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Developing Human CapitalDeveloping Human Capital © Andrew Mayo 20081
Andrew Mayo, Professor of Human Capital atMiddlesex University,President of the HR Society
andDirector, Mayo Learning International Ltd
January 15 2008
So what’s the Difference between Human Capital and Human Resources?
WEST LONDON BRANCH
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 20082
Are peopleour greatest
asset?
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 20083
CUSTOMER STRUCTURAL HUMANor “Relationship”) (or “Organisational” (or “Competence”) CAPITAL CAPITAL CAPITAL
THE VALUE OF THE ORGANISATION
FINANCIAL AND PHYSICAL CAPITAL (tangible assets)
“INTELLECTUAL CAPITAL” (intangible assets)
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 20084
But not all peopleBut not all people
a) have the same opportunity to add value
b) within the same job add the same amount of value
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 20085
SHOULD WE BE MORE SOPHISTICATED WHEN WE SHOULD WE BE MORE SOPHISTICATED WHEN WE LOOK AT OUR HUMAN RESOURCES?LOOK AT OUR HUMAN RESOURCES?
A means of production – a “machine-substitute”
A “maintenance worker” – keeping things going
Direct provider of value to a stakeholder
Creator of more/different future value
Cat Type of resource Indicators
1
2
3
4
Cost per unitProductivity
#: direct#Cost:unit of value
Value yield/cost
RoI over a period
Note: some roles combine these contributions
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 20086
Another way of dividing our Human CapitalAnother way of dividing our Human Capital
Difficult to Replace
Low Value Added
Easy to Replace
Low Value Added
Difficult to Replace
High Value Added
Easy to Replace
High Value Added
MOTIVATE RETAIN
OUTSOURCE SUBCONTRACT?
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 20087
PEOPLE…PEOPLE…
Human CapitalHuman Capital
• costs• headcount• labour resource• need regulation• need management• need satisfaction
Human ResourcesHuman Resources
• assets with value• diverse individuals • value creating• need guidance• need objectives• need engagement
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 20088
PEOPLE RELATED MEASURESPEOPLE RELATED MEASURES
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 20089
Linking the value, motivation and contribution of people
FOUR MEASUREMENT AGENDAS FOR HR FOUR MEASUREMENT AGENDAS FOR HR ((often confused)often confused)
The effectiveness and contribution of the HR function
The latter is not dependant on an HR function. But a prime focus of HR’s strategic contribution should be to maximise it.
Statistics and ratios about the workforce (and any financial implications)
The RoI of specific HR initiatives
Human CapitalHuman Capital
The HR FunctionThe HR Function
VALUE FOR MONEY
VALUE FOR MONEY
VALUE FOR STAKEHOLDERS
VALUE FOR STAKEHOLDERS
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200810
Some Basic PrinciplesSome Basic Principles
• There are different audiences for HUMAN CAPITAL measures - which can be categorised into external and internal
• The External (investors, journalists, competitors, governments) are interested in confidence, benchmarking and compliance
• Internal (senior management and managers) are interested in comparative performance and performance improvement
• To be useful internally, people measures must be linked to performance and be relevant to specific groups
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200811
“What counts can often not be counted
- and what can be counted often does
not count.”Albert Einstein
But what gets measured gets attention, and gets managed.........
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200812
A Dilemma in People Management
We know all the costs of our “human resources”
We often say they are our “most important assets”
But we don’t know how to balance the costs with any quantitative measure of their value
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200813
More Challenges …More Challenges …
1. How do we recognise the intrinsic diversity in the value of people, and find a way to quantify it through understanding their personal human capital?
2. How do we set up a framework of people-related measures that will form an intrinsic part of an organisation’s performance measurement system?
3. How do we quantify the value – financial and non financial - that is added to each stakeholder through the people that we have?
4. How do we ensure that value is increased, and not lost, when organisations merge and restructure?
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200814
Budget statement
Profit and Loss Account
People Plan Report
People Monitor
££Balance Sheet
Assets and Liabilities
Balance Sheet
Assets and Liabilities
Where we Have Been Where we are NowWhere we Have Been Where we are Now
A NEW BUSINESS MODELA NEW BUSINESS MODEL
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200815
ORGANISATIONS ONLY EXISTORGANISATIONS ONLY EXISTTO CREATE VALUE FOR THEIRTO CREATE VALUE FOR THEIR
STAKEHOLDERS STAKEHOLDERS
This is the only true measure This is the only true measure of performance of performance
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200816
Money
People
Technology
Tools
Processes
Systems
LeadershipPolicy and Strategy
Values Culture
Value Provided
ToStakeholders
THE VALUE CHAINTHE VALUE CHAIN
Measure ofValue In?
Efficiency?
Measure ofValue Out?
OUTCOMEINPUT
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200817
How can we connect the key measures How can we connect the key measures that relate to human capital?that relate to human capital?
Performance =Performance = f( human capital value) x (engagement)f( human capital value) x (engagement)
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200818
Key Point One: Most organisations have some bits and pieces of measures. BUT
they are usually stand alone and unconnected, and it is rare indeed for
people to tackle the question of how we value people themselves
Key Point Two: If we want to make a difference, we must look at groups of people who share a “common value
chain” i.e have similar characteristics and whose role is to produce the same
kind of value added
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200819
People are a cost, BUT they also have value in themselves: – their capability,experience, motivation, effort
They use this to add value to other stakeholders ofthe organisation, - owners, customers, suppliers,Governments, communities, and so on
How do we (Management + HR) maximise the value of the people people available to us?
OUR PEOPLE - TWO KEY QUESTIONSOUR PEOPLE - TWO KEY QUESTIONS
How do we (Management + HR) help to maximise the value that people add to our other stakeholders?other stakeholders?
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200820
But there’s a third set of But there’s a third set of questions…..questions…..
What is it about the working What is it about the working environment itself that will environment itself that will optimise this value chain?optimise this value chain?
And how do we “measure” And how do we “measure” that?that?
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200821
The Value of People The Value of People
Current Value reflects their cumulative capability as of today and their performance
Future Value reflects their potential to do something bigger or broader in the future
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200822
Quantifiying the Value of People Quantifiying the Value of People
• We cannot get a useful monetary value of people
• But we can identify the key factors that make people in a particular group valuable to us
• The factors can be rated on a suitable scale, for example 0.1 to 2.0 where 1.0 is a median – or on a 1-10 scale
• Then by weighting the factors we can create an index of value
• The resulting analysis becomes a basis for “human capital management”
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200823
“Human Capital Index” = 1.470
““Human Capital Index” - ExampleHuman Capital Index” - Example
Component Factor Weighting Weighted value value
Contribution 1.7 0.35 0.595Potential 1.0 0.20 0.200Capability 1.5 0.30 0.450Values Alignment 1.5 0.15 0.225
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200824
The Value in a GroupThe Value in a Group
EmployeeCapability
factor(20%)Contributionfactor (30%)
Valuesfactor (15%)
Potential
factor(15%)
A 1.7 1.725
B 0.7 0.805
C 1.4 1.115
D 1.6 1.485
1.0 1.0 0.945
Average peremployee 1.28 1.215
1.6
1.0
1.8
0.8
1.6
0.8
1.1
1.7
0.8
1.5
1.6
1.0
0.8
1.24
0.9
1.19
1.1
1.22
1.9
0.7
0.9
1.5
1.20
Personalattitudes(20%)
E
“HC“ Index (100%)
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200825
THE “HUMAN CAPITAL SUMMARY” ENABLES US THE “HUMAN CAPITAL SUMMARY” ENABLES US TO…..TO…..
• track the increase or decrease of our “human capital” • understand the value that is associated with an employee cost (within a group)
• understand the relative value of individuals and teams
• helps focus action towards increasing our human asset value
• analyse the distribution of the factors that make people valuable to us
TRULY STRATEGIC!!
TRULY STRATEGIC!!
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200826
Maximising Human Capital ValueMaximising Human Capital Value(= talent management)(= talent management)
acquisition retention growth
For the four key processes of:
what are the indicators of being successful? (“outputs”) what are the “drivers” of being successful? (“inputs”)
exiting
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200827
What is employee engagement?What is employee engagement?
An engaged employee:
•Is 100% committed to the achievement of “our” departments’ results
•Cares enough give “discretionary effort” (beyond the call of their contract)to the organisation
•Is unlikely to leave the organisation
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200828
The Towers Perrin model of The Towers Perrin model of engagementengagement
Emotional Engagement
I would recommend my company to a friend as a good place to work
My company inspires me to do my best work
I am proud to tell others I work for my company
My job provides me with a sense of personal accomplishment
I really care about the future of my company
Rational Engagement
I understand how my unit contributes to the success of my company
I understand how my role is related to my company’s overall goals, objectives, and direction
I am willing to put in a great deal of effort beyond what is normally expected to help my company succeed
I am personally motivated to help my company be successful
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200829
An environment which maximises An environment which maximises engagement - engagement - output and input indicatorsoutput and input indicators
INDICATORS OF COMMITMENT/ENGAGEMENT
• sickness and reasons• attrition and reasons
• opinion surveys
• leadership• nature of the workplace
• nature of the workgroup
• management style
• investment in learning
• the challenge of the work itself
• rewards and recognition
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200830
1. Do I know what is expected of me at work?2. Do I have the materials and equipment I need to do my work right?3. At work, do I have the opportunity to do what I do best every day?4. In the last seven days have I received recognition or praise for good work?5. Does my supervisor, or someone at work, seem to care about me as a person?6 Is there someone at work who encourages my development?7. At work, do my opinions count? 8. Does the mission/purpose of my company make me feel like my work is important?9. Are my co-workers committed to doing quality work?10. Do I have a best friend at work?11. In the last six months have I talked to someone about my progress?12. At work, have I had opportunities to learn and grow?
Buckingham “First Break All the Rules”…from a million pieces of Gallup data
12 Questions needing a positive answer12 Questions needing a positive answer
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200831
Having decided on our measuresHaving decided on our measureswe now need to integrate them,we now need to integrate them,correlate them, and understandcorrelate them, and understand
cause and effectcause and effect
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200832
People as Assets
x =
The value of thepeople we have, using our chosen index
Commitmentand engagement
Contribution to added value
The measures of value forstakeholdersor ofproductivity
The People Monitor – Group XX
Success indicators
Input measures
The factors thatlead to engagementof this group
The measures ofcommitment and
engagement
Maximising the value
Measures of humancapital management processes – both inputsand success indicators
“GREAT PEOPLE” IN A “GREAT GREAT RESULTS PLACETO WORK”
In each of these
focus on what
is important,
the “80%”, that
makes the most
difference
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200833
People as Assets
x =
The value of thepeople we have, using our chosen index
Commitmentand engagement
Contribution to added value
The measures of value forstakeholdersor ofproductivity
The People Monitor – Group XX
Success indicators
Input measures
The factors thatlead to engagementof this group
The measures ofcommitment and
engagement
Maximising the value
Measures of humancapital management processes – both inputsand success indicators
“GREAT PEOPLE” IN A “GREAT GREAT RESULTS PLACETO WORK”
Getting these
measures need not
be a complex
exercise!
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200834
THE HUMAN CAPITAL BALANCE SHEET
ASSETS LIABILITIES
Factors on theOperating Statementthat are at or ABOVEtarget
Factors on theOperating Statementthat are BELOW target
OUR PEOPLE• • MOTIVATION/ENVIRONMENT• • VALUE ADDED• •
OUR PEOPLE• • MOTIVATION/ENVIRONMENT• • VALUE ADDED• •
The Monitor is like an “Human Capital Operating Statement” - The Monitor is like an “Human Capital Operating Statement” - we can also have:we can also have:
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200835
Assessing the Value of Customer Service Officers at Lloyds TSB
CSOs as Assets CSO MotivationDrivers
CSO Contributionsto Added Value
Businesscapabilities
Competenciesand behaviours
Performance
Task achievement Team/ workgroup Customer service Recognition
Change in CSOperformance leadingto….
Improved servicedelivery on scorecard
MEASURES + MEASURES = MEASURES
Set benchmarks Quarterly PM
assessments Specific HR data Review Use interventions
Set benchmarks Quarterly CSO
surveys Specific HR data Review Use interventions
CAREsurveys/ complaints
Observations of CSOs Mystery shoppers Review
•Work on perception versus reality of good service•Improve People Development focus of scorecard•Improve management capability through coaching
HR Team-Manager Interventions
Improves CSO
PerformanceTaken from Evaluating the Role & Contribution of HR, Careers Research Forum, 2004
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 20083683
3900
0
1000
2000
3000
4000
5000
15.4
18
14
15
16
17
18
19
STANDARD CHARTERED BANKSTANDARD CHARTERED BANK%
Pro
fit
mar
gin
incr
ease
Hong Kong: Profit margin
16% higher profit margin growth
Bottom quartile branches
Top quartile branches
31
54
0
10
20
30
40
50
60
Ghana: Deposit growth
Dep
osi
t g
row
th (
%)
74% higher deposits
Bottom quartile branches
Top quartile branches
Bottom quartile branches
Top quartile branches
1.9x more likely to stay
Kenya: Intention to stay
% ‘s
tro
ng
ly a
gre
e’
Bottom quartile branches
Top quartile branches
36x higher loss in less engaged branches
Zambia: Customer fraud
$ p
er a
nn
um
49%
91%
0%
20%
40%
60%
80%
100%
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200837
A difference of £35million a year
Average monthly shrinkageby employee engagement groups
(per square foot, Feb ‘01 to Jan ‘02)
Employee Engagement GroupsLOWER THREE QUARTILES BEST QUARTILE
Higher Employee Engagement Results inHigher Employee Engagement Results inLess Shrinkage – Higher Profit at B&QLess Shrinkage – Higher Profit at B&Q
Developing Human CapitalDeveloping Human Capital © Andrew Mayo 200838
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