Measurement is key to maximising employee and business performance

Measuring the contribution that employees make to a business significantly improves management decision-making, according to a new guide by the Chartered Institute of Personnel and Development (CIPD) and Mercer Human Resource Consulting.

Evidence shows that when major business decisions fail to deliver the expected results, for example when making a take-over or restructuring a business, it is often due to poor people management. This is not because directors and managers are blind to the importance of people factors, but because businesses find the value and contribution of their people hard to identify, measure and record. Without this knowledge it is harder to make effective management decisions.

The guide to human capital reporting: An internal perspective, prepared by a working party of HR directors and experts in the field, is designed to provide practical support for organisations to help measure and increase the value of their human capital. It argues that HR professionals need to work in partnership with other senior managers and line managers to build robust systems for internal reporting on human capital (a pre-requisite to external reporting).

Recommendations from the Department of Trade and Industry and the new rules governing operating and financial reviews (OFRs) stress the importance of meaningful external reporting on people.

The guide provides practical case studies from leading organisations such as Royal Bank of Scotland, Nationwide and the RAC to show how the costs and the value of people can be better measured and managed. For example:

Nationwide is able to demonstrate powerful relationships between employee attitudes, customer service and financial performance.

At the RAC, the business boards regularly review six key measures on a people profit and loss statement, resulting in significant improvements in areas such as absenteeism and staff turnover.

Angela Baron, CIPD adviser on organisation and resourcing, said: People can add real value to your organisation, but tapping this value requires measurement and management. Too many organisations rely on anecdote and mythology to develop and adjust their people management strategies.

But in a fast-paced, knowledge-driven economy this will not deliver success. Competitive advantage and the highest standards of service and performance will be achieved by those businesses that have a genuine understanding of their people, are able to tap into their collective assets and motivate them to apply their abilities in the interest of the business.

Jim Matthewman, Worldwide Partner at Mercer and author of the guide, added: Managers equipped with information that helps them to understand what motivates people to perform well will be able to manage their employees more effectively.

The ability to communicate the contribution and value of people to key stakeholders is critical to understanding the true worth of an organisation.

According to the guide, there are three core principles behind effective human capital management:

- A systematic and holistic approach - To ensure the business strategy and the policies and strategies for managing human capital are aligned, rather than operating independently. At Asda, the business strategy is summarised as making the business a great place to work, which makes it a great place to shop and a great place for investors and profits. The company regularly collates and reviews a wide range of human capital measures.

- Getting the right information - Too many businesses rely on fiction rather than facts to make decisions. The guide quotes the example of an organisation that believed it was paying for performance, but evidence showed that pay was only really correlated with length of service. Another company believed most of its top talent was íhome growní, but data showed a large proportion of senior managers were hired externally.

- Focusing on value - Making a concerted effort to reverse the tendency for line managers and executives to view their human capital as a cost to be minimised rather than a value-generating asset. Spending money on training is a classic example, as it shows up only as a cost on the profit and loss account, but can create a major improvement in employee and corporate performance.