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Making Human Capital Measurements Add Up

February 26, 2001
Related Topics: HR Services and Administration, Workforce Planning, Featured Article
Everyone wants to find a measurementsystem that works, but Pete Ramstead, executive vice president of strategy andfinance for Personnel Decisions International in Minneapolis, says the emphasisshould be on finding a sound logic to connect those measures to the business.“For example, [with] cost-to-hire and time-to-fill, without any way to measurehow good the candidates are that you’re hiring, you understand onlyefficiency, not effectiveness,” he says.

    Frustrated with thelack of decision logic to go along with HR measurements, Ramstead teamed up fiveyears ago with John Boudreau, director of Cornell University’s Center forAdvanced HR Studies, and created the Human Capital Bridge Framework, whichenables companies to translate what employees do into financial capital.

    Value is determinedby measuring which talent pools are critical to a company’s success, saysRamstead. “Think of it this way: a marketing department would never try todesign an advertising program until they measured which customers are mostimportant to them. Yet because HR is a propose-and-defend trap, they don’tthink strategically about issues of business.”

    Ramstead disagreeswith companies like Skandia, which feels it necessary to include information inits annual report about human capital. “Nothing about the talent, like hoursof training per employee, needs to be included in an annual report. If you wantto communicate to shareholders how you’re doing in human capital measures, youshould explain how you’re managing that capital and the measurements that showhow you do it.”

    Ramstead andBoudreau suggest asking the following seven questions before designingor implementing a measurement system:

  1. Are the connections between thehuman-capital metrics and the ultimate success of the organization clear andcompelling?

  2. When the organization’s strategieschange, do the measures identify where human capital strategies need tochange?

  3. Does the measurement system supportthe development of human capital strategies tailored to the organization’sunique competitive advantage?

  4. Will the measurement system drivedistinctive human capital investments to the talent group that has thepotential to create the greatest economic impact?

  5. Can the measurement system supportdecisions about HR programs before they are implemented (rather than after)?

  6. Can the measurement system revealwhen HR programs should be discontinued?

  7. Does the measurement frameworkidentify how talent creates value within the organization in a way that isunderstandable and motivating to all employees?

Workforce, February 2001, Vol80, No 2, p. 36  Subscribe Now!

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