New report reveals agreement on the human capital measures that matter most

12 July 2006 – Board directors and the investment community are finally reaching agreement on the human capital measures that matter most for assessing an organisation’s future performance.  According to a report published today by the Chartered Management Institute there are five key areas of Human Capital Management (HCM) reporting that investors, directors and stakeholders believe are most likely to affect an organisation’s long-term sustainability.

The report, published in association with Oracle UK and the Centre for Applied HR Research at Oxford Brookes University (CAHRR), shows inconsistent approaches to HCM measurement but also reveals that both directors and investors would use HCM metrics if they were delivered on a dependable and comparable basis.

‘Measures of workforce capability for future performance’, is based on research conducted amongst 259 senior directors and in-depth interviews with 20 investment houses.  Key findings include:

• Asset management:  86 per cent of directors agree that employees are their key asset and the same amount also view the effectiveness of their top team as important to future performance.  Given this high agreement it is surprising that a clear gap exists between what is valued and what is actually analysed.  Only 68 per cent measure the contribution made by the whole workforce and fewer still (53 per cent) focus on the impact of senior management.

• Complicated and confusing:  The survey explored 45 different workforce factors*, but while more than 8 in 10 respondents claimed to examine static measurements such as ‘total employment cost’, only 2 in 10 measured dynamic indicators such as ‘evidence of absence management’ or ‘talent management’.  These low levels of measurement are admitted despite respondents believing that each issue has strategic importance to future performance.  It suggests that a wide gap exists between the priorities of those managing and monitoring organisations and the data available for them to do so.

• Five facets for future forecasts:  Unsurprisingly, owing to the high levels of inconsistent reporting, only 5 per cent of investors currently take HCM metrics into account when valuing a company.  However, analysts focusing on investments with an exit strategy of 5 years plus rated strategic HCM measures more highly.  Investors also agreed with directors on the 5 key areas relating to HCM are likely to impact on future financial performance.  These were identified as leadership, employee motivation, training and development, performance improvement and pay & reward structures.

With such a wide variety of measures, inconsistent adoption and no prospect of commonly accepted standards for reporting HCM metrics the report makes two recommendations:

• framework for three-tier model of measurement:  A three-tier model could provide a useful framework for better understanding the different levels, types and application of metrics.  The model identifies three levels, starting out with basic HR and workplace measures (such as employee profile statistics) graduating to comparable analysis (performance indicators) and finally through to organisation-specific strategic measures of workforce capability (demonstrating alignment of capability to business strategy)

• reporting forum:  the establishment of an employer-led group, the Human Capital Reporting Forum.  Its aim would be to build on the work already begun in the area of HCM Reporting and drive the trialling and applications of measures across all industry sectors.

Mary Chapman, chief executive of the Chartered Management Institute, says: “The report provides an initial framework which will evolve with use.  After all, for stakeholders to take a view of future performance based on the workforce, they will want access to reliable, transparent and widely adopted measures.  A framework like this would also mean that companies can clearly differentiate themselves and offer potential investors and stakeholders a more accurate insight into future performance.”

Ian Smith, Senior Vice President and UK Managing Director at Oracle UK, comments: “I warmly welcome this work and the Human Capital Reporting Forum recommended by the Chartered Management Institute.  As employers in a global competitive world, attracting and retaining the best people is critical for our current and future success.  An initiative, such as this that helps us work with our Customers in Partnership to measure the value of our Human Capital and make solid business justifications for investment in that capital is very encouraging indeed.  As the Global and UK leader in HCM software it additionally offers Oracle a valuable insight for us to continually learn from our Customers as we design and build each existing HCM product line and our new generation of HCM Applications”

‘Measures of Workforce Capability for Future Performance’ is the latest report produced by the Chartered Management Institute, Oracle UK and CAHRR**.

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Further information can be obtained from:

Mike Petrook / Gemma Bird, Institute Press Office

Tel: 020 7497 0496; outside office hours: 07931 302 877

Email: press.office@managers.org.uk

Website: www.managers.org.uk

NOTES TO EDITORS

* The 45 measures identified are listed in Appendix C of the report, and details are available via the Chartered Management Institute press office.

** It follows the publication of ‘Getting the basics right: a guide to measuring the value of your workforce’ (April 2005) and will lead to the publication of a report drawing comparisons with the evolution of financial reporting, in September 2006.

The report was written by Professor Willliam Scott-Jackson, Director, CAHRR, Petra Cook, Head of Public Affairs, Chartered Management Institute and Randal Tajer, Managing Director, HR for UBS Wealth Management and Business Banking.

As the champion of management, the Chartered Management Institute shapes and supports the managers of tomorrow, helping them deliver results in a dynamic world. The Institute helps set and raise standards in management, encouraging development to improve performance. Moreover, with in-depth research and regular policy surveys of its 71,000 individual members and 450 corporate members, the Institute has a deep understanding of the key issues.  The Chartered Management Institute came into being on 1 April 2002, as a result of the Institute of Management being granted a Royal Charter.

About Oracle

Oracle (NASDAQ: ORCL) is the world’s largest enterprise software company. For more information about Oracle visit our Web site at http://www.oracle.com.

Centre for Applied HR Research

The Centre for Applied HR Research, Oxford Brookes University Business School, brings together leading HR researchers with world class companies to carry out applied research in areas that will make a real difference to company performance and strategy. Drawing on the expertise of top researchers and leading strategic consultants, together with the practical experiences and knowledge of major companies, the Centre will play a key role in providing up to date guidance in areas of high impact. The CAHRR Advisory Board, composed of c30 senior HR Directors of major plcs, steers the Centre's research agenda and ensures practical relevance of the work carried out by the Centre.

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