Jeff Higgins, CEO, Human Capital Management Institute (HCMI)
Why should organizations invest the time and money to quantify the value of their human capital investments and report on their performance? Why aren’t the existing public and private company reporting standards fully adequate?
To begin to answer this question, it is important to address the issue of what has fundamentally changed in the way work is done (i.e. technology, automation, internet) and how business value is created (i.e. innovation, intellectual property, etc).
From a standards and reporting perspective, Steven Hunt PhD. of SuccessFactors echoes the two thousand five-hundred-year-old Greek philosopher Heraclitus by saying “The only thing that is constant is change.” The rise of the computer, internet, big data, and other technological advances have forever changed the way organizations operate. This can be dramatically proven simply by listing the top five most valuable companies in the world today; Apple, Amazon, Alphabet (Google), Microsoft, Facebook, only one of whom existed 20 years ago and none existed 40 years ago.
Another example of continuous change is in the startup world’s thousands of emerging companies with exciting new innovative technology driving yet further change to how traditional services, products, transactions and processes are done. And yet, what has really changed when it comes to measuring and reporting, particularly external reporting of workforce and talent metrics?
Today, in a world driven by services, data and the internet, most would agree that finding, hiring, motivating and retaining top talent across the organization, has become more critical to success and difficult to achieve even as though the cost of tech workers continues to increase.
Yet, with today’s human capital reporting, we can’t answer the following important questions related to acquiring and managing that talent:
Is the human capital value growing, static, or declining?
Do leaders correlate to employee engagement, retention, and performance?
Which organizations are truly great at growing their own talent?
Is the return on human capital linked to business results?
The Starr Conspiracy’s 2015 report “Where is the Market (HCM) Headed” identified three major trends derived from rapid changes and advancement in technology yet are strangely not technology changes themselves. They are:
The Rise of Strategic Workforce Optimization
The Rise of the Total Workforce (contingent workforce)
The Rise of HCM for Small to Medium Sized Business
Simply put, here is why disclosure of human capital matters:
Companies need smart, effective employees to compete, so understanding and quantifying human capital is key to success and growth for all organizations.
CEOs often state “Our people are our most valuable asset and source of value creation”. Therefore, relevant information about any such move valuable asset or source of value creation be shared with investors and key stakeholders.
What gets measured gets managed. For most organizations, human capital is not well measured except as a cost. This suggests unbalanced reporting with only the cost side of the equation represented and the value-add investment side missing.
While arguments can be made that additional reporting adds compliance costs for organizations, for all of the reasons mentioned, how can organizations legitimately say they are disclosing all ‘material’ business information without providing adequate reporting about their ‘most valuable asset’.
Who can, in the end, argue with the validity of better information to measure, manage, and even predict workforce productivity and performance?
Jeff Higgins is the founder and CEO of the Human Capital Management Institute and creator of the Human Capital Financial Statements (HCF$™) reporting methodology. Jeff is an expert in human capital analytics and workforce planning with 30 years of experience. Jeff is both a former senior HR executive and former CFO and a regular speaker at HR events.
Jeff is a member of ISO HR Standards Technical Advisory Group (TAG) TC260, and is the lead US representative for ISO FDIS 30414 Standard for Human Capital Reporting as well as a Board member Center for Talent Reporting and a founding member of PwC Saratoga Institute advisory council.