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Human Capital Metrics and Analytics Assessing The Evidence - tcm18 22291 PDF
Human Capital Metrics and Analytics Assessing The Evidence - tcm18 22291 PDF
Technical report
May 2017
Contents
Foreword............................................................................................................................... 1
Executive summary ............................................................................................................... 3
Introduction ........................................................................................................................... 5
1 Definitions of capitals relevant to human capital metrics ................................................... 6
2 Human capital measures, metrics and definitions: what does the HR literature tell us?..... 9
3 Standards and regulation: formalising human capital measurement .................................20
Conclusion ...........................................................................................................................26
Limitations............................................................................................................................27
References ..........................................................................................................................28
Appendix 1: Examples of HC metrics ...................................................................................37
Appendix 2: Summary of case studies .................................................................................47
Appendix 3: Methods for conducting the literature review ....................................................60
Acknowledgements
We would like to thank the team who developed and conducted this research at the
University of Leeds and Loughborough University. This report was written by Professor Andy
Charlwood and Professor Mark Stuart at Leeds University Business School, and Dr Clive
Trusson at Loughborough University School of Business and Economics.
1
Foreword
As the professional body for HR and people management, the CIPD has a role and
responsibility in building the capability of HR professionals to understand the workforce, and
importantly to provide evidence of the value and contribution of people in modern
organisations. While still relatively adolescent, HR analytics and reporting (and the many
pseudonyms the practice goes by) are fundamental to the success of the profession as it
looks to become influential in helping the leadership of organisations to make more effective
decisions. Without a capable and evidence-based function, the quality of HR and business
decisions that impact on the workforce may come into question.
This technical report examines current HR analytics practice through the lens of published
academic literature, and forms an important part of the evidence base for the HR profession.
Complementing this report is an additional assessment of human capital theory, which
considers the academic perspective on the value of the workforce, and how organisations
report people data (McCracken et al 2017). These technical assessments form part of the
academic evidence for the HR profession, the implications and synthesis of which forms part
of the CIPD discussion report Human capital analytics and reporting: exploring theory and
evidence (Houghton 2017).
As the profession moves towards utilising evidence in its different forms, and builds its
capability in appreciating the value and implications of data in modern business, it is
important that a clearly articulated evidence base can be accessed and utilised by HR
professionals of all seniorities and capabilities. This report represents a crucial step towards
better understanding of the quality of evidence for the value and contribution of human
capital metrics, and the data which describes the very nature of the workforce.
Edward Houghton
2
Executive summary
How does academic literature report on the theory and practice of using HR data
and/or human capital analytics?
What is the role of standards and regulation in guiding the use of human capital
metrics?
How do academically published case studies describe human capital analytics in
practice?
Summary of findings
The widespread use of human resource information systems and enterprise resource
planning software, alongside the increasing ubiquity of employee attitudes surveys, means
that there are ever increasing volumes of human capital (HC) related data being generated
by organisations. As a concept and language, human capital has also become established
within organisational discourse. Organisations view their employees as a human resource to
be invested in. In an organisational context, human capital is typically defined as the value-
creating knowledge, skills, abilities and other characteristics of workers (KSAOs).
This report is based on a literature review that sought to identify theory and evidence on the
use of HC metrics by organisations located in academic research and grey literature. A large
number (more than 600) different HC metrics are described in the literature. Although there
have been some attempts to standardise metrics so that the HR profession can become
familiar with a common core there is no widely recognised standard.
Theory and evidence on the use of HC metrics also suggest such standardisation may be
undesirable; what is important, if HC metrics are to add value, is for organisations to develop
their own metrics to help answer the mission-critical challenges and opportunities they face.
One common use of HC metrics is in workforce scorecards, where strategic analysis has
been undertaken to identify metrics that are critical to performance. Red/amber/green (RAG)
rated scorecards are then used to monitor and manage these key metrics. HC metrics are
also used to provide descriptions of workforce and workforce characteristics, to evaluate the
efficiency of HR processes, and to gauge the contribution of human capital to organisational
performance. There is little demand for or appreciation of HC metrics from investment
analysts. Consequently, attempts to embed a standardised approach to human capital
reporting within company reports to shareholders have achieved only limited progress.
Attempts to use HC metrics to capture the economic value of human capital to firms, for
example by calculating the return on investment (ROI) on human capital investments, have
met with only limited success. It is difficult to get consensus on the assumptions on which
ROI analysis should be grounded because it is difficult to measure or predict how workers
3
will respond to investments in their human capital. Soft metrics seek to measure worker
attitudes, behaviour and competencies. However, soft metrics are often problematic.
For example, data gathered through appraisal is subject to a number of biases on the part of
managers who collect it, which means that unless a lot of care is taken over collection, the
data will have little value.
The report identifies 56 case studies which report on the use of HC metrics and analytics by
organisations. However, most of these case studies can be seen as promoting or
disseminating an idea or approach rather than providing rigorous evidence on the causes
and effectiveness of use of HC metrics and analytics. Survey evidence suggests that the
diffusion of HC metrics and analytics through organisations has been slow, and that
problems of integrating data from different data sources, getting agreement to share data
within organisations and overcoming problems with data governance have contributed to the
lack of progress. There is a lack of high-quality survey evidence on the HC metrics being
used by organisations and the purposes for which HC metrics are being used. There is also
a lack of high-quality qualitative case study evidence that seeks to understand the praxis of
adopting HC metrics and analytics.
Finally, the existing literature gives only cursory consideration to the ethical consequences of
the metrification of human resource management. There is evidence that HC metrics and
analytics can be used to make work both radically worse and considerably better for
employees. It is in all of our interests to better understand how HC metrics and analytics can
contribute to raising rather than lowering job quality.
4
Introduction
Discussion of human capital (HC) measures and metrics has increased in HR circles for four
key reasons:
1 The use of measures around workforce morale and motivation have become
commonplace as a result of the commercialisation of tools that measure employee
morale and motivation (often described as employee engagement surveys), with
commercial organisations that provide these surveys making the case that they are
leading indicators of organisational performance (Harter et al 2002, 2006).
2 The widespread adoption of human resource information systems (HRIS) to
automate key HR processes and activities to cut costs and boost efficiency has
created large amounts of data with which to measure the effectiveness of those
processes and activities (Angrave et al 2016, Parry 2011).
3 Related to this, a large number of other business processes have also been
automated or are now routinely tracked by information systems. Enterprise resource
planning software provides a means of integrating and analysing these data to
facilitate more data-driven decision-making. Other areas of management (operations,
finance, marketing) which have a longer history of engagement with data, analytics
and decision tools have moved quickly to exploit these developments. The
traditionally less numbers-driven HR profession has been left behind. Arguably the
HR profession will need to do more to engage with measures and analytics if it wants
to maintain credibility and strategic influence in the C-suite (Angrave et al 2016,
Rasmussen and Ulrich 2015).
4 Finally, new normative theories of management posit that measures of workforce
morale and motivation, human capital and other business processes and operations
can be combined to deliver a new, data-driven approach to strategic management
which will allow organisations that implement these ideas to gain sustainable
competitive advantage (for example Boudreau and Jesuthasan 2011, Cascio and
Boudreau 2011, Huus 2015, Boudreau and Ramstad 2007, Sesil 2014, Hoffman et al
2012).
This report is a technical assessment of published academic literature which details the
value and impact of human capital metrics and analytics. The report looks to consider three
main questions:
How does academic literature report on the theory and practice of using HR data
and/or human capital analytics?
What is the role of standards and regulation in guiding the use of human capital
metrics?
How do academically published case studies describe human capital analytics in
practice?
The report begins by offering an overview of the foundational concepts of human and social
capital that provide the intellectual underpinnings from measurement, commonly described
in practice as human capital metrics (HC metrics) or HR metrics. It then examines theory
and definitions of HC metrics in practice and reviews the evidence on their implementation
by organisations, before considering the theory and evidence for the standardisation of HC
metrics. The report concludes by recommending ways by which research may inform the
development of the HC metrics body of knowledge.
5
1 Definitions of capitals relevant to
human capital metrics
To understand human capital metrics theory and practice, it is important to appreciate how
human capital is conceptualised with regards to management, strategy and human
resources management. In this chapter the relevant theories of human and social capital are
discussed.
Human capital
Human capital has been defined as the knowledge that individuals acquire during their life
and use to produce goods, services or ideas in market or non-market circumstances (OECD
1996, p22). The term was popularised by Gary Becker, who developed economic theory to
explain how investments in human capital (schooling and work-related training and learning)
contribute to the productivity of individual workers, and by extension the marginal
productivity of firms that employ them. The marginal productivity of firms then determines the
wage structure, which influences the incentives that firms and workers have to invest in
developing workers human capital (Becker 1975). Despite the widespread use and appeal
of Beckers conception of human capital, his approach has been criticised for being overly
reductionist. According to critics, it reduces workers to a commodity defined by their marginal
productivity, by extension denying or ignoring their agency. It also reduces society to a
system of economic production, ignoring that societies are also systems for social
reproduction with power structures and inequalities that the powerful and wealthy seek to
reproduce at the expense of those without power or wealth (Bowles and Gintis 1975). From
the perspective of human capital metrics in organisational practice, Beckers methodological
individualism means that firms are treated as a black box, because Becker largely ignores
the way that social context shapes the development of social capital within a firm. This is
limiting if we want to use Beckers ideas as a conceptual underpinning for studying HC
metrics in practice, because they have very little to say about the causal relationships within
organisations (the very thing that organisations are seeking to use HC metrics to
understand).
Nevertheless, the idea of human capital has crossed over into popular management
discourse. Organisations conceive of their workers as human capital, who they invest in
while seeking to maximise the returns on their investments. For example, the utilities
company SSE produces a Human Capital Report, which defines human capital thus: The
human capital of a company is the sum of the current and future economic valuation of
the skills and capabilities embodied within all the individuals that make up the total workforce
of the organisation (SSE 2015). Consequently, management theorists have sought to
develop ideas that facilitate the study of human capital within the black box of the
organisation. In an organisational context, human capital is taken to mean value-creating
skills, competencies, talents and abilities of the workforce (Elias and Scarborough 2002,
2004), which is increasingly abbreviated to knowledge, skills, abilities and other
characteristics (KSAOs). One recent review article has argued that, in an organisational
context, human capital should be referred to as human capital resources to differentiate
organisational human capital (which is the value-creating agglomeration of the KSAOs of
many workers) from individual-level human capital of workers studied by labour economists
(Ployhart et al 2013). A number of recent books have sought to theorise and explain how the
6
contribution of human capital to organisational performance can be measured and modelled
through the development of HR analytics programmes (Boudreau and Ramstad 2007,
Hoffman et al 2012, Huselid et al 2005, Huus, 2015, Lawler et al 2004).
Social capital
French sociologist Pierre Bourdieu was one of the foremost critics of Beckers approach to
human capital. For Bourdieu capital takes many different forms: social, cultural, economic,
symbolic. Possession of different forms of capital then determines the location of an agent
(which could be an individual worker or a firm) within a social field. The social field is a field
of power in that different agents seek to advance their interests using their capitals to do so.
Bourdieu therefore used the notion of capitals in a different way from Becker. While Becker
conceives of human capital as a property of the individual which affects economic outcomes,
Bourdieu sees capitals as products of a social system which become attached to individuals
or organisations, which then have a role in reproducing that social system over time. In this
context Bourdieu defines the social capital of organisations as the totality of resources
(financial capital and also information etc.) activated through a more or less extended, more
or less mobilizable network of relations which procures a competitive advantage by providing
higher returns on investment (Bourdieu 2005, p195).
A number of American social scientists (Buchanan 1986, Coleman 1988, Putnam 1995) also
popularised the term at around the same time as Bourdieu, but conceptualised it differently.
Social capital is seen as a key determinant of human capital formation, a property of a
community or neighbourhood and the individuals within it, which shapes the human capital
that individuals are able to acquire. Putnam sought to explain the term through the use of
popular phrases such as birds of a feather flock together and its not what you know, its
who you know. Both Buchanans and Putnams analysis was grounded in a nostalgic
concern that the dense networks of social capital that had defined American society since
the nineteenth century (de Tocqueville 2000) were being eroded, with significant economic
and social consequences, particularly for poorer Americans. Management research into the
role of social capital in value-creation within organisations has drawn on ideas from network
theory (Granovetter 1973), studying the nature and content of social ties between individuals
within and around organisations and the ways in which these ties lead to outcomes such as
innovation and sales (Adler and Kwon 2002).
Note that while Bourdieus conception of social capital is conceived as part of a wider
critique of Beckers approach, there is no such tension between the way that Buchanan,
Coleman and Putnam use the term; indeed, the latter version of social capital can be seen
as a complement to Beckers approach. It is not then that there are inherent tensions
between ideas of human and social capital, but between social scientists who conceive of
human and social capital in individualistic terms and who are interested in how it contributes
to economic outcomes (Becker, Coleman) and those, typically working in a Marxian tradition,
who reject methodological individualism and stress instead the importance of studying a
social and economic system in its entirety, including the study of social reproduction
alongside the study of economic production (Bowles and Gintis, Bourdieu). Empirical
management scholars interested in studying the role of social capital in value-creation have
implicitly accepted the critique of Beckers methodological individualism by grounding their
research in network theory.
7
Other capitals in an organisational context
A recurring critique of the ideas of social and human capital from management scholars is
that the terms are too broad to be useful in empirical research, so more precise definitions of
the value-creating components of social and human capital should be developed and
utilised. This has led to the use of terms such as KSAOs and also of attempts to identify and
define other intangible forms of organisational capital. These include intellectual capital (IC)
the use of knowledge and skills by workers to create value (Swart 2006) and knowledge
capital, which Hoffman et al (2012, p139) conceive as comprising organisational knowledge,
best practices and proprietary methodologies.
8
2 Human capital measures, metrics and
definitions: what does the HR literature
tell us?
The purpose of this section is to summarise key literature on the theory and practice of HC
measures and metrics. This section first describes some of the metrics and their uses. We
find a large number of metrics have been put forward, but there is no consensus on which
metrics should be considered the most important. Therefore, we then present and evaluate
different theoretical approaches for using metrics, before presenting a review of the evidence
on how metrics are being used in practice. A detailed account of the methods used to
conduct this review of the evidence is shown in Appendix 3.
d) Total amount
invested in
training and
development
e) Total
headcount and
total full-time
equivalent (FTE)
headcount
Source: Bassi et al (2015, p75)
9
Metrics cover five key areas: spending on human capital; ability to retain talent; leadership
depth; leadership quality; and employee engagement. These metrics suggest a number of
different purposes. Spending on human capital covers essentially descriptive metrics that
can be used for tracking labour costs over time or in comparison with industry benchmarks.
Ability to retain talent and leadership depth both measure the sustainability of human capital,
so can be used to assess the long-term viability and sustainability of an organisation.
Leadership quality and employee engagement measures allow assessments of key
employee attitudes that are widely held to be predictive of behaviour that contributes to
organisational performance (for example Harter et al 2002). However, these metrics
constitute barely a fraction of those that have been described in the literature. For example,
the Human Capital Metrics Handbook (HCMI 2013) provides descriptions of over 600
different human capital measures. It is clearly not practical to describe all of these measures
here (and to do so would simply reproduce the handbook). Instead, we provide a broad
overview of the questions and issues that measures are being used to address, while
Appendix 1 includes a table containing an extensive set of HC measures as they relate to
different areas of HR activity.
Data quality is a key issue for this type of HC measure. Data quality depends on data
governance: the protocols put in place to ensure that accurate data is recorded in a timely
fashion and the processes for regular checking and monitoring to ensure that these
protocols are followed. Reports from the practitioners (for example, CAHRS 2014a, 2014b)
suggest that establishing good data governance is hard, and can be a major impediment to
the adoption of metrics-based approaches to HR.
10
Measures of efficiency and effectiveness
HC measures may also capture the efficiency or effectiveness of different people processes
and activities. Note that in this context there may be important differences between efficiency
and effectiveness. Measures of efficiency relate to the efficiency of HR processes and
activities. For example, cost of recruitment per new recruit measures the efficiency of the
recruitment process. By contrast, measures such as new-hire failure rate or percentage of
new hires who become high-performers within 12 months are measures of the effectiveness
of recruitment and selection. Huus (2015) makes the case that measures of efficiency are
conceptually different from measures of effectiveness. She conceptualises efficiency
measures as HR statistics and argues that they belong in the same class of measures as
basic descriptive data on the workforce, providing measures of how efficiently the HR
function services the organisation. Huus sees effectiveness measures as human capital
metrics, more broadly focused on all people-related decisions and results. A similar
distinction is invoked by Mark Huselid and his colleagues in their work on applying a
scorecard approach to HC metrics (Huselid et al 2005). They differentiate between HR
scorecards, which include key measures of HR activity that are critical to the business, and
workforce scorecards, which are based on broader measures of human capital. Despite the
conceptual distinction drawn between measure of efficiency and effectiveness, some HC
measures may relate to both concepts. For example, a measure such as time to recruit is a
measure of HR efficiency, but it also represents information about the effectiveness of
recruitment processes. If time to recruit starts to increase, it may have a detrimental effect on
organisational performance, because key posts remain unfilled.
Recent research suggests that the use of this sort of soft HC metric can be problematic.
Measures of one type of soft measure, for example engagement, are typically based on well-
designed and carefully validated scales developed by occupational psychologists. Despite
this, gaps may open up between scientific and lay understandings of what such measures
mean. Further, these gaps and misunderstandings may actually reflect the way that these
measures are promoted by the companies that conduct the surveys. To take the example of
employee engagement, psychologists see engagement as a psychological state that is at
least in part a property of the individual (for example, Schaufeli et al 2002). However,
popular engagement tools, such as the Gallup 12 (Harter et al 2006), do not measure
engagement as a psychological state, but focus on subjective measures of aspects of work
that are held to be antecedents of engagement. The extent to which individuals responses
reflect individual psychological dispositions to be engaged compared with actual objective
working conditions are unclear (Guest 2014), but the interpretation of these scores often
rests on the assumption that they accurately measure objective working conditions. This
means that in psychological terms, engagement should be a measure of psychological state.
Managers may also believe that this is what engagement measures, but commonly used
11
engagement measures are actually measuring subjective perceptions of aspects of working
conditions. Reports from companies that provide engagement surveys typically suggest
taking action to improve aspects of working conditions in order to boost engagement, but the
subjective perceptions of working conditions captured in engagement surveys may reflect
values and psychological processes unrelated to objective working conditions, so actions
may not be effective. Despite this, engagement and other similar HC measures are
considered to be useful because, even if it is not clear if engagement causes performance,
engagement scores provide management with leading indicators of organisational
performance (Harter et al 2002, 2006).
Subjective measures of worker performance and competencies, which form the basis of
many measures of efficiency or effectiveness (for example, a measure such as percentage
of new hires who become high-performers within 12 months may be based on subjective
appraisals of performance) are also problematic from a data quality perspective. There is a
very strong body of evidence to show that a lot of variation in these measures is driven by
idiosyncratic rater effects rather than real differences in competencies, behaviour or
performance (Buckingham and Goodall 2015). In other words, managers who provide
ratings of performance for the workers they manage have quite different ways of interpreting
and implementing performance criteria, with the result that the final score awarded to the
worker probably tells us more about their managers approach to grading performance and
the psychological biases underpinning their approaches than it does about how that workers
performance compares with the performance of workers assessed by different managers.
This suggests that in situations where organisations make use of this sort of judgement-
based HC metric, careful consideration needs to be given to issues of:
training (to try to promote consistency of approach and to allow raters to understand
their own biases)
management of line managers who perform the assessments (to ensure they are
doing it to standard)
validation (for example, by having performance assessed by more than one
assessor; comparing and contrasting results of subjective assessments with data on
objective performance outcomes)
analysis (interpreting results in the light of statistical analysis that accounts for
variation due to rater idiosyncrasies).
Bock (2015) provides an interesting discussion of the extensive measures taken by Google
to try to reduce the impact of rater bias.
12
The problem with these types of metrics is that they are rather crude. To take a measure
such as human economic value added (HEVA), this only shows the average amount of
economic value added per employee. It says nothing about how human capital has
contributed to the creation of economic value. Therefore, as a measure, it provides no
guidance as to the action that could be taken to enhance value (Froud et al 2000). If
Company A has higher HEVA than Company B, we dont know why this is, or even whether
the difference relates to differences in human capital compared with differences in other
intangible assets.
Human capital accounting metrics are also very sensitive to the assumptions used to
generate them. ROI is used as a tool for making investment decisions. It is therefore
necessary to assign a probable change in future income to a project seeking investment, for
example the value of extra sales generated by a new training initiative. The projected ROI
will therefore depend on at best an educated guess, at worst a shot in the dark. The
assumptions used to generate ROI are probably more important to decision-making than the
final ROI number: are they credible or do they depend on an element of wishful thinking? Is it
realistic to decide whether the assumptions are credible or not, or is there simply too little
information to know (Levenson 2005)? Of course, there are situations where ROI might
prove useful, for example if retrospectively calculated on a pilot project to decide whether to
expand the project or not, but even here it cannot necessarily be assumed that the pay-offs
to a pilot project will be directly comparable with a larger-scale rollout because more care
and effort may have been put into making the pilot project work.
13
EBITDA = earnings before interest,
taxes, depreciation and amortisation
Human Market value book value / FTEs Measures relationship between
capital market value and replacement
market value. In one sense, a market view
value of intangible assets. Difficult to
(Tobins Q) identify how much of this is down to
human capital compared with other
intangibles.
Return on (Revenue generated costs of Measure of profit or return on any
investment programme) / costs of programme HR programme
of human
capital
initiatives
formula (for
example
training)
Source: Fitz-Enz (2009).
Further, there may be a wide range of impacts from people management initiatives (changes
to teamwork, innovation, cycle time, customer satisfaction, learning and knowledge
management) which are difficult to predict or measure accurately. This means that there is a
significant trade-off between time to calculate ROI and the level of precision of the
calculation. The time and effort needed to undertake the calculations with high levels of
precision is likely to be prohibitive. If the calculation lacks precision, it has little value
(Levenson 2005). Even if high levels of precision are achieved, that precision may be
spurious because of the complexities involved in modelling complex social processes.
Estimating the ROI on a new piece of machinery or the refurbishment of a hotel is relatively
straightforward, because the manufacturer of the machinery will provide information on the
output it is capable of, while a hotel company is likely to have data on how previous
refurbishments have affected room occupancy rates. However, it is much harder to predict
how an intervention will affect worker behaviour and output, because of the problem of the
indeterminacy of labour; a wide range of factors which are difficult to predict and control
influence the extent to which workers are willing to co-operate with management in
transforming their capacity to labour into goods and services. Overall, then, it has long been
possible to calculate ROI on HR activities and initiatives (for example the ROI on training);
however, this continues to be seen as a low-value activity (Rasmussen and Ulrich 2015),
presumably because the assumptions underpinning such analysis are seen as overly
subjective and imprecise, therefore lacking in credibility.
Levenson also considers costbenefit analysis as a way of measuring the value of human
capital interventions and initiatives. Costbenefit analysis (CBA) has significant advantages
over ROI. Because it does not collapse the underlying calculations down to a single rate of
return, it is possible to see in detail the individual costs and benefits. However, it also suffers
from similar problems; key benefits of people management initiatives are difficult to value, so
a reasonable approach to CBA would not include these in its calculations. However, this
may result in the benefits of an initiative being significantly understated. Overall, accounting-
based approaches to measuring human capital appear to have limited practical appeal. We
will return to this point below when we consider issues related to standardisation in reporting
of HC measures.
14
Standardisation of HC measures and metrics
Should the 600 or more HC metrics that are described by the Human Capital Management
Institute (2013) be reduced to a smaller standard set of HC metrics? The chief proponent for
the development of a standardised approach to HC measures and metrics is Jac Fitz-Enz
(for example 2009). For Fitz-Enz the main benefit of standardisation is that it will allow the
HR profession to become familiar with the standardised set of metrics. Familiarity will allow
metrics to be used more widely, meaning that HR becomes a more data-driven profession
and that the credibility of HR with other, more data-driven areas of management increases
as better decision-making leads HR to make a more positive overall contribution to delivering
strategy and performance. For Fitz-Enz, the key value in metrics comes from watching how
they change over time within the same organisation. This provides evidence as to the
processes and management practices that are working compared with those losing
effectiveness. Over time, HR professionals will develop understanding of the complex inter-
relationships between difference measures and metrics. A number of sources in the grey
literature argue that standardisation of measures and metrics is also desirable because it
allows benchmarking; organisations can subscribe to services provided by management
consultants to understand how their measures and metrics compare with other organisations
in the same industry or they can compare the relative performance of different business
units. However, Fitz-Enz is sceptical of the idea that benchmarking of HC measures and
metrics is a useful or valuable activity. Although an early advocate of benchmarking (Fitz-
Enz 1993), he argues that increasing environmental volatility means that it is harder to make
meaningful comparisons, because organisations have become more heterogeneous in
response to the changing environment. Consequently, benchmarking is only a valuable
activity in response to tightly defined problems (Fitz-Enz 2009, pp2415). Baron (2011) is
also sceptical of standardisation, arguing that the development of good HC metrics depends
on the context of the organisation.
15
Empirical evidence on the use of HC measures and metrics
Having provided an overview of key thought leadership around the development and use of
metrics, we now turn to evidence of how HC metrics are being used in practice. Case
studies of HC analytics in practice are illustrated in Appendix 2.
Just one of the case studies we identified met academic standards of rigour and objectivity.
This study (Ton 2009) examined the relationship between staffing expenditure, quality
(conformance to company policy and service quality), sales and profits drawing on
longitudinal data from a US retail chain. It found that contrary to existing management
16
practice, seeking to reduce labour costs to a minimum level damaged sales and profits
because service quality suffered. Rather than seeking to minimise labour costs, the retailer
performed better when it sought to maximise productivity by ensuring minimum quality
standards were met through higher staffing levels.
One further source of evidence on the use of HC measures and metrics deserves attention.
Bock (2015) offers an extended narrative account of how HC measures and metrics have
been deployed at Google, including accounts of how metrics and analytics were used to
improve hiring processes and decisions, improve performance management, design
effective pay and benefits packages and boost productivity. The exciting thing about this
account is the way that it showcases the frontiers of what is possible: the routine use of HC
metrics and advanced analytics so that HR can add value to the business. It is, however, at
its heart a popular management book; it paints a picture of the uses and value of analytics
with a broad brush. The resources, expertise, effort and management commitment needed
to achieve Googles level of expertise is hinted at but not spelled out. Therefore the extent to
which this level of analytics and metrics use would be replicable and/or cost-effective in
other organisations operating in a different organisational context is not clear.
It is important to note that, with a single exception (Ton 2009), they do not conform to
principles of good case study design; they were not designed to test theory or understand
causal processes. Rather, they appear designed to provide illustrative examples of the
successful use of HC metrics and associated analytics. This means that from an academic
perspective the cases typically suffer from several of the following weaknesses:
1 Case studies are based on samples of opportunity, organisations the authors are
familiar with, rather than well-thought-through research designs that might test
theory, for example by comparing similar organisations in the same industry sector
that have adopted different approaches to measuring human capital.
2 This means that the cases can only be used to uncritically illustrate a normative
theory and its benefits rather than to test or evaluate the theory.
3 This lack of criticality means that cases can appear as just so stories. Cases do not
provide detailed empirical evidence (for example in the form of quantitative analysis
17
or careful qualitative analysis that takes into account the views and judgements of
multiple respondents from different parts of an organisation) of what the costs and
benefits of following the theory are. Details of praxis are obscured, so it is difficult for
the reader to come to an informed judgement about whether the ideas would work in
their own organisation, and what the costs, benefits and difficulties might be.
4 Consequently, these cases do not provide adequate empirical evidence to assess
the strengths and weaknesses of different HC measures and methods for analysing
those measures in use in organisations.
A number of cases were also written by authors with a clear commercial interest in
promoting the ideas discussed in the case (that is, they were consultants reporting on work
done by their company).
The Centre for Advanced Human Resource Studies (CAHRS) at Cornell University hold
regular HR analytics workshops where its corporate partners (typically large US-
headquartered multinational enterprises) are invited to discuss developments in the field
under Chatham House rules. This is not strictly speaking survey evidence, but bulletins
from these workshops suggest that with a handful of notable exceptions, as of two years ago
(2014) CAHRS partners had not made significant progress in developing HC metrics and
associated analytics programmes. Organisations faced a number of practical challenges:
data quality and data governance, gaining access to non-HR data to conduct strategic
analytics, integrating data from different data sources to conduct analyses, lack of skills
those with HR skills lack analytical skills and those with analytics skills lack business
acumen and the ability to tell a story about their analyses to decision-makers (CAHRS
2014a, 2014b).
18
Summary and conclusions on the current state of evidence
Overall, then, while there is no shortage of advice and guidance on HC metrics, evidence on
the use of HC metrics is limited. However, the types of metrics that organisations use on a
regular basis, and the uses to which these metrics are put, are not clear. Therefore, one
area where further research would be valuable is in undertaking higher-quality survey work
to get a more accurate measure of what metrics are being used, to what extent and for what
purpose. Neither do the overwhelming majority of case studies provide good evidence on the
conditions, approaches and behaviours that lead to the successful use of metrics and
analytics. More rigorous and theoretically informed case study design in future research
could rectify this limitation.
Finally, Tons research hints at a tension within the practice of HR analytics, between the
soft version that she champions, with metrics and analytics being used as a tool to bring
about mutual gains for worker and organisation, and a hard version, where metrics lead to
workers being portrayed as a cost to be minimised, contributing to the commodification of
their labour. In this context, it is interesting that, with the exception of Ton (2009), who
explicitly makes the case that analytics should be used to find ways of improving both job
quality and the bottom line, issues of ethics are largely absent from the cases discussed
above. For example, Hoffman et al (2012) cite with approval the case of Qantas, who
completely reshaped their workforce, with large numbers of redundancies, after the
introduction of key HC performance metrics led the airline to identify those employees and
job roles that contributed less or more to its financial performance. The ethical and longer-
term business consequences of commodifying labour in this way are not considered.
Therefore a lack of consideration for the ethical and sustainability issues and considerations
of using HC measures and metrics is another major omission in the existing literature.
19
3 Standards and regulation:
formalising human capital
measurement
In this section we explore the extent to which there have been moves towards
standardisation of human capital measures and reporting. In presenting this analysis, we
draw on the seminal work of Powell and DiMaggio (1983). Powell and DiMaggio analysed
the factors that shape change and continuity within organisations. Part of their analysis
focused on the tendency of organisations to become more alike, a process known as
isomorphism. They distinguished between three sources of isomorphic pressure: regulation
(coercive isomorphism), best practice guidance (mimetic isomorphism: organisations tend to
adopt perceived best practice in response to an uncertain environment), and cultural
(professional isomorphism: organisations do something because it is part of the professional
norms of managers). Below we will review the extent to which regulation, professional norms
and best practice guidance are creating pressure for a standardised approach to the
reporting of HC metrics. We argue that the evidence suggests that isomorphic pressures are
weak, so the emergence of standardised reporting of metrics is unlikely over the medium
term.
Regulation
The key form of regulation that might be expected to lead to standardisation of HC metrics
are accounting standards. The rationale behind HC in company accounting statements is
that people, along with other intangible assets including brand, customer relationships,
processes and capacity to innovate, contribute to the value of a company, so should be
accounted for alongside more traditional accounting measures and commentary. Successive
UK governments have paid attention to reforming accounting standards, with the issue of
how to report human capital management a recurring theme (Scraggs et al 2013, p4). The
Kingsmill Review into womens pay and employment (DTI 2001) argued that good HCM is
routinely under-reported in company results and recommended that a government inquiry
should be established to consider how reporting of human capital could be improved. This
resulted in an inquiry into HCM reporting by the Accounting for People Taskforce, which
reported in 2003. This review concluded that companies should routinely report information
on the size and composition of the workforce, retention and motivation of employees, the
skills and competencies necessary for success and the training needed to achieve this,
remuneration and fair employment practices, and leadership and succession planning. The
report went on to recommend that HCM should be balanced and objective to enable
comparisons over time and that, to do this, reporting should be based on commonly
accepted definitions. To facilitate this, it recommended that the Accounting Standards Board
should develop definitions of key metrics. Given an apparent lack of consensus over what
good practice in HC reporting looked like, the recommendations were supposed to trigger
the start of an evolutionary process rather than lead to a rigid regulatory framework.
However, the recommendations of this report were not implemented.
The Accounting for People Taskforce was re-launched in 2010. Consequently, in 2013, new
regulations to the 2006 Companies Act were introduced, requiring listed companies to
20
provide an enhanced business review as part of their annual report to shareholders,
including information related to environment, employees, social and community issues
(CIPD 2016). However, the accompanying guidance offered only an imprecise indication of
the sort of people-related information that reports should include, so there is ample scope for
organisations to ignore or downplay HC reporting while remaining compliant with the
regulations. Despite the limited nature of the regulations, there is evidence of an increase in
the quantity and quality of human capital reporting in response to the regulations (CIPD
2016). Note, though, that the style of reporting being promoted by these regulations is
unlikely to lead to the development or emergence of standardised metrics. Reporting follows
(and is expected to follow) a narrative style, rather than reporting quantitative measures that
provide the basis for cross- or within-company comparisons. One recent review concluded
that it is debatable as to whether investors and other stakeholders will be able to make
informed decisions on the basis of such HC reports, because the tone and focus of most
current reporting is on the positive aspects of human capital, with risks being downplayed
and ignored in order to avoid reputational damage which could be detrimental to the share
price (CIPD 2016, p9).
One area of the UK economy where HC reporting has made significant progress is in
healthcare. This is in response to regulatory pressures. The Care Quality Commission
(CQC) includes HC metrics in the data it evaluates when forming judgements about the
quality of care provided by hospitals, care homes and other regulated health and social care
providers. For example, the CQC monitors ratios of consultant to non-consultant doctors, the
percentage of ward staff who are registered nurses, the ratio of nursing sisters and charge
nurses (band 6) to band 5 nurses, with the results of these metrics used to compute an
indicator of staffing risk. The CQC also monitors staff morale as measured by staff
engagement surveys (CQC 2015). The National Institute of Clinical Excellence also puts
forward a measure for calculating safe nurse staffing levels according to the care needs of
patients being treated on a ward which it requires acute hospitals to use (NICE 2014), while
NHS guidance requires trust boards to receive regular reports on safe staffing (NHS 2013).
Within the NHS, HC metrics are beginning to be used to measure the efficiency of hospitals
too; Lord Carter has recommended that hospitals should publish care (that is, nursing) hours
per patient day as a comparative measure of efficiency (Carter 2016). There is also evidence
that HC metrics (for example nurse staffing levels) are being used within ward performance
dashboards, which are on public display within hospital wards.
In the education sector, a recent Department for Education report (2013) into the efficiency
of the schools system identified typical percentages of primary and secondary schools
budgets spent on staffing, and the percentage within that typically spent on support staff. It
also observed that high-performing schools tend to spend relatively more of their budget on
teaching as opposed to non-teaching staff. There is anecdotal evidence that school
managers and improvement specialists in academy chains and local authorities are now
using these metrics (percentage of budget spent on teaching staff: percentage of budget
spent on all staff) as diagnostic management tools.
International comparisons
A number of other countries have introduced statutory reporting requirements that include an
HR dimension (Scraggs et al 2013). Denmark has been identified as the country that has
gone furthest in the direction of requiring companies to report on their HC. In Denmark it is
mandatory to include an account of the formation of the intellectual capital in company
21
annual reports. Almost all Danish companies include HC reporting as part of this process.
Companies have a degree of latitude over how they do this, but in contrast to the UK
system, the Danish Government provided detailed guidance on what such reports must
include. As a result, such statements are seen as management tools for generating value
and a communication tool that is valued by investors and shareholders (Scraggs et al 2013,
p14). The key difference between the Danish style of reporting which is apparently valued
as a decision-making tool by investors, prospective employees and customers and the UK
reporting style where the value of reports as a tool for comparing companies is more
questionable appears to be the extra level of mandatory detail in the Danish reports, which
provides a stronger basis for making comparisons. Specifically, the Danish guidance
includes examples of what reports might look like for companies from different industrial
sectors; what information should be covered in each section of the report, and what a useful
structure looks like; information on the main challenges in developing Intellectual Capital (IC)
statements; practical examples of how these challenges were overcome in other company
reports; detailed guidance on the content, structure and presentation of IC statements,
including an ideal model; information on benefits of IC statements; guidance on how to
embed the development of IC statements in the organisation, for example who should
produce it and how the process can be quality-assured (Scraggs et al 2013, p13).
In the USA, the Society for HRM led a working party on developing guidelines on reporting
human capital for the American National Standards Institute (ANSI). The draft guidance
suggested that spending on human capital, ability to retain talent, the strength of the
leadership talent pipeline, leadership quality evidenced by employee survey data, employee
engagement and a narrative analysis explaining metrics and disclosing risks should all be
reported as standard. However, these proposals were not taken forward by ANSI as a result
of opposition from the business community, with critics arguing that the standards would
place too great a burden on companies while being of little value to investors (Cinquegrani
2012).
Overall, then, it seems unlikely that regulatory forces will cause greater standardisation of
HC metrics. HC metrics are not sufficiently valued by the investor community for companies
to want to provide them as a matter of course. Politically, the drive for greater reporting on
human capital came from the Liberal Democrats, who left the Coalition Government in 2015
following the Conservative Partys victory at the General Election. In the absence of demand
from investors and acceptance of HC metrics standards from companies, the current UK
Government is unlikely to push for further regulation that would be perceived as a burden on
business.
Best practice
In the absence of regulatory pressure to adopt a particular management practice (in this
case, HC reporting), Powell and DiMaggios seminal analysis also suggests that isomorphic
pressures can come from the tendency of organisations to adopt best practice models in
response to uncertainty (mimetic isomorphism). Best practice ideas around HC reporting
come from two sources: organisations such as the International Integrated Reporting Council
(IIRC 2016), which advocate and provide tools to encourage firms to adopt integrated
reporting (the UK and Danish examples discussed above are examples of this style of
reporting); and thought leaders from management consultancies and IT service firms who
promote best practice ideas linked to the products and services that their firms sell.
22
Integrated reporting
The IIRC seeks to promote integrated reporting. An integrated report is a concise periodic
communication in which companies explain how they create value over time. It includes
analysis and explanation of strategy, governance, performance and prospects. The purpose
of integrated reporting is to complement information on short-term financial performance in
order to encourage investors and corporate managements to take a longer-term view of their
companies value (CIPD 2015, p11). However, case study evidence on the way in which HC
reporting using this type of framework has been received by investors is not encouraging. In
the case of Halfords, investment analysts seemed uninterested in information on how HCM
changes were driving improvements in the companys value (CIPD 2015, p20). It may also
be the case that investment analysts are right to be sceptical. Integrated reporting may be
subject to unconscious biases in managerial thinking. Managers may misunderstand the way
that value has been created, paying too much attention to the contribution of their own
actions and underplaying the role of factors such as luck and historical legacies. This may
result in self-serving accounts which present an inaccurately rosy picture of value-creation
prospects. Therefore, despite optimistic accounts that predict a coming wave of integrated
reporting (Bassi et al 2015), there may be a classic chicken/egg problem. Investors will only
come to understand and value HC reporting within an integrated reporting framework if it
becomes relatively common practice, but in the absence of Danish-style regulation,
companies have little incentive to do HC reporting if it is not valued by investors.
Underpinning this lack of incentive are a set of conceptual problems about how human
capital should be reported on the balance sheet. There is an emerging consensus that some
form of narrative reporting is the way forward, but less consensus on how this should be
done (Scraggs et al 2013). Overall, this suggests to us that the integrated reporting
movement is unlikely to result in the development of a standardised approach to HC metrics
and reporting without further regulatory intervention.
As an example of the sort of benchmarking products on offer, the US SHRM offers its
members a benchmarking tool. The metrics that are available within this tools benchmarking
report offer a flavour of the HC metrics being used for benchmarking purposes. These
include: revenue/FTE, measures of talent pipeline to management positions (percentage of
positions at different levels of management for which there is a succession plan in place),
measures of the cost-efficiency of the HR department (for example, HR to employee ratio,
HR expense to FTE ratio), salary data (average salary increase, salary as a percentage of
23
operating costs), average employee tenure, turnover rates, cost-per-hire, time-to-fill, and
percentage of FTE enrolled in pension schemes (see
www.shrm.org/resourcesandtools/business-solutions/pages/benchmarking-service.aspx).
However, as the surveys conducted by the consultancies themselves make clear (PwC
2014, Deloitte 2015), with the exception of increasingly ubiquitous employee attitude or
engagement surveys, consultancy thought leadership on HC metrics does not yet seem to
have resulted in widespread adoption of a standardised approach to metrics. Further, it is
not clear that there is much value in the adoption of standard metrics for benchmarking
purposes. Fitz-Enz was an early exponent of benchmarking, but in his most recent work he
has become more sceptical, arguing that the increasingly complex and differentiated
environments that organisations face mean that there is less value in benchmarking unless it
is to address tightly defined problems (Fitz-Enz 2009). Similarly, Boudreau and his
collaborators advocate developing metrics that contribute to strategic analytics programmes
instead of adopting a standard set of metrics. (Boudreau and Jesusthasan 2011, Boudreau
and Ramstad 2007). Drawing on the UK experience, Baron (2011) makes similar arguments.
Overall, then, there appears to be limited evidence of best practice thinking promoting the
growth of standard HC metrics (with the possible exception of engagement metrics); indeed,
best practice thinking may be moving away from the idea of a standard set of metrics
towards notions of best practice based around bespoke metrics following from HC analytics
programmes.
Culture
It is clear that professional bodies on both sides of the Atlantic are keen to see the use of
metrics and analytics become embedded within the culture of the HR profession, with both
the CIPD and SHRM producing publications and activities to promote the use of HC metrics
(SHRM/Economist Intelligent Unit 2016, CIPD 2013). However, these professional bodies
recognise that they have a long way to go on this, because the culture of the HR profession
has historically been one of reticence towards the use of metrics that might be construed to
dehumanise or commodify the workforce without sufficient regard to contextual information.
This culture might be said to be founded upon HR/personnel traditions of staff welfare and a
long-established concern for upholding corporate governance with regard to fair and
reasonable conditions of employment for employees as organisational stakeholders. They
are also still thinking through issues of what sort of approaches to metrics and analytics
should be promoted, and how this should be done. (Of course, this review is a contribution to
this process.) This means that in the near term at least, professional culture is not likely to
result in significant moves towards standardisation.
Summary
There are only limited pressures driving or encouraging organisations to adopt a standard
approach to HC metrics and reporting. Consequently, current trends in HC reporting are
unlikely to lead to the emergence of common metrics and standards, because regulation and
normative best practice both focus on promoting HC reporting through integrated narrative
accounts, which explain how intangible assets contribute to the value of the business. Yet,
based on current evidence, it is not clear if this style of reporting will result in evidence that is
consistent enough for investors and other stakeholders to use it to make comparisons
between companies, or within companies over time. Neither is there much evidence that
investors place much value on this sort of reporting.
24
However, if changing professional norms and best practice ideas lead to the spread of HR
analytics programmes, this may in time contribute to the emergence of more widespread
reporting of HC metrics in a more standardised way. This is because analytics gives
organisations the tools to identify the key metrics that are important to their business in a
way that can be explained in the narrative style of integrative reporting. Companies can then
report the metrics that matter to their business in a way that investors and stakeholders can
track over time. If the underlying analysis is accurate, changes in metrics should be
predictive of changes in business performance with the result that investors come to value
the reporting of metrics, causing more companies to identify and report their key HC metrics.
Of course, over time, the key strategic objectives of a company will change and as such the
key (that is, relevant) HC metrics will also need to change. The key point is that if companies
are to be able to report on the contribution that their human capital makes to the value of the
company, they will need to become more adept at using rigorous methods to identify what
that value is.
25
Conclusions
This literature review began by explaining definitions and conceptualisations of human and
social capital. It noted that definitions of these terms in economics and a lesser extent
sociology are rooted in methodological individualism. A key problem with this approach from
the perspective of managerial action is that it treats organisations as black boxes, when
from a managerial perspective, what is interesting is understanding what happens within the
black box. Consequently, within the field of management research, the focus is on how
human capital can be a source of value, and breaking human capital down into constituent
components, for example knowledge, skills, attitudes and other characteristics. A key point
here is that how workers will respond to investments in their human capital is not always
clear (the so-called indeterminacy of labour problem). This is a key reason why
organisations do not make greater use of ROI analysis and costbenefit analysis when
making decisions over human capital investments; it is difficult to reach consensus on the
assumptions that underpin such modelling. As a result, there has to date been little demand
from investors for firms to adopt a standardised approach to human capital reporting, despite
efforts to promote best practice in human capital reporting. Instead of following a
standardised approach to HC metrics and reporting, much of the literature argues that
organisations should develop analytics programmes and associated HC metrics that help
them to create value by addressing the questions that are of critical importance in their own
specific context. However, the evidence we have collected suggests that most organisations
have made only limited progress towards implementing this theory. Underpinning this lack of
progress are a lack of skills and, more fundamentally, understanding about data and
analytics on the part of the HR profession alongside technical problems related to data
organisation and governance, which in many organisations have proved costly and time-
consuming to solve.
There is also a lack of evidence on the praxis of HC metrics and analytics. Why are
firms adopting particular models or approaches to using HC metrics? Why hasnt
more progress been made in the development of strategic and predictive HR
analytics? Institutionally (history, intellectual and human capital), what sets apart
those organisations that have made path-breaking progress in the use of HC metrics
and analytics? Carefully designed case study research could shed light on these
questions of causality.
Higher-quality survey evidence, based on national probability samples rather than
samples of convenience, could also shed light on what metrics are being used, for
what purpose, using what tools and systems.
Comparative case study research (comparing HC metrics and analytics practices in
similar organisations located in different countries, for example Denmark and the UK)
could also shed light on the role of regulatory differences in promoting different
practices and outcomes. It is perhaps not a coincidence that one of the most widely
26
cited examples of successful HR analytics, Maersk Drilling (Rasmussen and Ulrich
2015), is headquartered in Denmark, where statutory requirements for HC reporting
are most developed.
There is a worrying lack of research into the ethical consequences of the more
widespread use of HC metrics and analytics, given Tons (2009) evidence of the way
in which the adoption of HC metrics and analytics can promote the increased
commodification of labour with resulting increases in casualisation and insecurity
this is surely an area where more thought and debate is needed.
Overall, the more widespread metrification of human capital could have a range of possible
consequences. These might include: an end to discretion; increasing inequality and
insecurity as algorithms find ways to pare labour to the bone while exerting ever greater
control over worker behaviour (Haque 2015); or, from a more positive perspective, more
efficient and profitable businesses enjoying success through more engaged and effective
people (Bock 2015). It is in all of our interests to better understand how to promote the
positive vision.
Limitations
The methodology applied in this report, as detailed in appendix 3 was selected because it
offered a broad scope that enables the reader to consider insights and conclusions from a
variety of sources. The resources available to conduct this review resulted in a number of
limitations:
A time span of 2005 2016 was chosen because this period saw a considerable
growth in the number of publications within the analytics domain; however, emerging
concepts may have been missed if they were published before 2005.
Most of the case studies reviewed lacked transparency on the data and methods
underpinning them and were weak methodologically. There are limits to the
inferences that can be drawn through a review of a literature which suffers from these
limitations.
27
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36
Appendix 1: Examples of HC metrics
Table A1: Human resource management processes requiring
measurement
HR process Sample process measures References
Recruitment and Measures of activity Aldrich (2008),
selection Number of vacancies recruited for Bassi (2011), Bassi
Fulfilment of vacancies internally and McMurrer
Quantity recruited (2005), Boudreau
Permanent/temporary jobs recruited for and Jesuthasan
Full-time/part-time jobs recruited for (2011), Center for
Positions with ready candidate Talent Reporting
Number of people interviewed (2016), CIPD
External hire rate (executive, (2011), Deutsche
management, other) (number as Bank (2013), Fitz-
percentage of headcount) Enz (2002),
Huus (2015), Lawler
Measures of efficiency and et al (2004),
effectiveness Meredith et al
Time to recruit (compared with market (2005), Mouritsen et
benchmark) (executive, management, al (2004), ODonnell
other) et al (2009), Royal
Time to start and ODonnell
Adherence to ethical code (for example (2008), Stiles and
diversity, fairness of process) Kulvisaechana
Offer acceptance rate (2003)
Effectiveness of rehiring experienced
workers (rehire rate)
Cost per hire breakdown (advertising,
agency, referral bonus, travel, relocation,
internal)
Cost of recruitment
Sufficiency of appropriate candidates for
selection
Direct cost of unfilled post
Indirect cost of unfilled post
Direct cost to replace key (senior)
individual
Indirect cost to replace key (senior)
individual
Proportion of first option candidates
accepting positions
Offer acceptance rate
Extent of recruitment ease/difficulty (by
role/professional area or hierarchical-level
group)
90-day turnover rate
(voluntary/involuntary)
First-year resignation rate
External cost per hire
37
Measures related to organisational
performance
Quality of recruits/effectiveness of new
hires (percentage of high-performers)
Quality of recruits by educational level
First-year turnover
New-hire failure rate
New-hire performance satisfaction
Effectiveness of recruitment for key
strategic objectives
Miscellaneous
Comparison of T&Cs with competitors
Effectiveness of induction process
Employment brand strength
Recruitment source breakdown
Strength of internal labour market
Diversity hire rate (see diversity)
38
Effectiveness of initiatives to retain key
skills/knowledge
Cost of voluntary turnover
Measures of organisational
performance
Performance measures broken down by
tenure
Miscellaneous
Composition of termination reasons
Comparison between reward packages
Thematic reasons for leaving
Percentage of leavers by diversity criteria
39
Impact evaluation measures of training
post-event
Miscellaneous
Leadership support for L&D
40
Promotion speed ratio (2015), Lawler
Retention rate (2009), Lim et al
Number of employees who believe they (2010), Meredith et
can develop internally al (2005), Mouritsen
Proportion of employees promoted that et al (2004),
are female Rasmussen and
Proportion of employees promoted that Ulrich (2015)
are BAME
Quarterly, half-yearly and yearly expert
turnover
Overall cost of talent development
Measures of organisational
performance
Value of talent (for example chargeable
rate)
Asset values of key employees
Miscellaneous
Recommendation index by top talent
41
Measures of efficiency and
effectiveness
Effectiveness of PM process (including
fairness and appropriate standards)
Effectiveness of feedback
Proportion of performance management
and appraisal systems aligned to strategy
Percentage of performance appraisals
held on time (by functional area)
Percentage of personal development
plans complying with business plan
Percentage of personal development
plans achieved (by functional area)
Measures of organisational
performance
Productivity measures
revenue/operating cost per employee
Miscellaneous
Employees assessment of colleagues
interpersonal skills
42
Engagement/culture Descriptive measures Bassi (2011), Bassi
Staff engagement levels (compared with and McMurrer
market benchmark) (2005), Boudreau
Measures of time pressures and work and Jesuthasan
quality (2011), CIPD
Employee engagement index (2011), Edwards
Attendance/absence rate and Edwards
Causes of absences (2016), Hoffman et
Cost of absenteeism al (2012), Holbeche
Supportiveness of workers to each other (2014), Huus
Organisational commitment levels (2015), Lawler et al
Measures of sharing of strategic mission (2004), Lim et al
Positivity of staff (2010), Lopes
Engagement scores by gender within (2010), Meredith et
teams al (2005), ODonnell
Engagement scores by BAME within et al (2009), Russell
teams and Bennett (2015),
Staff satisfaction index Sparrow et al
Motivational index (2010), Stiles and
Commitment to management initiatives Kulvisaechana
(for example TQM, KM, IiP, EFQM) (2003), Ulrich and
Smallwood (2004)
Measures of efficiency and
effectiveness
Effectiveness of processes to engage
staff
Impact of intrinsic reward elements on
engagement
Miscellaneous
Employee-produced photos
Employee free-text comments
Psychometric data
Proportion of key employees engaged in
community development projects
43
Staffing rate temporary
Staffing rate less than one year
Staffing breakdown organisational
tenure
Team dynamics personality type
breakdown
Percentage of managers of different
nationality from company registry
Diversity of employees in pipeline
Percentage of team members that are
female
Percentage of team members that are
BAME
Proportion of employees promoted that
are female
Proportion of employees promoted that
are BAME
Proportion of team-leavers that are female
Proportion of team-leavers that are BAME
Engagement scores by gender within
teams
Engagement scores by BAME within
teams
Percentage diversity (at executive level,
management level, other levels)
Ratio of men to women in management
Percentage of leavers by diversity criteria
Number of grievances raised relating to
diversity issues
Measures of organisational
performance
Impact of older workers on performance
44
Effectiveness in motivating workers and Smallwood
Effectiveness at giving feedback (2004)
Effectiveness at communicating
expectations
Effectiveness at communicating strategic
objectives
Reduction of people/process/project costs
broken down by manager
Leadership competence
Prevalence of leadership development
plan
Number of employees who see their
immediate superiors as being capable of
motivating them satisfactorily
Capability of top leadership
Miscellaneous
Quality of innovative ideas
Qualitative data on knowledge-sharing
culture
45
Impact of wellness element of al (2011), ODonnell
remuneration on retention levels et al (2009)
Percentage of staff trained in H&S
Measures of worklife balance
Perception of safety at work
Proportion of key employees using work
life programmes
Participation in safety and security
programmes
Percentage of days lost as a result of
stress-related absence
Average number of days lost per
employee
Measures related to provision of
occupational health facilities
46
Appendix 2: Summary of case studies
Part 1: Case studies related to HRM decision-making
47
time of a building move and to identify staff for
redundancy.
Dow Corning HC data was used to address issues of Holbeche (2014)
organisational culture in support of change
management initiatives. Specifically, data on
employee retention within different parts of the
business were analysed, leading to strategic action
to address cultural misalignment.
Frito-Lay (PepsiCo) Illustrates how analysis of individual HC data, Levenson (2011)
specifically past experience in other companies,
combined with corresponding performance data
enabled improvement in the effectiveness of the
recruitment (into sales-related roles) process.
Google Supports a research-oriented approach to Knowledge@Wharton
addressing HRM issues, that is, asking research (2016)
questions and collecting rigorous data for
thoughtful analysis, giving consideration to
alternative interpretations. Specific examples
included analysis of recruitment and performance
data revealing that the optimum number of
interviews before recruitment into Google was four;
that assessment of education received and learning
capability were more important than educational
grades.
JetBlue (airline) Analysis of customer satisfaction data revealed that Knowledge@Wharton
being helpful was more important to customers (2015)
than being nice. As a result, the recruitment
process was reengineered (to recruit workers who
were better aligned with the requirements of the
business) and measurable benefits included higher
staff retention and engagement.
Johnson & Johnson In this interview, the chief HR officer of Johnson & Weisul (2016)
Johnson gives examples of how HR analytics were
used to support HR decision-making.
1) A question addressed was whether to focus on
recruiting young talent straight from colleges or
experienced people. The analytics showed that
during the first year, experienced people were more
productive but that after two years the lines crossed
and college recruits were more productive and
retention rates and promotability were higher. As a
result, J&J shifted their recruitment policy to reflect
the need for longer-term advantage. Thus the
analysis revealed that for short-term needs,
experienced people should be recruited, but that
longer-term needs were better met by recruiting
from colleges.
2) Another question addressed was whether there
was a relationship between differentiated reward
and retention. The analytics showed that payment
of special off-cycle equity grants or off-cycle
retention grants to high-flyers resulted in higher
retention rates. Thus the analysis revealed that
48
retention of talent can result from flexibility in
remuneration.
Liverpool Victoria Data previously collected was analysed to identify Churchard (2013)
Insurance (LV=) how far workers at different levels were prepared to
travel to work. By overlaying commute data onto a
map, areas were identified to target future
recruitment campaigns for different types of worker.
This resulted in more cost-effective recruitment
advertising.
Luxottica Retail Analysis of workforce turnover data within the Hoffman et al (2012)
Sunglass Hut part of the business showed that
70% of turnover was in the first three months after
recruitment. This led to changes in the recruitment
processes which had been designed for other parts
of the business but which had fundamental
differences in the competency requirements. New
competencies were introduced to the Sunglass Hut
recruitment process and reductions in staff turnover
ensued.
Maersk Drilling Reports on how qualitative and quantitative data Rasmussen and Ulrich
was collected relating to a number of business (2015)
questions that had an HC element to them (for
example what explains variance in performance
between oil rigs?). The collected data was
analysed and issues identified for addressing (for
example relating to leadership quality, crew
competence, environmental performance and
operational performance).
The case study also reports on data being collected
to better understand a specific HR issue of being
unable to fill specialist job vacancies. This data was
analysed to show that workers emerging from the
company graduate programme for specialists were
better than their peer group. These findings
supported strategic decision-making to internally
build talent rather than recruit it from outside.
Microsoft Reports on a four-step process followed by Hesketh (2014b)
Microsofts HR Business Insights Team to collect,
define, analyse and derive actionable insights from
data. These actionable insights, as reported here,
relate to the core HR concerns of recruitment and
retention. As such it provides a structured model to
follow to improve the performance of the HR
function using data.
Nestl Analytics was used to better understand the high Milne (2015c)
staffing attrition rates. The analysis enabled the
construction of a profile of the people who were
choosing to leave the company. It was discovered
that there were particularly high attrition rates in
one particular division which had a different
business model from the main business. They also
discovered that women were leaving at a higher
rate than men, even when maternity reasons were
excluded from the data. As a result, changes in HR
49
policy and practice were implemented. Study
illustrates how analysis of people data can be used
to understand reasons for staff leaving by noticing
data correlations, and confirming (or ruling out)
possible reasons.
Nielsen Reports on how data collected from one area of HR Green (2016)
practice (that is, internal transfers) was used to
address a live issue (as indicated by other data)
within another area of HR practice (that is,
retention). Through analysis it was discovered that
there was a 48% higher likelihood that a manager
taking on a new role would remain in the company
than a manager who had been in the same role for
three years. As a result the company placed a
spotlight on lateral moves and incorporated
discussion on lateral moves into all talent reviews.
As a result the number of lateral moves significantly
increased and this is considered as the reason for
a halving of the voluntary attrition rate within one
year (201516).
Opower This case study account outlines the application of Opower (2016)
specific analytical techniques (Bersin) to
recruitment of talent. It reports on the integration
of recruitment and broader HR data to support the
recruitment strategy and broader and more
cohesive people strategy. Stresses the importance
of defining success and setting goals, then
measuring accordingly, and involving a data
analyst in HR strategy meetings
Sprint Individualised quantitative performance metrics of Hoffman et al (2012)
customer service workers were analysed alongside
qualitative observational data to identify areas for
performance improvement. Subsequently, group-
level development plans were produced and
implemented.
SSE Web article reports on how SSE worked with PwC Jacobs (2016)
to measure the value of people assets and the
value drivers for people development (that is,
training programmes, in-house labour-sourcing
interventions). Demonstrates how the use of
accountancy techniques to place a value on
people assets might support justification of
investment in people initiatives.
Travelex This case study reports on the early benefits from Lewis (2016)
an initiative to use big data collected and analysed
using a cloud-based HR system to address HR
issues. An example given is loss of staff, and how
this was being addressed by predicting the next
moves of employees and intervening to militate
against exits of key talent.
Unilever Reports on how people measures are being used Hesketh (2014c), Valuing
to fine-tune Unilevers recruitment activities and to your Talent (2016e)
understand how successful their employer branding
is. The podcast reports on 78 core HR metrics that
50
are collected and analysed along with people
survey data and talent management information. Of
particular significance is the suggestion that by
collecting data over time to build up patterns and
trends, the usefulness of that data for decision-
making will increase.
Unnamed software Managers in strategic positions were subjected to a Russell and Bennett
company executive skills inventory measurement process. This (2015)
team identified weaknesses in strategic management
skills, specifically innovation and collaboration as a
management group. This precipitated learning and
development and outplacement actions that
addressed these identified weaknesses.
Subsequently, the companys competitive
performance improved.
Unnamed US retailer Analysis of HR data revealed that increasing Ton (2009)
staffing levels in this retail store chain resulted in
improved service quality, and increased sales and
profitability. The suggestion is made that labour
should not be treated as a cost to be minimised
because productivity depends on quality as well as
cost: by spending more on labour, service quality
might be raised and profits increased, that is, via
data analytics the workforce size might be
optimised.
Unstated charity Article reports on how HC measures were used to Churchard (2013)
reveal the key underlying issue behind a specific
HR issue (Monday absenteeism). Survey data were
analysed, revealing to management that an
ongoing change management programme was
inducing stress. As a result a training initiative for
managers leading the change was implemented.
Virgin Media Analytics was used at this telecommunications Milne (2015b)
company to address a significant issue with
absenteeism within call centres. Data showed that,
even though engagement levels were high and
there was low attrition of staff, absence rates were
high. Data analysis uncovered that there was a lack
of knowledge about absence policy and staff were
taking advantage of slack implementation of the
policy. As a result of subsequent changes made,
staff absence rates fell from 9% to 4%. This study
illustrates that multiple factors need to be
considered to address HR issues. By asking the
right questions, a range of possible reasons can be
considered and rejected or confirmed.
51
Part 2: Academic published case studies related to analysis and analytical
frameworks
52
Standard Chartered Reports on use of a human capital scorecard to Whitaker and Wilson
Bank report to senior management on human capital (2007)
measurements. It is argued that this scorecard
provides detailed insights into how well the bank is
managing people capability and provides early
warning signals of areas that need to be improved
before they become major challenges.
Emphasises the importance of: (i) measuring what
adds value rather than what is easy to measure; (ii)
ensuring all data is valid so as not to undermine
scorecard validity; and (iii) integrated analysis of
measures.
Skandia This Swedish investment services company has Lengnick-Hall and
used a set of HC measures for at least 20 years. Lengnick-Hall (2003)
The case study highlights the benefit of building up
data over time for comparison.
Unspecified retailer Reports on how HR analytics were used to a Douthit and Mondore
specific business issue: the loss of saleable (2014)
products due to damage or theft by employees and
non-employees (that is, product shrink). Cause
effect relationships were established between HR
processes and product shrink using structural
equations modelling (SEM). The analysis revealed
key drivers included: manager competency
performance ratings, number and location of
terminations on grounds of dishonesty, and
participation in courses on ethics. Subsequently
key drivers of product shrink were added to the HR
scorecard and improvement goals set. Cases for
investments in these drivers were made, with ROI
calculations, and as a result product shrink was
reduced substantially.
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be underestimated. The article suggests that out-
of-the-box reporting systems using standard
metrics might be more beneficial than bespoke
systems, even in large organisations.
Gap Reports on an analytics initiative at a clothing Re:Work (2016)
retailer. A workforce analytics team worked with
and trained the companys HR professionals in
workforce data collection and reporting. Central to
the purpose of the training was to ensure
consistency of data collection across the different
parts (that is, brands) of the business. Specifically
emphasis was placed on collecting metrics related
to recruitment, departures, demographics, learning
and development, and internal mobility. As a result
consistent reporting to senior management via
reporting dashboards produced by software that
was inscribed with analytical capabilities. We might
learn from this that to implement workforce
analytics so that it is useful to managers making
decisions, it is essential to invest in the design and
implementation of appropriate training over a
sustained period of time.
Halfords This case study demonstrates: (i) how a focus on CIPD (2015), Valuing your
HC can help to improve performance, and (ii) how Talent (2016a)
the investment community is apparently reluctant to
consider HC as central to their investment decision-
making. Halfords, a specialist retailer of leisure (for
example bicycles) and car products had a high
turnover of staff and yet it was recognised that this
business relied upon expert advice and service
from the employed sales staff. An HC-centric
strategy was devised to transform the companys
performance, focusing on recruitment, training and
development, and engagement. When this strategy
was announced to the investor community, the
companys share price went down considerably
and very few of the investors appeared to see the
value in the HCM strategy narrative, instead asking
questions unconnected to the strategy. Sales
subsequently improved as did the share price, as
the company reported that staff turnover had fallen
from 21% to 10% and engagement had risen from
64% to 80% in the first year of the HCM strategy.
Maxon Telecom In this case study, multiple HC or HC-related Mouritsen et al (2004)
measurements are reported upon within the
companys intellectual capital statement that is
published as an addendum to the financial
statement. Each measure relates to a different
prevailing management challenge relating to
strategy: product development; improvement of
personal skills; ensuring products are on time;
creating knowledge of and competencies within
current and future technologies.
The following conclusions are made:
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The intellectual capital statement
(containing HC indicators) functions as: (i) a
communication tool to inform (potential)
investors, employees, partners, and
customers on how the company develops
its knowledge resources to generate value,
and (ii) an internal management mechanism
by which knowledge management activities
can be systematised and developed.
Measurements help the company to
develop information/knowledge about its
strategic progress, aiding decision-making
towards a better future.
The discipline of reporting on human capital
for the investment community ensures the
capture of HC data, which might then be
used by management in decision-making.
Royal Bank of This study reports on the strategic value of Boudreau and Jesuthasan
Scotland (RBS) conducting an employee survey and analysing the (2011), Holbeche (2014)
data using specialist HR analytics expertise.
Focuses on the use of RBSs global employment
survey. The results from the survey were
summarised for management with key
contextualised indices: employee engagement;
leadership effectiveness; talent effectiveness; and
risk effectiveness. Through analysis done by a
specialist HR analytics team with analytical skills, it
was possible to identify a category of key workers
who were striving but inclined to leave. Analysis of
other data illustrated to management that in some
places 65% of all hires left the bank after 7 to 12
months and that simply pointing this out was
enough to drive changes that got this figure down
to 15%. Survey results are compared against
industry benchmarks and results communicated
widely, including the investor community, within
annual reports and corporate social responsibility
reports and at investor meetings. The study points
to the importance of: (i) collecting and analysing
qualitative data to give substance to quantitative
analysis, and (ii) presenting collected data in a
meaningful way.
Walmart Reports on how quantitative and qualitative data, Haube (2015)
including HR data, from across the organisation is
analysed and reported as capability metrics,
tailored to the needs of different business unit
leaders. Specifically, staff turnover, absenteeism
and transfers have been given particular attention
with links made between this, and other, HR data to
wider business metrics, specifically those related to
customer experience and sales figures. The study
suggests that reporting should include analysis of
qualitative data as well as quantitative data.
55
Part 4: Case studies related to financial performance outcomes
56
organisational perspective there was a clear
productivity issue. The analysis sought to shed light
on what work drove value for the company, and
what work might be labelled overhead or
bureaucracy.
Xerox Reports on collaborative working between the HR Hesketh (2014d)
and finance functions to support strategic
objectives. Underpinning this initiative was
recognition that people are central to the
intangibles that add value to an organisation and
therefore need to be understood in terms that
recognise the components of that value (for
example length of tenure). The key learning from
this case study is that the HR and finance functions
need to operate together to achieve shared
corporate understanding and thus be able to avoid
contentious thinking that will undermine HR
analytics initiatives.
57
was discovered that when workers felt safer at
work they treated patients more effectively. As a
result of this analysis the organisation raised the
sense of urgency around safety even higher. Thus
the data was used to support the improvement of a
critical business outcome.
Global Package Case study detailing the identification of a HCMI (2016c)
Providers relationship between leadership quality and
organisational performance/workforce productivity,
and areas for improvement.
IBM Reports on potential for diversity data supporting Creelman (2007)
achievement of strategic objectives. This case
study points to how IBM recognised the strategic
significance of diversity for pursuing contracts in
the SME marketplace, specifically how it needed to
be alert to issues of diversity in order to be
successful with SMEs from diverse cultures.
ISS Reports on how data analysis demonstrated that Andersen et al (2015)
employee engagement correlated strongly with
customer experience. The analysis identified that
the primary drivers behind customer experience
were the motivation and engagement of service
staff, the amount of training, the quality of service
staff, and the service staff knowledge of customer
expectations. The suggestion is that in analysing
collected HC data, it is important to identify
correlations between it and other internally
collected data to support strategic decision-making.
JetBlue Case study that links employee engagement HCMI (2016b)
measures to customer relationships and
profitability. Analysis showed how company
compared with competition and guided decision-
making relating to achievement of outcomes on
customer satisfaction.
McDonalds Reports on the impact of 100 different measures of Sparrow et al (2010)
Restaurants (UK) the performance of 635 McDonalds restaurants in
the UK. These measures were analysed alongside
employee demographic data and engagement
data. Significant findings from this analysis
included: (i) employing older people has
performance benefits (for example customer
satisfaction was 20% higher in restaurants that
employed staff over 60); (ii) a positive workforce
(as shown in engagement survey data) brings in
customers and drives sales. As a result of these
findings, the corporate performance dashboard was
redesigned to give greater emphasis to HR data in
decision-making.
Richer Sounds Reports on how HC data was used to encourage Holbeche (2014)
(retailer) and monitor innovative thinking. Measures
employed included: number of suggestions for
improvement made by staff, number of suggestions
implemented and number of brainstorming
sessions held.
58
Royal Bank of First reports on how diversity data might be used in Boudreau and Jesuthasan
Canada (RBC) strategic decision-making. Describes how RBC (2011)
used HR diversity data to help fulfil a strategic
objective of winning the banking business of
migrants into Canada. Through exploitation of this
data they were able to serve customers using over
150 languages, thus aligning their HR strategy and
marketing strategy. By measuring diversity patterns
within the workforce and using that diversity data,
the companys perceptions about diversity shifted
from having diversity to doing something with
diversity.
Second, reports on how data from employee
surveys might be analysed in multiple ways to
support management decision-making. Describes
usefulness of analysing engagement measures
collected via an employee opinion survey (EOS).
The survey was linked to the HR information
system so that analysis could be done on different
groups of employees (for example by classical
segments such as gender, or by more considered
segmentation). The objective of such segmented
analysis was to find meaningful differences and
point these out to leaders.
59
Appendix 3: Methods for conducting
the literature review
To facilitate this summary, we first undertook a structured systematic review of the literature
(Tranfield et al 2003), with concern for three factors: relevance, quality and recentness. This
review method is illustrated in Figure A1.
First, a number of online academic referencing databases were searched, with greatest
attention focused on EBSCO, Web of Science and Google Scholar. We searched using the
terms human capital, human capital measure, human capital metric and human capital
reporting. Given constraints of time and resources, the search, which was completed
between May and August 2016, focused on the period 200516. Even with this constraint,
these search terms returned a very high number of resources. For example, human capital
returned 111,852 items, human capital measure 5,048 items. We filtered by selecting
relevant topics, specifically those related to human resource management. This removed
most articles that interpreted human capital from a social rather than business perspective.
We then scan-read the titles provided for those resources and selected those resources that
offered the most promise in relation to our terms of reference. Where the number of
resources returned was not too high (for example a search on human capital metrics
returned 418 items), we manually scanned the titles of these resources and downloaded
those that were relevant to our terms of reference. Although many articles were returned by
60
the search engines, when we scanned the high-level information concerning these articles
(that is, title, journal, publication date, abstract), with concern for the three factors of
relevance, quality and recentness, it was found that the majority did not warrant further
consideration. We also made use of the citation measurement functionality that Google
Scholar offers to help us in making judgements on the significance of articles.
Second, to track down relevant contemporary grey literature reflecting impactful human
capital measurement practice (that is, highly rated in terms of relevance), we used the main
Google search engine using relevant terms. Similarly, we also used the social networking
platforms of Twitter and LinkedIn to identify recent grey literature material from recognised
thought leaders in the field, for example by searching through the Twitter feeds of
@hrcurator (run by Dave Milner of IBM) and @david_green_uk (also IBM), who are some of
the more active disseminators of thought leadership material on HC metrics and analytics.
Finally, to confirm our familiarity with the popular business and academic literature on the
subject published in book form, we searched the universitys library database and Amazon
for books on the theme of human capital measures, metrics or reporting. Additional credible
literature identified in this way was borrowed, purchased or ordered via the Interlibrary Loan
Service.
Note that the quantity of the grey literature published on the web via social networking sites,
company websites and personal blogsites has continued to expand since this review was
completed. It has not been possible to consider articles, and so on, published since August
2016.
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Chartered Institute of Personnel and Development
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Issued: May 2017 Reference: 7501 CIPD 2017