Serge Ceurvels, Director
Business Review, October 2006
There isn’t a CEO in Luxembourg who would not agree that, “Our people are our best asset,” or, “we are only as good as our people.” However, these same CEOs also believe that, “You can only manage what you can measure.” But is it actually possible to measure the value human capital brings to a company? The answer is most definitely yes, but surprisingly, linking the measuring and monitoring of the human capital components of a company is not yet common business practice.
Monitoring indicators to improve reporting
The aims of monitoring key indicators and improving a company’s human capital reporting abilities are multiple: to monitor the human capital return on investment (ROI) and performance, improve reporting to management and shareholders, as well as to financial analysts, answer to local or European regulators, etc. Some integrated solutions have been developed to reinforce the behavior needed to realize corporate strategy by connecting, measuring, benchmarking and actively steering HR…
Phase 1 - a roadmap
In the first phase, the major processes that allow the realization of the business strategy are mapped and the required human contribution required is defined for each of them. It is then possible to connect and align the HC (human capital) policy to all of these elements. The key contribution of the company’s human capital should also be identified through a detailed cause and effect analysis.
Phase 2 - define ratios
Having thus identified the key contribution of people, some ratios are defined to measure this contribution, which is linked to the business performance factor. Among these indicators are the Cost per Full Time Equivalent, absenteeism, employee turnover etc. and the human capital ROI (= the return for each euro invested in salaries).
Phase 3 - benchmarks measurements
Since measuring is fine, but measuring and comparing is much better, the measurements are then compared with international benchmark data. For example with the Saratoga database, which includes more than 10,000 European organisations. This benchmark allows the company to compare itself with similar organization, in terms of size, sector or staff employed.
Phase 4 – piloting
Last but not least, the fourth phase consists of actively steering the HC policies of the company with tailored measures to positively influence the financial results of the company. By combining these four phases, the added value of HR to a company is defined, measured and proven.
Proof of HR’s value
Heads of human capital management are expected more and more to act as strategic business partners and need to actively contribute to organizational performance and profitability. Objectively measuring and piloting the contribution of HC in a company has become an absolute must. In this way the value of HC is proven and the visibility of HR management is raised.
