November 2005
 

Human Capital and How We Measure It

By Belinda Weber, SPHR, GMA SHRM President

 What is human capital? According to a 2005 SHRM study, it is defined as the collective knowledge, skills and abilities of people that contribute to organizational performance. And its importance is increasing dramatically as the United States rapidly shifts to a knowledge-based economy. Competition, globalization, and the changing workforce are challenges being answered by smaller budgets, outsourcing, and a number of other practices that impact human capital. Increasingly, executives are also shifting their perceptions of human capital to one of an asset to be leveraged rather than a cost to be managed.

As a result, HR leaders are taking the guesswork out of the development of their strategies and utilizing metrics and benchmarking to support data-driven decisions affecting staffing, spending, outsourcing and more. They are also trying to align more closely with business strategy and performance outcomes. The first step in this effort is to show how human capital and HR activities link to, and support, the business strategy and outcomes.

To aid professionals in this endeavor there are a number of great resources outside of the traditional consulting firms that may be a good alternative for small to mid-size organizations that can’t justify the time or expense of a more customized approach. I want to briefly highlight three of them:

  • SHRM Human Capital Benchmarking Study
  • Watson Wyatt – Maximizing the Return on Your Human Capital Investment
  • BNA – HR Department Benchmarks and Analysis 2005-2006

 SHRM Human Capital Benchmarking Study
In 2004, a comprehensive study was conducted by the Society for Human Resource Management to collect data on expenses, hiring trends, compensation and healthcare options and costs from over 1500 HR organizations to provide statistical information on human capital dimensions. SHRM believes that with this type of information, HR professionals are in a better position to work with executives to support business strategies and demonstrate their value to the bottom-line.

In addition to this study, SHRM offers a customized human capital benchmarking service that allows you to customize the metrics report by industry, revenue, employee size, or other organizational segmentation factors. It is being offered at an introductory price that is extremely attractive, “less than the price of a job-board ad” according to their advertising. For more information on either of these services, contact www.shrm.or/research/benchmarks or call toll free 1-800-283-7476 ext. 6366.

Watson Wyatt – Maximizing the Return on Your Human Capital Investment
The Watson Wyatt Human Capital Index was first created in 1998 and demonstrated a clear relationship between HR practices and firm performance. The 2005 HCI report further confirms this relationship and goes on to state that “organizations with strong human capital practices create superior shareholder value. In other words, organizations can measure and maximize the value of their investment in employees.” The most recent study has some very valuable finds in regards to recruiting excellence, the value of employee development, benchmarking data on total rewards and turnover management, and HR excellence factors.

BNA – HR Department Benchmarks and Analysis 2005-2006
BNA is a respected source of HR information services and surveys, and by simply visiting their site, www.bna.com/special/hrpromo, you can download complimentary highlights of the 2005-2006 report and learn more about it. The full report is a comprehensive study of the HR function and current challenges and trends facing HR professionals. If you are an organization that is looking for some metrics and benchmarks, this report has them for over 60 core HR department activities.

If you are looking for a more personalized approach to understanding and developing human capital benchmarks, GMA SHRM, along with Saratoga-Price Waterhouse Coopers and Wipfli, LLP, is co-sponsoring a consortium of companies in a new project – The Human Capital Alliance. On Tuesday, September 13, over 70 HR executives from the GMA SHRM membership were invited to an overview of this HR measurement and scorecard based project. It is an opportunity for organizations within Dane County to collaboratively share best practices and metrics. The feedback from many of the executives that attended was encouraging and exciting. If you are interested in more information on this project, contact Daniel Loichinger at dloichinger@wipfli.com or call him directly at 608-270-2912.

Whatever your desired approach, it is clear that the industry trend is toward benchmarking because of the strategic focus and value it brings in identifying an organization’s human capital strengths and weaknesses, measuring the impacts of employee productivity, and analyzing overall corporate performance.



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