Profit from your human capital

Managers notice when you put a pound sign on the cost of staff turnover, but they struggle to understand the ‘soft’ measures of commitment, loyalty and satisfaction that will reduce it.

Financial analysts now agree that in a knowledge-driven economy intangible value is an increasingly large component of organisational value. CIPD research demonstrates the impact that people and the policies and practices to manage them have on the bottom line.

In 1997, we published work from Sheffield University showing that HR management accounts for 17% of the difference in profitability between manufacturing companies. And in 2000, our work with Professor David Guest at London’s Kings College demonstrated a strong correlation between the quality of people management and financial performance.

Further work with Bath University published in 2003 confirms that companies with higher levels of job satisfaction, commitment, loyalty and motivation among their employees will be more successful in generating ‘discretionary behaviour’. This is the kind of behaviour that really makes a difference to the bottom line, brings customers back and delivers service that out performs the competition.

Despite this, major business decisions are still being made with little or no regard to human capital. If business strategy is about deploying assets to maximum effect – how can it succeed without a detailed understanding of human capital and what it is capable of? How can investors make long term judgements about performance without adequate information about such a major asset?

Smart companies generate human capital data, which they use to improve the quality of management and to position themselves as an ’employer of choice’. If we are going to improve the productivity of UK plc then we must accelerate this trend and take every opportunity to persuade organisations to improve their understanding of human capital.

Angela Baron is organisation and resourcing adviser at the CIPD.

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