Human Capital Measurement and Performance

I've mentioned that we are doing some work, sponsored by the Scottish Government and the ESRC, on measuring the impact of human capital investment in the public services. One of the most useful pieces of research that we'll draw on is the Institute of Employment Studies (IES) report 'Human Capital Measurement: Approaches, issues and case studies', Report 454. This report, written by Dilys Robinson, Hulya Hooker and Mary Mercer, has only just been published in July 2008.

The report stemmed from a series of workshops with IES network members, some of whom were relatively advanced in linking their human capital measures to performance, including the Royal Bank of Scotland (RBS), Standard Chartered Bank, Civil Aviation Authority (CAA), Centrica, the Royal Navy, the MoD, two local authorities (East Sussex and Haringey Councils) and Medway NHS Foundation Trust.

It comprises a well-written review of some of the academic literature on human capital and a summary of the good consulting work in this field. However, the report's real strengths lie in the short case illustrations of how the above organizations have developed and used human capital measures and in the approach they used to producing their findings, which was very much in the action research mode.

Some of the key findings were as follows:

Few of the participating organizations used the term 'human capital', which was poorly understood, sometimes meaningless and sometimes offensive to managers.

Although there was some consensus over basic measures, there was no 'one-size-fits-all' approach or framework. Context mattered: while each organization felt they could learn from others, their was little possibility of developing a standard set of measures. This was most obvious in the differences between the private and public sectors, with the latter having to concern themselves with more intangible measures and more diverse stakeholders.

A 'workable' approach emerged during the course of the research workshops, fitting the needs of a majority of participants. This was the CAA's approach of asking a series a searching questions on what they wanted to know (e.g. are we retaining key employees?) and attaching a series of measures to each question, forming a four stage hierarchy - basic underpinning employee data, operational measures (e.g recruitment costs, training days), outcome measures (employee turnover) and 'strategic' measures, where the links were made between, say, absence and engagement. On this last series of measures, much more work was needed. We would suggest that this was particulalry true of the public sector, where intangible issues such as public value come into play.

In the cases, there is quite of bit of evidence of correlational work, though much less in the field of predictive measurement, which is our goal for the Scottish Government research. The most notable exception is RBS's well publicised and researched integrated human capital system.

In summary, this report is well worth the £18 investment for any practitioner or researcher. It is another example of good research/knowledge into practice from the IES, an organizations with which we are beginning to do a little bit of work . This starts with a 1-day conference on employer branding in Glasgow on November 4th, but more of this in a future post!