The 5 Human Capital Indicators that Every CEO Should Track

1
The 5 Human Capital Indicators that Every CEO
Should Track

• Laurie Bassi, Ph.D.
• May 24, 2005

2
The problem in a nutshell

• We live in the knowledge era, but we have
  industrial era accounting and reporting.
• This results in a chronic pressure to
  under-invest in the development and management of
  people, which directly affects business results.
  
• Hence, many firms are playing a knowledge era
  game by industrial era rules.
• CEOs who view the HR function as part of the
  problem may be confusing symptom with cause.

3
The solution in a nutshell

• Sustainable profitability requires focusing
  intently on human capital--the only enduring
  source of wealth creation in the knowledge era.
• Hence, consistently effective organizations are
  those that
• Have superior strategies for managing and
  developing people
• Focus on both individual capability and
  organizational capability
• Have learned to measure people as assets as well
  as costs
• Are able to resist the short-run pressures that
  cause chronic under-investment in people
• The payoff is superior financial performance.

4
The agenda

• Measurement as a catalyst for change
• A research-based evaluation framework
• A quick, self-assessment tool
• Concluding thoughts

5
Measurement is a key part of the solution

• Human capital is measured, accounted, and
  reported as a cost
• This stacks the deck against investments in
  human capital, relative to all other forms of
  investment
• By developing evaluation frameworks that help
  executives manage people as an asset, the playing
  field is leveled

6
To create powerful measurement systems, we need
to

• TO
• Predictive, diagnostic (EVA)
• Development management
• Proactive
• Enhances accountability
• Strategic (macro) orientation
• Used for continuous improvement

• MOVE FROM
• Backward looking (ROI)
• Discrete training events
• Reactive
• Lacks credibility
• Tactical (micro) orientation
• Used for self-justification

7
Essential attributes of a measurement system

• Descriptive
• Credible
• Predictive
• Detailed
• Actionable
• Cost-effective

8
Measurementgetting from problem to solution

• The commonly used measurement methodologies--HR
  Scorecards, employee satisfaction surveys, ROI,
  balanced scorecard--do not possess the 6 key
  attributes
• The emerging best practice consists of combining
  the best of these methodologies.

9
A research-based evaluation framework
10
The 5 key ingredients that create resilient
organizations

• Our synthesis of the research points to 5
  attributes that distinguish highly effective
  organizations from their competitors
• Leadership Practices
• Workforce Optimization
• Knowledge Accessibility
• Learning Capacity
• Employee Engagement

11
The HCC Scorecard--research based measurement
12
Defining these 5 key attributes, Part 1

• Leadership Practices Managers and leaders
  communication, performance feedback, supervisory
  skills, demonstration of key organizational
  values, efforts and ability to instill confidence
• Learning Capacity The organizations overall
  ability to learn, change, innovate, and
  continually improve
• Knowledge Accessibility The extent of the
  organizations collaborativeness and it
  capacity for making knowledge and ideas widely
  available to employees.

13
Defining these 5 key attributes, Part 2

• 4. Workforce Optimization The organizations
  success in optimizing the performance of its
  workforce by establishing essential processes for
  getting work done, providing good working
  conditions, establishing accountability, and
  making good hiring choices.
• 5. Employee Engagement The organizations
  capacity to engage, retain, and optimize the
  value of its employees hinges on how well jobs
  are designed, how employees time is used, and
  the commitment that is shown to employees.

14
Example 1A global manufacturing firm
Sales are better in the sales offices that score
higher on these 5 key attributes
15
Example 2A consortium of 17 large banks
Institutions with the greatest commitment to
human capital subsequently enjoy the greatest
financial rewards
16
Example 3A rapidly growing school district
Student achievement is higher in schools that
score higher on these 5 key attributes
17
Implications

• By focusing on--and measuring--these 5 key
  attributes, these organizations are able to
• Link human capital to their business results
• Pin point with considerable precision the
  specific aspects of the work and learning
  environment that drive business resultsboth for
  good and bad
• Create road maps for the human agendathe
  development and management of peoplethat will
  have the biggest impact on their business
• Shift their focus from cost cutting to value
  creation
• Become stronger organizations and better places
  to work

18
A quick self-assessment of your organization
19
Questions to discuss

• Why is this particular index your greatest
  strength or weakness?
• How do you perceive this strength or weakness
  impacts your organizations performance?
• Is this index a high or low priority for
  additional focus and resources?
• What would it take to convince your executive
  team to invest resources to improve this index?

20
Concluding thoughts

• In high-wage, developed nations, sustainable
  profits can only be achieved by honoring the key
  requirement of the knowledge eraa relentless
  focus on superior human capital management
• Better measurement serves as a catalyst for
• Expanding the focus from people as costs to
  assets
• Immunizing organizations against a pervasive
  tendency to under-invest in people
• Supporting executives in consistently choosing
  high road strategies
• Generating prioritized, fact-based
  recommendations for driving business results
• Sustainable profits