Linking human capital to business performance

Can Changes in Human Capital

Metrics explain Movements in

Organisations’ Value?

Linking Human Capital to Business Performance

Gail Sturgess – Workforce Architect / Human Capital Strategist

1 Linking Human Capital to Business Performance

How I Got Here

IT background– Business Analyst – Financial Systems

– Financial Modeller

But What about People?– There’s GOT to be a better way!


www.hcminst.com

What CEOs Want

Business Analytics

– Customer Intelligence

– Competitive Intelligence

– Workforce and Productivity

E-Commerce

Customer Experience

Business Reporting

Cloud Business Case

Business Process ImprovementSource: Gartner


What CEO’s Want

Workforce and Productivity

– North America – 8%

– APAC – 4%

– EMEA - <1%


Shocking Fact!

Linking Human Capital to Business Performance5

How Do You Know?


How do you Know?

How will you Know when you get there?

If you Can’t Quantify ...


The Truth ...


The Truth ...


HCMI Research

HCMI

– Better ways of measuring investments in Human Capital

– Transform Workforce data – Source of Value

Drives fact-based decision-making

Research

– Pepperdine University GSB

– Late 2012

– 16 year analysis period (1996 – 2011)

– Over 50000 companies included in the analysis

– 17 Variables Included

6 Human Capital Variables

– 12 of 13 industry sectors


Key Questions

Can Human Capital be valued and contribution

Quantified?

Can Return on Human Capital be definitively

Linked to Business Results?

Can Changes in Human Capital Metrics

PREDICT Company Performance?


Key Findings

Varies by Industry

• Average• 10% Human Capital

Metrics

• -.7% to 29% Share Price

Gain


Key Findings

Human Capital

Contributions are Clearly

Linked to Share Price

• Top 25%• HC Metrics – 51%

• Share Price – 4%

• Others

• HC Metrics - -52%

• Share Price - -1.1%


Share Price Performance

Finance and Insurance Sector

Key Findings

TCOW Superior than

FTE

– Revenue / FTE

– Profit / FTE

Return on Human

Capital Investment

(Return on HCI)

– Most Significant

– Across Sectors


Human Capital

Metrics

– 35% to 64% Share

Price Change

– 1% by Net Income

Human Capital

Metrics

– Show Different Picture

– “False” winners

– “False” losers

Three Key Human Capital Metrics

TCOW (Total Cost of Workforce)– ALL costs associated with the workforce

– Including HR

Return on Human Capital Investment (Return on

HCI)– Compares TCOW with NOP

– Shows expected return of R1 HC investment

– All other factors the same

Human Capital ROI Ratio (HC ROI Ratio)– Measures Ratio of Return on Revenue (net of TCOW) versus

TCOW

– Measure of expected return on R1 invested in Workforce


Traditional Financial Performance Metrics


New Productivity Insights


The Big Picture


The Biggest Winners / Losers


WinnersAdmin, Support & Waste Mgmt

Mining

Wholesale Trade

Transportation & Warehousing

Accommodation & Food Services

False Winners

Professional and Technical Services

Healthcare

Surprise Winners

Manufacturing

Utilities

Losers

Finance & Insurance

Arts & Entertainment

Observations and Insights

Low HC-intensive

– HC Costs are significant

– But not largest

– High Returns possible on small changes

High HC-intensive Service-driven

– Greatest potential to increase Productivity

– Without increasing HC costs

Increase Commodity Prices

– Drive gains in HC ROI Ratio

– Without large HC increase


Industry Focus

Finance and Insurance

Transportation and Warehousing


Finance & Insurance - Traditional


Finance & Insurance - New


Vive la Difference – Finance & Insurance


The Problem – Paying More for Less

Transportation & Warehousing - Traditional


Transportation & Warehousing - New


Vive la Difference – Transportation & Warehousing


What’s in it for ME?


Scope of HR Today


Personnel

• Control

• Compliance

• Administration

• Payroll

Service

• Recruitment

• Remuneration

• Talent Management

• Performance Appraisal

DecisionSupport

• Return on Investment

• Organisational Performance

Expense Generator of Capital

Questions


Do we have the right number of Employees?

What is the right Workforce Cost?

What is the Marginal Return of R1 invested in the Workforce?

What is the ROi on our training investment?

Where does our Best Talent come from?

What percent of our Workforce is customer-facing or revenue-generating?

Is the ROI on Human Capital higher than the ROI for other business capital?

What are the Leading Indicators of Employee Turnover?

Are Management effectively managing our Human Capital?

Are we loosing the right people, or the wrong people?

Is internal mobility a source of value creation or turnover and cost?

What percent of the Workforce has a Defined Career Path?

Where can an investment in training improve productivity and profitability?

What is the ACTUAL Cost of Turnover to our Business?

What is our optimal pay/performance mix?

Is Productivity increasing/decreasing/static?

The Amazing Race!


The Right Questions


Platform for Human Capital Management


A Final Thought


“Consider the discipline with which companies measure, manage, and grow

financial Capital. Now – think of how they manage Human Capital. The ‘most important asset’ is largely unmanaged.”

“The New Human Capital Strategy” Bradley W Hall


LinkedIn: za.linkedin.com/in/gailsturgess/Skype: gailsturgess

Twitter: @gailsturgessFacebook: http://facebook.com/Gail.L.Sturgess

083 654 6480Website: www.talentalign.comEmail: [email protected]: http://ithrguru.com

Gail Sturgess

http://za.linkedin.com/in/gailsturgess/



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