Putting a Dollar Value on Talent
How a former chief financial officer is linking human capital metrics to bottom-line results.
When Jeff Higgins was a controller at health care giant Johnson & Johnson, and later the chief financial officer for aerospace firm Klune Industries, he regularly shot down the HR department when they asked for support for projects.
"They never had the numbers to support their business case," Higgins says. "And the other divisions did."
That's long been the problem for human resource. Everyone says that human capital is their most valuable asset, but because the value of talent can be so difficult to measure, few HR leaders over the years have even tried to put metrics around their efforts.
From an accounting standpoint, human capital is defined as a liability not an asset, and that's troubling, Higgins says. "Companies need a standard analytic principle to measure the value of their human capital so they can understand its worth."
When Higgins moved from the finance track to HR, he vowed to change all that. Beginning in 2001, he held several HR leadership roles in banking and real estate companies, where he worked closely with the finance department to build metrics that would quantify the worth of human capital. Then in 2009, Higgins launched the Human Capital Management Institute, or HCMI, a consulting firm that aims to help companies develop human capital analytics.
Higgins and HCMI are part of a growing movement to bring rigorous measurement to the people-management field. Consulting firms and technology vendors are touting products to better assess talent quantitatively. And companies are expanding efforts to dig into their "big people data" for business insights.
HCMI argues that if companies can measure the value of certain types of talent or behaviors, they make workforce investment decisions that will increase revenue, improve productivity and reduce turnover—all of which adds to the bottom line.
"Jeff brings the financial perspective to human capital analytics," says Julia Gometz, former director of people analytics and engagement for JetBlue Airways, and current founder of the Brandful Workforce consultancy. "It's a fresh perspective for human resources."
HCMI helped Gometz identify analytics to quantify the dollar value of highly engaged employees at JetBlue by leveraging public data and internal workforce metrics to identify what drives employees to be highly engaged.
The company already did Net Promoter Surveys of customers to identify those who are likely to recommend the airline to a friend, and it knew that having more engaged employees generated higher scores among customers. Based on suggestions from Higgins, Gometz took the survey process one step further by implementing an employee Net Promoter survey to see which employees would recommend working for the company.
"It gave us the ability to measure engagement and disengagement among employees," Gometz says. The survey results, in combination with other employee metrics, helped Gometz identify groups of employees who were at risk and justified HR decisions to improve those results.
JetBlue went on to conduct the survey year-round on employee anniversaries, so that in any given month the HR department has a pulse on employee net promoter status. Collecting the information over time helps leadership make strategic business decisions around training and management and track employee trends that can affect business results, Gometz says. "Jeff helped us think through how to connect employee measures to the business and how to use that data to identify drivers of engagement."
Human capital analytics can work on more isolated HR activities, as well, Higgins says. For example, HCMI recently helped a national retail firm quantify the value of a single set of sales training modules, and the results were astounding.
By assessing workforce metrics, the firm discovered that the sales associates who completed the optional training courses were more productive on day one than those who didn't, and within three years those employees generated $250,000 more in annual revenue than their peers. Yet only 20 percent of the company's 6,000 sales employees completed the training.
By making it mandatory for the rest of the sales force, the company had an upside potential of $180 million in annual revenue gains, according to Higgins.
Put another way, it shows a more-than-1,000 percent return on investment in the training.
"When you can quantify the upside of HR, it's easy to win support for these programs," Higgins says. And conversely, executives will be more open to supporting HR investments because they understand the ROI they can expect to achieve.
That is one of the real benefits of human capital metrics, says Laurie Bassi, CEO of McBassi & Co., a consulting firm that specializes in human capital analytics. Bassi is leading the Society for Human Resource Management's Investor Metrics Workgroup to develop a standard for measuring human capital metrics. "In the absence of data, the value of the people side of the business doesn't get the attention it deserves," she says. "Human capital metrics can ameliorate that and elevate the HR function in the eyes of leadership, stakeholders and investors."
Sarah Fister Gale is a writer based in the Chicago area. Comment below or email firstname.lastname@example.org.