What gets measured, gets managed; but how about human capital?
Everyone admits that human capital is their main source of value creation and competitive advantage, but few have a process in place to accurately measure human capital costs and optimize talent performance. To answer this question, our team created a repeatable framework to quantify, categorize, and report HR information, similar to what Finance accomplished with bookkeeping.
Take Broadtek (pseudonym) as an example. Broadtek is a leading telecommunications company with the most experiences in their region. Over the years, their management stuck to their focus on creating long-term values and worked tirelessly to steadily grow their revenue one quarter after another. They even received numerous awards and accolades along with gaining a reputation for innovation and exceptional service. But success doesn’t last forever and the market took a turn for the worse.
Despite their impressive success, increased competition, market saturation, and a shift in consumer preferences created a strong demand for a higher data usage plan. Broadtek’s competitors expanded quickly to take full advantage of this opportunity and effectively grab new market share. Facing pressures from their board of directors, Broadtek’s management team was asked to restructure and reduce workforce costs to compete more effectively.
Understanding that human capital is their main competitive advantage, Broadtek’s management team sought a framework that could quantify the dollar value of human capital talent, formulate a business strategy, and present the findings to the board of directors in an easy to understand report. Broadtek chose HCMI’s Human Capital Financial Statements (HCFS).
What is the HR equivalent of Financial Statements?
Like the traditional financial statements, our human capital equivalent includes a collection of three statements that capture all aspects of the talent management lifecycle:
Talent Asset Statement: totals the dollar value contributed by the workforce in terms of job categories and critical job roles
Talent Flow Statement: captures the movement of talent across the organization
Talent Income Statement: quantifies the impact of human capital on the organization’s revenue
The Forecasted Results
Using our human capital equivalent of financial statements, the Broadtek team documented the monetary return of their human capital investments and benchmarked against key competitors. As the management suspected, they were doing an excellence job of improving workforce productivity and measurable return at a significantly faster rate than competitors. A reduction in workforce headcount or costs, a highly disruptive process at this point, would negatively impact the gains in productivity.
With these clear reports in hand, Broadtek’s management team successfully defended their workforce strategy against the board’s recommendations and avoided a devastating round of cost-cutting layoffs. However, due to their hasty expansion, Broadtek’s competitors had to restructure a few years later, as was accurately forecasted by the HCFS tool.
Going beyond simple trending analysis and benchmarks of the workforce impact, Broadtek was able to gain even more market share from competitors with workforce strategies that included reallocating talent and controlling costs.
The Future of HR Reporting
Fast-forwarding to the present, our team has helped over 100 organizations implement the HCFS, the HR equivalent of financial statements. Furthermore, major standard setting and HR organizations such as CIPD and ISO are now advocating for our workforce productivity metrics. Not stopping there, a collective group of several of the largest U.S. institutional investors, Human Capital Management Coalition, are using portions of the HCFS to push leading corporations to better measure and manage their human capital.
If you are interested in creating your own HR equivalent of financial statements? We have additional resources for you:
Download: The Completed Broadtek Case Study