How much does your organisation spend on your human capital strategy and what are the benefits it is returning? If you don’t know, take a look at this because, as they say, if you don’t know the numbers, you’re not in the game.
Having an effective human capital strategy is different to workforce and strategic planning; it requires differentiation in the workforce, by identifying roles critical to the success of the organisation. Human capital is an intangible but critical asset in any organisation and it requires concepts, strategies, measures and models to align it with the organisation’s missions, goals, objectives, planning, management and investment to bring it to life.
The Cost of Human Capital Investment
Human capital and intellectual property can account for up to 80% of business costs and measurement of this investment is often considered a missing link in many organisations. Add to this the cost of training and HR management and human capital makes up a significant portion of a business’ total investment. The good news is that your investment in human capital can be measured.
One way of doing this is by tracking key employees. Research indicates that the flow of key employees in and out of a company is a strong indicator of change. To understand its impact we need to look at the role of employees within an organisation, past their benefits and salaries and what their contribution to organisational culture, operations and organisational structure is. Let’s put it into a working example and assume that the employees with critical talent occupy the top 25% of performers. This would mean that those employees were also receiving the top 25% in terms of compensation increases, which is the organisation’s investment. The organisation thus needs to ensure it prioritises retaining this group of employees because of its sizeable investment when creating its human capital strategy. If we want to put it into a quantifiable measurement we could say the ROI on talent retention = 1 – (the attrition rate of your critical talent or your workforce as a whole). In so doing we can invest in human capital strategy and results in a more targeted way.
Human Capital Strategy Metric “Musts”
To be able to provide your organisation with optimal value, your human capital metrics must…
… be able to measure the entire investment, including employee costs, costs for employee support, and costs in lieu of employees
… make use of auditable, standard data sourced from the organisation’s financial system
… ensure data is measured and defined in a consistent manner
… produce measures, limited in number but supported by diagnostic tiers of detail
… provide answers to strategic questions regarding what drives business results
… provide a clear line of sight between business performance and human capital performance
… make use of simple, straightforward methods that can’t be gamed