Human resources departments have become quite good at gathering data and identifying trends. They track number of absences, retention rates, engagement scores and number of training hours, among others.
“What they’ve been less successful in doing is really translating that information and data into real organizational insight which is linked to business outcomes which is going to have value to the external investment community,” said Angela Baron, advisor of organization development for the U.K.-based Chartered Institute of Personnel and Development (CIPD).
To tackle this disconnect, CIPD – a European HR organization with more than 135,000 members – conducted two studies to understand how organizations generate data and use measurement to inform decision making. The first study in 2007 compared what HR departments are providing with what members of the investment community value. Typically, analysts were interested in the direct succession plan to the CEO in case of an emergency of financial risk due to pension funding obligations, for example.
Given the impacts of the recession on workforce engagement and productivity, CIPD researchers decided to tackle the question again in 2010, releasing their latest report – “Human Capital Reporting: What Information Counts in the City?” – this month. Researchers noticed a significant difference this time. While it’s not quite a hunger, there is a growing appetite for human capital information, with a caveat.
“What the investment community is telling us that they want is information to make comparisons about organizations, but they also want information that is explained in context,” Baron said.
It’s not enough to report skills shortages, the amount of money spent on training or the number of job candidates in the pipeline. What investors are looking for is credible explanation and analysis in narrative.
“What they’re looking for is information which is related to business outcomes,” Baron said. “A lot of the information they’re given is not actually measuring business outcomes. It’s measuring the drivers of business outcomes.”
Rather than being a measure of the organization’s performance, much human capital data measures things that may – or may not – drive future performance. Investors are interested in business outcomes, and the kind of human capital data required is more sophisticated and complex, such as measures of organizational capability, readiness and ability to cope with change in social and economic environments.
“The guidance for organizations is all of this information you’ve got is helpful, but it needs to be transformed into real insight and related to those business outcomes,” Baron said.
Most talent managers wouldn’t argue the importance of showing the relationship between talent and business outcomes. Where they often struggle is how to make the connection between what they measure and those outcomes.
Baron recommended putting together a risk assessment framework to link human capital data to significant challenges facing the business. Talent managers can define and quantify the business risk associated with a skill shortage in the workforce, for example. This kind of tool mixes metrics with narrative to explain what human capital data means in context.
“What everybody seems to be saying is that is the area where the investment community and the organization themselves were actually quite comfortable is looking at the implications of risk for some of these things,” Baron said of CIPD’s findings.
Baron said there’s a potential to create additional tools that collect, contextualize and disseminate information about how organizations access and develop talent, ensure performance and translate talent assets into organizational capital through products and services that drive business.
It remains an uphill struggle, though. Investors need to be educated on the value of human capital information to organizational performance, and organizations need to be educated on the value of providing this information to investors. Many hesitate because they view proprietary human capital information as the source of their competitive advantage. It takes a forward-thinking, proactive organization to put this information out there, Baron said. There remains room for growth.
“Unless there’s a real impetus for people to do this, they probably won’t,” Baron said. “So you’ll always have a situation where decisions are being made on the basis of less-than-perfect knowledge because they’re accessing the information that is there rather than the information that they really need to make a proper decision.”
by Mike Prokopeak | Talent Management
[About the Author: Mike Prokopeak is editorial director for Talent Management magazine.]
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