCM strategy will normally contain aspects of these operational strategies. Thus the derivation and formulation of these operational strategies will have been preceded by the analysis, which will have provided the following:

The organisation (and sub-unit context) Key challenges facing the organisation and its

sub-units The identifying of the different ‘slices’ of

current employee segments A baseline evaluation of where the

46 Key HC operating strategies: Operational indicators and the VB-HR™ Rating VaLUENTiS white paper (2006) 47 OE = Organisation Engagement which are 15 in number. The +1 refers to Employee Engagement which is viewed separately owing to its concept and definition being viewed as an outcome of the interaction of the others.

organisation is performing from a human capital perspective, including employee engagement48

A baseline evaluation of where the organisation is with regard to human capital management practice and organisation engagement (in the form of fifteen key operational areas)49

A baseline on what the organisation currently reports internally and externally from a human capital perspective, incorporating workforce intelligence and metrics portfolio in use50

Given the evidence, the identification (or not) of any current delivery or line perception gap

An HR/HCM spend and activity analysis (i.e. HR function spend and organisational spend)

HR policy risk assessment HR functional capability ‘fit for purpose’

Thus obtaining an accurate view of where the

organisation is in terms of people management is paramount for strategy derivation. This is important for two reasons: 1) HR has quite often confused organisational

strategy relating to people with HR strategy relating to delivery (which is covered under HR operational excellence).

2) The HR function has not always had access to or received guidance on operational excellence matters, making it more prone to inefficiencies (given its wide ranging coverage).

As a consequence, HR strategies have tended to become overly inwards focused. The strategic HCM toolkit is designed to assist in reorienting HR to a more externally focused view (i.e. inside the organisation and beyond), following a structured yet interchangeable format starting with the ‘Five HCM forces’ framework introduced in part I. The following diagram maps the relationship between these operational strategies and the five HCM forces as shown overleaf. For reference a brief definition of each operational strategy is supplied.

48 Such as that assessed through the HCM evaluator engine of the VB-HR™ Rating 49 ibid. 50 Such as that evaluated through the HCCI assessment process – see VaLUENTiS ‘Cracking The Human Capital Code’ study (2006)

© ISHCM 2007 36


Strategic HCM – Key operational strategies

Human capital

Market/ stakeholder




Key strategies:•Resourcing•Employer Brand

Supporting strategies:•Diversity•Employee Centricity•HR Governance•Retention•Talent Management•Training & Development



firms

Key strategies: •Organisation design•HR operational excellence

Supporting strategies: •HR governance•Performance orientation

Supporting strategies:•Organisation Design•Resourcing•Retention•Training & Development

Key strategies:•HR Governance•Performance Orientation

Supporting strategies:•Employer Brand•HR operational excellence•Leadership

Key strategies:•Employee Engagement•Leadership•Retention•Talent Management

Supporting strategies:•Employee Centricity•Employer Brand•HR Governance•Organisation Climate•Organisation Communications•Organisation design•Performance Orientation•Resourcing•Reward•Training & Development

Definitions of HCM strategies Diversity The focus and effectiveness of diversity and diversity policies within the organisation Employee centricity The degree to which the organisation has ‘employee-centric’ policies in place and delivers on them in terms of effectiveness Employer brand The degree to which the organisation has an identifiable brand and its contribution and effectiveness in related organisational areas Leadership The perceived effectiveness of overall management within the organisation

Organisation climate The degree to which the current operating environment with in the organisation is seen to be a positive/negative factor Organisation communications The current effectiveness of communications in the organisation as perceived by managers and employees Organisation design The degree to which the overall organisation architecture, e.g. management structure, job/role design is effective

Performance orientation The degree to which the organisation is viewed as effective in terms of focus and actions regarding performance related areas Resourcing The effectiveness of current resourcing policies, processes and activities in terms of organisation requirements Retention The effectiveness of current organisational retention approaches and efforts Reward The effectiveness of current reward policy and strategy Talent management The effectiveness of current organisational approaches to talent, its scope and its management

Training & Development The degree to which current approaches and application of training, learning and development are effective HR governance The overarching management of HR as a function and governance of Human Capital Management and Reporting within the organisation HR operational excellence The degree to which the HR function possesses the requisite competence and executes its delivery objectives in terms of quality and effectiveness

© ISHCM 2007 37


Real-time monitoring

& maintenance

HR FunctionalCapability &

Delivery Execution

Strategic scope of

HCM strategy Deriving

each individual

HR strategyPurpose-Goal

-Method

Derivingthe related

strategic HRobjectives

Deriving (revising)

the HC measurement

portfolio

Creating/ clarifying

core effectiveness HC metrics Risk/

constraint/ contingency

flagging

Repeat cycle

Deriving the operational

plan(s)

Strategic HCM

analysis


subordinated operational HR metrics

Real-time monitoring

& maintenance

HR FunctionalCapability &

Delivery Execution

Strategic scope of

HCM strategy Deriving

each individual

HR strategyPurpose-Goal

-Method

Derivingthe related

strategic HRobjectives

Deriving (revising)

the HC measurement

portfolio


core effectiveness HC metrics Risk/

constraint/ contingency

flagging

Repeat cycle

Deriving the operational

plan(s)

Strategic HCM

analysis


subordinated operational HR metrics

Operational Strategy (OS) development: The ten ‘commandments’ For each of the fifteen ‘operational strategies’, a typical structured process incorporating ‘ten’ key steps (‘commandments’) can be followed as indicated in the diagram below:

The table opposite provides more detail of each

step. In terms of format, each individual operational strategy should not be overly long, a page per strategy being sufficient, with depth added where necessary or alternatively maintained in softcopy format, expanding where necessary. The point is for HR directors/Business partners to be in control of a working template with a real-time iterative based ‘due process’.

The complexity here comes in the form of aggregated ‘strategising’, i.e. those strategies constructed at Business/Country Unit or Directorate level and which need to undergo some form of consolidation to avoid duplication and/or resolution of conflicting priorities.

One important note is that HR Directors/business partners looking to use the ‘15+1OE approach will be able to short-cut in terms of measurement as all of these operational strategies have already been defined with corresponding measurement indices51. Thus, they can be used for monitoring and benchmarking purposes (also even as guidelines to devising the individual strategies), saving considerable time and expense.

The various HC/HR measurement scorecard-type outputs can be generated by further metrics frameworks. An example ‘radar’ format is shown overleaf.

51 All of these are contained within the derivative output of the VaLUENTiS VB-HR™ Rating (www.vbhr.com)

OS Parameter Detail

1. Strategic scope of operational strategies

Definition of boundary levels and scope, i.e. business unit/region/country/directorate level and/or aggregate/ consolidated level

2. Deriving the Purpose-Goal-Method of each strategy (reality check)

Why are we utilising this strategy? (purpose)

What is the strategy looking to achieve? (goal)

How are we achieving it? (method)

3. Deriving the related strategic objectives

The derivation of objectives, their prioritisation and assignation. The application of SMART team/individual principles, extended to line where applicable is important.

4. Deriving the operational plan(s)

Ensuing related HCM actions and activities (again between HR function and line) with accountability and deliverables

5. Risk, constraint, contingency flagging

Elements of operational strategy, actions and measures may be subject to constraints and delivery risk which need to be explicitised. Also includes contingency planning.

6. Deriving the measurement portfolio

Derivation of core comparative KPIs as defined;

Level and type of analysis: one-off/cross sectional and/or trend (longitudinal)?

7. Creating/ clarifying core effectiveness HC metrics

Derivation of objective/metric trees where appropriate;

Selection to Value-based HC scorecard

8. Creating/ clarifying subordinated operational metrics

Derivation of objective/metric trees;

Incorporation within HR operational scorecard

9. Strategy-delivery monitoring and maintenance (real-time)

Monitoring and maintenance protocol to ensure comprehensiveness and business reality, revising both operational strategy and plans where necessary

10. Repeat cycle Updated as often as business/HR function requires

There are different aspects to measurement

(excluding pure data) and metrics classifications can be used to differentiate the often confusing world of HC measurement. For example, they can be separated into four main categories:

• Metrics relating to the efficiency and effectiveness of the HR function/process, such as transaction/payroll costs, recruitment cycle time etc

• Metrics related to aspects of human capital/human capital management performance, such as employee engagement, turnover etc

• HC analytics that look to combine various metrics and data to provide further insight, for example, looking to find relationship between engagement and turnover, employer brand and recruitment success, talent index etc.

© ISHCM 2007 38


HCM Operational indices

Lowest Highest

60th20th 30th 50th40th 70th 80th 90th10th 100th82th60th20th 30th 50th40th 70th 80th 90th10th 100th60th20th 30th 50th40th 70th 80th 90th10th 100th82thDiversityThe focus and effectiveness of diversity and diversity policies within the organisation

Employee CentricityThe degree to which the organisation has ‘employee-centric’ policies in place and delivers on them in terms of effectiveness

Employee EngagementThe degree to which employees are currently engaged with the organisation (see level 2 main report)

Employer BrandThe degree to which the organisation has an identifiable brand and its contribution/ effectiveness in related organisational areas

HR GovernanceThe overarching management of HR as a function governance of Human Capital Management within the organisation.

HR Operational ExcellenceThe degree to which the HR function possesses the requisite competence and executes its delivery objectives in terms of quality and effectiveness

LeadershipThe perceived effectiveness of overall management within the organisation

Organisation ClimateThe degree to which the current operating environment with in the organisation is seen to be a positive/negative factor

60th20th 30th 50th40th 70th 80th 90th10th 100th76th60th20th 30th 50th40th 70th 80th 90th10th 100th60th20th 30th 50th40th 70th 80th 90th10th 100th76th

60th20th 30th 50th40th 70th 80th 90th10th 100th81st60th20th 30th 50th40th 70th 80th 90th10th 100th60th20th 30th 50th40th 70th 80th 90th10th 100th81st


60th20th 30th 50th40th 70th 80th 90th10th 100th47th 60th20th 30th 50th40th 70th 80th 90th10th 100th60th20th 30th 50th40th 70th 80th 90th10th 100th47th



60th20th 30th 50th40th 70th 80th 90th10th 100th25th 60th20th 30th 50th40th 70th 80th 90th10th 100th60th20th 30th 50th40th 70th 80th 90th10th 100th25th

Sector

Rating Differential

[based on collective percentile]

HCM100

Sector

HCM100

Sector

HCM100

HCM100

Sector

HCM100

Sector

HCM100

Sector

HCM100

Sector

HCM100

Sector

-4.0%

-14.0%

-4.0%

-14.0%

-7.0%

-15.0%

-9.0%

-17.0%

-4.0%

-14.0%

-7.0%

-13.0%

-4.0%

+1.0%

+12.0%

-10.0%

Position

• Enhanced (modelling) analytics that look to combine macro and micro organisational measures to provide ‘performance models’.

The various human capital related scorecards can be (re)created with appropriate definition and level, thus providing the right metrics with the right communication to the right audience.

Organisation engagement (OEI) indicator

(RADAR)

Indices are made up from constituent qualitative and quantitative measures and related across four comparative ‘sets’: world class, higher to peer, comparative to peer, and below peer. Further modelling analytics can provide deeper interpretation for assessment and strategy purposes.

OEI benchmarking (extract)

Percentage differences can be used to show the extent of over and/or under-performance and linked to HC analytics for further insight.

The final essential component is the governance aspect, ensuring that the requisite monitoring and maintenance of strategy and the measurement of its effectiveness. Progress of achievement is a vital cog in assessing HR’s contribution as much as the individual operational strategies are vital to organisation performance. The reality for HR functions is that HCM strategy can have a far more scientific approach towards it even though in essence, very little additional effort is required once the basics are in place. Summary

The recent onset of outsourcing or partial outsourcing of HR has raised a number of interesting questions for HR functions. The main rationale used for outsourcing HR has been cited52 as cost reduction, though this has quite often translated in to HR becoming more ‘strategic’. Other reasons include: better quality of HR delivery/standardisation, access to better technology without capital investment, and/or requisite HR expertise (scale with regard to any of these may also be regarded as a reason). However, what is strategic?

Cost reduction implies that HR functions have not been operating efficiently or have failed to communicate their internal value proposition. Organisations would not outsource for cost reasons unless operational inefficiencies exist. Indeed transaction cost economics53 would lead us to the same conclusion54. But cost reduction is not strategy. Thus the business case for HR outsourcing appears to be confused.

The ‘five HCM forces’ model and its link to competitive advantage addresses this confusion by defining what strategic human capital management is. The subsequent toolkit, as outlined here, assists in bringing the strategic HCM concepts alive in a practical applied manner.

The toolkit is equally applicable whether it’s a small 20-person firm located on an out of town industrial park or a global firm operating in 200 countries with over 100,000 people. The only difference is scale and level of complexity.

HR Directors and business partners should be in no doubt as to the contribution the HR function plays in fulfilling the proposition that competitive advantage can be sustained through effective human capital management.

HR’s value proposition has moved on. Instead

52 There are a number of reports and studies – see for example ‘European ways to HR transformation – survey highlights 2006’ Hewitt p16 53 For an understanding of transaction cost theory see Coase, R.H. (1937), ‘The Nature of the Firm’, Economica 4, pp386-405 or alternatively Williamson, Oliver E., Markets and Hierarchies: Analysis and Antitrust Implications, NY: The Free Press, 1975 54 The business case for the other reasons stated would be acceptable as long as the cost of managing and monitoring the vendor relationships and the costed degree of risk caused by an external supplier(s) produces a net positive margin.

DIVERSITY

EMPLOYEECENTRICITY

EMPLOYERBRAND

HRGOVERNANCE

HR OPERATIONALEXCELLENCE

LEADERSHIP

ORGANISATIONCLIMATE ORGANISATION

COMMUNICATIONS

ORGANISATIONDESIGN

PERFORMANCEORIENTATION

RESOURCING

RETENTION

REWARD

TALENTMANAGEMENT

TRAINING &DEVELOPMENT

79.6+

81.3+

74.2

67.4+

61.5

43.1 +

48.7

64.2

62.859.460.3+

68.4

65.759.9 41.6

DIVERSITY

EMPLOYEECENTRICITY

EMPLOYERBRAND

HRGOVERNANCE

HR OPERATIONALEXCELLENCE

LEADERSHIP

ORGANISATIONCLIMATE ORGANISATION

COMMUNICATIONS

ORGANISATIONDESIGN

PERFORMANCEORIENTATION

RESOURCING

RETENTION

REWARD

TALENTMANAGEMENT

TRAINING &DEVELOPMENT

79.6+

81.3+

74.2

67.4+

61.5

43.1 +

48.7

64.2

62.859.460.3+

68.4

65.759.9 41.6

© ISHCM 2007 39


of justifying its existence, the positioning of strategic HCM redefines its potential contribution. HR professionals have a duty to become more transparent and not hide behind fuzzy and too often ‘faddy’ concepts. After all that is what being professional is all about.

For their part, organisations and their senior management must grasp the opportunity of achieving differentiation in human capital management terms, which doesn’t default to the lowest common denominator, i.e. pay.

As stated at the beginning, it is people that largely make the difference. Their collective uniqueness outguns any other organisational investment due to the fact that inanimate assets are replicable. Its time for organisations and managers to embrace the human capital management manifesto.....

Human Capital Management: How strategic are you?

The following ‘quick test’ (see overleaf) will help to determine the extent to which HR and (indirectly their organisations) are achieving strategic human capital management:

Human Capital Management Faculty

The HCM faculty is currently engaged in a number of leading research projects and white papers on people management including leadership, organisation design, talent and employer of choice and their link to superior competitive advantage.

Major publication for 2007:Organisation Performance through a human capital lens

Berkeley Square Campus 2nd Floor, Berkeley Square House

Berkeley Square London

W1J 6BD

Victoria Campus27 Floor, Portland HouseStag PlaceLondonSW1E 5RS

Tel: +44 20 7887 6121 Fax: +44 20 7887 6100

www.ISHCM.com



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Tel: +44 20 7887 6121 Fax: +44 20 7887 6100

www.ISHCM.com

HR Strategy & Leadership Faculty

This leading faculty is preparing a number of related publications on HR strategy, governance and the role of the Chief Human Capital Officer.

Major publication for 2007:The Human Capital Management ManifestoThe chief Human Capital Officer



W1J 6BD


Tel: +44 20 7887 6121 Fax: +44 20 7887 6100

www.ISHCM.com



W1J 6BD


Tel: +44 20 7887 6121 Fax: +44 20 7887 6100

www.ISHCM.com

© ISHCM 2007 40


Human Capital Management: How strategic are you?

Organisation related YES NO DON’T KNOW

Does the organisation know its overall performance from a human capital perspective? Does the organisation know its overall performance from a human capital management perspective? Do you know to what degree your employees and managers are engaged? Does the organisation know how its overall employer brand relates in the market? Does current focus on talent management match current/future organisation priorities? Does current HR resource activity match HR priorities? Can you provide a robust ‘return on investment’ chart for the current HR spend? Does the organisation know how much is spent on ancillary people costs (such as recruitment, training & development, certain HR initiatives)? Have you quantified operational risk through people related activities/competencies? Does the organisation utilise human capital reporting externally as a means of supporting its employer brand?

HR function related YES NO DON’T KNOW

Are any HR processes working less than efficiently with incidence of (non-IT) system failures? Does the HR function spend a disproportionate amount of time on compliance issues? Does the HR function suffer from a lack of capability/resource? Do you constantly feel like you’re on an HR ‘business-as-usual’ treadmill with no means of stopping? Have you tried HR benchmarking only to find it is of little value?

HCM Strategy Not at all To some extent

To a reasonable

extent

To a large extent

To a great extent

The degree to which the HR function plays a critical role in the development of the organisation’s values, strategy and business planning? The degree to which the HCM strategy and its main programmes of work implementation are known, widely, to managers and employees? The degree to which there is a recognised process for reviewing performance against the objectives and targets contained in the HCM strategy? The degree to which the HR team understands the organisation and its associated value/cost drivers? That the HR function’s duties and responsibilities are clear in relation to the corresponding management responsibility? The degree to which relevant stakeholders are involved in the review process for the development of the HCM strategy? That the organisation utilises employee metrics/analytics/performance data in its management decision-making? That the organisation is able to forecast accurately the future shape of the workforce and the available labour pool to determine resourcing needs? That the degree to which the organisation measures return-on-investment accurately for all significant HR interventions? That the work and job roles of the organisation are designed to optimise effort and enrich employee engagement?

HR functional contribution legacy Little effect

Some effect

Noticeable effect

Large effect

Serious effect

If the HR function was not there tomorrow, how, in your view, would it be missed by the organisation? (i.e. effect on employee engagement directly and indirectly through influence on management)

Essentially, with regard to the organisation, the more responses of ‘Yes’ signifies that the more strategic HCM will be in place. With regard to the HR related questions, the more Yes’s signify barriers to strategic HCM. With regard to HCM strategy, the more ‘To a great extent’ is ticked the higher the probability that the HCM strategy is cohesive, relevant and executed. The HR functional contribution legacy question poses a challenge for all HR functions in terms of their perceived value, particularly when related to employee engagement.

© ISHCM 2007 41



Here.


© ISHCM 2007 42


1

ADVISORY - AUDIT - ASSURANCE - ANALYTICS

Professional Services

“From a client perspective the question isn’t why, it’s why not?”

• Performance • Compliance • Performance • ComplianceAnalysis • Evaluation • Assessment • Investigation • InsigOrganisation • HR Function • Organisation • HR Function Innovative • Unique • Groundbreaking • Challenging • Tho

Financial services • Pharmaceutical • Retail • Healthcare •Manufacturing • Banking • Utilities• Business services • IT • Mining • Media • Transport • Construction • TelecommsLocal Government • NHS • Higher Education • Agency •

Human Capital Management Human Capital Measurement Organisation Performance HR Functional ROI

Global Headquarters:2nd Floor, Berkeley Square House

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Office: +44 (0) 20 7887 6108Fax: +44 (0) 20 7887 6100

www.valuentis.com

© ISHCM 2007 43


Thought leadership

Employee Engagement: The secret of highly performing organisations By Graeme Cohen & Nicholas J Higgins This article sets out how organisations from public, private and not-for-profit sectors can evaluate and enhance the degree to which their employees are engaged. Employees who are highly engaged (i.e. aligned with corporate values and objectives, and display appropriate commitment to the organisation) display a greater propensity for productivity and individual performance/output than those whose engagement levels are below optimum. In seeking to optimise their productivity, organisations should address two core questions: How many of our people are highly engaged? How many of these highly engaged people are in core positions? Through measuring the underlying factors of engagement at organisational, departmental and employee level with use of specific measurement and supporting modelling analytics approaches, organisations can ensure appropriate coverage of ‘highly engaged’ staff and address ‘partial engagement’ and its negative impact on productivity.

© ISHCM 2007 44


Measuring people contribution Whilst there has been increasing attention to

the question of how people and their performance contribute to organisation performance and differentiation within a sector, debate on the question of how employees support organisation performance has to some extent been thrown ‘off course’ by the application of research and concepts borrowed from intangible value and the extent to which these have been implementable from a practical perspective.

Following the publication nearly a decade ago of the ‘Sears model’, linking employees, customers and profits55, various attempts have been made into linking employee performance with broader outcomes (such as share price/market value). In our view, and coming from the perspective of HR Director/senior manager application, this is to a large extent a difficult if not futile exercise, in light of both the current state of knowledge and the impact knowledge of this nature is likely to have within an organisation.

Too many factors determine share price/market value for this to be simply correlated with employee performance. For example, a company’s shares will typically rise on rumours of a takeover bid, on exceeding analyst expectations or within the context of a bull market. It is not clear how employee performance or engagement supports these factors without developing multi-factor approaches and sophisticated intangible modelling.

Furthermore, such frameworks relating employee performance to shareholder, market or financial outcomes have not lent themselves to easy application to the public or not-for-profit sectors, where performance is typically measured in outcomes other than revenues, profit or share price. Such evaluation regimes include for example best value performance indicators, star ratings, ranking tables and similar, each with their own drivers of performance.

Additionally, constraints exist in the extent to which the Sears model is directly applicable across business models. At a macro level at time of study, Sears operated a particular business model (retail B2C), where direct contact existed between staff and customers. Additionally, the

55 Rucci, A.J., Kirn, S.P. and Quinn, R.T. (1998). “The Employee-Customer-Profit chain at Sears”, Harvard Business Review 76 no.1 pp82-97

range of potential customer interaction was typically relatively limited and transactional in comparison with other operating models: contrast for example the range of interactions possible when a customer calls an IT support number or bank contact centre, where additional individual skills are likely to be involved, such as problem-solving, questioning and product-specific knowledge.

This is not to decry the importance of employee contribution within Sears or other retailers or to undermine the attempts to link workforce performance with organisational outcomes, as these efforts have suggested willingness amongst organisations to equate employee outcomes/ contribution with overall organisational performance.

We would advocate, however, that additional dimensions to measuring and understanding employee contribution will assist organisations in evaluating the propensity of their workforce to act in a productive manner. Furthermore, any such dimensions should be equally applicable across

sectors, job roles and levels of hierarchy in organisations.

By use of an appropriate underlying framework, organisations should equally have the ability to identify factors that contribute to or degrade from high levels of employee productivity. This allows them to target interventions around particular areas that might have as much to do with organisational approaches (such as recruitment processes) as the motivation of individuals.

A number of such approaches exist in the market: the evidence from an applied and research perspective, however, suggests that the two dimensions of employee commitment and alignment are core to any understanding and subsequent evaluation of employee engagement56. Commitment: the intention to deliver

As set out above, the twin concepts of alignment and commitment underpin employee engagement.

As ‘commitment’ is more established and researched from a psychological perspective

56 This underpins the engagement construct ‘20Q’ as developed by VaLUENTiS.

‘..the evidence from an applied and research perspective, however, suggests that the two dimensions of employee commitment and alignment are core to any understanding and subsequent evaluation of employee engagement..’

© ISHCM 2007 45


(including aspects of loyalty and motivation) we treat it first. A committed workforce brings a number of indisputable benefits to organisations. All things being equal, a committed or loyal workforce with benefit from relatively low levels of turnover (however these are defined relative to the sector).

These in turn result in greater retained experience in ‘the way we do things’, reduced loss of core skill sets and reduced costs through not having to recruit and induct relatively large numbers of staff with the concomitant costs and management attention: all these aspects contribute to minimising costs of replacing and training new staff, and to minimising lost productivity through vacant posts.

From the perspective of people’s contribution and the effect this has on the organisation in terms of productivity, however, the picture is not so straightforward. Three types of commitment have been identified in the psychological literature57, each with particular implications for organisations. Continuance commitment:

Belief that leaving the organisation would be costly

“I stay because I have to”

Normative commitment:

Belief that staying is “the right thing to do”

“I stay because I ought to”

Affective commitment:

Belief that staying because of emotional attachment

“I stay because I want to”

Research has suggested some linkage between

different types of commitment and turnover intention58, with affective commitment additionally having a positive link to performance and continuance commitment having a negative link demonstrated in this aspect59.

Employees exhibiting predominantly continuance commitment will have an increased propensity to remain with the organisation predominantly as the costs of changing roles are perceived as too high. This will potentially result in a transactional approach towards performance, where the employee does enough to ‘get by’ but is unwilling to expend discretionary effort without additional reward or acknowledgement.

We observe that company pension provision can have the unintended consequence of increasing continuance commitment, particularly amongst a longer-serving workforce, or those employees approaching retirement age.

57 See, for example, Allen, N.J. & Grisaffe, D.B. (2001) “Employee commitment to the organization and customer reactions – mapping the linkages.” Human Resource Management Review 11, pp209-236. 58 Meyer, J.P. & Allen, N.J. (1997) Commitment in the workplace: theory, research and application. Thousand Oaks, CA: Sage. 59 Shore, L.M. & Wayne, S.J. (1993). Commitment and employee behaviour: comparison of affective and continuance commitment with perceived organizational support. Journal of Applied Psychology, 78, 774-780.

From the perspective of tapping into discretionary effort, most organisations (and customers) would prefer their workforce to display “affective commitment”, where employees relate strongly to the organisation for whatever combination of reasons resulting from organisational approaches (e.g. compelling employee value proposition, exciting work, highly effective recruitment) and individual motivations (i.e. nature of the role, high self-actualisation).

The literature therefore suggests that commitment plays a key role in determining the degree to which an employee or the workforce is engaged. Commitment and its underlying factors account for the propensity to display discretionary effort: from the perspective of productivity a further dimension, alignment, is required to ensure that the right things are being done, even given the intent to perform.

Alignment – knowing what to deliver Without an understanding of what they are to

deliver and how it contributes to organisational success, even the most committed employee will face challenges in operating productively. This alignment with organisational objectives and values allows the organisation to ‘channel’ employee effort into desired behaviours and outcomes.

Where this alignment (for whatever reason) is lower than required, the employee can spend time on activities that are ultimately not related to productive outputs, resulting in likely frustration for the individual and degrading their productivity and performance.

Equally, where alignment is sub-optimal employees can fail to recognise the implications of a important task or activity that they personally find tedious or not relevant to their role.

For example, we have worked with sales forces where field teams have found the ‘administrative’ aspect of logging details of sales meetings to be time-consuming and frustrating, taking them away from what they perceived to be the ‘real’ job of meeting prospective clients to generate sales.

Their organisation placed high importance on the intelligence provided through this activity to drive marketing decisions, even though the individuals did not place a high value on capturing and recording the information.

© ISHCM 2007 46


Through management paying attention to explaining the importance of this information and demonstrating how the organisation benefited from effective customer data, individual sales representatives were better able to appreciate the relevance of this activity and how it was core to their overall sales efforts.

In order to enhance this alignment between the individual employee and organisational goals (however defined), organisations have focused heavily over the past decade in enhancing what is referred to as the ‘line of sight’ between the individual and the organisation. IT systems to clarify and measure employee performance have been introduced, with increasingly sophisticated measurement frameworks. Feedback and 360 degree evaluation is becoming as much a feature of public sector management as it is within the private sector, reflecting increasing focus on outcomes.

Alignment is not created simply through the creation of particular performance processes, as any manager is likely to understand from their own team experiences. It stems as much from knowing ‘how to do things’, the latitude employees have towards achieving an outcome and individual buy-in to and demonstration of organisational values.

As an illustration of this, consider the difference between an interim member of staff and an equivalent employee performing an identical role, with identical experience and capability. Both might be paid in line with their expectations and have equal motivation to perform effectively (i.e. display appropriate levels of commitment). Fundamentally, however, their alignment will differ.

All things being equal, the employee is more likely to understand the context behind overall objectives, the constraints around certain approaches given organisational values and the impact of achieving the objectives. The interim staff member is more likely to display alignment to enhancing their own portfolio of roles, or towards a personal objective of, for example, the offer of a permanent role. From the perspective of their organisation, this suggests that certain trade-offs relating to engagement and hence productivity are inherent in a high use of temporary, interim or agency staff.

Although the concepts of ‘alignment’ and ‘line of sight’ have not heavily featured in the literature (perhaps resulting from the relative recency of the concepts), academic researchers are supporting pragmatic observation that linkage exists between an employee understanding what should be done, and being motivated/committed to execute (with a positive impact on performance).

Researchers are identifying linkages between high line of sight and high performance, as well as multiple aspects of engagement, job satisfaction and loyalty (an aspect of commitment).60

Employee engagement and its benefits We have seen that considerable evidence exists

to show that employee commitment (or at least one of its manifestations) coupled with alignment results in positive outcomes for the organisation through enhanced productivity and its benefits

References cited within this paper are a representation of some of the key Journal articles that we uncovered in our in-depth social science research of over 60 years duration 61 . Our derivation of the concept of employee engagement and its subsequent definition owes much to the wide range of disciplines of which it encompasses, including:

• High performance work organisations, • Organisation behaviour, • Business/managerial psychology, • Organisational citizenship behaviour, • Individual work motivation and

commitment, • Self-efficacy, • Expectancy theories, • Organisation and job design, • Organisation/team performance • Labour economics.

Given its multi-faceted nature, it is not perhaps

surprising that it has taken some time for a consistent definition of employee engagement to appear. To clarify the debate, the International School of Human Capital Management released the following definition in 2006:

“Employee engagement is an ‘outcome-based’

concept. It is the term which is used to describe the degree to which employees can be ascribed as ‘aligned’ and ‘committed’ to their organisation such that they are at their most productive.”

This definition contains certain core concepts

that require expansion for full appreciation of how organisations can evaluate/measure and seek to enhance engagement within their workforce:

‘Outcome-based’. This acknowledges that an individual’s engagement is driven by a combination of the individual’s intrinsic skills, motivation and work-ethic. However, these are all influenced and affected by the organisational

60 Boswell, W.R. & Boudreau, J.W (2001) “Employee line of sight to the organization’s strategic objectives – what it is, how it can be enhanced, and what makes it happen.” CAHRS/Cornell University Working Paper, 01-06. 61 Expanded further in the ISHCM publication “Employee engagement: a treatise for organisational application” Nicholas J Higgins & G Cohen, forthcoming

© ISHCM 2007 47


The VB-HR™ HC Analytics methodology: Retail Banking Model Example

Human Capital

Practices

Human Capital

Practices

External Value

Proposition

External Value

Proposition

Customer SatisfactionCustomer

Satisfaction

Customer Loyalty

Customer Loyalty

Revenue Growth

Revenue Growth

ProfitabilityProfitability

Employee Retention

Employee Retention

Individual/ team

Productivity

Individual/ team

Productivity

‘Local’ Management

‘Local’ Management

Cost controlCost control

ComplianceCompliance

Portfolio mixPortfolio mix

X-sellingX-selling

ServiceService

Work valuesWork values

Line-of-sightLine-of-sight

DevelopmentDevelopment

RewardReward

Work environmentWork environment

Employee EngagementEmployee

Engagement

Leadership &

governance

Leadership &

governance

Shareholder value

Shareholder valueEmployer

brandEmployer

brand

context within which the individual finds him/herself – this is why it is important to evaluate how the employee perceives the organisation to be supporting or degrading his or her individual engagement/productivity.

‘The degree to which’. We note that certain third-party definitions of engagement include the category of ‘disengaged employees’, and would caution against such a label. Engagement is a relative concept rather than an absolute one that can be influenced through a variety of factors. In other words, this suggests that employees are engaged up to a particular point, rather than being ‘engaged’ or ‘not engaged’. At best, organisations should differentiate between employees who are engaged, highly engaged or only partially engaged.

‘Aligned’ and ‘Committed’ have been explained in the preceding text.

‘Most productive’. Whilst the specific definition of productivity will have certain sector-specific attributes depending on job role, from the perspective of engagement certain features emerge as core.

Review of related research combined with practical observation and experience of management suggests that engaged employees are: • More likely to give discretionary effort above

contractual obligations (i.e. work additional

time, ‘go the extra mile’ in terms of delivery or customer service)

• More likely to achieve goals set • More likely to produce a higher grade or

quality of work with fewer errors • More likely to be flexible to organisation needs

(if these are seen as equitable) • More likely to ‘own’ their development/career

progression • More inclined to share knowledge • Less inclined to take days off • Less likely to suffer stress (but more likely to

suffer burn-out) • Less likely to commit fraud or sabotage.

The use of detailed modelling analytic approaches provides potential ‘drill down’ into these factors to provide various organisational probabilities around these outcomes, linked to productivity and organisation performance.

The following graphic illustrates one such approach, developed for the retail banking sector. The graphic shows how employee engagement can be correlated with various HC practices and performance to revenues and profitability, given sufficient interpretation of variables and probabilities.

It is possible to view an increased propensity for productivity as an outcome from higher levels of engagement (with the corollary that lower levels of engagement result in an increased propensity for low productivity).

This representative model shows why linking employee engagement directly to shareholder value is misguided and open to challenge. The link between employee engagement and shareholder value must take into account these factors to be considered reliable and requires some fairly sophisticated modelling approaches.

© ISHCM 2007 48


Higherproductivity

Higherorganisation performance

Higheremployee

engagement

Higherproductivity

Higherorganisation performance

Higheremployee

engagement

+

+ +

Employee and organisation performance

Previous efforts to link employee and organisation performance have viewed the interaction as follows, where high employee engagement results in high organisational performance, through enhanced employee productivity.

In reality, the interaction is more complicated.

Practical observation suggests that high-performing organisations tend to have a ‘cachet’ that attracts more ambitious candidates who are more likely to work more productively (as suggested by the volume of applications to, for example, the top-tier investment banks, ‘magic circle’ law firms and ‘Big 4’ auditors relative to other organisations in their sector).

Equally, an organisation with relative performance issues is more likely to experience higher-performing staff ‘jumping ship’. From the individual perspective, association with a low-performing organisation may be seen to weaken their own opportunities in the job market, just as association with a highly-perceived organisation would be seen to give them an edge.

Given this dual-interaction, the graphic below presents a perspective that captures this ‘self-reinforcing’ loop.

This implies, as explained, that increasing

organisational performance is supportive of increased employee engagement.

The converse is also true in that negative (or perceived negative) performance has a ‘knock-on’ and detrimental effect on employee engagement also.

Thus the derivation of sophisticated models of employee engagement need to take into account this ‘performance factor’ for true parity in terms of effect to be represented, and thus replicated.

Implications for organisations: How many of our people are highly engaged?

Judging from recent press coverage, relating to public sector output and skills concerns in certain private sector roles, the theme of improving and sustaining levels of productivity in organisations has never been more critical or on the agenda.

Organisations should therefore take seriously the inference that the degree of engagement in the workforce will impact on productivity, suggesting that this is a major cause of organisational advantage (or disadvantage)62.

As a simple illustration, consider two theoretical organisations with identical business models, identical products and prices, identical systems and identical customers. The only difference between the two organisations is their managers and employees. One organisation has a large proportion of engaged staff, the other has a low proportion of engaged staff.

Given the definition of engagement and its twin dimensions of alignment and commitment, from an intuitive perspective, which of these two organisations is more likely to be more productive, generate greater customer satisfaction, and benefit from higher revenues/profits?

An appreciation of employee engagement therefore suggests that attaining consistently high levels of productivity requires an organisation to possess highly engaged employees.

To help in understanding the varying degrees of performance, it is useful to refer to a 3x3 grid construct (matrix) as in Figure 1 overleaf. This representation illustrates the typical implications of optimal and sub-optimal levels of alignment and commitment (and therefore overall engagement). In practice the construct is more complex taking into account a variety of factors and variables. However, it does provide managers with a workable reference.

62 Refer to lead article ‘Competitive Advantage through Strategic Human Capital Management’ in this journal

© ISHCM 2007 49


Figure 1 Employee Engagement matrix (Alignment versus Commitment)

Knows what to do/achieve but unlikely to

achieve it

More likely to have

performance/ capability

issues

Likely to have performance,

attitudinal and/or

behavioural issues

Could do more

Job gets done

More likely to have objective

and/or ‘potential’

issues

Fullyproductive

Less than optimally

productive -Could do

more ‘well’

High probability of wasted effort/

frustration

Individual’sdegree of Alignment

Degree ofCommitment

AffectiveContinuance

Incongruent

Fullycongruent

This matrix contains profound implications for organisations seeking to optimise their productivity:

1. Only ‘highly engaged’ people are likely to be fully productive (illustrated by the top right-hand box only)

2. Organisations’ baseline requirement is for all people to be at least ‘engaged’ to ensure that jobs are done to a threshold standard (the middle three boxes, forming an L-shape around the ‘fully productive’ box), though there is potential to do more

3. Unfortunately employees who can be defined as being only ‘partially engaged’ can occupy the remaining five boxes (Big ‘L’) in the matrix. Here productivity is less than required due to a variety of reasons which has implications for management time and attention (thus creating a ‘double whammy’ in terms of their impact on productivity).

Therefore fundamental questions for

organisations should be ‘How many of our staff are highly engaged? How many are engaged? And how many are just partially engaged?’ The following page explores this in more detail, through delineating four typical roles at the three levels of engagement.

The table to the right shows the potential implications of ‘highly engaged’, ‘engaged’ and ‘partially engaged’ employees and the respective outcomes that ensue.

To provide illustration of the way in which the differing degrees of ‘engagement’ may translate into actual organisational situations we have described four organisational roles, starting with what ‘highly engaged’ employees might look like in each of these roles.

Highly engaged employees (‘alpha’)


achieve it

More likely to have


issues


attitudinal and/or

behavioural issues

Could do more

Job gets done



issues

Fullyproductive

Less than optimally


more ‘well’


frustration


Degree ofCommitment


Incongruent

Fullycongruent

Highly engaged employees occupy one ‘box’ within the matrix and are fully productive (i.e. operating at an optimal level).

Engaged employees (‘beta’)


achieve it

More likely to have


issues


attitudinal and/or

behavioural issues

Could do more

Job gets done



issues

Fullyproductive

Less than optimally


more ‘well’


frustration


Degree ofCommitment


Incongruent

Fullycongruent

Engaged employees occupy three ‘boxes’ within the matrix. They generally perform the job to at least a ‘threshold’ level but barriers exist around capability and/or understanding that probably prevent them from acting in a fully productive manner.

Partially engaged employees (‘gamma’)


achieve it

More likely to have


issues


attitudinal and/or

behavioural issues

Could do more

Job gets done



issues

Fullyproductive

Less than optimally


more ‘well’


frustration


Degree ofCommitment


Incongruent

Fullycongruent

Partially engaged employees occupy five ‘boxes’ within the matrix. They exhibit issues relating to capability and/or understanding of what is required that result in performance/outcome issues at an individual level, which can degrade the productivity of those around them.

© ISHCM 2007 50


Highly engaged Engaged Partially engaged People manager

• Able to ensure that his/her team is highly engaged

• Exemplifies organisational values within and outside the organisation

• Goes ‘above and beyond’ what is required to meet and exceed customer expectations whilst ensuring commerciality

• Consistently performs to a high standard from an individual and team perspective

• Able to ensure that his/her team is generally engaged but struggles to make them fully productive

• Generally exhibits organisational values within the organisation but not seen as a ‘role model’

• Generally does what is required to meet customer expectations

• Performs to a standard that is generally acceptable

• Does not create any degree of consistent engagement within his/her team and suffers from poor relative team performance

• Generally demonstrates few behaviours congruent with organisational values

• Does not understand or cannot deliver what is required to meet customer expectations

• Generally does not perform to an acceptable standard

Call centre operator (inbound)

• Highly effective at handling customer issues and resolving ‘hostile’ calls


• Takes accountability for outcomes to ensure customer needs are met/exceeded whilst the organisation is able to benefit from the feedback (e.g. through flagging potential issues with line manager)

• Consistently performs to a high standard

• Generally effective at handling customer issues and resolving all standard call types


• Takes some accountability for outcomes to ensure customer needs are met but does not make ‘heroic efforts’

• Performs to a standard that is generally acceptable

• Erratic or ineffective at handling customer issues potentially complicating issues and/or leading to a high requirement for colleague intervention


• At best, aims to hit call response metrics with limited focus on quality of outcomes

• Generally does not perform to an acceptable standard

Sales representative

• Seen as highly effective at selling the right products to meet or exceed where possible identified customer needs


• Generates sales and contribution from new and existing customers/clients that are significantly higher than ‘average’

• Consistently performs to a high standard from an individual perspective and supports other sales colleagues from a team perspective

• Seen as effective at meeting sales targets


• Generates sales and contribution from new and existing customers/clients that are at or slightly above ‘average’ levels

• Performs to a standard that is generally acceptable, providing support to the sales team where required and expedient

• Does not meet sales targets with consistency


• Generates sales and contribution from new and existing customers/clients that are below ‘average’ levels

• Generally does not perform to an acceptable standard as an individual or ‘pull own weight’ within a team

HR Business Partner

• Able to ensure that HR colleagues are highly engaged and influence line managers to support high engagement within the organisation


• Goes ‘above and beyond’ what is required to enhance productivity through championing effective and consistent human capital management practice within the organisation

• Consistently performs to a high standard from an individual and team perspective in supporting organisational productivity and engagement

• Able to ensure that HR colleagues are generally engaged and influence line managers in support of engagement within the organisation


• Consistent in applying the principles of effective human capital management practice and their application, but unlikely to champion them without encouragement

• Performs to a standard that is generally acceptable in support of organisational productivity and engagement

• Does not create any degree of consistent engagement within his/her HR team and fails to support engagement within the organisation


• Inconsistent in applying the principles of effective human capital management practice and their application, preferring to resolve situations from a perspective that places (at best) the individual above the organisation

• Generally does not perform to an acceptable standard as an individual or ‘pull own weight’ within a team

The challenge for organisations with ‘highly engaged’ employees is how to keep them highly engaged and support their career progression throughout the organisation.

The challenge for organisations with ‘engaged’ employees is how to either support them in becoming

‘highly engaged’ or to ensure that the individual is given appropriate roles where their level of engagement does not degrade that of colleagues (e.g. not over-promoted or given excessive responsibility).

The challenge for organisations with ‘partially engaged’ employees is how to either overcome barriers

relating to capability and understanding (e.g. through additional training or management attention) or how to redeploy or even exit the employee from the organisation.

© ISHCM 2007 51


Where engagement matters: The matching of highly engaged people to core positions

The factors driving engagement relate equally to all employees. It is possible to be a highly engaged post-room worker or a partially engaged CEO, given the emotional and intellectual linkage with the organisation felt by the individual (resulting in alignment with organisational values and goals and commitment to stay and perform).

Having said that all employees have the potential to be highly engaged, the issue for any organisation is identifying where to focus interventions: it might be desirable to have all employees in a ‘highly engaged’ state, but the effort required to sustain this would be disproportionately high. Therefore an organisation should ensure that its core positions are filled by highly engaged or ‘alpha’ employees.

Following the question “How many people are highly engaged?” the secondary question is “How many of our highly engaged people are in core positions?”

Accordingly, organisations should identify where specific ‘engagement deficits’ exist. An engagement deficit arises where a role that is seen to be core to the organisation and its intended outcomes contains a low proportion of ‘highly engaged’ and ‘engaged’ employees.

Within every organisation, certain job roles or levels of hierarchy are capable of contributing disproportionately to organisational performance outcomes. For example, a senior management team has the ability to significantly change organisational performance through their decisions and ability to have the organisation execute against them. Core roles are not limited to a senior management cadre. Within a financial services organisation, for example, product pricing roles and individual sales staff holding individual relationships with major accounts might be seen as ‘core’.

Organisations therefore should seek to maximise engagement amongst those staff that are seen as core (‘highly engaged’), whilst potentially tolerating a threshold level of engagement amongst remaining staff (‘engaged’) and minimising the proportion of staff who rate as ‘partially engaged’.

Note that each organisation will categorise specific roles differently dependent on their particular organisational model, perspective and priorities; the categorisation is intended to differentiate the extent to which the role is critical to organisational performance and productivity.

Irrespective of organisation, it is likely that people managers will form a key constituency within this. As shown above in the illustration of ‘highly engaged’ vs. ‘engaged’ staff, people managers are crucial within organisations given their ability to influence (for good and bad) engagement levels within their team. The manager therefore acts as a ‘limiter’ of team level engagement: in the absence of a ‘highly engaged’ manager, it is extremely unlikely that a team will exhibit levels of high engagement on a sustained basis63.

Equally, an organisation might identify its high performing staff as those where it would expect to see high levels of engagement. Without high levels of engagement in these ‘core’ positions (which can occur within any role, function or department depending on definition), any

attempts at ‘talent management’ are potentially expensive or misguided.

Consider a practical example. For a university, the key drivers of performance and income will typically result from the work of academics. If an engagement survey identifies that this group of staff contains a relatively high proportion of ‘partially engaged’ employees, this suggests implications around productivity that could have significant impact on overall organisational performance.

In this example, partial engagement will have implications for the university’s costs and for its ability to attract grants and research income. Should any commitment stem from staff regarding the ‘costs’ of moving role to be too difficult (i.e. displaying continuance commitment), the University faces the prospect of employing people who perform their roles only to the extent normally required, with limited concern for going above and beyond this in terms of discretionary effort.

From the perspectives of productivity and the university’s ability to attract funding/research

63 This explanation provides the rationale for why employee surveys, even those that are not explicitly based on a rigorous engagement construct, contain questions relating to ‘my manager’. This concept is expanded by VaLUENTiS into the distinct concept of ‘management engagement’.

People managers are crucial within organisations given their ability to influence (for good and bad) engagement levels within their team.

© ISHCM 2007 52


Business objectives awareness

Role ‘fit’

Performance management

Scorecard

Capability

Line-of Sight Work Environment

VB-HR™ Engagement index mapping

Reward Development

Career progression

Competencies

Succession planning

Job/ Role architecture

Training/ Learning

Coaching/ Mentoring

OrganisationalArchitectureOrganisation design

Performance management system

Rewards systemDecision rightsWork values

Base salary

Bonus/incentives

Benefits

Shares

Recognition

Cultural elements

Leadership

Communication

Expectations

Local management

13.4

12.4

12.8

13.4

12.7

Norm: 14.1Norm: 12.2

Norm: 12.5Norm: 13.0

Norm: 13.4

grants, this will put it at a disadvantage against universities able to benefit from greater levels of engagement from key academic staff.

Measuring engagement As engagement is an outcome of the alignment

and commitment of individuals, and organisations are staffed by individuals, it becomes possible to talk of the degree of ‘overall engagement’ from the perspective of the organisation. Accordingly it becomes possible to aggregate responses from individuals to obtain an organisational perspective on the extent to which employees are engaged. With the use of smaller populations (such as functions, departments, teams etc.), it becomes possible to identify broad differentials (to the extent seen as relevant) within the same organisation through internal benchmarking64 as well as answering the question of where highly engaged staff exist within the organisation.

A number of constructs within the market seek to measure responses to ‘outcome-based’ questions, such as ‘I am committed to the organisation’, ‘I am satisfied with my job’ as a means of calculated employee engagement. We would advocate that the nature of these questions has some limited application in measuring employee attitudes, although surveys containing questions of this nature provide only questionable insight to human capital management professionals65.

To illustrate this, a question sometimes incorporated in employee surveys measures intent to leave (e.g. “I am more likely to stay with the company than I was 12 months ago”). Whilst tracking this response over time provides some interesting potential trends (particularly if linked to actual turnover in a modelling analytics approach), it has limited application from the perspective of human capital management.

To expand on this, it would be unclear what a human capital management professional could or should do to influence or counteract a low score in this area, as turnover intent is, at best, an outcome of other factors. We have seen organisations struggle with issues of this nature, when limited differentiation is made in employee surveys between ‘input factor based’ and ‘outcome-based’ questions.

In the cases where manager remuneration is linked to particular outcome scores (such as employee engagement), an inadequate survey design becomes additionally problematic as it has the potential to incentivise behaviours that do not

64 When evaluating engagement, external benchmarking has limited application, as each organisation even drawn from the same sector will have differences in workforce composition, HR policies, employer brand, values, management calibre and approaches etc. 65 This theme is expanded in the section ‘Potential pitfalls’.

necessarily contribute to organisational performance.

One of the most advanced approaches 66 towards measuring employee engagement therefore utilises questions that relate to ‘inputs’ or drivers of engagement that can be influenced by the organisation. These questions relate to specific aspects of alignment or commitment (as outlined previously). Questions are then further grouped within five ‘domains’ relating to specific components of alignment and commitment. The five domains are: • Line of Sight (including performance

management, role fit etc.) • Work environment (including line manager,

communication, resources etc.) • Development (including training &

development, competencies, mentoring etc.) • Reward (including internal and external pay

equity, total reward package etc.) • Organisational Architecture (including work

values, trust etc.)

By clustering engagement inputs under these five domains, specific questions can be mapped onto the five areas. This has two primary advantages: (i) the ability to investigate at a ‘shallow’ or ‘deep’ level from standardised sets of 20 question, 30 question, 40 question and 50 question variants67 of the engagement survey and (ii) the ability to ‘recut’ data from existing employee survey constructs for the purposes of evaluating question balance and generating ‘proxy’ engagement scores.

The possibility of evaluating employee engagement with a core set starting at 20 questions generates a number of options for client organisations. With the ‘traditional’ approach

towards employee surveys typically involving

66 Developed by VaLUENTiS and validated through the International School of Human Capital Management. 67 Sets up to 120Q, in steps of ten, from a base battery of 500 question-statements

© ISHCM 2007 53


-20%

-15%

-10%

-5%

0%

5%

10%

Population 8 Population 2 Population 5 Population 9 Population 3 Population 1 Population 7 Allresponses

Population10

Population 4 Population 6

Organisation average

Higher levels of engagement

Lower levels of engagement

ILLUSTRATIVE

upwards of 70 questions distributed to all staff via paper, this has the benefits of easy implementation and integration of core engagement questions within existing organisational surveys.

A key additional feature is an equal weighting placed on each of the five domains. It is not unusual to review survey questions for clients to find a disproportionate number of questions in one of the five domains, leading to ‘skewing’ in the findings generated. For example, if half a survey’s questions relate to ‘my manager’, the likelihood is higher that the survey will identify an issue with ‘my manager’, even though this is only one factor contributed to employee engagement. Evaluating engagement

HR professionals and their suppliers (stemming perhaps from historical approaches towards utilising employee opinion or attitude surveys), have tended to view responses to each survey question in isolation, leading to the risk of ‘splitting hairs’ around particular benchmark definitions and comparisons at this level.

An evolution towards survey reporting has led to the clustering of particular questions under a theme such as, for example, ‘My manager’, ‘Learning and Development’, ‘Communications’, where an overall score or index calculation is generated across a number of discrete questions. This allows for a more complex means of trend analysis and comparison than at the level of the individual question, as well as enhancing feed-back options.

One leading approach is to utilise index scores at the level of overall engagement and within specific engagement domains to identify particular strengths and core areas for actionable enhancement. Three levels of analysis/comparison are standard:

• Organisational level • Population level

(i.e. department or function) • Employee level.

The VB-HR™ Engagement index graphic (on

page opposite) illustrates organisational level reporting68, illustrating overall engagement scores within an organisation. With each domain scoring between 4 and 20, 12 represents a neutral point, with scores above 12 indicating a degree of positivity overall.

Within this illustration, overall engagement (the product of all five domains) equals 64.2 against a norm sectoral score of 65.2. Presentation of index scores in this format immediately highlights two aspects relevant to interpretation and actioning:

• Some domains score above and some below the norm score

• There are differentials across the five domains (i.e. they do not receive the same score).

Comparison of levels of engagement across populations (as defined by the organisation, typically reflecting functions or departments) is enabled through review at the population level. Figure 2 shows how comparison against an organisational norm (i.e. the aggregate score across the entire organisation) swiftly illustrates where particular populations exhibit elevated or degraded levels of engagement.

68 With thanks to VaLUENTiS for licensed use of the VB-HR™ Engagement construct.

Figure 2

© ISHCM 2007 54


This can be linked, as noted, with specific drill-down analysis or modelling analytics approaches to develop further insight into the causes and impact of factors degrading performance.

Finally, analysis and reporting is performed at the employee level. Through reviewing individual, anonymised datasets, a calculation of the proportionate level of engagement is carried out, to differentiate between employees who are ‘Highly engaged’, ‘Engaged’ and ‘Partially engaged’ (also referred to as ‘alpha’, ‘beta’ and ‘gamma’ from an engagement perspective) – an example is set out in the diagram below, where the organisation benefits from a high proportion of ‘Highly engaged’ and ‘Engaged’ employees.

“Highly engaged”

“Partially engaged”

“Engaged”

Organisation A

As noted above, this particular analysis takes on

relevance when mapped against roles defined as core (to the extent possible given confidentiality requirements). When supported with appropriate modelling analytics frameworks, organisations can start to review probabilities around particular outcomes.

Certain constructs within the market identify the category of ‘disengaged’ employees. In our experience, this label is unhelpful, as it implies that an employee with strong negative perceptions is not engaged.

In reality, it can be the case that strong negative perceptions mask frustration with aspects of the status quo that prevent the individual being fully engaged. For example, an employee strongly disagreeing with the statement that ‘My organisation provides the resources necessary for me to work effectively’ could be flagging concern that they are not able to be as productive as they believe they are capable. In this case, to label such an employee as ‘disengaged’ is likely to provide an inaccurate perspective.

Equally, where employees are ‘Partially engaged’, this indicates issues stemming from a number of potential causes: review of specific questions within the engagement construct is the initial means of identifying/clarifying specific causes and developing the means to rectify these.

To assist organisations further in identifying and addressing issues of this nature, frameworks and related toolkits exist that have linked employee engagement with the broader concept of management and organisational engagement69.

Potential pitfalls As the concept of ‘employee engagement’ is a

relatively recent one, there has been limited previous clarity in the marketplace about its nature and how to evaluate it. The following ‘pitfalls’ have been observed where organisations have not sufficiently clarified the ‘why’, and the ‘what’ for conducting a survey.

Unclear or mixed rationale for conducting a survey

Prevailing attitudes towards employee surveys have traditionally regarded them potentially as a compliance exercise or as a means of evaluating employee ‘opinion’, in the same way that organisations would evaluate customer opinion (belying the marketing roots of certain approaches and constructs).

Whilst obtaining information from employees may or may not be sufficient justification for a survey, organisations who conduct a survey at best every eighteen months should be clear on precisely what they are evaluating and why: failure to do so will typically result in an unwieldy survey construct that yields limited insight.

A typical symptom of an unclear survey rationale is a long list of questions, potentially focusing on only one or two of the engagement domains. This suggests the likelihood of a diffuse survey construct and rationale, with the danger that questions are included as they are seen to be relevant (for whatever rationale), rather than for the purpose of evaluating a specific aspect of human capital management.

We have had the fortune to work with organisations conducting quarterly ‘pulse’ surveys with a focused question-set across a slice of their overall population, in recognition that trend data of this nature provides a means of evaluating the impact of HR interventions and determining how best to enhance productivity within the organisation. These organisations have typically regarded the survey as an effective management tool that enhances their internal communication and focuses management action.

69 For example, VaLUENTiS’ VB-HR™ Rating evaluation that places employees within the context of seven additional organisational performance drivers, including management; human capital management architecture; workforce intelligence and HR functional capability.

© ISHCM 2007 55


At the minimum, an organisation should aim to conduct a survey of its employees every 12 months, or run the risk of degrading the comparability of its data and the credibility of any trend analysis or comparisons generated. ‘Satisfaction’

‘Satisfaction’, again a term originating from the marketing function, is not a safe construct to apply with employees. Whilst organisations might reasonably aim to delight their customers (as these are the consumers who justify the organisation’s existence), this concept is not appropriate for employees. Employees are hired to perform a role in support of the organisation’s objectives, not as consumers of the product.

With no body of evidence effectively linking employee satisfaction with productivity, empirical observation suggests this to be clear. For example, an employee could be satisfied if he/she is highly paid and not required to deliver quality outcomes: this approach is hardly sustainable from the organisational perspective, however.

The ‘benchmarking fallacy’

Organisations can be misled by benchmarks in two ways. The first concerns the natural ‘comfort level’ provided if a particularly poor score appears, on comparison with other organisations, no worse than anybody else’s. If a score to a particular question-statement is lower than others, it sends a signal to the organisation that some aspect is sub-optimised from a human capital perspective (assuming an effective underlying construct) and thus that productivity is degraded.

Benchmarks can be utilised to good effect, but only when these are internal to the organisation. For example, comparison of engagement levels in different areas of the organisation (e.g. on a demographic, job family, ethnicity basis) can yield valuable insight into the factors underlying sub-optimised engagement, potentially linking to the development or clarification of internal employee value propositions and approaches towards engaging a diverse workforce.

The second fallacy concerns the question ‘what should we be scoring on this?’ This should be a conscious decision by the organisation, in line with how it aims to attract, retain and develop its workforce. To set targets based on the scores of other organisations, who are unlikely to be directly comparable, questions management understanding relating to the governance of their own organisation.

For example, a low score on ‘I am satisfied with my physical work environment’ does suggest certain issues, but is not necessarily sufficient justification for a premises upgrade, unless this is seen as a priority for the organisation (e.g. causing health & safety issues, impacting the external and internal employer brands, resulting in unacceptable or damaging levels of absenteeism etc).

Unsafe constructs

It may be the case that an organisation has identified ‘employee engagement’ as a core topic and has determined to conduct a survey to evaluate this. Like any emerging phenomenon, however, not all definitions of ‘employee engagement’ are equal.

As noted above, the International School of Human Capital Management defines employee engagement as “the term which is used to describe the degree to which employees can be ascribed as ‘aligned’ and ‘committed’ to their organisation such that they are at their most productive”. Alternative definitions and survey constructs exist, however, leading to employee survey questions that provide only limited insight or do not allow the organisation to take action to enhance outcomes.

Similarly, not all engagement survey constructs utilise a balanced question set, demonstrating potential ‘selection bias’ in the themes presented. Where this is the case, findings can be skewed towards these particular themes70. Whilst this is insufficient from a measurement perspective, it increases the risk for the organisation to take inappropriate action if scores are used as a business case for subsequent activity.

We therefore urge organisations to conduct due diligence in their choice of engagement construct and how the organisation can act on its outcomes.

Conclusion Organisations seeking to maximise the

productivity of their workforce now have access to the powerful concept of ‘engagement’, a multi-factor approach including employee alignment and commitment to the organisation. With use of a robust survey construct (which can involve no more than 20 questions given an appropriate underlying construct) supported by appropriate modelling/reporting approaches, organisations can identify the extent of engagement within their workforce.

Specific questions can be linked to organisational ‘input factors’ whose effective

70 We find common examples where questions relating to the ‘Work environment’ domain are over-represented to the detriment of the other four domains. This can lead to false or misleading conclusions for any ensuing interventions.

© ISHCM 2007 56


presence supports individual alignment and commitment. By evaluating and reporting across these, an overall index of engagement within the organisation can be developed with extension to functions and ‘core’ job roles.

Review of engagement across different populations and/or roles within the organisation will lead to the identification of specific issues degrading engagement and hence productivity that can be addressed through intervention.

Through ensuring that highly engaged and engaged employees hold core roles (‘alpha’ and ‘beta’), organisations can seek to optimise the productivity of their existing staff and ensure effective operation of core organisational roles. Where employees are identified as ‘partially engaged’ (or ‘gamma’), the organisation should identify the causes of this and seek to rectify them, or equally ensure that individuals in this state are not in core positions. (“How many of these highly engaged people are in core roles?”)

As organisations seek ways of enhancing and differentiating their performance, no matter which sector they operate within, productivity through employee engagement will undoubtedly feature as a key approach. For this reason, evaluation and action based on a robust measurement approach will increasingly become core for HR functions and managers to optimise productivity within their organisation.

Employee Engagement A treatise for organisational application

Nicholas J Higgins & Graeme Cohen

Employee Engagement A treatise for organisational application

Nicholas J Higgins & Graeme Cohen

‘A serious book for a serious subject’

Due out: 2nd Quarter 2007

ISHCM Publications

Pre-order your copy on +44 (0) 20 7887 6121 and quoting reference: JAHCM002

Employee Engagement Faculty

The EE faculty is currently undertaking a series of white papers in the area of employee engagement including further work on the Employee Engagement Standards.

Major publication for 2007:Employee Engagement: A treatise for organisational application



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Here.


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‘Cracking the Human Capital Code’

“A groundbreaking study of the relationship between human capital and organisation performance.”

Introducing the Human Capital Composite Index (HCCI™)

Rankings downloadable at www.hccindex.com

Sectors already covered:

FTSE 350 companies

UK Local Government

Top 100 UK private companies

Forthcoming cover :

FTSE All-share


Euro 300

S&P 500

NHS

UK Higher Education

Not-for-profit

‘Cracking the Human Capital Code’

“A groundbreaking study of the relationship between human capital and organisation performance.”

Introducing the Human Capital Composite Index (HCCI™)

Rankings downloadable at www.hccindex.com

Sectors already covered:

FTSE 350 companies

UK Local Government


Forthcoming cover :

FTSE All-share


Euro 300

S&P 500

NHS

UK Higher Education

Not-for-profit

© ISHCM 2007 59


Thought leadership

Human Capital Measurement: A retrospective viewpoint By Maurice Phelps Founder Partner, EP-First Saratoga Europe Human capital measurement has been on the management agenda for some time now. But despite all the attention and rhetoric given to the subject, organisations still seem to be some way off from the ‘promised land’ so often referred to. Here, one of the measurement industry’s veterans provides a retrospective insight into what has slowed progress and why, with suggestions on how the ‘human capital measurement movement’ should now go forward.

© ISHCM 2007 60


Do you remember October 2003? It was of course a momentous time. The

publication of the ‘Accounting for People’ Report, following some 10 months of wide consultation, was not a headline grabber. It was, however, a critical date in the development of Human Capital Measurement.

The Report had the potential to drive the discipline forward to a key positioning in business reporting, and a powerful shareholder aid. It had the potential of promoting the people agenda into the boardroom, enabling CEOs and CFOs plus others to evaluate people asset value objectively through the use of business language i.e. numbers and money.

The Report’s opening page held great promise, with Denise Kingsmill’s stirring proclamation:-

“This is the moment when HCM takes its place

in the Boardroom. Directors need to transform the airy cliché about people being their greatest asset into a guiding principle of business strategy”

It was followed by 72 pages of narrative

including Recommendations. There were five of them – three recommending further consultation, one advocating that OFRs should either include mention of HCM or explain why not, and one recommending a collection of diverse pieces of people data. Then to add final piquancy to its exhaustive findings, paragraph 91 concluded:-

“There was a widespread view that while the

task force might stipulate that metrics should be used in reporting where possible and appropriate, individual organizations should be free to choose their own methods of data collection and analysis and to decide which particular measures to use and report. Many respondents thought that, over time, certain metrics might well become widely accepted and used.”

Was anyone reminded of a rumbling mountain

and a mouse?

It is of course reasonable to ask what has happened to the Accounting for People initiative since the Report? And the answer is – “Nothing Obvious”.

There has been no discernable centralised initiative to advance HCM since 2003 – indeed some would argue that with the abandonment of the OFR as a statutory instrument the cause has regressed. It is certainly concerning to read that only some 23% of major corporates in Europe intend to abide by existing European Directives on the subject.

October, 2003 had further connections with HCM beyond The Accounting for People Report. It was exactly a decade from the month in 1993 when Jac Fitz Enz’s pioneering HCM work in the US arrived in the UK. It was a decade during which a limited number of specialist consultancies built the first HCM systems, succeeded in encouraging a few hundred organisations across Europe to measure their human capital on a regular basis, promoted some debate, and totally failed to impact “business strategy” (to use Denise Kingsmill’s phrase).

As always, there were reasons for such unspectacular progress. Here are some of them:-

• Largely, the decision makers in organisations did not believe in HC measurement. Discussions with CEOs and CFOs revealed a passing (almost patronising) interest. Overall one encountered an underlying consensus that people cannot be measured.

• People management was all about experience, feel, instinct, touch. HR Executives over the decade displayed little real expertise in communicating the need for HCM to their colleagues – perhaps because either they didn’t believe in it, or were not able to argue it.

For some years, I searched for “the intellectual

energy” invested in the discipline; research, study, and work being undertaken or promoted by business schools, gurus, major consultancies, HR functions within large corporates and professional institutional sponsorship. There was precious little evidence of anything happening.

No one had any real interest. Much of the original work undertaken in the field was captured by global consultancies. Such bodies had little interest in related research or development work,

‘HR executives are not a genre with an easy relationship with numbers. It would perhaps be harsh to suggest that many are innumerate, but too many showed a high disregard for hard financials.’

© ISHCM 2007 61


focussing hard on accruing the maximum revenue from what was already there.

The result was, too often, the presentation of incomplete models to clients accompanied by heavy fees for limited perceived added value. It did nothing to advance either the cause or the reputation of HC measurement.

HR executives are not a genre with an easy relationship with numbers. It would perhaps be harsh to suggest that many are innumerate, but too many showed a high disregard for hard financials. Beyond this, however, there was and still remains a belief that HC measurement is primarily about the size, cost and structure of the HR Function, together with its Shared Services offspring. Productivity performance, value added contribution, wealth creation measurements generally were and are met with nodded indifference.

In addition, human capital measurement was a very unsexy subject. HR executives gained the positive support of their line colleagues more

readily if they were involved in Leadership Development Programmes, Talent Management Succession Models, Attitudinal Survey Results, Mentoring Systems, and Work/Life Projects. Boring numbers about people productivity have never really attracted flattering articles in fashionable journals or colleague applause.

It would be inappropriate to paint a totally negative picture. Some progress obviously took place, but it has been disappointingly low key. There is now a greater awareness of human capital measurement, but it certainly doesn’t head any human capital agenda. There is little apparent urgency anywhere. An HCM Standards Group, comprising some familiar people-related institutes, has sat for some fifteen months, trying to agree a few common generic metrics. To provide comparison, Toyota can take a new car model from concept to market in eight!

If HC Measurement is to become an established business discipline, with all the benefits this will have for working people, then a number of actions need to be taken.

Here are some suggestions:- • An authoritative body needs to develop an

HCM Code of Practice, which specifies the purpose of such measurement, the required frequency of presentation, the metrics plus definitions and the preferred format of presentation.

• It is suggested that such a body would

require strong government support, contain influential CEO and CFO presence, whilst avoiding both those institutes which are too closely identified with classical human resource activity and consultancies which have high revenue enhancing interests in the subject.

• Research needs to be actively encouraged and sponsored. Niche organisations which have advanced the thinking on HCM significantly in recent years providing new reporting frameworks, and moving metric measurement into key people related issues such as Leadership, People Engagement, Talent, and Innovation. Little of this has been adopted by established research bodies or teaching establishments. In many such organisations short term revenue gain seems to have largely stultified research investment.

Although HR Functions are the obvious owners of the discipline, they have shown little appetite for it. Much of this, it is feared is lack of understanding or even lack of training.

It is clear that existing qualification routes into the function do not provide the broader business skills that major business contributors must now possess. So it is encouraging to see Henley Management College and others moving to an MSc type qualification for HR practitioners.

It is more than encouraging to see Valuentis’ International School of HCM directly offering specialist training on human capital measurement and indeed its own HCMI qualification. Even so, it is anticipated that the transference of such an additional skill base will take time. Meanwhile, the responsibility for human capital measurement may well need to reside within the Finance or equivalent function.

Finally, there is a need for a mind set change. The prevailing human capital themes promoted by established HR journals focus on issues such as Work/Life Balance, Diversity, Flexible Working, Morale, Coaching and related subjects.

Yet Western Europe faces much bigger employment issues than the above – globalisation requires a total re-evaluation of the entire employment proposition. There is now a business world where customer tastes change by the week not even by the month, where company ownership is confused by alliances, mergers and

‘It would be inappropriate to paint a totally negative picture. Some progress obviously took place, but it has been disappointingly low key.’

© ISHCM 2007 62


private equity incursion, where work follows cost effective employment hubs, where corporate operations have little national identity, where transparency is unavoidable, where people work with contractors, consultants and offshore colleagues without understanding or even worrying about the difference.

This is a world in which a rapid assessment of what works and what doesn’t work with people, whether employed or not, becomes essential. In such an agile world, measurement systems to decide where, when and how precious human capital resource is deployed, will be the difference between success and failure. In such a world those applying static HR policies will perish, those taking gut decisions will suffer, those able to apply agile measured assessments will compete.

To date the growth of Human Capital Measurement has been based upon ‘voluntaryism’. There is a logic here – if people are seriously an organisation’s greatest asset, then of course measurement must take place. Any respected executive would apply stringent measurement to such a critical asset. Thus HCM should, by now, be embedded everywhere.

But it isn’t! So either we don’t mean what we say, or we are all highly negligent!

Let me finish with a question:- “If Financial Reporting had been left to the

self-determination of Company Boards, what type of reporting do we think we would be receiving in 2007?”

1st Edition

A Guide to the Human Capital Reporting Standards (GHCRS2006)

1st Edition

A Guide to the Human Capital Reporting Standards (GHCRS2006)

In January 2006, VaLUENTiS published open source Human Capital Reporting Standards, the first time in industry history. The Standards provide an overall framework and define standard HC operating principles (‘SHCROPs’), and reporting templates which include the HC Operating Statement, PeopleFlow™ and HC Productivity Statements. The Standards have received acclaim from various quarters, including the accountancy and HR professions. A number of organisations have begun to adapt part or all of the framework. The first edition is soon to be published having undergone an annual revision process. Due out: 2nd Quarter 2007 ISHCM Publishing: Pre-order your copy on +44 (0) 20 7887 6121 and quoting reference: JAHCM003

Human Capital Measurement Faculty

The leading global CENTRE OF EXCELLENCE on the measurement of human capital in organisations. The faculty is currently engaged on research and preparation of organisational case studies.

Major publication for 2007:Human Capital Reporting Standards 1st Edition (GHCRS2006)



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Tel: +44 20 7887 6121 Fax: +44 20 7887 6100

www.ISHCM.com



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Tel: +44 20 7887 6121 Fax: +44 20 7887 6100

www.ISHCM.com

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Here.


© ISHCM 2007 64


Thought leadership

Brave New HR World Part I By Nicholas J Higgins DrHCMI MSc Fin (LBS) MBA (OBS) MCMI Dean, International School of Human Capital Management, London & CEO VaLUENTiS This article is the first of three looking at human capital management and organisational performance. Part I provides HR functions with a manifesto to organise themselves into a ‘front-facing’ unit with a corresponding value proposition. The article seeks to explain why HR functions continue to struggle with mainstream recognition and why restructuring through shared services and/or outsourcing is not the panacea it is expected to be. The article introduces the new HR-star delivery model and the HR Value Chain to underpin the move to a more proactive, performance driven HR function from which an organisation can benefit. It does this through promoting a change in mindset and working with current HR roles and structures rather than promoting wholesale change. Welcome to the brave new HR world...........

65


‘Structure and process change has happened through many HR functions rearranging themselves....... the problem with this whole structure-driven approach is the fundamental question of what problem are we trying to solve?’

“Efficiency is doing things right; effectiveness is doing the right things.”

Peter Drucker

Introduction

Over the past twenty years the HR function has seen considerable change to itself in its quest to define both its purpose and to deliver to the needs of the organisation.

The seemingly increasing demands of the marketplace, whether private, public or NFP, has provided a dynamic backdrop to this change. Yet despite these ‘changes’ it seems HR functions are still finding themselves running ever harder to stay in the same place. Drucker’s often-used quote above sums up the challenge. Most would agree that HR has focused more on, or been preoccupied with, operational efficiency rather than organisation effectiveness, however one wishes to define it.

The HR function, over the last decade, has engaged in much internal restructuring - an extension of the mainstream business process reengineering period, in looking to provide better contribution to the organisation (i.e. mainly

through cost reduction exercises). However, this journey has been fraught with upheaval and according to many a fairly painful transition.

The argument and onset of HR outsourcing has also added into the mix. Despite a relatively slow take-up in Europe, HR transformation is taking place. However, much confusion still reigns around what HR transformation is and its purpose.

HR outsourcing by itself is more transitional than transformational in that it is only part-solving the fundamental equation for HR. Here’s why: • The HR function has in many cases never

defined its true role or value proposition to the organisation to the extent required for transformation

• Much HR ‘change’ has focused on single processes with some exceptions, but this in reality has been mainly ‘back-office’ administration, which is only part of HR’s overall delivery strategy. The oft associated cost reduction exercises are transitional strategies at best and one-off in nature.

• Similarly, restructuring through shared

services is again transitional in nature and not transformational.

It is often cited that the transformational efforts

allow HR to become more strategic, though evidence is very limited and there is little articulation as to what this actually means. Thus the danger is that this becomes just ‘hype’ rather than reality.

Whilst changing structure and process may be viewed as operationally expedient, focus particularly given to cost-reduction (and in some cases – service quality), can give an illusion of advancement, as it is simply addressing an operational performance issue.

This operational focus does not drive work around the HR function’s value proposition and/or eliciting its contribution to the performance of the organisation, which should be the fundamental driver of HR transformation.

Structure and process change has happened through many HR functions rearranging themselves into hybrid combinations of shared service centres, Centres of Excellence and ‘business partner’ advisory71.

But overall, from an organisational and industry standpoint, no material transformation has taken place. They are, after all, just means to an end, not ends in themselves.

The problem with this whole structure-driven approach is the fundamental question of what problem are we trying to solve?

If the answer to the question for HR is to become more operationally efficient and/or provide better internal service, then this is actually accepting that HR as an operational support function is (or was) simply inefficient to varying degrees.

71 This term has been skewed from its original meaning of relating to various types of HR roles at conceptual level. In reality business partner is the term given to field HR resources attached to specific business units/directorates .

© ISHCM 2007 66


However, this in itself is not transformational. It is a transitional action to solve an operational problem. It would also suggest that too many HR functions have been poorly managed in an operational sense.

Thus, the question of what the HR function is there to achieve, and whether this relates to organisation effectiveness or performance is left unanswered.

Understanding the context for HR’s role To understand the true nature of HR’s role it is

necessary to draw the context within which the HR function operates.

If we start with the premise that people (human capital) are important to organisations, that organisational performance is driven by good leadership and management together with collective individual performance, then we begin to formulate that effective human capital management is a prime component in organisation performance.

To provide a reference point, I draw upon a definition of human capital management72 as: “...the term which is used to describe an organisation’s multi-disciplined approach to optimising the capabilities and performance of its management and employees.”

Thus, from this standpoint, we could put forward that, essentially, the HR function’s overarching goal should be a prime driver in achieving this, to which the HR operational infrastructure is added to provide a compelling value proposition. It also provides HR with the means to focus on effectiveness rather than plain efficiency as per Drucker’s observation quoted at the beginning of this article.

I believe the current problem for HR has stemmed from its roots. Historically, personnel functions were very much anchored in ‘back-office’ administration such as payroll, recruitment requisition, employee personal data, etc. Added to this, was the growth in industrial/labour relations type roles that emerged in the 20th century. These two components formed the backbone of many ‘HR’ departments.

The recent transition to HR functions with a more expanded role set is very much a modern phenomenon, though there has never been a decisive intent to architect a role structure.

The danger here is if HR roles have appeared to reactively plug gaps in management competence or to provide a solution to management incompetence, then the HR function is most

72 As defined by The International School of Human Capital Management 2006

probably without shape and direction. Worse, given increasing management competence, it would suggest that these roles will simply disappear over time.

What, in fact, we may well be seeing is a moment in HR‘s evolution, where a number of factors have converged (confluence) to crystallise this whole issue - a watershed in HR defining its true value proposition.

In fact, seeing HR roles as an emergence of plugging ‘gaps’ would certainly explain why so few HR functions have articulated a value proposition or indeed view strategy as a collection of planned activities to align with the business rather than as some deliberate management strategy.

In other words, with a value proposition and deliberate HR strategy, alignment is not a word that appears in the HR lexicon, i.e. it is endemic to the process.

Human capital performance and compliance

The view that people are increasingly seen (if not always accepted) as human capital, i.e. assets to some degree, rather than just resources changes the existing rules of the game.

The fact that the term human capital has been around for fifty years, yet is still ‘finding its feet’ in terms of everyday parlance within HR, is testament to the slow acceptance of this evolutionary change.

However, even the compliance perspective, I would argue has not been carried in any real and mindful structured approach. If we revisit the definition of human capital management and view forward-looking HR functions as the guardians of good practice then it would suggest that a focus must exist that is related to performance, i.e.

i. Human capital performance related to organisation performance

ii. Human capital management performance related to human capital performance

iii. Organisation performance related to human capital management performance

Figure 3, overleaf, provides a diagrammatic representation.

© ISHCM 2007 67


3.11Managing

ASP/software/ Outsource Providers

4.11Managing

ASP/ERP/software/Outsource Providers

1.6HR Policy

2.5Organisation Restructure/

Change/ Development

3.1Workforce Planning

1.7HR

Performance/ Strategy

Review/ Audit

1.1Employer

brand

4.1Needs

Assessment

6.1Total Reward Programme

7.1Employee

Communications

8.2Risk

Assessment

1.2HR Value

Proposition

1.3HR Delivery

Structure

1.4HC Reporting

1.5HR Capability

10.9Reporting/ Interfaces

2.6Acquisition/ Divestiture/

Start-up Due Diligence/ Support

2.1Organisationa

l Design/ Capability Planning –

Business Unit Level

2.2Organisationa


Multi-country Level

2.3Organisationa


Global Level

2.4Job

Classification/ Evaluation

3.2Candidate

Identification Services

3.3Job Profile Services/

Requisition Processing

3.4Candidate Selection

3.5Temporary

and Contractor

Staffing

3.6General

Employment Services

3.7Relocation

3.8Outplacement

Services

3.9Employment Law Services

3.10Consulting

Line Managers On

Staffing Issues

4.2General Training Design,

Development and Delivery

4.3Training &

Development Management

4.4Technical/ Functional/

Policy & Procedure Training

4.5Employee Induction/

Orientation

4.6Competencies/ Skills Model Development

And Assessment

4.7Leadership/ Management Development

4.8Executive

Development

4.9Career

Development

4.10Consulting On

Managerial Issues

5.1Performance

(Talent) Management Assessment

5.2Performance

(Talent) Management Development

5.3Performance

Reviews

5.4Succession

(Talent) Management

6.2Wage And

Salary Management

6.3Bonus/Incenti

ve/ Stock Options

Compensation

6.4Senior/

Executive Compensatio

n

7.2Benefits

7.3Attendance/

Leave Of Absence/ Exit

Interviews

7.4Return-To-

Work and Job Accommodati

on

8.1Risk

Management/ Regulatory

Compliance/ Security

9.1HRIS Strategy

9.2HRIS

Planning

10.1Payroll

10.2Employee/ Manager

Interaction/ Problem

Resolution

10.3Time

Reporting

10.6Tax

Reporting/ Audit

10.7Employee

Reimbursement

10.8Statutory Benefits/

Miscellaneous Admin

10.10Managing Outsource Providers

1.8Managing External

Consultants/ Outsource Providers



5.5Attendance

Management

6.5Expatriate

Compensation

7.5Company

Policies And Procedures

8.3Accident

Prevention and Training Programmes

8.4Health/Medical Programmes

9.3HRIS Support

9.4Employee

Research & Modelling

5.6Employee Coaching

6.6Compensatio

n Analysis/Pay

review

6.7Healthcare/

Welfare/ Statutory/

Other Benefit Programmes

7.6Collective

Bargaining/ Negotiating/ Consultative Processes

7.7Work

Practices For Represented Employees

8.5Incident

Tracking and Reporting



9.5Benchmarkin

g

9.6Measurement and Reporting

10.4Special Pay, Adjustments

And Deductions

10.5Payroll

Accounting/ Recon/ Manual

Calculations &

Disbursement

5.7Employee

Counselling/ Case

management

5.8PM

Compliance Support

6.8Pension

Management

6.9Retirement Planning/

Counselling And

Administration

7.8Conflict and

Issue Resolution

7.9Corporate/ Community

Social Responsibility

9.7Employee

Records/Case management/

Data Maintenance


9.9Managing


5.10Managing ASP/ERP/ Software Providers

5.9Consulting To

Line Managers On Performance

Issues



7.10Government/ Legislative

Issues


Consultants

3.11Managing


4.11Managing

ASP/ERP/software/Outsource Providers

1.6HR Policy

2.5Organisation Restructure/

Change/ Development

3.1Workforce Planning

1.7HR

Performance/ Strategy

Review/ Audit

1.1Employer

brand

4.1Needs

Assessment

6.1Total Reward Programme

7.1Employee

Communications

8.2Risk

Assessment

1.2HR Value

Proposition

1.3HR Delivery

Structure

1.4HC Reporting

1.5HR Capability


2.6Acquisition/ Divestiture/

Start-up Due Diligence/ Support

2.1Organisationa


Business Unit Level

2.2Organisationa


Multi-country Level

2.3Organisationa


Global Level

2.4Job

Classification/ Evaluation

3.2Candidate

Identification Services

3.3Job Profile Services/

Requisition Processing

3.4Candidate Selection

3.5Temporary

and Contractor

Staffing

3.6General

Employment Services

3.7Relocation

3.8Outplacement

Services

3.9Employment Law Services

3.10Consulting

Line Managers On

Staffing Issues

4.2General Training Design,

Development and Delivery

4.3Training &

Development Management

4.4Technical/ Functional/

Policy & Procedure Training

4.5Employee Induction/

Orientation

4.6Competencies/ Skills Model Development

And Assessment

4.7Leadership/ Management Development

4.8Executive

Development

4.9Career

Development

4.10Consulting On

Managerial Issues

5.1Performance

(Talent) Management Assessment

5.2Performance

(Talent) Management Development

5.3Performance

Reviews

5.4Succession

(Talent) Management

6.2Wage And

Salary Management

6.3Bonus/Incenti

ve/ Stock Options

Compensation

6.4Senior/

Executive Compensatio

n

7.2Benefits

7.3Attendance/

Leave Of Absence/ Exit

Interviews

7.4Return-To-

Work and Job Accommodati

on

8.1Risk

Management/ Regulatory

Compliance/ Security

9.1HRIS Strategy

9.2HRIS

Planning

10.1Payroll

10.2Employee/ Manager

Interaction/ Problem

Resolution

10.3Time

Reporting

10.6Tax

Reporting/ Audit

10.7Employee

Reimbursement

10.8Statutory Benefits/

Miscellaneous Admin

10.10Managing Outsource Providers





5.5Attendance

Management

6.5Expatriate

Compensation

7.5Company

Policies And Procedures

8.3Accident

Prevention and Training Programmes

8.4Health/Medical Programmes

9.3HRIS Support

9.4Employee

Research & Modelling

5.6Employee Coaching

6.6Compensatio

n Analysis/Pay

review

6.7Healthcare/

Welfare/ Statutory/

Other Benefit Programmes

7.6Collective

Bargaining/ Negotiating/ Consultative Processes

7.7Work

Practices For Represented Employees

8.5Incident

Tracking and Reporting



9.5Benchmarkin

g

9.6Measurement and Reporting

10.4Special Pay, Adjustments

And Deductions

10.5Payroll

Accounting/ Recon/ Manual

Calculations &

Disbursement

5.7Employee

Counselling/ Case

management

5.8PM

Compliance Support

6.8Pension

Management

6.9Retirement Planning/

Counselling And

Administration

7.8Conflict and

Issue Resolution

7.9Corporate/ Community

Social Responsibility

9.7Employee

Records/Case management/

Data Maintenance


9.9Managing


5.10Managing ASP/ERP/ Software Providers

5.9Consulting To

Line Managers On Performance

Issues



7.10Government/ Legislative

Issues


Consultants

HR Governance

HR Governance

OrganisationDesign

OrganisationDesign

HRIS & Measurement

HRIS & Measurement

ER &Communications

ER &Communications

ResourcingResourcingTraining &

DevelopmentTraining &

DevelopmentPerformance Management

Performance Management

RewardReward

EmployeeH&S

EmployeeH&S

PayrollPayroll

HR Governance

HR Governance

HR Governance

HR Governance

OrganisationDesign

OrganisationDesign

OrganisationDesign

OrganisationDesign

HRIS & Measurement

HRIS & Measurement

HRIS & Measurement

HRIS & Measurement

ER &Communications

ER &Communications

ER &Communications

ER &Communications

ER &Communications

ER &Communications

ResourcingResourcingResourcingResourcingTraining &




DevelopmentPerformance Management

Performance ManagementPerformance Management

Performance Management

RewardRewardRewardRewardRewardReward

EmployeeH&S

EmployeeH&S

EmployeeH&S

EmployeeH&S

PayrollPayrollPayrollPayrollPayrollPayroll

Organisation performance

Human Capital

performance

Human Capitalmanagement performance

Organisation performance

Human Capital

performance

Human Capitalmanagement performance

Capability can be argued in the same way whether it is defined as ‘meeting performance expectation’ or as some form of future potential. Also, one important element to mention here is given that managing people and organisations has a legal component, it is thus logical to see an aspect of this performance that is also compliance related.

Given the element of risk that revolves around the compliance, it is fair to argue that compliance management, i.e. audits are required in HR related matters. Thus, it is fair to surmise that HR functions have a dual aspect to their work, ‘front-office’ activities related to organisation performance (and compliance) and ‘back-office’ activities related to administrative tasks. This would infer that ‘front-office’ type activities are more ‘value’ driven from a resource and investment approach, whereas ‘back-office’ type activities are more ‘cost’ driven. It is important to note that ‘front-office’ performance related activity with regard to human capital also has this compliance component.

But what is ‘front-office’ and what is ‘back-office’?

Human capital management input activity can

be divided into 93 discernible main activities which are split across ten core domains73. With this, I believe we are in a position to fully understand HR’s true delivery context by decomposing these input activities into an ‘atomised’ combination of process and task with corresponding outputs to provide a means of value proposition to the organisation.

The ten core HR domains are shown in Figure 4. The differential between ‘front-office’ and ‘back-office’ is not as straight forward as current industry convention would lead us to conclude. A clearly cited example of a back-office process is payroll because it is a form of mandatory administration and thus from organisational standpoint, the trade-off is between (minimal) cost and (maximum) quality, e.g. zero error tolerance. Thus an outsourcing arrangement of this whole process should be based on optimising these two parameters, along with other related SLAs.

Performance management according to the Global Profiler model, on the other hand, contains a number of processes and activities, which include development, talent and succession management, plus derived links with reward, for example. Therefore this is a set of more complex dynamics. For example, parts of the process, such as investment in PM software automation, should be viewed as ‘front-office’ not ‘back-office’. (Technically, one could argue that this could be interpreted as incorporating elements of both – the main point is it is more than just ‘back-office’).

73 with acknowledgement to the VB-HR™ Global Profiler and copyright permission of VaLUENTiS Ltd 2005

Figure 4

© ISHCM 2007 68


HR leadership team

(Governance)

HR Procurement

HC(M) Compliance

team(s)

Human capital measurement

& reporting team

HCM Infrastructure

team(s)

HC(M) Performance

team(s)

HR leadership team

(Governance)

HR Procurement

HC(M) Compliance

team(s)


& reporting team

HCM Infrastructure

team(s)

HC(M) Performance

team(s)

Even if organisations view performance management from a compliance-driven perspective, this still does not change the fundamental view that it is performance related (as the name would suggest).

By reviewing the 93 main activities in this fashion, a more detailed picture emerges in terms of ‘front-office’/ ‘back-office’ differentiation (this is covered in more detail in part II in this series). Measurement and workforce intelligence (M&WI) as a core component

Organisational focus on human capital and human capital management, performance aspects of HR ‘front-office’ contribution and the performance aspects of the HR ‘back-office’ delivery demands measurement.

Increasingly organisations are capturing data that can be utilised in a variety of ways. For example, employee engagement should be viewed as an important part of the human capital measurement map and therefore should sit ‘fair and square’ within the M&WI team and nowhere else.

There are different aspects to measurement (excluding pure data) and I have separated these into four main categories:

• Measurement to do with the efficiency and effectiveness of the HR function/process, such as transaction/payroll costs, recruitment cycle time etc

• Metrics related to aspects of human capital/human capital management performance, such as employee engagement, turnover etc

• HC analytics that look to combine various metrics and data to provide further insight, for example, looking to find relationship between engagement and turnover, employer brand and recruitment success, talent index etc.

• Enhanced (modelling) analytics that look to combine macro and micro measures to provide ‘performance models’.

The data and measurement capabilities combine

to produce a definable capability in workforce intelligence (and subsequent reporting).

The increasing sophistication of utilising data is to promote more informed managerial decision-making and performance assessment. There is no doubt that measurement is a fundamental component to the HR function’s ability to manage the value proposition as determined. HR procurement – a core competence

Thus far we have determined that essential

elements of an HR function’s remit contain performance, compliance, infrastructure and measurement. There is one further key component and one which is often overlooked but has an increasingly important role in HR functional operations – that of procurement.

Previous analyses, including my own, have shown the increasing importance of procurement as a key role. HR functions make use of a variety of outsourcing, insourcing and co-sourcing arrangements each which have significant spend attributed with them.

The increasing use of outsourcing demands skillsets around contract tendering/managing and vendor/supplier relationship management. These are not skillsets normally identified within the HR function. So how should HR organise itself?

Thus, we now have five core pieces to an HR function’s remit – performance, separate compliance/ audit, HR MIS/workforce intelligence, operational infrastructure and procurement.

Thus HR functions can envisage themselves as having a structural outline that contains five ‘root’ teams.

To bring all these component teams together under one remit (at this level BU/country delineation makes no difference) and working both efficiently and effectively requires one further team - a central leadership hub which provides HR governance, a team whose remit encompasses HR strategy, value proposition, structure, capability and policy along with certain organisational deliverables, such as employer brand.

The ‘operating structure’ can be best represented as shown in Figure 5 below, the so called HR-star model.

Figure 5: The HR-Star delivery model

© ISHCM 2007 69


HR leadership team

(Governance)

HR Procurement

HC(M) Compliance

team(s)


& reporting team

HCM Infrastructure

team(s)

HC(M) Performance

team(s)

Contract management

Relationship management

Resourcing process leader

T&D process leader

PM-Talent process leader

Rewards process leader

ER process leader

H&S process leader

Payroll process leader

HR leadership team

(Governance)

HR Procurement

HC(M) Compliance

team(s)


& reporting team

HCM Infrastructure

team(s)

HC(M) Performance

team(s)

Contract management

Relationship management

Resourcing process leader

T&D process leader

PM-Talent process leader

Rewards process leader

ER process leader

H&S process leader

Payroll process leader

Human capital (management) performance These teams are ‘front-line’ facing and staffed

with a mix of generalist and specialist HR. To some extent, organisations already know these people as ‘HR business partners’, HR managers or in some cases, HR officers. Their role is to partner with the line in terms of optimising management and employee performance and ensuring that organisation design (in its broader meaning) is fully supportive.

Thus, for example, activities/processes under the cluster terms retention management, talent management, case management can be viewed as ‘front-facing’ because of their relation to performance, though elements of administration within these may be seen as ‘back-office’. Human capital (management) compliance

This team carries out spot checks and compliance/audits to support the performance advisory team in ensuring that policy and protocol is followed. This is different to the day-to-day compliance checking that the HR performance team will be engaged in as a matter of course. Feedback is done in a structured format where appropriate.

To some extent this is similar to a compliance audit team and/or financial audit team seen in the finance function. In fact the HR compliance team could well sit within a broader organisational compliance/ audit team. However, the signal to the organisation is that of a proactive focus on people management compliance and policy/ protocol.

This compliance team also has the remit to audit the HR function’s processes and systems as part of operational excellence/quality purposes. This is something that has been missing from the HR set-up for far too long. Workforce intelligence and reporting

Increasingly, the organisation and its HR function require intelligence on people related aspects whether it is performance or compliance related.

The increasing availability of the right data and the need to have structured measurement frameworks which provide insightful performance analysis and which culminate in external reporting are a core part of the HR function’s remit.

This role has already begun to emerge but not in any defined systematic way. HR Procurement

For quite some time now HR functions have made use of insourcing, co-sourcing and outsourcing, yet perhaps without actually acknowledging this discipline. HR ‘front office’ and ‘back-office’ deliverables, in many ways, share similar characteristics to those of supply chain management.

A fair proportion of HR ‘spend’ (and therefore cost-efficiency) is procuring services, thus the dual focus on contractual management and vendor relationship management is much more pronounced.

Thus procurement has by itself become prominent within the HR function set-up. Figure 6: The HR-Star delivery model expanded

HR infrastructure (process) This role is the one that most people know HR

to be. It is defined by the processes that most people encounter in organisation life such as payroll. This is where the main transactioning takes place and where the use of outsourcing is prominent. Operational excellence is the key word.

However, what is key is the acknowledgement of potential process leaders across the seven remaining core process domains - HR governance, HRMIS and organisation design (as part of performance) have already been alluded to: • Payroll • Resourcing • Training & development • Performance management (which includes

talent and succession management) • Reward & benefits • Employee communications & relations • Health & safety

There has been much activity of restructuring in

the infrastructure such as shared service centres and outsourcing to try and reduce overall cost of delivery and/or improve service quality.

Organisations may also have what are termed ‘centres of excellence’ in these areas, for example, graduate recruitment, reward, relocation services etc.

© ISHCM 2007 70


Human Capital Management ‘Value Chain’

Optimising Capability

& Performance

Staffperformance

Staffretention

Staffdevelopment

Staffacquisition

HCM Infrastructure

team(s)HR

Procurement

HCMP

HRG

HCMCM&WI

The point here is the differentiation between ‘front-office’ and ‘back-office’ activities which provides an added dimension and level of complexity to the value-cost delivery mix. HR Governance

At the heart of the STAR model is HR governance. This is a core function team that addresses organisational items such as employer brand, HR policy setting, ethics and HR functional items, such as overall value proposition, HC strategy, HC reporting, HR delivery structure and capability. The essence of this model is the balance and tension (‘push and pull’)74 between the various team remits across the HR delivery model. HR governance of this magnitude requires a Chief Human Capital Officer role which is an expanded version of the current Group HR/HR Director role.

The legacy of current HR structure The HR-star model can help to identify current

issues with HR delivery focus. If we were to draw a picture to represent HR functions’ current focus, it would be similar to the ‘collapsed’ model shown below as concentration of effort has mainly been focused on ‘back-office’ infrastructure.

Becoming operationally efficient has been the watchword as HR functions (not necessarily driving) have engaged in process reengineering and restructuring, though not always in a connected manner.

Focus on infrastructure means that the other core components are minimalised or distorted, with the exception of HR procurement which is increasingly being utilised for ‘back-office’ outsourcing.

HR performance is more focused on compliance, given the nature of the HR function’s positioning vis-à-vis its organisation.

74 A term that I use is ‘HR tensegrity’ named after the science of tensional integrity

Thus against this backdrop, the problem for HR is being able to get on to the ‘front foot’ and rebalance the focus across performance, measurement & workforce intelligence, audit and HR governance. In absence of this value-based focus, I believe this is the main reason why HR functions are looking to measurement to justify their existence. In view of that, I would propose that it is not the intent that it is wrong but the premise – due to the current limited and thus distorted view of HR’s focus/purpose.

The concept of the HR value chain and organisational performance

I began the whole essence of my argument by focusing on the structure and process from an HR perspective, in the hope that most HR professionals would follow the logic from the input side.

However, I would now like to convert the HR-star model components into the HR value chain which takes its roots from Michael Porter’s generic value chain construct 75 that is well known in business circles, and drills down into the HR component.

If we return to the central premise of human capital management which is ‘to optimise the performance and capability of management and employees’ then we can represent this definition in the form of a value chain representing the ‘lifecycle’ of human capital within an organisation.

This lifecycle represents the various ‘stages’ of an individual’s time in an organisation, i.e. employee and management acquisition, development, retention and performance – the outcome of which is to optimise capability and performance.

75 For original text on this, see ‘Competitive Advantage’ by Michael E. Porter, pp 33-61, Free Press, 1985

© ISHCM 2007 71


The HR ‘Value Chain’

Capability&

Deliveryexecution

HR ‘back-office’ infrastructure core process teams

Staffperformance

Staffretention

Staffdevelopment

Staffacquisition

HR ‘front-office’ Performance teams

HR Workforce intelligence &

reporting team(s)

HR Procurementteam

HR Compliance/Audit team(s)

HR Governance

Though represented here as a linear chain, the reality is more systemic and three dimensional. As we can see, the HR core components are represented here forming a value chain of activities which support the central premise of human capital management within an organisation.

Any senior manager will, I trust, instantly recognise the potential for an HR function that is switched on to the value premise.

We know, drawing from any number of studies, that good human capital management, indeed good management, is essential to an organisation’s success. That is not in doubt.

What is in doubt is the effectiveness and, therefore, the value of an HR function to the organisation. If it is focused on mainly ‘back-office’ administration and still getting to grips with operational excellence, if it is more compliance-focused than performance-focused in its tasks, then it is quite possible that its main activities can be outsourced with superior expertise.

In addition, the audit, procurement and measurement activities can be done in-house but by other functions. This therefore raises the spectre that HR as a function could quite possibly cease to exist; though the organisation will be deriving minimal leverage from its investment and losing out to competitors who see and utilise the performance-driven alternative.

If, however, the HR function is focused on organisational performance, backed up by strong capability in HR governance, HC measurement & workforce intelligence, procurement and compliance together with an operationally excellent ‘back-office’ infrastructure; then it will proceed to have more influence and contribution to organisational success, with a degree of business acumen and professionalism which will be acknowledged throughout by both management and the wider organisation.

Summary This re-organising of HR as portrayed by the

HR-star model recognises the inherent structures and roles already in existence, such as shared services, HR business partners etc.

Therefore, my proposition is not about wholesale change, it is about a change in mindset. It is after all recognising the true calling of managing human capital well, and recognising the HR function’s true value proposition and purpose, in that it: 1. Is focused on human capital and human

capital management performance which includes a compliance perspective (and not the other way round)

2. Has the capability to measure and report key human capital performance indicators that inform and influence managerial decision-making

3. Undertakes structured HR audit reviews similar to the finance function to proactively monitor practice and risk

4. Provides an operationally excellent HR ‘back-office’ infrastructure at minimal cost for optimum quality

5. Possesses a strong procurement capability in terms of contracting and relational management

6. Has strong central governance which provides leadership and coordination to balance competing trade-offs

For organisations and their management the

choice is to optimise their human capital by engaging in the new human capital management manifesto or risk losing ground to competitors who do.

For HR functions and the professionals that reside within – the message is ‘be effective and efficient’ and your future is all but guaranteed or ‘be neither efficient nor effective’ and stand on the abyss. It is HR’s choice… Brave New HR World - Part II will expand upon the differentiation of ‘front-office’ and ‘back-office’ HR delivery with examples and how teams are defined particularly across countries and regions. It will also provide a framework for measurement and will look at the different aspects of value and risk in operational terms. Brave New HR World – Part III will define the Chief Human Capital Officer role and explain the elements that make-up HR governance and how these impact on HR functional performance. It also looks at the staffing of HR and how the HR-star model both generates and demands new competencies for HR professionals to play a leading role in organisation performance.

© ISHCM 2007 72


The Chief Human Capital Officer

Nicholas J Higgins

The Chief Human Capital Officer

Nicholas J Higgins

“The advent of a new evolution in HR leadership” The emerging discipline of Human capital management is challenging the traditional HR Director role. Employee engagement, talent management, Human Capital reporting, workforce intelligence, HCM architecture are the increasing focus for organisations to gain competitive advantage from their people. This book explores the expanding and consequent demanding role of the Chief Human Capital Officer. Due out: 4th Quarter 2007 ISHCM Publishing: Pre-order your copy on +44 (0) 20 7887 6121 and quoting reference: JAHCM004



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Tel: +44 20 7887 6121 Fax: +44 20 7887 6100

www.ISHCM.com



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Tel: +44 20 7887 6121 Fax: +44 20 7887 6100

www.ISHCM.com

HR Operational Excellence incorporating LeanHR© Faculty

The recently created faculty is preparing a number of white papers on the challenges and issues facing HR functions including the latest on outsourcing and shared services.

Major publication for 2007:HR Effectiveness: The journey from Lean HR to Value based HR

© ISHCM 2007 73


SPOTLIGHT

THE HCM100 STUDY: sector analysis This article presents extracts from the VB-HR™ Rating HCM100 study, first released in October 2005. It shows how the ratings were distributed across the sample, with specific insights drawn out at ‘macro level’ – public sector and private sector aggregates – as well as at the level of particular industries. Its findings suggest differentials in the effectiveness of approaches to human capital management at particular sectoral level (even given organisation specifics) with particular differentials at the level of the eight HCM value drivers.

© ISHCM 2007 74


16

VB-HR™ Rating

Workforce Intelligence

HR Strategy

OrganisationalHCMCapital

BB B R

BBRBBBB

BBRBBB

HCMArchitecture

BBRBB

Management Employees

BBRBBBB

HR Customer-agency

BBRBBBB

HR Capability

BBRBBBB

HumanCapital

HR Functional Capital

Human Capital Management

Overallranking

AAAAAABBBBBBCCCCCC

R

rmin

r

RR

RRRBB RBB

HR Procurement

BBBBB

RBBBBB

BB

BBB

R

EFFECTIVENESS

MAINTENANCE

RISK

16

VB-HR™ Rating

Workforce Intelligence

HR Strategy

OrganisationalHCMCapital

BB B R

BBRBBBB

BBRBBB

HCMArchitecture

BBRBB

Management Employees

BBRBBBB

HR Customer-agency

BBRBBBB

HR Capability

BBRBBBB

HumanCapital

HR Functional Capital

Human Capital Management

Overallranking

AAAAAABBBBBBCCCCCC

R

rmin

r

RR

RRRBB RBB

HR Procurement

BBBBB

RBBBBB

BB

BBB

R

EFFECTIVENESS

MAINTENANCE

RISK

BB

BBB

R

EFFECTIVENESS

MAINTENANCE

RISK

HCM100 initial rating distribution The HCM100 study was conducted by

VaLUENTiS on an independent basis in 2005 to evaluate people management practice in organisations (public and private sector) with use of the VB-HR™ Rating approach.

The VB-HR™ Rating, and its underlying construct, was designed to provide organisations (and HR functions) with the ‘Why’, ‘How’ and ‘What’ enabling them to measure, analyse, benchmark and report both input- and output- related human capital management performance data across eight ‘asset-type’ categories (HCM value drivers) that relate to the organisation as well as HR functional performance.

The HCM100 initial benchmark group included 100 private- and public-sector organisations drawn from 24 sectors. A representative sample of organisations across various sectors and from differing listing indices was invited to take part.

The aggregate adjusted spend of organisations participating in the study totalled £1.9 billion, covering 2.7 million employees.

The benchmark exercise commenced on 01 June 2005 and was concluded on 27 September 2005. The wide range of participating organisations demonstrated a high level of market interest in evaluating HCM practice within multiple sectors and sizes of organisation, as well as demonstrating the applicability of the VB-HR™ Rating system and its relevance to a wide range of organisations.

The essence of the VB-HR™ Rating system

In essence, the VB-HR™ Rating system is a multi-layered, multi-factored model representing human capital management performance across an organisation, with the ability to aggregate data from business unit (or below) level.

Thus the Rating has the capability of being a multi-functional diagnostic tool as well as the ability to be a standardised reporting instrument that enables organisations to report both internally and externally in a recognisable format, whilst maintaining organisational metrics preference internally.

The Rating itself has been designed to assist clients to report externally whilst circumventing the thorny issue of externally reporting potentially sensitive data.

The Model is based on a fairly complex three-dimensional scoring system that provides a wide range of possible scores.

For reporting purposes, similar to those used in Finance, the resulting distribution is ‘normed’ through the use of standard deviation intervals.

Overall Rating The output rating uniquely looks at human

capital management across an organisation from three different outcome perspectives:

Effectiveness – current level of performance of each value driver

Maintenance – efforts going towards maintaining or improving the current level of performance and therefore a future indicator

Risk – level of risk associated with each value driver (e.g. of non-compliance, under-optimised performance or ill-informed decision making).

Both the Maintenance and Risk perspectives are

important in HR context but are seldom reported. The Rating is displayed in graphical format for ease of interpretation purposes as shown in the diagram.

This graphical output was originally designed for

external reporting purposes, though internal use is also quite common.

However, the underlying ‘HCM Evaluator engine’ provides far more output that HR functions and their organisations can use to evaluate people management practice at both operational and tactical levels.

Its comprehensiveness means that all aspects of people management and related organisational design are incorporated to provide a complete assessment. By incorporating management and employee responses together with organisation performance data, the results provide a very robust and accurate picture which can be viewed from different organisational ‘slices’.

There are a number of derivative measures and indices which provides the HR function/line management with deep insight to both (i) act upon (through the use of a routemap) and (ii) as a means of ongoing performance/progress evaluation, something that has not been available before in the market-place.

© ISHCM 2007 75


Human Capital (Management) Performance ModelA construct that combines proxy business performance (through HC leverage) with human capital/HCM performance to

provide diagnostic, benchmark and future performance targeting including predictive capabilities

Human Capital (Management) Performance ModelA construct that combines proxy business performance (through HC leverage) with human capital/HCM performance to

provide diagnostic, benchmark and future performance targeting including predictive capabilities

VB-HR™ Rating Reporting tool converting internal metrics data into

standardised and recognisable external format

VB-HR™ Rating Reporting tool converting internal metrics data into

standardised and recognisable external format

HC leverage indexMultivariate performance metrics framework including

modelling analytics capability

HC leverage indexMultivariate performance metrics framework including

modelling analytics capability

HC Effectiveness, Maintenance and Risk perspectives (scores)

HC Effectiveness, Maintenance and Risk perspectives (scores)

Individual HCM value driver performance inventory

Individual HCM value driver performance inventory

VB-HR™ HCM Best Practice ModelHCM value drivers: HR Strategy, Workforce Intelligence, HCM Architecture, Management, Employees, HR Functional

Procurement, HR Functional Capability, HR Customer-Agency

VB-HR™ HCM Best Practice ModelHCM value drivers: HR Strategy, Workforce Intelligence, HCM Architecture, Management, Employees, HR Functional

Procurement, HR Functional Capability, HR Customer-Agency

Qualitative dataBroad-based assessment focused

on key input/output aspects of organisational performance

Qualitative dataBroad-based assessment focused

on key input/output aspects of organisational performance

VB-HR™Question-statement

inventory

VB-HR™Question-statement

inventoryQuantitative data

Core HC/HCM Input- and output-based metrics

Quantitative dataCore HC/HCM Input- and output-

based metrics

HC/HCM outputs‘Computative Lattice’ containing multi-dimensional relationships

HC/HCM outputs‘Computative Lattice’ containing multi-dimensional relationships

3-Dimensional, multi-factor, (OCF) scoring algorithms

3-Dimensional, multi-factor, (OCF) scoring algorithms

Financial reviewCombination of organisation and

business unit analysis

Financial reviewCombination of organisation and

business unit analysis

VB-HR™ Rating Construct

HCM Drivers* (strap-line definitions) • HR Strategy

The organisation possesses a coherent, integrated and effective HR strategy that is aligned with business needs

• Management The organisation through its managers displays good governance, leadership, management practice and control

• Employees Employees are competent, engaged and productive (underlying assumption of High Performance Work Organisations)

• HCM Architecture The organisation has developed appropriate HCM processes and systems which are integrated and result in good/value-contributing practice/efficiency

• Workforce Intelligence The organisation is able to systematically collate workforce data/metrics and has the ability to analyse, manipulate and report

• HR Capability The HR function possesses the requisite competencies, as well as its positioning and brand within the organisation

• HR Customer-Agency The degree to which the HR function has a portfolio of product-services and is seen as an effective support/monitor function

• HR Procurement The HR function effectively selects and manages procurement, vendor relationships and outsourced arrangements

*The HCM drivers have since been complemented with the introduction of the sixteen organisation engagement (operational strategy) indicators.

The VB-HR Rating construct has two core components – the best practice model and the data inventory to populate the model. Its unique aspect is the combination of qualitative and quantitative performance and perception in the assessment phase.

This data is then used to produce a number of evaluative outputs, ranging from simple (common) benchmark metrics, strategic and operational measures, and a strategy routemap, which is a detailed evaluative report containing recommended actions.

The report contains both an ‘As Is’ and ‘Performance gap analysis’ together with a structured assessment and commentary template for audit trail purposes.

The strategic HCM drivers (see below) are measured in both numerical and rating terms, in terms of Effectiveness, Maintenance (efforts to renew) and Risk. Another key aspect is the unique design which amplifies responses and produces ‘norms’ providing integrity of output.

© ISHCM 2007 76


The multi-dimensional picture allows an overall Rating to be awarded which provides an overall assessment of HCM within the organisation (or organisational division), as well as identifying relative strengths and weaknesses within the particular organisation.

The Rating nomenclature

The Rating nomenclature (see Table 1 below) is similar to that used in Finance (e.g. bonds, assets) whereby nine classifications are used from AAA, representing high performance and associated lower risk through to C (plus a D-Default rating) representing very low performance with associated higher risk as seen in the diagram to the right.

24

The Ratings Distribution Curve

BBBCCC AAA

AAAD

CCC

?σ 0

Normal distribution curve

Num

ber o

f org

anis

atio

ns

The distribution of VB-HR™ ratings follows a normal (mesokurtic) distribution model with each classification occupying an area under the curve divided by a standard fractionof deviation function.

BBB

positivenegative

Table 1

Effectiveness (current indicator)

Maintenance (future indicator)

Risk (degree of)

AAA extremely high effectiveness - world class

AAA extremely high effort to maintain

AA very high effectiveness AA very high maintenance

rmin minimal level of risk

A relatively high effectiveness A relatively high maintenance

BBB above average effectiveness BBB relatively high maintenance

r low level of risk

BB ‘average’ effectiveness, positive to the mean

BB ‘average’ effort to maintain, positive to the mean

B ‘average’ effectiveness, negative to the mean

B ‘average’ effort to maintain, negative to the mean

R ‘moderate’ level of risk

CCC low effectiveness CCC low maintenance

CC very low effectiveness CC very low maintenance

RR high level of risk

C extremely low effectiveness C extremely low effort to

maintain RRR very high level of risk

Organisation Performance through a

Human Capital Lens

How the VB-HR™ Rating and HCCI are leading the revolution in human capital management

Organisation Performance through a

Human Capital Lens

How the VB-HR™ Rating and HCCI are leading the revolution in human capital management

How the VB-HR™ Rating and HCCI are leading the revolution in human capital management.

‘Simply groundbreaking’ Due out: 3rd Quarter 2007 ISHCM Publishing: Pre-order your copy on +44 (0) 20 7887 6121 and quoting reference: JAHCM005

77


0

10

20

30

40

50

60

VB-HR™ ratings distribution (Level 1)

Ratings analysis A cross-industry analysis of ratings at the

organisational level reflects a ‘normal distribution’ tendency.

A significant number of organisations record a BB-BB-R rating, with distribution on both sides of this. We would expect the distribution to ‘norm’ further as more and more organisations are added to the database. The actual model based the attainment of ratings is based upon a ‘normal distribution’ on the basis that the majority of organisations carry out a range of human capital activities sufficient for the organisation to perform to an acceptable level.

Organisations are generally neither so effective nor so deficient at human capital management that unusual levels of performance are observed – this is reflected in the infrequent award of very high or very low overall rating scores.

A section of this ‘normal distribution’ is shown below, illustrating how the majority of organisations fall within the BB-BB-R overall rating, with relatively small numbers achieving an overall rating significantly above or below this point.

The chart below shows the overall scores of the current benchmark group. We would expect that over time as more organisations are included that the distribution will ‘norm’ to some degree. The Ratings distribution is also provided in the table overleaf.

Macro cross-sector overview This chapter reviews the eight HCM value

drivers from the perspective of private/public sector and from sub-sectors within these two main populations, to identify related comments and insights.

To recap, the eight value drivers are: • HR Strategy • Management • Employees • Workforce Intelligence • HCM Architecture • HR Procurement • HR Capability • HR Customer Agency The following pages provide an overview of the maximum, mean and minimum scores within each of these value drivers for the HCM 100 benchmark group, private sector constituents and public sector constituents. Within each row, the highest score has been shaded in green, with the lowest shaded in red.

© ISHCM 2007 78


Overall review of HCM driver scores Review of the maximum scores received shows

that HCM Architecture is the value driver that is rated highest overall within the HCM 100 and for Private sector. This would reflect a strong reliance on establishing systems and processes that are supportive of effective HCM performance within the organisation. HR Procurement receives the lowest maximum score, suggesting that organisations are not consistently utilising external vendors as a primary means of ensuring high HCM performance. This can be a valid approach, depending on the HR service delivery model in use, and reflects a growing trend for HR operations to be taken back ‘in house’ from external providers.

The picture within the Public sector shows that HR Customer Agency is identified as the highest rated value driver. This could reflect a growing uptake of themes such as career development, work-life balance and the provision of related services to employees within the sector, whilst maintaining high levels of compliance with legislation ensuring equitable treatment and workforce rights.

Whilst HR Procurement receives a similar score to the Private sector, Public sector capability at Workforce Intelligence scores significantly below other HCM drivers. Despite the increased levels of investment and focus on tracking KPIs and targets within this sector, the analysis suggests that Public sector HR functions will face challenges in evaluating HR strategy and demonstrating the impact of increased spending on HR/HCM interventions such as job evaluation exercises, introduction of skills frameworks and/or increased levels of reward.

Consistent message A consistent message emerges when mean

scores are reviewed. In both sectors, the HCM Architecture is identified as the highest-performing value driver, with Workforce Intelligence receiving the lowest scores. This suggests that the most organisations rely primarily on the effective running of HCM systems to ensure consistent performance, but have developed relatively low levels of capability in collating, analysing and reporting Workforce Intelligence (with some notable exceptions).

This suggests that, more often than not, HR functions within organisations support effective human capital performance, but has not yet developed approaches of the required sophistication to be able to quantify either the impact of performance differentials or its own impact. This is in line with findings from recent research, suggesting that HR Directors are not yet seen as ‘strategic partners’ within the majority of organisations. The perception still remains that the HR function focuses predominantly on operational aspects (i.e. the effective running of processes and systems). This would appear to be another reason why measurement has come to the fore in recent years.

Review of the minimum scores received within each sector highlights HR Procurement as the lowest scoring value driver, suggesting that most organisations are using external vendors in limited ways (again, with some notable exceptions) or are pursuing an explicit approach towards providing services internally. Given the challenges on HR spend going forward this is perhaps a poignant note of opportunity.

HR

Str

ate

gy

Wo

rkfo

rce

Inte

llig

en

ce

HC

M

Arc

hit

ect

ure

Man

ag

em

en

t

Em

plo

yees

HR

P

rocu

rem

en

t

HR

C

ap

ab

ilit

y

HR

C

ust

om

er-

Ag

en

cy

Maximum

HCM 100 13.8 13.5 14.6 13.9 13.8 12.3 13.6 13.4 Private 13.8 13.5 14.6 13.9 13.8 12.3 13.6 13.0 Public 12.3 11.0 13.0 13.2 12.9 12.3 12.8 13.4

Mean


Minimum


High scores at the minimum level diverge between Management, HR Capability and HR Customer-agency. This suggests that organisations within both sectors with under-developed HCM capability will, unsurprisingly, rely either on Management or on the HR Function to support HCM performance within the organisation. This could be viewed as the ‘baseline’ of organisational efforts to enhance HCM performance.

© ISHCM 2007 79


Value driver ranking Ranking the value drivers by sector reveals

virtually no differences between public and private sector responses (see the table below, where value drivers receiving the same ranking in both sectors are highlighted in bold). This suggests similar areas of emphasis from a human capital management perspective, with both sectors scoring HCM Architecture, Management and Employees as their top 3 scores.

This would imply that human capital

performance within organisations is seen as being an outcome predominantly of effective systems/processes, employees and managers. Whilst perhaps an intuitive message, this supports the view that the HR function’s role should predominantly support HCM performance and ensure its consistency with required standards: the function itself is not the pre-eminent driver of HCM performance.

Additionally, the high level of similarity in the

ranking across the two sectors goes a long way towards dispelling any myths or perceptions that the two sectors have intrinsic differences. At least from the perspective of human capital, both public and private sectors appear to have aligned viewpoints on what leads to high levels of performance – perhaps the key differential lies simply in how performance outcomes are measured. Overview of sector data

The following pages provide observations of each individual sector cluster.

Maximum scores: chart Maximum scores reflect the average of all the

highest raw scores per value driver provided within each sector, and therefore advise against over-interpretation at this level.

Value driver raw scores - Maximum

0

2

4

6

8

10

12

14

16

HRS WI AR M E P CP CA

PrivatePublic

Private Sector - maximum value driver scores

0

3

6

9

12

15


Private

Bus Serv

Fin Serv

Leisure

Manuf

Pharma

Retail

Telco

Public Sector - Maximum value driver scores

0

3

6

9

12

15


CentralGov

LocalGov

HE

NHS

Key:

HRS: HR Strategy

WI: Workforce Intelligence

AR: HCM Architecture

M: Management

E: Employees

P: HR Procurement

CP: HR Capability

CA: HR Customer-Agency

Ranking Private sector 1 HCM Architecture 2 Employees 3 Management 4 HR Customer-Agency 5 HR Strategy 6 HR Procurement 7 HR Capability 8 Workforce Intelligence

Ranking Public sector 1 HCM Architecture 2 Management 3 Employees 4 HR Customer-Agency 5 HR Strategy 6 HR Capability 7 HR Procurement 8 Workforce Intelligence

© ISHCM 2007 80


Key observations Maximum scores for Management and

Employees do not differ significantly across private and public sector, implying that both sectors are able to recruit high-calibre workforces and managerial talent.

This supports recent reporting on the increased attractiveness of the public sector as an employer76 and implies that both sectors should, theoretically at least, be able to achieve similar levels of productivity and HCM performance, given the right supporting conditions for their human capital. Responses show that HCM Architecture receives the highest maximum score.

In the conduct of the Ratings, we have found evidence of considerable investment made in aspects of HCM Architecture (e.g. performance management systems), although we have noted that a broad cross-section of organisations display inconsistencies or variation in their application of any such system or approach.

This leads to degraded levels of HCM performance across the organisation as a whole and impacts on HR functional resource focus. Mean scores: chart

Mean scores reflect the average of all raw scores per value driver provided within each sector, and accordingly present a more balanced basis for interpretation.

Value driver raw scores - Mean

0

2

4

6

8

10

12

14

16


PrivatePublic

Private Sector - mean value driver scores

0

3

6

9

12

15


Private

Bus Serv

Fin Serv

Leisure

Manuf

Pharma

Retail

Telco

76 “New dawn for public services”, The Guardian, 28 September 2005

Key observations Public sector scores, whilst mirroring those of

the private sector in terms of relative strengths and weaknesses (i.e. with an identically shaped line), are consistently below private sector scores. This would suggest that the public sector is indeed catching up from an investment perspective: alternatively, this would support recently reported views77 that HCM performance within the public sector lags behind that of the private sector through inefficiencies.

Given the relatively high levels of human capital intensity in delivering public sector KPIs (52% versus 31%), this raises the concern that investment in HR/HCM areas may not realising expected outcomes, questioning the ‘business case’ around investment strategies.

This point is amplified in our Performance Matrix78, where a number of public sector along with private sector organisations occupy, what we term, the ‘red zone’.

Workforce Intelligence is again identified as the lowest scoring value driver, suggesting that this is a relatively new or immature concept within organisations, whilst HCM Architecture receives the highest mean score across both sectors, reflecting its importance in underpinning HCM performance.

Public Sector - Mean value driver scores

0

3

6

9

12

15


CentralGov

LocalGov

HE

NHS

77 “Growth in output per worker at 14-year low” Financial Times, 30 September 2005 “Poor growth ‘due to public sector’” The Times, 30 September 2005 78 For details see Chapter 6 of the main report (not included here).

© ISHCM 2007 81


Value driver raw scores - Minimum

0

2

4

6

8

10

12

14

16


PrivatePublic

Private Sector - minimum value driver scores

0

3

6

9

12

15


Private

Bus Serv

Fin Serv

Leisure

Manuf

Pharma

Retail

Telco

Public Sector - Minimum value driver scores

0

3

6

9

12

15


CentralGov

LocalGov

HE

NHS

Minimum scores: chart We note that minimum scores are based on the

lowest scores reported across the group by individual organisations, and therefore advise against over-interpretation at this level.

Key observations

Private sector scores display higher variance than public sector scores, both across the eight value drivers and in comparison against the Maximum scores shown on the previous page, implying higher consistency of scores within the public sector as a whole.

Perhaps surprisingly, HR Procurement receives the lowest overall scores in both sectors, given the perception of high levels of public sector robustness in this area.

Sub-sector analysis The following categorisation has been used for

sub-sector analysis to cluster similar operating models whilst preserving client confidentiality: • Business Services including Professional

Services and Media • Financial Services • Leisure, Hotels • Manufacturing/ Mining including Construction

and Engineering • Pharmaceuticals (including equipment) • Utilities, Telecoms including Transport.

Within the Public Sector, the following categorisation has been utilised, to identify relatively homogenous types of organisation: • Central Government, Government Agency &

Emergency Services • Local Government • Higher Education • NHS Trusts (Acute and Primary Care).

There are two charts presented within each of the sub sectors. The ‘radar’ chart contrasts the value driver scores within the sub-sector with overall sector mean scores by value driver, to identify relative strengths and weaknesses.

The ‘stock chart’ represents the range of raw value driver scores within the specific sub-sector; the vertical line indicating the range between the maximum and minimum score received and the horizontal bar marking the mean across all participating organisations within the sub-sector.

The following table contains the raw scores used in value driver comparisons.

HR

Str

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Inte

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HC

M

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Man

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HR

Pr

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HR

Cap

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ty

HR

Cus

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Age

ncy

Business services 10.0 8.1 10.6 10.6 10.8 9.1 8.2 10.2

Manufacturing/ Mining 10.4 9.0 10.7 10.5 10.3 9.1 9.3 10.2

Financial services 10.8 10.0 11.6 11.2 11.3 10.6 10.7 11.3

Leisure/ Hotels 10.5 9.3 11.0 11.7 11.8 10.8 9.7 10.6

Pharmaceutical 10.8 9.2 12.0 11.2 11.3 10.7 9.7 10.9

Retail/ FMCG 11.1 9.9 11.9 11.7 11.7 10.1 10.3 10.8

All Private 10.6 9.2 11.3 11.1 11.1 9.8 9.6 10.7

Central Gov’t & Agency 10.6 8.9 10.9 10.8 10.7 8.3 8.9 10.1

Local Gov 10.5 8.7 10.7 10.5 10.4 10.1 10.0 9.9

HE 9.7 8.4 10.3 9.7 9.8 9.5 9.4 10.5

NHS 10.6 8.7 11.2 10.8 10.7 9.1 9.7 10.3

All Public 10.3 8.6 10.7 10.4 10.3 9.2 9.4 10.3

© ISHCM 2007 82


Business Services/Professional Services/Media

6

8

10

12HRS

WI

AR

M

E

P

CP

CA

Private mean

Business Servicesmean

Business Services/ Professional Services/Media

0

3

6

9

12

15


Construction/Engineering/Manufacturing/Mining

6

8

10

12HRS

WI

AR

M

E

P

CP

CA

Private mean

Construction mean

Construction/ Engineering/ Manufacturing/ Mining

0369

1215


Business Services/Professional Services/Media

Analysis

This sub-sector rates below the Private sector mean in all value drivers, suggesting that efforts at managing human capital performance are less advanced than in other sectors: this appears counterintuitive as the sector typically possesses relatively high levels of human capital intensity.

Observation

We note a particular relative weakness to Private sector norms in the scores received in HR Capability, suggesting that this sector has not placed relatively high importance on the HR function as a means of assuring HCM performance (implying more of a reliance on individual managers).

Given the levels of HCM Investment in this sector (£1,941 vs. a Private sector norm of £1,525), this raises questions about how effectively investment is targeted and whether additional HCM performance can be achieved through review of existing budgetary priorities.

Management and Employees show limited differential between maximum and minimum scores, suggesting that these are not the primary reasons for HCM performance variation across organisations within this sector.

Conclusion Low VB-HR™ Rating scores relative to the

Private sector norm and the overall distribution of Ratings (with B-B-R identified as the largest category) suggests that opportunities exist to increase levels of overall productivity and quality through increased focus on the benefits of HCM practice within this sub-sector (potentially through further investment/review relating to HR Functional remit and expectations).

Manufacturing/Mining/Construction/ Engineering/ Analysis

Comparison against the mean shows that HR Strategy, Workforce Intelligence, HR Capability and HR Customer-Agency rate close to Private sector norm levels, suggesting that the HR function plays a relatively significant role in ensuring HCM performance within these sectors. Other scores suggest, however, that this role will focus on monitoring and ensuring legislative compliance.

Observation

Scores suggest that this sub-sector regards Management, Employees and HCM Architecture as being relatively limited contributors to HCM performance.

© ISHCM 2007 83


Financial Services

6

8

10

12HRS

WI

AR

M

E

P

CP

CA

Private mean

Financial Svcs mean

Financial Services

03

69

1215


Leisure/Hotels

6

8

10

12HRS

WI

AR

M

E

P

CP

CA

Private mean

Leisure/Hotels mean

Leisure/Hotels

0

36

912

15


Whilst this is to a degree consistent with the relatively low levels of human capital intensity (23% vs. a Private sector mean of 31%) in this sector, it suggests potential to enhance HCM performance through stronger focus in these areas. Conclusion

We note that overall levels of HCM Investment are significantly below Private sector norms (£1,009 vs. a Private sector norm of £1,525). Despite this, the VB-HR™ Rating score is not significantly below Private sector norm levels, but this conceals a very wide range of ratings obtained, suggesting considerable differentials in HCM performance (and accordingly return on the investment made) within this sector. Financial Services Analysis

Mean scores show that the Financial Services sector performs at above Private sector norm levels within all value drivers, with particular strengths in Workforce Intelligence and all three value drivers relating to the HR Functional Capital. This suggests relatively strong investment in the HR function, potentially reflecting the importance of risk management and process consistency within the sector (particularly apparent in the above norm score within HR Customer-Agency).

Observation Means across all value drivers score relatively

consistently (and display narrow ranges of response), suggesting an even focus within Financial Services organisations in all areas of HCM performance.

The level of HCM Investment within this sector is significantly above the Private sector norm at £2,461 (adjusted for outliers), versus the Private sector norm of £1,525.

Conclusions

The Financial Services sector receives a majority of VB-HR™ Ratings that are on or above ‘market average’ levels (i.e. BB-BB-R or above). This suggests that, on the whole, organisations within this sector are successful at translating their greater than average levels of HCM Investment into high levels of HCM performance (in some cases leading to the award of BBB ratings and a reduced level of risk associated with this). Leisure/Hotels Analysis

Mean scores show particularly high focus on Management and Employees within this sub-sector, with other value drivers scoring at Private sector norm levels. This appears consistent with the focus on customer/guest service within this sector, and the often decentralised nature of

© ISHCM 2007 84


Pharmaceuticals

6

8

10

12HRS

WI

AR

M

E

P

CP

CA

Private mean

Pharmaceutical mean

Pharmaceuticals

0

3

69

12

15


organisations based across branches or hotels – these factors will place a significant onus on individual managers to ensure effective HCM performance. Observation

With the exception of Workforce Intelligence and HR Capability (two value drivers with a high level of linkage), means across other value drivers score relatively consistently, suggesting balanced investment and focus across value drivers. A low level of HCM Investment per employee suggests the potential for HR functions to suffer from relative under-investment, increasing the challenge in ensuring the consistency of HCM application within an organisation.

Conclusions

Ratings within this sector show a high degree of consistency, with the majority at BB-BB-R. That this is achieved for a significantly low HCM Investment per employee (£391 vs. a Private sector mean of £1,525) suggests that the performance of Management and Employees, rather than heavy reliance on the HR function itself, is in part responsible for this. This implies that raising overall ratings beyond the level currently achieved will pose significant challenges.

Pharmaceuticals (and Pharmaceutical equipment) Analysis

Mean value driver scores show that the Pharmaceutical sector consistently scores at or above Private sector norm levels, with particular strengths in HCM Architecture and HR Procurement, suggesting relatively high investment in standardising HCM approaches through development of systems and processes. Observation

Despite this apparent investment in HCM Architecture, scores within this value driver, Workforce Intelligence and HR Capability fall across a broad range. This suggests that, despite particularly high performance in a small number of organisations, individual companies will display variable levels of performance and investment in these areas. The narrow range of responses within the HR Procurement value driver, however, suggests a high degree of consistency and utilisation within this sector.

Conclusions

The distribution of VB-HR™ Ratings shows considerable HCM performance differentials. Whilst one organisation receives the only ‘A’ rating within the HCM100, the majority of ratings fall within normal levels. This would appear to be in line with an HCM Investment level of £1,468, close to the Private sector norm of £1,525.

© ISHCM 2007 85


Utilities/Telecoms

0

3

6

9

12

15


Retail/FMCG

6

8

10

12HRS

WI

AR

M

E

P

CP

CA

Private mean

Retail/ FMCG mean

Retail/ FMCG

0

3

6

9

12

15


Utilities/Telecoms

6

8

10

12HRS

WI

AR

M

E

P

CP

CA

Private mean

Utilities/Telecomsmean

Retail/FMCG Analysis

Organisations within this sector appear to benefit from consistently high relative levels of performance across value drivers, compared against Private sector norms. This suggests that organisations have invested in the means to ensure consistently high levels of HCM performance (potentially in response to the employee resourcing model in place within Retail organisations and its reliance on relatively high volumes of part-time employees). Observations

Scores indicate an emphasis on HCM Architecture, Management, Employees and HR Strategy in driving HCM performance. Whilst Workforce Intelligence scores highly relative to the Private sector norm, it still receives a relatively low mean score. This indicates that organisations in this sector have further opportunities to enhance their use of measurement in driving HCM performance.

Although the HCM investment within this sector is below Private sector norm levels (£1,076 vs. £1,525), the scale of organisations within this sector will result in high absolute levels of HR expenditure, supporting the investment apparent in individual value driver scores.

Conclusions

The majority of VB-HR™ Ratings within this sector are at the market average (BB-BB-R), with

limited incidence of lower performance. Given the scale of organisations within this sector and evidence of prior investment, this suggests that the sector has generally responded effectively towards obtaining satisfactory levels of HCM performance, although certain high ratings received imply further scope to raise HCM performance within the sector as a whole.

Utilities/Telecoms (including Transport) Analysis

With the exception of HR Procurement, organisations within this sector score just above Private sector norm levels, particularly in the HR Capability value driver.

This implies a relatively high level of investment within the HR Function itself: despite this, and consistent with other sectors, HCM Architecture, Management and Employees yield the highest mean scores, suggesting a strong reliance on these value drivers in supporting HCM performance.

Observation

HCM Investment within this sector is above Private sector norm levels, at £2,317 vs. £1,525, although there is considerable range around this mean within the sector, suggesting different levels of investment priority. Given this, the range of responses received in various value drivers is relatively narrow, implying differential outcomes from investments made.

© ISHCM 2007 86


Central Government/Government Agency/Emergency Services

6

8

10

12HRS

WI

AR

M

E

P

CP

CA

Public mean

Central Govt

Central Government/ Government Agency/ Emergency Services

0

3

6

9

12

15


Local Government

6

8

10

12HRS

WI

AR

M

E

P

CP

CA

Public mean

Local Govt

Local Government

0

3

6

9

12

15


Conclusions The sector receives a mean VB-HR™ Rating

score that is only slightly above norm Private sector levels. With the majority of organisations receiving a market average rating of BB-BB-R, this suggests that organisations within the sector will typically benefit from a review of investment priorities to ensure that maximum return on HCM performance is obtained for the level of investment.

Central Government/Government Agency/ Emergency Services Analysis

This sub-sector exhibits particular strengths in the performance of Workforce Intelligence, HCM Architecture, Management and Employees in comparison against Public sector norms, whilst HR Procurement and HR Capability receive relatively lower scores. Responses suggest a particular emphasis on Human capital to deliver organisational objectives, supported by generally robust HCM systems and processes.

Observations

We note the relatively low performance of HR Functional value drivers, suggesting that functional involvement in supporting the delivery of organisational objectives/KPIs is not at the point intended.

Perhaps surprisingly, given the importance of human capital in delivering organisational KPIs (with human capital intensity at 50.5%), scores within Workforce Intelligence fall within a broad range, suggesting either that some aspects of operational risk are increased, or that the ability of individual organisations or Departments to monitor and achieve consistent productivity or return on HCM investment will be degraded.

Conclusions

Whilst relatively high levels of HCM investment (at £1,363 significantly above the Public sector norm of £994) appear to result in greater than average value driver performance, this results in a mean VB-HR™ Rating score that is only slightly above the Public sector norm, suggesting that this sub-sector has not yet seen the benefits from its relatively high levels of investment, despite the large majority of organisations scoring a market average BB-BB-R rating.

Local Government Analysis

Local Government value drivers generally mirror Public sector norms, with particular strengths identified in HR Procurement and HR Capability, suggesting that this sector places relatively higher emphasis on the role and performance of the HR Function than other sub-sectors within the Public sector.

© ISHCM 2007 87


Higher Education

6

8

10

12HRS

WI

AR

M

E

P

CP

CA

Public mean

Higher Education

Higher Education

0

3

6

9

12

15


Observation Value driver mean scores exhibit (with the

exception of Workforce Intelligence) a high level of consistency, implying an even focus across all value drivers at the mean level. Despite this, the range of responses suggests that individual Local Government organisations display considerable variations in performance within each value driver, suggesting differing focus for investment. Conclusions

Levels of HCM investment at £581 (against the Public sector norm of £994) are relatively low, in line with levels of human capital intensity that are below the public sector average (35.3% versus a norm of 52.3%). In light of this, the sector still achieves a positive mean VB-HR™ Rating when compared against the Public sector mean (despite scores tending to ‘B’ ratings), suggesting that the level of expenditure itself is not a primary source of HCM performance differentiation. Higher Education Analysis

Higher Education institutions score below Public sector norms in all value drivers with the exception of HR Procurement and HR Customer-Agency. Relative weaknesses are seen in HR Strategy, HCM Architecture, Management and Employees (of potential concern given the high human capital intensity level of 59.3%).

Observation HR Customer-Agency, atypically, is identified as

the highest performing value driver at mean levels. This suggests either the particularly effective provision of HR services within the institution, or could equally imply a strong emphasis on compliance monitoring to mitigate the variable application of HCM practice suggested by the relatively low scores in Management and Employees.

Conclusions

Ranges within all value drivers are large, suggesting a highly organisation-specific approach within Higher Education institutions towards human capital management. Given that levels of HCM investment in this sector are above Public sector norm levels (£1,074 vs. £994) this raises questions around the impact (or targeting) of expenditure on enhancing levels of HCM performance.

This is borne out in the distribution of ratings. Whilst the majority of institutions receive B or BB ratings (suggesting HCM performance generally towards market norm levels), two institutions receive particularly low ratings which suggest increased levels of HCM risk. This raises questions around the consistency of practice within the sub-sector, despite considerable efforts made on this front.

© ISHCM 2007 88


NHS Trusts

6

8

10

12HRS

WI

AR

M

E

P

CP

CA

Public mean

NHS Trusts

NHS Trusts

0

3

6

9

12

15


NHS Trusts Analysis

NHS Trusts score at or above Public sector norms in all value drivers, with particular strengths in HCM Architecture, Management, Employees and HR Capability. This suggests that Trusts are, in general, relatively successful in obtaining levels of HCM performance for limited budget.

Observation

Evaluation of responses shows that NHS Trusts provide highly consistent value driver scores in HR Strategy, HCM Architecture, Management and Employees, with HR Procurement and HR Capability emerging as the value drivers exhibiting the highest levels of performance differential.

This suggests that the expertise and use of technology with the HR function (and, as a consequence, its positioning within the Trust) will be a significant differentiator in HCM performance, whilst processes and human capital are extremely consistent within the sector (from an HCM performance perspective). This suggests a degree of effectiveness of the relatively ‘centralised’ or consistent approach within the sector, (e.g. in line with the implementation of current initiatives relating to competencies and reward).

Conclusions The distribution of ratings received is polarised,

suggesting that 50% of Trusts have the opportunity to raise their HCM performance to market levels (and obtain a BB-BB-R rating). In light of low levels of HCM investment relative to Public sector norm levels (£663 vs. £994) this suggests potential challenges either relating to the level of funding available (and its implied priority) or relating to the targeting of existing expenditure.

The Appendix overleaf includes the Rating

distributions for each individual industry cluster, categorised under private and public sectors.

© ISHCM 2007 89


Appendix: Private sectors: HCM100 Rating distribution by sector cluster

Manufacturing & Mining

CCC-CCC-RR

CCC-CCC-R

CCC-B-RR

CCC-B-R

B-CCC-R

B-B-R

B-BB-R

BB-B-R

BB-BB-R

BB-BBB-R

BBB-BB-r

BBB-BBB-r

BBB-A-r

Distribution 1 1 0 0 0 4 0 0 4 1 0 1 0

Mean VB-HR™ Rating score 20,828 Relative to Private sector norm

0.957

Financial services

CCC-CCC-RR

CCC-CCC-R

CCC-B-RR

CCC-B-R

B-CCC-R

B-B-R

B-BB-R

BB-B-R

BB-BB-R

BB-BBB-R

BBB-BB-r

BBB-BBB-r

BBB-A-r

Distribution 0 0 0 0 0 3 0 0 7 2 0 2 0


1.046

Leisure/hotels CCC-

CCC-RR

CCC-CCC-R

CCC-B-RR

CCC-B-R

B-CCC-R

B-B-R

B-BB-R

BB-B-R

BB-BB-R

BB-BBB-R

BBB-BB-r

BBB-BBB-r

BBB-A-r

Distribution 0 0 0 0 0 1 0 0 4 0 0 0 0


1.017

Pharma-ceutical

CCC-CCC-RR

CCC-CCC-R

CCC-B-RR

CCC-B-R

B-CCC-R

B-B-R

B-BB-R

BB-B-R

BB-BB-R

BB-BBB-R

BBB-BB-r

BBB-BBB-r

BBB-A-r

Distribution 0 0 0 0 0 2 0 1 2 0 0 1 1


1.041

Retail/FMCG CCC-

CCC-RR

CCC-CCC-R

CCC-B-RR

CCC-B-R

B-CCC-R

B-B-R

B-BB-R

BB-B-R

BB-BB-R

BB-BBB-R

BBB-BB-r

BBB-BBB-r

BBB-A-r

Distribution 0 0 0 0 0 1 0 0 7 0 1 1 0


1.047

Utilities/ telecoms

CCC-CCC-RR

CCC-CCC-R

CCC-B-RR

CCC-B-R

B-CCC-R

B-B-R

B-BB-R

BB-B-R

BB-BB-R

BB-BBB-R

BBB-BB-r

BBB-BBB-r

BBB-A-r

Distribution 0 0 0 0 0 1 0 0 4 1 0 0 0


1.018

Business/ professional services

CCC-CCC-RR

CCC-CCC-R

CCC-B-RR

CCC-B-R

B-CCC-R

B-B-R

B-BB-R

BB-B-R

BB-BB-R

BB-BBB-R

BBB-BB-r

BBB-BBB-r

BBB-A-r

Distribution 0 1 0 0 0 6 1 2 4 0 0 1 0


0.928

© ISHCM 2007 90



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Appendix: Public sectors: HCM100 Rating distribution by cluster

Central Govt CCC-CCC-RR

CCC-CCC-R

CCC-B-RR

CCC-B-R

B-CCC-R

B-B-R

B-BB-R

BB-B-R

BB-BB-R

BB-BBB-R

BBB-BB-r

BBB-BBB-r

BBB-A-r

Distribution 1 0 0 0 0 1 0 0 7 0 0 0 0

Mean VB-HR™ Rating score 21,103 Relative to Public sector norm

1.013

Local Government

CCC-CCC-RR

CCC-CCC-R

CCC-B-RR

CCC-B-R

B-CCC-R

B-B-R

B-BB-R

BB-B-R

BB-BB-R

BB-BBB-R

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0.999

NHS Trusts CCC-

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© ISHCM 2007 91


Conference focus

Employee Engagement By Eric Welburn, Director, Powacoach Eric provides a review of the recent Employee Engagement conference held by Symposium Events in London. The review is split into two parts – part (I) provides a running commentary including observations of the presentation outputs on the day, whilst in part (II) he asks one of the original panel members to revisit the questions on employee engagement put forward by the various network groups in the afternoon session.

© ISHCM 2007 92


Preface

There are so many HR conferences to choose from nowadays. In particular, I have attended several on coaching and change. Some focus on coaching through change, some on changing the way we coach and occasionally some on actually coaching the line manager! The problem for us in HR is that most of these tend to have an individual focus, often to the detriment of wider management and organisational issues.

It was therefore heartening to attend an event whose theme was on employee engagement. This term has been increasingly used in HR circles of late and I was genuinely interested on what the conference was going to deliver, even though I still had quite mixed emotions.

The conference entitled “Employee Engagement - Linking Human Capital Strategy and Business Productivity” was superbly organised by Symposium Events79, who do a range of HR events on varied HR topics. It was held at the CBI Centre in London on Tuesday 27th February 2007 and I attended with the VaLUENTiS International School of Human Capital Management (ISHCM). The event itself was very well attended with over 80 senior HR executives.

I must confess that I understand some of the science behind employee engagement, having come across VaLUENTiS/ISHCM framework before and I am aware that employee engagement has a great deal more to it than most people assume. I was intrigued as to how this message would be transmitted when most organisations continue to focus on employee satisfaction or a one-dimensional view of commitment.

Presentations

First up was Greig Aitken, Head of Human Capital Strategy with the Royal Bank of Scotland. Greig emphasised the importance of commitment from senior management for human capital management activities to ensure HCM is firmly built into the business agenda.

RBS have a strong focus on measurement and in respect of determining the engaging employees and use the following definitions. Employee satisfaction is defined as “How much I like being

79 http://www.symposium-events.co.uk

here”, employee commitment is seen as “How much I want to be here” whilst engagement itself is determined to be “How much I want to and actually do improve our business results”.

One of the mantras used by RBS is “more informed people and business decisions” which for me, is moving closely towards what engaging employees is about – The people AND the business.

Unfortunately, Chris Bones, principal of Henley Management College was unable to attend so up next was Kevin Green, People and Organisational Development Director of Royal Mail.

Whilst moving from a daily loss of £1.5m in 2002 into (an unspecified) profit today, Royal Mail Group (RMG) has shed 35,000 people through voluntary redundancy during the same period.

It would be easy to assume that RMG have done a tremendous job in maintaining any degree of engagement whilst simultaneously turning around horrendous losses into profit. However, I know from experience that shedding excess staff in such numbers could account for the financial change and the remaining workforce may have moved into a state of continuous commitment, which can easily be mistaken for an engaged

workforce. I was more interested in the strategies that had been adopted and the plans for the future.

It was good to see that amongst the many questions RMG asked itself throughout the process included the good old “why?” question (as well as the what and the how) – but I am not sure if any of the questions were fully answered.

A simple framework illustrated that communication plays a major part in attempts to engage employees and there has been a conscious effort to reduce the communication between employees and the unions and increase the communication between employees and RMG.

This, however, gave it the appearance of ‘smoke and mirrors’ and potentially raised more questions than answers. One question I would have liked to have heard from the floor would have been regarding the employees’ response to the desired shift in communications away from the unions.

‘One of the mantras used by RBS is more informed people and business decisions which for me, is moving closely towards what engaging employees is about – The people AND the business.’

© ISHCM 2007 93


Key elements of engagement were given as conversations, dialogue, debate, discussion and chats. This I found to be far from convincing. If the remaining staff are chatting about the 35,000 people they used to work with, is this activity enhancing engagement?

A big play on “THERE IS NO FORMULA” also suggested that there is likely to be no real audit trail to enable RMG to assess which interventions added value and which interventions did the opposite.

A speed networking session followed during which, each small group debated and decided upon a series of questions that would be raised for the panel to answer at the end of the conference – More on this later.

The conference continued with a presentation by Steven Bevan, Director of Research with The Work Foundation who focused on motivation and the engagement of employees. Unfortunately, the presentation focused primarily on intrinsic and extrinsic motivation and whilst these are important ingredients in the engagement mix, I felt as though I was attending a bread-making seminar, which focused only on flour and water.

This was a pity because Steven recognised the recent frenzy concerning the subject of employee engagement and the lack of proper research. The conclusions as I saw them should be seen as basic tasks for every manager (understanding and responding to employee needs, non-financial reward and recognition, etc) and I was left with a feeling that a slide or two was missing.

This was not the case with the next presentation. Nicholas J Higgins, presenting here as Dean of the International School of Human Capital Management (ISHCM), expanded the debate with his stressing of the importance of HR professionals understanding what employee engagement actually means.

Defining employee engagement as being the optimum balance of employee alignment and commitment (presented as a very informative 3X3 matrix), the Dean went on to present the Employee Engagement Framework, consisting of the five ‘domains’:- line of sight, work environment, development, reward and organisation architecture. Each domain had a reference slide detailing a fairly comprehensive definition and content.

This was somewhat left-field in comparison with the other presentations in that Dean took time to define the meaning of Employee Engagement and

went on to explain the different levels of measurement being Organisational, Management and Employee level. Measurement of employee engagement could be used for different organisational purposes (in fact a whole list!) linking with ways of increasing productivity and thus organisational performance.

VaLUENTiS, the professional services firm allied with the School, conducts employee engagement-related work for a wide range of public and private sector organisations and a robust construct/design is an imperative to enable different organisations to determine levels of employee engagement. Given that the VaLUENTiS employee engagement framework enables organisations to identify levels of engagement by domain, this system can highlight, for instance, problems with line of sight, amongst say employees, in a particular division or department.

Again, I knew from experience, that much of what was covered would be new to many of the delegates. The great disappointment then, was the absence of any penetrative questions from the floor.

Deborah O’Dea, HR Director with St Mary’s NHS Trust was the only presenter to use mathematics in a presentation as she referred to Kurt Lewin’s Change Equation. Unfortunately that is where the science ended. She gave us an insight into her transformational toolkit which included ‘a book’, ‘a prayer’ and ‘a wand’. ‘Deb’s favourite change questions’ mainly began with “What?”. Again, in my experience a potentially engaged employee

will usually have a few “Why?” questions included. One of the presentations to catch my eye was

by Debbie Whitaker, Group Head, People Product Management at Standard Chartered Bank. Standard Chartered use the Gallup Q12 survey tool as they seek to identify employee engagement levels in relation to team performance. Although all of the Q12 questions appear to be rather ambiguous, by linking the results to real world outcomes, they are able to draw out more meaningful conclusions. In addition to the focus on team performance, there was also a great emphasis upon the role of line managers and the application of the ‘engagement tool kit’.

Paul Roberts, Managing Director of Ibis Communications had a clear definition, which is “employee engagement measures the relationship between an individual and the organisation they work for”. This was both good and not so good.

‘I knew from experience, that much of what was covered would be new to many of the delegates. The great disappointment then, was the absence of any penetrative questions from the floor.’

© ISHCM 2007 94


It was good that he presented a definition. The definition however, caused me one or two problems and reminded me of a little book called “The Way of the Dog”. In this book, a struggling salesman becomes a sheepdog who is taught the tricks of the sheepdog trade. He thinks he’s nailed it when he realises all the sheep like him and he has developed really nice relationships. Unfortunately, he cannot get the sheep in the pen.

A 3x3 box with axes called intellectual clarity and emotional connection was filled with words like objector, saboteur, passenger and champion and was easy on the eye. However, the model suggests that each person will be in one box or the other and does not allow for the fact that even the most engaged employees can be many things simultaneously.

The pace was increased dramatically when Matt White, Innovation Team Leader of WhatIf! took to the stage… and then to the floor! What If! certainly live up to their promise of innovation and creativity and with a relatively small team, they operate on a truly global basis with and extremely strong client list.

Their philosophy for innovation transfers to their people management practices and Matt gave a few examples of how a bed in the office can be used for sitting on and thinking through problems. He also highlighted a particular induction snippet in that the firm posts ‘ten facts’ about a new joiner in the loo, helping them to ‘bed-in’ to the

business – pun intended. It was a vibrant and entertaining presentation

from a true marketer and some of the ideas would transfer easily to a young start up business. However, it served, I fear, little value for the audience in the context of engaging their own employees. Matt made it clear that they will probably hire only 2% of those they interview because they are only interested in ‘Superstars’. He also made it clear that they will not hesitate in getting rid of anyone who is good – but not a superstar.

Again, great stuff for an organisation with few employees but I couldn’t help wondering how an HR Director of a large multi-national organisation with 100,000 employees and staff turnover of say 10%, could warrant ½ million interviews each year to secure the services of their own superstars. My main concern was not that the delegates lapped it up – it was great fun – but it was the fact that it generated serious questions from the floor concerning the engagement of

employees of their own organisations – which in view of my earlier comments suggests a certain ‘misguidedness’.

Questions to the Panel The conference was concluded with a Q&A session facilitated by Bruce Warman, former Personnel Director with the General Motors Group. The panel consisted of:

• Nicholas J Higgins - Dean of the International School of Human Capital Management (ISHCM) and CEO of VaLUENTiS

• Matt White - Innovation Team Leader of WhatIf!

• Debbie Whitaker - Group Head, People Product Management at Standard Chartered Bank.

• Paul Roberts - Managing Director of Ibis Communications

Personally, I was more disappointed by the

questions than the answers. I was hoping for questions along the lines of “How would each member of the panel define employee engagement?” or “What is the difference between a satisfied employee and one who is engaged?” or even “How can we effectively measure the level of engagement in different parts of an organisation?”

These questions would have focused and challenged the panel much more than I believe

was the case. The problem appears that HR genuinely seems to struggle with the concept of learning something new. I can’t help thinking that too many HR people attend learning events on subject matter that they feel they already know or to obtain a few ephemeral ‘top tips’. Even though the subject matter for this conference was relatively new, the thinking of many seemed to be still stuck in yesterday’s groove.

Employee engagement questions as presented

Given the limited time for the various questions to be answered by the panel, I thought that, as part of this review, I would seek greater knowledge on the subject and thus I have invited one of the original panel members - Nicholas J Higgins, as Dean of ISHCM, to provide more detailed answers to the questions raised. Given the answers, I feel a little more comfortable regarding the original questions though I can’t help but notice the preponderance of ‘How? And

‘I can’t help thinking that too many HR people attend learning events on subject matter that they feel they already know or to obtain a few ephemeral ‘top tips’.’

© ISHCM 2007 95


‘What?’ questions – something that I have alluded to previously. The responses given in the interview also answer some of the ‘Whys’.

The following pages include a transcript of our

interview:

EW: Hi Nicholas....with reference to the Employee Engagement conference and the questions

raised to the panel, could I ask you to revisit and answer the questions as succinctly as possible for the readers

Dean: Sure...

EW: Ok....first up - What does an engaged employee look like?

Dean: My first answer would be it depends on what you want an engaged employee to look like... From a managerial perspective, an engaged employee would most likely be a high performing in the right ways, would apply discretionary effort when needed, would be reliable in the sense of turning up on time, interested in their own development and willing to do what’s required (within reason). I would also expect them to be challenging and passionate about the organisation – though loyal is not a word I would use strongly here, as it can be misleading.....

EW: Ok – so how do you get managers to buy-in to engagement and how do you keep the energy going to ensure consistent follow-up so the message sticks?

Dean: First of all, you need to define engagement in management terms and also ensure that managers have a good understanding of what it is and what it means to them – benefits are important to mention (what’s in it for me?). I think this question is a really good example of the challenge, and to a degree the misconception of ‘having to do something’. Employee engagement is core management stuff. For managers, it is embedded practice, thus it should not be up to HR to continue reminding managers of their core role and the productive outcomes of such from a people perspective. Thus, if there is some issue of ‘losing energy’ then education is a key aspect. Managers who ‘don’t get it’ will constantly cause issues. In this instance, it is probably easier and more cost-effective to replace the manager....

EW: Mmm....Is there a link between engagement and business performance and a sense of fun?

Dean: ‘Sense of fun’ is an extremely hard concept to pin down to provide empirical evidence. Intuitively, we know that ‘fun’ may, in its many guises, add value to a workplace, though a direct correlation with engagement is hard to establish. From a technical viewpoint, fun would be incorporated in the prevailing local working environment as it is one ‘variable’ amongst others. As for the link between engagement and business performance, there are certain pieces of evidence. If you follow the logic that engaged employees are more productive and invoke less management time to deal with issues which translate into higher organisation performance however defined, then it is hard to argue against from a collective standpoint. However, I would point out that a direct correlation of engagement with shareholder value performance, as I have seen in some quarters, is completely bogus and does not pass professional scrutiny thus far......

EW: That’s interesting and a mite contentious?

Dean: Not really – if you truly understand intangible measurement, organisation dynamics, correlation and causation, then you will see that this is ‘a bridge too far’....it risks ridicule.

EW: I see....on to the next question then - how do we make our HR policies and procedures support employee engagement?

Dean: This question is good in that it acknowledges the fact that certain people ‘policies’ can play a part in improving employee engagement. For example, good reward design, a well practiced, management performance system with educated managers giving quality feedback are just two areas that come to mind. The different approaches to benefits and initiatives such as work-life balance can play their part. However, reward is only one of the five domains, as we call it, and equal attention across these is paramount. The key fact is, in most cases, the immediate line manager has the biggest impact on employee engagement and thus HR policies are lesser factor (unless it’s specific about well educated and trained managers).

EW: Which leads me to the next question - how do you engage managers to ensure the staff survey is seen as important and not just an HR tool?

© ISHCM 2007 96


Dean: To answer this question, you need to ask a prior question which is: why are managers seeing the staff survey as an HR tool? It is a business tool. Thus, answering this question sheds some light onto the ‘How?’ question. Given the nature of the question, it is probably fair to say that most likely, education of managers around engagement and its link to productivity and less management time dealing with people issues, is possibly the best way forward to ‘engage’ managers.

EW: So, in a similar vein, how do you engage the CEO to make him/her take employee engagement seriously?

Dean: My initial response is sadness to this question. CEOs are paid a lot of money to ‘get it’. Failing that, a robust business case built around some of the answers I’ve already given would be of help in establishing reasons to monitor employee engagement. In most organisations now, an employee survey of some description is being done, thus this is the ideal vehicle to establish the case (i.e. extending something we already do). However, I must stress that HR professionals really need to fully understand employee engagement as a concept and workplace reality for measuring and application. There is no point in ‘the blind leading the blind’. This I still see is the biggest challenge to organisational adoption.

EW: A related but interesting question next - how do you engage people that work for you but are not employed by you (e.g. contract staff etc)?

Dean: Yes – tricky one this. This is in fact one of the hidden costs of the outsourcing/insourcing/ JIT sourcing model. Technically speaking engagement should be defined to some degree by the contract itself. One has to accept that once an individual becomes an arms-length relationship, employee engagement as we are talking here takes on a different and, from the organisation’s perspective, a potentially more limited form. However, all the input factors that make up engagement, for example line-of-sight, work environment and local management, development, reward and organisational architecture can still be applied, though some of these will not necessarily be part of any contract and therein lies the rub.

EW: Are you effectively saying that ‘contracted’ staff will probably not be as engaged as paid staff?

Dean: Yes – if you follow the logic, though it’s a question of what level of engagement you’re happy with. I think this is an important point and may explain certain engagement issues that manifest where insourced/outsourced staffing is used, and even where one sees ‘vocational staff’, given agendas – it’s like an iceberg, this issue has remained hidden.........

EW: I have a similar type question - how does employee engagement change with an increasingly mobile workforce, i.e. outsourcing etc, does the proposition have to change?

Dean: This question is similar to the last question. All the factors of employee engagement are relevant - the question is which factors change due to the changing scenario? Isolating these elements of engagement (even modelling them) will provide insight as to the potential issues, or indeed enhancers of engagement. Things are very rarely a one way street. Understanding the changing aspects of engagement is important to understand before changing/ outsourcing, not after....

EW: A slightly different perspective now - how much do organisations generally consider the individuals benefit from higher levels of engagement?

Dean: Mmmm......they should do unquestionably. But the evidence is still very much in the balance. I think an important point is to recognise that it is evident in current organisational practice and indeed a number of managers implicitly get this – it’s just never been defined before in this way. So, to that extent, HR needs to repackage this into a meaningful and educative manner. I think it is a mistake for HR to think that managers don’t get it – quite often it’s just the language and the lack of airtime given to understanding. Given my earlier management days, there was certainly a lot I was doing to increase what we now call ‘engagement’ but I wouldn’t have necessarily seen it as that at first (i.e. in the absence of an overall concept)......

EW: Interesting recollection......again moving on - what does employee engagement look like? Is it the holy grail? How will you know when you get there? How sustainable is it?

Dean: This multi-question(!) disturbs me slightly if asked by an HR professional. Engagement is not an absolute construct (as some marketeers would have you believe). It is relative. It is core. It should be embedded practice from a managerial perspective. Sustaining sufficient levels of engagement (such that you can do on a quarterly/annual basis) will always be a challenge given the nature of organisations. As for the holy grail, I prefer to think of it as ‘holy water’ that you need to continue to drink.

© ISHCM 2007 97


EW: I like the analogy – so what is the measure of employee engagement that is optimum? 80%, 90%?

Dean: Another question that disturbs me. Without knowing the full context from which this question came makes it a little more challenging. The assumption seems to imply that employee engagement is either a yes/no construct and that employees are either in the green box or the red box. Mmmm..... It may have been to do with the fact that a percentage of employees are labelled ‘disengaged’ (again from some of those questionable constructs I referred to earlier). I think one has to be very careful with this sort of language and understanding as it can do great harm. My presentation referred to the relativity of engagement – and to the insights one can glean from a well-constructed EE tool. Even if we were able to robustly define engaged/disengaged and report the percentages, you’re still left with the so what? question – so what if its 100%? It’s what you link it to that counts. I don’t think it is going to be long before the market finds out it has been short-changed with some questionable ‘engagement’ interpretations.

EW: Ok....a technical question now - how often should you survey? It seems hard to align the ‘eight’ questions for the survey and to both engagement and results?

Dean: A question that disturbs me greatly – How do I sleep at night? Eight questions!! I’m sorry you can’t derive a meaningful engagement construct from eight questions. As for frequency, a number of organisations combine annual and quarterly pulse-type surveys to provide up-to-date intelligence.

EW: I can see that your pulse is rising – let me put forward the next question. How do you further engage already engaged employees?

Dean: Again, another question that is disturbing though I think I know where the questioner is coming from. I’ll reiterate. Engagement is a relative construct and one that changes daily even though we only tend to measure on an annual or quarterly basis at best and then as a ‘proxy’....

EW: Could I ask - what do you mean by ‘proxy’?

Dean: Well. On a hypothetical basis to really measure individual engagement, one would have to initially profile the individual from an engagement basis. Each day the individual would have to complete the question set (given the timing). You would then collate and report these over time, having to note any fundamental change(as well as statistical variation) in individual expectation, and then match to the actual results. Think of it as a company share price on the stock market. The stock market is reported everyday with stocks going up and down (even though information is real time – less than minute intervals). From an individual employee engagement perspective, the same rules apply but we only measure every quarter/annual and on a collective basis. That’s why we call it a proxy....

EW: Phew...!

Dean: That was the simple answer......!

EW: Ok- moving on.......what is your response to the question of consistency of organisational approach, i.e. if it changes every couple of years and employees become apathetic, how do you re-engage them?

Dean: Another question that is disturbing...... Yes... if we’re talking about the employee engagement construct being used which is constantly changing then that may cause problems for interpretation and insight from a trend basis but it shouldn’t really affect employees from an engagement standpoint, unless we’ve got the communication and thus understanding wrong. Then the question becomes more relevant. If the questioner meant this, then the organisation needs to get a grip on what it is trying to convey to employees with a survey and position accordingly. Changing every two years implies inconsistency rather than consistency.....

EW: Your answers infer that you seem ‘very disturbed’ by some of the questions?

Dean: Er – I’ll interpret that contextually(!)...Yes – because I am passionate about HR as a profession, some of these questions tell me that there is a lot of work to do out there, helping to educate HR people as much as managers......People management and measurement is a complex area with potentially enormous pay-off. I see no sense in treating ‘it’ simply at the expense of meaningful insight. The challenge is to simplify the complexity, not create complexity. You can only do this by fully understanding the subject. It seems as though as too often, HR just likes simple answers and ‘damn’ the ineffective consequences...............

EW: I think that’s an important insight. But let me keep asking the questions – this question is another ‘how to’ in terms of checking that messages are being delivered/understood?

© ISHCM 2007 98


Dean: Ask managers and employees on the ground about whatever messages are trying to be conveyed.

This question isn’t really about engagement per se. More a communication angle on the fuzzy side of engaging employees. Again, referring to my presentation, I made the point that the use of the term engagement with regard to employees has multiple interpretations.

Employee engagement can be primarily boiled down to two meanings. It is either a well-defined construct that can be measured, reported and is a basis for a plan of intervention around a number of ‘engagement’ inputs/factors, or it is a loose term to encompass anything to do with employees in a work environment. This question is the latter......

EW: That seems a little harsh?

Dean: It’s not meant to be.........just merely differentiating between the technical professional approach and the ‘layman’ approach.....in my book, HR professionals have to be technicians, assisting managers in ‘layman’ terms. If HR isn’t doing the technical diligence stuff who is?

EW: Ok....final question - what do you see as the relationship between effective employee engagement and effective employer brand?

Dean: My favourite question........If you refer to my strategic HCM framework, then one can see employer brand as providing the expected EVP (employee value proposition) in the market-place as a differentiating resourcing strategy. Employee engagement in this context can be seen as the realisation of this proposition (to those within – depending upon how much an individual organisation wants to report externally).

Of course, there is reciprocity here as effective engagement can be an input into the ‘live’ employer brand. However, I must stress again that the differing definitions and understandings of these terms in organisations means that this somewhat simple yet effective interpretation is not seen. I have come across organisations where the two terms are used interchangeably, which only ends in confusion. HR professionals spend much of their time dealing with confusion but it is mostly by their own making!

EW: Is there a final comment you would like to add in relation to these questions?

Dean: There are three final points I would like to make….

Firstly, employee engagement is core HR stuff, it’s akin to double-entry bookkeeping for accountants in terms of its fundamental nature. Thus all HR professionals need to have sufficient understanding, through definition, theory, measurement and application of the term engagement. Yes, employee engagement itself is quite a complex area but there is sufficient understanding to simplify for purposes of organisational application (see our forthcoming book). The use of a number of questionable constructs borrowed from marketing is not the way to go.

Secondly, employee (and organisational) engagement provides a massive opportunity (amongst others) for HR to become centre stage with regard to organisational performance and the influencing of management behaviour and thinking.

Therefore, as a final point, I would like to reiterate that, for HR, failure is not an option – it must grab hold of this concept and use it as a robust business improvement tool – robust being the operative word. HR professionals cannot afford to keep it at the ‘fuzzy’ level.

For organisations, engagement is a key differentiator, whether, public, private or NFP, in terms of overall productivity and cost control. I would find it difficult to believe that any CEO would not to be interested.

EW: Thank you very much for your time – I trust that readers will find your answers extremely illuminating........

End interview.

© ISHCM 2007 99


View from the frontline:

Management challenges at the British Library An interview with Mary Canavan Director of Human Resources, British Library Since her appointment as Director of Human Resources at the British Library some 3½ years ago Mary Canavan has continued to build upon the reputation she established whilst working with a number of London Borough Councils. With a pragmatism that is uncommon in HR, Mary has successfully managed some difficult challenges and was voted HR Director of the year in 2005. Here she is in conversation with Eric Welburn

© ISHCM 2007 100


“…from an HR perspective, everything flows from our performance management

system…”

E.W. What are the major priorities facing British Library management at present?

M.C. These are contained in the 2005 – 2008

British Library strategy called ‘Redefining The Library’. In the strategy we link the Library’s mission, vision and values with six strategic priorities – all of which are important elements and all of which are interlinked. The priorities encompass the user’s experience, digital technology, transforming search and navigation, growing and managing the collection, developing people and the guaranteeing of financial stability.

E.W. What major changes have taken place

in recent times? M.C. When we developed the current strategy,

we completed the largest consultation process that the Library had ever undertaken, which helped us to focus on some of the immediate priorities – many of these related to financial and people issues. Since 2000, we have secured £40m in efficiency savings, some of which have come through a combination of headcount reduction and investment in digital technology. We have removed unnecessary structures and processes and aligned activities with strategic needs.

E.W. What has the above meant for the HR

team? M.C. Since 2000, the overall headcount has

reduced by 383 and in recent years the HR team has needed to be strengthened by buying in different skills. Until my appointment, the role was held by an interim and as the changes driven by the strategy have started to impact, the HR team has had to adapt and evolve. The HR team is now much stronger and has a better balance of the expertise necessary to support the organisation’s needs.

E.W. What has been, and continues to be,

the impact of recent changes on employee engagement at the British Library?

M.C. We have seen improvements in the

engagement of employees, evidenced by surveys conducted in 2004 and more recently towards the end of 2006. The level of participation in the 2006 survey was up by almost 20% on the 2004 survey and we are seeing positive trends

in most areas. We have also seen a reduction in staff sickness days from a high of 10.2 to its current level of 7.3. We still have a long way to go but we are now at a point where, from an HR perspective, everything flows from our performance management system. In this respect, we have now reached 97% participation.

E.W. What are the key Talent Management

challenges at the British Library? M.C. This is a critical area and a real challenge.

One of the issues highlighted in the recent survey was that of career development. Given the number of external appointments we have needed to make, this is no great surprise. However, we have recognised the benefits associated with developing our future leaders and staff internally and have recently appointed a dedicated talent manager.

E.W. How does people management fit in

with overall organisational objectives?

M.C. We are fortunate that Lynne (Lynne

Brindley – Chief Executive) recognises the importance of people in the British Library. This means that HR automatically has a seat at the top table and this is reflected in the 6 priorities contained within the strategy. We (HR) in turn, need to ensure that the appropriate processes (performance management, talent management etc.) are robust and effectively managed by HR and the line. In other words, people management is critical for the Library to meet its organisational objectives.

E.W. What key performance indicators are

used and how do they relate to the organisation’s objectives?

M.C. We use a comprehensive balanced

scorecard, which contains key performance indicators for each of the priority areas. This enables us to track

© ISHCM 2007 101


individual plans on an ongoing basis. Tracking web usage, for example, helps inform our planning and decision-making in relation to digital technology and transforming search and navigation, whilst measuring sickness & absence and workforce profiling (gender, age, etc) are important in relation to both developing people and the guaranteeing of financial stability.

E.W. Finally Mary, what would you say are

the greatest challenges facing the HR profession?

M.C. The challenges are many and varied but I

would say that HR needs to show that it is relevant and in tune with the business. HR also needs to ensure that its contribution to the business is clearly understood by everyone, which means we need to improve the way in which we measure our

contribution. E.W. Thank you.

The British Library as an institution has a relatively short history and was formed as a result of the report of the National Libraries Committee under the Chairmanship of the late Lord Dainton in 1969, followed in 1971 by a White Paper recommending the setting up of a national library for the UK ('the British Library'). In 1972 The British Library Act was passed by Parliament bringing the Library into operation with effect from 1 July 1973. Under the Act the a number of institutions were administratively combined to form the British Library – these included the library departments of the British Museum (including the National Reference Library of Science and Invention), the National Central Library and the National Lending Library for Science and Technology (the centre for interlibrary lending, located at Boston Spa in Yorkshire). In 1974 the British National Bibliography and the Office for Scientific and Technical Information joined the UK's new national library with the India Office Library and Records joining in 1982 and the British Institute of Recorded Sound in 1983. Today, the British Library’s collection consists of over 150m items and materials spanning over 3,000 years; with some 57 million patents, 4 million maps and almost 1m newspaper and journal titles. There are 13m books and the main site in St Pancras in London is spread over fourteen floors of which five are underground. The British Library employs just over 2,000 employees, the majority of whom are based at the sites in St Pancras and Boston Spa in Yorkshire. Given the sheer volume of artefacts, the Library has seen a major increase in the use of technology over recent years to assist in the storage, search and retrieval of collection items, reflected in that the main website contains over 3,000 web pages. Eric Welburn is a director of Powacoach and an associate with both the National School of Government (Sunningdale) and the International School of Human Capital Management (London).

© ISHCM 2007 102


Industry focus:

People management in UK local government By Graeme Cohen, Programme Director This article sets out the experiences of working with a consortium of 8 London boroughs to evaluate and compare people management practice through use of the VB-HR™ Rating approach. It sets out the different ways in which participating councils have applied the Rating; presents their feedback and project experiences and outlines how the Rating approach has been upgraded in light of these.

© ISHCM 2007 103


Evaluating people management: local government consortium Local government context

Since 1997, major evolutions have occurred in approaches towards assessing council performance, with increased local accountability for the delivery of services and provision of value for money.

Local councils currently face the dual requirement of reducing costs to deliver a minimum of 2.5% efficiency gains per annum from existing activities (efficiency targets as set out in the Gershon report), as well as ensuring that organisational performance, as assessed through the external assessment regime (CPA and best value performance indicators), continues to increase. This is further complicated through the issues identified within the PWS relating to recruitment and retention concerns, particularly for professional and managerial occupations.

The theme of effective people management underpins the reports and frameworks identified above. As employee-related costs form c. 60-70% of a borough’s annual costs, this suggests that enhancing effective people management will positively affect Audit Commission assessment, maximise productivity and increase efficiency in reduced people-related costs (e.g. absenteeism/ agency staff).

For these reasons, VaLUENTiS’ work on evaluating people management, with the launch of the VB-HR™ Rating HCM100 Benchmark Report and related workshop series in 2005, had attracted interest from a number of London councils and related bodies.

Consortium setup Following a series of initial meetings to agree

and present the approach, the London borough consortium was sponsored by the then Association of London Government (now known as London Councils) and formed through an open invitation to London boroughs to participate.

The exercise was developed with the following intentions: • To measure the effectiveness of people

management practice within participating boroughs

• To develop a ‘routemap’ of 30-35 recommendations relating to organisational performance and productivity for each participating council

• To identify common themes emerging across London councils with potential linkage to other initiatives (e.g. Capital Ambition).

Eight councils chose to participate: London

Borough of Barking & Dagenham; London Borough of Croydon; London Borough of Haringey; Royal Borough of Kingston upon Thames; London Borough of Lewisham; London Borough of Merton; London Borough of Richmond; London Borough of Westminster. Additionally, the London Borough of Brent participating in an initial, limited exercise.

VB-HR™ Rating approach

The increased focus on the effectiveness of people management practice to drive council

delivery performance had placed particular importance in finding a way to evaluate (quantify) current people management practice, identifying strengths and areas for enhancement (both in an absolute term and relative to other organisations through benchmark or comparative data) and taking appropriate enhancement actions.

Whilst central government guidance in the form of the Pay and Workforce Strategy indicated two potential approaches towards assessing people management performance (the CPA assessment framework and the Investors in People standard), both these frameworks are limited in terms of evaluative capability, being predominantly compliance-based in approach.

The CPA framework and the Investors in People standard are intended to assess councils against pre-determined input measures. Both these frameworks set out 3-4 levels of performance against a defined indicator, whose purpose is to assess the borough in each identified dimension. This then leads to the award of either a star rating or Investors in People status. The nature of these awards is such that it is difficult for a council to gain specific insight into its performance relative to other organisations at a meaningful, actionable level.

Evaluative approaches, such as the VB-HR™ Rating, are designed to provide deep insight and

‘Evaluative approaches, such as the VB-HR™ Rating, are designed to provide deep insight and lead to the development of detailed route-maps for performance improvement: a fundamentally different approach than compliance assessment against a standard.’

© ISHCM 2007 104


WorkshopLevel 1 report

feedback

Level 2 interviews

Level 2 data

Level 2 feedback

Consortium process

lead to the development of detailed route-maps for performance improvement: a fundamentally different approach than compliance assessment against a standard. This will provide boroughs with the data available to ‘drill down’ into any resulting findings to identify causes of sub-optimal performance. Through this highly detailed approach, specific metrics and measurement can be put in place to track the impact of performance/productivity improvements.

The Rating approach is based on a sophisticated underlying model that incorporates qualitative and quantitative inputs to evaluate human capital management practice across eight strategic ‘drivers’ of human capital performance and sixteen ‘operational indicators’ (introduced following feedback from the consortium exercise).

Council involvement

Each council was responsible for scheduling and planning its own evaluation, with project management support provided by VaLUENTiS. The Rating approach adopted for the consortium was standardised to minimise individual investment requirements, with councils free to adopt additional options relating to feedback or follow-up investigation on an individual basis.

The evaluation exercise was designed specifically to minimise client resource time, and to be completed within 3-4 weeks (given scheduling and data availability). Figure 7 below sets out the core workplan standardised on this basis: • Initial workshop: designed to introduce

participants in more detail to the Rating, its applications and the process of completing it. The workshop permitted participants to complete the qualitative evaluation of people management practice (‘Rating question-inventory’) from their own perspective.

• Level 1 report feedback: a ‘lite’ version of the overall report based on the single perspective gained within the initial workshop and fed back to illustrate Rating outputs.

• Level 2 interviews: 8-10 senior manager structured interviews to complete the Rating question-inventory (co-ordinated by the individual Council and conducted by VaLUENTiS expert resource in face-to-face sessions).

•

Level 2 data: Completion of data templates relating to operational HR and people-related metrics. The aim of the exercise was to utilise available data rather than to require significant work on metrics/data creation. This included the allocation of HR and related expenditure across 10 areas of people management activity (e.g. HR Governance, Resourcing, Performance Management, Payroll). Where available, recent employee survey data was made available for VaLUENTiS to ‘cut’ into the evaluation (to the extent possible).

• Level 2 feedback: Following the generation of individual HR technical reports for each participating council, VaLUENTiS senior practitioners conducted 2 hour feedback sessions with HR Directors in participating boroughs. In some cases, this included members of the HR management team.

The feedback sessions were held in November

2006, with a final consortium workshop held on 05th December 2006 as formal conclusion to the exercise.

‘Immediate’ Council reaction

Each council received the following deliverables: • Attendance at an initial consortium workshop

to clarify understanding • 80 page technical report for an HR audience

providing findings and recommendations specific to the individual council (fed back in a 2 hour briefing session)

• Attendance at a ‘wrap-up’ workshop to present overall findings/themes emerging across the consortium.

During the ‘wrap-up’ workshop in December,

following feedback of the individual findings in November, Council participants were asked to evaluate the impact of the findings and their views on the exercise.

When asked for the areas in which the exercise had had the most initial impact, Councils identified the areas of line manager vs. HR perception; approaches towards measuring effectiveness and HR’s ‘positioning’ as a function as their top three (as set out in Figure 8 overleaf).

Figure 7

© ISHCM 2007 105


Figure 8: Areas of impact

Specific consortium feedback

Consortium members were asked to complete a structured evaluation to provide feedback on the exercise (in line with VaLUENTiS’ quality approaches and to gauge reaction to the Rating approach within the local government sector).

All councils rated the exercise as ‘value for money’ and would recommend it to other councils80.

80 Additional details on feedback provided can be requested via [email protected] or by contacting one of the authors.

Additionally, the timing of a repeat exercise is already clear for certain councils, who see a key benefit in its ability to measure the impact of any changes made (e.g. the impact of changing HR functional structures; introduction of new IT systems; enhancement of line management capabilities). Broader Council application

Following the initial reactions, a further individual review meeting was held two months after the exercise to identify how Councils were applying the findings.

Typical applications included the communication of summary findings within the HR function and to senior management teams. In certain cases, this had been carried out by the HR Director, with VaLUENTiS support requested on a number of occasions. In one case, the findings were shared as part of an HR/OD team ‘away day’, as a means of setting context around changes taking place within the function.

Certain councils had incorporated the specific routemap recommendations generated in the evaluation within their HR strategy or workforce plans. Councils had utilised the Rating report as evidence to external assessment by the Audit Commission, to triangulate and expand on Investors in People assessment and to act as a ‘checker’ to ensure they were still ‘on track’ with Investors in People standards.

A number of councils reported that findings within the Rating and its related recommendations had acted as ‘business cases’ for planned activity,

The positioning of HR as a function

Insight into how managers and HR view people mgt

Insights of measurement

HR resources

HR spend/activity

HR strategy

The way in which HR operates

The current robustness of HR processes

Aspects of the Council’s management

Employee engagement

Workforce intelligence

This has changed my (team’s) view of people mgt

Procuring services into, through and outside HR

Current context of people dynamics, e.g. absenteeism

The positioning of HR as a function

Insight into how managers and HR view people mgt

Insights of measurement

HR resources

HR spend/activity

HR strategy

The way in which HR operates

The current robustness of HR processes

Aspects of the Council’s management

Employee engagement

Workforce intelligence

This has changed my (team’s) view of people mgt

Procuring services into, through and outside HR

Current context of people dynamics, e.g. absenteeism

Not at all To some extent To a moderate extent To a large extent To a great extent

7 respondents.

In your view, does the VB-HR™ Rating deliver in terms of value for money?

0%

20%

40%

60%

80%

100%

Yes No Don't Know

Would you recommend the VB-HR™ Rating to a Council outside the consortium?

0%

20%

40%

60%

80%

100%

Yes No Don't Know

© ISHCM 2007 106


also providing additional justification for activity already initiated (such as a review of recruitment provision).

Project experiences

Working with a consortium inevitably raises challenges, given the additional complexity of applying a standard approach in parallel across different organisations and involving multiple HR Directors and their colleagues, each with a slightly different organisational context.

We would like to acknowledge the feedback provided by our council partners in this exercise, as this has allowed us to further enhance the Rating exercise given sectoral requirements. Based on the feedback provided, project experiences for participants yielded the following.

Availability of data differed across Councils

With some councils struggling to complete the standard data request, others either had high initial availability of data or invested additional resource to develop meaningful information for inclusion where not initially available (above and beyond what was required for the evaluation).

On one hand, some councils indicated that they have subsequently utilised the exercise and the data templates to identify what data they should be collating: on the other hand, councils with more developed approaches raised questions about comparability across councils and the consistency of definitional interpretation, suggesting that further work is needed across the sector in this area.

Structure and definition of HR functions differed across the councils

Even within a relatively homogeneous cluster of organisations, no one HR functional structure emerged (again raising the question of how to ensure a fair comparison). The provision of a standard template by VaLUENTiS, detailing 93 people management activities listed under 10 domains (‘Global Profiler’) allowed for a consistent approach and definition of HR and human capital management in terms of what was actually delivered (e.g. resourcing, performance management).

Existing clarity between ‘costs of the HR function’ and ‘costs of people management’ was seen as patchy

Potentially related to the points made above, concerns were raised on the ability to compare HR and related spend across councils, particularly where councils had adopted a particular delivery structure or had received specific external grants related to training provision. The exercise therefore aimed to clearly differentiate between the total costs of human capital management and the costs of the HR function: as an illustration of

the difference, outsourcing a Payroll function is likely to reduce the costs of providing an HR function, but will not necessarily affect the costs of delivering human capital management services to the council.

Conducting the evaluation helped HR’s profile within the organisation

Previous experience with other organisations had indicated that conducting the Rating evaluation was effective in ‘educating’ line managers in people management and HR’s role in supporting this. Given this, the levels of interest in the underlying approach and apparent identification with the aims of the evaluation outside the HR function were even more positive than expected. A number of councils successfully involved their CEO (and Council Members) in the exercise and feedback, resulting in the exercise and related HR activity taking on a higher ‘profile’.

The timeframe for completion was in some cases challenging

One of the complexities of working with a consortium is ensuring that all participants move through the exercise at a similar pace. In certain cases, this proved problematic for reasons relating to the function’s perceived ‘standing’ in the organisation and the apparent credibility or importance placed on the exercise by line management. By introducing the option of on-line completions supported by an initial, 10 minute telephone briefing, VaLUENTiS gave councils additional flexibility to gain time with senior line manager diaries.

Rating enhancements as a result of feedback The working relationship with the participating

councils has resulted, as mentioned previously, in the provision of feedback to VaLUENTiS that has allowed the evaluation approach to be further enhanced. These features allow the Rating to be conducted within a three – four week timeframe but permit greater organisational involvement at no additional effort, with expanded reporting alternatives. • Inclusion of a ‘knowledge transfer’ workshop

with HR senior managers as a core component of the Rating exercise

• Introduction of 15 further ‘operational indicators’ to link the Rating outputs with people management practice at a more operational level.

• Standard use of on-line Rating completions, allowing easy coverage of the organisation’s managers without a heavy interviewing requirement (although face-to-face meetings are still an option for CEO or equivalent).

• Introduction of the ‘slim’ Executive Summary for feedback, extracting key information from

© ISHCM 2007 107


Rating consortium

process

Set-up

Data gathering

Reporting/ feedback

Actioning

On-line survey initialised

Utilisation of templates for HR/ operational metrics

Monitoring of survey responses

Data review, transcription and benchmark analysis

Support as required (additional communication/ evaluation and education)

Feedback to HR team and senior management

Internal communications (with support as required)

Review of HR and related spend

Scheduling interviews (where required)

Provision of templates and guidance on data gathering

Provision of communications support

Conduct of interviews

Review of employee survey/ procurement contracts

Support to council data-gathering

Generation of routemap and operational index

Report finalisation (with template selection)

Conduct of feedback meeting and knowledge transfer

Review of priority matrix; linkage with planning/ operational activity

Consortium members

receive regular benchmark updates as

new councils join consortium

New counciljoining

the HR technical report for ease of presentation

• Refinement of explanatory spreadsheets for data collation with expanded guidance notes and definitions.

Next steps for the Rating and its application within the sector

The positive feedback reported in individual experience, and the variety of applications that Councils are deriving from the Rating, suggest that the approach is valuable.

The joint benefits of a comparison relative to other organisations, plus the generation of specific ‘routemap’ activities has subsequently attracted interest from other councils, with additional Rating evaluation with other councils conducted and scheduled following the completion of this exercise.

Additionally, a number of councils participating in the initial consortium intend to repeat the exercise in 2007 to measure the impact of changes made within their HR functions, or as ongoing support to people management approaches.

Expansion of the consortium to nationwide coverage

Currently, councils are invited to participate in the benchmark consortium on an individual basis. As the consortium expands, there is the option to ‘refresh’ benchmark comparators to allow councils to join at a time of their own choosing. This is shown in Figure 9 below, which includes the various steps involved in carrying out the evaluation.

Since the conclusion of the initial consortium

exercise, additional councils in London and elsewhere have taken up this offer. Should readers wish to request further information on this or are interested in joining the consortium, please contact the Programme Director directly: [email protected] or +44 20 7887 6108.

Figure 9

© ISHCM 2007 108


In the news: A collection of interesting items reported in the media in the first quarter of 2007: January 2007 VaLUENTiS announce 15 new operational indicators relating to people strategies and effectiveness within the expanded VB-HR™ Rating assessment. http://www.valuentis.com/News_Pages/Press_Releases/PressRelease_VBHRRatingNewFeatures_120107.pdf International School of Human Capital Management launches new practitioner-based HCMI qualification for HR professionals, and experienced managers entering the HR function. http://www.ishcm.com/pdf/PressRelease_HCMIQualification_030107.pdf Hudson releases survey findings that over three quarters of executives would like to operate an annual quota for staff dismissals to improve productivity. http://uk.hudson.com/documents/uk-press-release-jan07.pdf Henley Management College launches MSc in Advanced Human Resource Management, an action learning course to help HR managers operate at a strategic level. http://www.personneltoday.com/Articles/2007/01/16/38844/win-18000-bursary-to-study-at-henley.html Manpower research indicates that retention is the top HR priority for UK employers in 2007 http://www.manpower.co.uk/news/HR_priorities_2007.pdf Chartered Institute of Personnel & Development announces the appointment of Mike Watts as Professional Development Director http://www.businesszone.co.uk/cgi-bin/item.cgi?id=163931&d=1009&h=1008&f=1010&dateformat=%25o-%25B-%25Y Economist Intelligence Unit study identifies that CEOs see talent shortages and high salaries as their biggest challenges, and question HR’s capability. http://www.eiu.com/site_info.asp?info_name=eiu_CEO_Briefing_Corporate_priorities_for_2007 February 2007 Institute of Directors research into member attitudes suggests that migrant workers are seen to outperform the existing workforce in terms of productivity, education, skills, work ethic, reliability and amount of sick leave. http://press.iod.com/newsdetails.aspx?ref=263&m=2&mi=62&ms The Trades Union Congress publicly questions the role of private equity as UK employers, forcing an industry response. http://www.ft.com/cms/s/d95fdd3a-c124-11db-bf18-000b5df10621.html Hay Group research finds that 38% UK executives believe their organisations are ‘paralysed’ by ineffective middle management, degrading productivity. http://www.haygroup.com/downloads/uk/FinalCorporate_Souffle.pdf Employment Rights (Increase of Limits Order) 2006 comes into force, increasing the limit on compensation for unfair dismissal from £58,400 to £60,600. http://www.opsi.gov.uk/si/si2006/20063045.htm National Association of Pension Funds survey finds that one third of private sector final salary schemes are open to new

© ISHCM 2007 109


members http://www.napf.co.uk/DocumentArchive/Press%20Releases/03_2007/20070221_21-02-2007%20-%20New%20NAPF%20Survey%20Shows%20One-Third%20of%20Salary-Related%20Schemes%20Still%20Open.pdf Aon Consulting research finds that half of UK companies feel that the increasing cost of funding defined benefit pensions scheme has reduced the remuneration packages they are able to offer. http://www.aon.com/uk/en/about/media-centre/remuneration-packages.jsp March 2007: Union leader questions the morality of financial sector bonuses at a lecture on globalisation, mirroring comments made by the UK Northern Ireland Secretary. http://www.peoplemanagement.co.uk/pm/articles/tucheadattackscitybonuslevels.htm?name=reward&type=subject March 2007: Microsoft UK drops a supplier over diversity policy. http://www.ft.com/cms/s/b7535d3e-d9ac-11db-9b4a-000b5df10621.html Canterbury Christ Church University launches an MA in HRM Business Partnership leading to Graduate Membership of the CIPD http://www.canterbury.ac.uk/business%2Dsciences/business%2Dschool/postgraduate%2Dprogrammes/business%2Dpartnership/ UK Chancellor Brown commits a further £6b to the Pension Protection Fund. http://www.personneltoday.com/Articles/2007/03/23/39827/pension-protection-fund-makes-interim-chief-operating-officer-peter-walker.html NHS requires productivity growth of 20%, claims Audit Commission chairman. http://www.personneltoday.com/Articles/2007/03/21/39744/audit-commission-chief-michael-ohiggins-calls-for-nhs-performance.html Oracle buys Hyperion for $3.3b with the intent of bolstering its business intelligence capability and extending its offering in enterprise performance management. http://www.oracle.com/hyperion/index.html Work Foundation releases a study on private equity: different types of private equity have different effects on jobs, wages and quality of working life. http://www.theworkfoundation.com/products/publications/azpublications/privateequity.aspx Sorbonne University and Hay Group publish research findings suggesting that the vast majority of M&A deals fail to deliver benefits through insufficient focus on intangibles, such as human capital, structure and corporate governance. http://www.haygroup.com/downloads/uk/M&AReleaseFINAL.pdf Citigroup, one of the world’s biggest banks, announces plans to shed 5% of its global workforce to save $1b (estimated at 15,000 roles) in a restructure. http://www.ft.com/cms/s/7e25f36c-db7f-11db-9233-000b5df10621.html Chartered Institute of Personnel & Development announces the appointment of Linda Holbeche as research and policy director, replacing Duncan Brown. http://www.personneltoday.com/Articles/2007/03/29/39907/linda-holbeche-to-move-from-work-foundation-to-chartered-institute-of-personnel-and.html

© ISHCM 2007 110


Coming next time.........

Volume 1 Number 2 June 2007

Brave New World Part II

Human Capital Reporting

The Human Capital Composite Index

Talent Management

VB-HR RATING HCM100 Study: HCM Driver analysis

PRACTITIONER FOCUS:HR and CSR

INDUSTRY FOCUS: FINANCIAL SERVICES SECTOR

© ISHCM 2007 111


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