Human Capital Measurement: From Insight to Action

Organization Development Journal, Fall 2007 by Whitaker, Debbie, Wilson, Laura

Abstract

Human capital has attracted a plethora of media and consultancy research attention but remains subject to much debate and is sporadic in implementation. Human capital represents a powerful tool for human resources professionals to continue its strategic evolution to report, track, and impact strategy and organizational performance. This article details a practical definition and application of human capital at Standard Chartered Bank to provide practical guidance for human resource professionals.

Introduction

A world increasingly defined by worldwide economic uncertainty, global expansion and rapid technological change only serves to highlight the differentiating role of people in organizations. Competitive advantage lies in innovation, discretionary effort, thought leadership and service excellence - areas which remain unaccounted for in traditional accounting and which organizations are typically unskilled in measuring. In fact, in knowledge and service economies, people provide both the biggest value and cost to the organization.

This paper will define human capital measurement and management and explore recent interest in the subject. It will then discuss the application of human capital management at Standard Chartered Bank, focusing on its Human Capital Scorecard, to highlight the value obtained through the successful application of human capital in a global organization. This paper will identify the conceptual approach, examples of the measures applied, data reporting, and how the data is analysed and monitored. The paper will also detail the challenges faced by the Bank and the lessons learned in the implementation of a human capital strategy to provide practical guidance for human resource and other organizational professionals regardless of their starting point on the journey.

Defining Human Capital

The roots of human capital lie in economics rather than management theory, particularly regarding the economic progression of developing countries. In terms of organizations, human capital is defined as:

"an approach to people management that treats it as a high-level strategic issue and seeks systematically to analyse, measure and evaluate how people policies and practices create value" (Accounting for People, 2003, p.3).

Similarly, the Chartered Institute of Personnel and Development in the United Kingdom states that/'human capital is the skill, experience and capacity to develop and innovate, that is owned by individuals" (Chartered Institute for Personnel and Development, 2006, p.6).

However, the broad nature of these definitions highlights that there are two clear parts of human capital - how the impact is measured and how it is subsequently managed. The term human capital management is often used interchangeably to refer to both when in fact they are complementary but fundamentally different fields. At Standard Chartered Bank, the term human capital is used to refer to the talents, skills and knowledge of employees. Human capital management concerns how these capabilities are developed and productively applied to deliver business performance and long-term strategic goals. However, human capital measurement focuses on the analytics deployed to measure and report on how well human capital management strategies and interventions are delivering these desired capabilities.

Human capital management has attracted an increasing interest over the last three years from not just the human resources profession, media, and consultancy research, but more recently analysts and business commentators. This interest is evidenced by the proliferation of articles and discussion on human capital in the professional press over the last three years. There is almost unanimous support for the measurement of human capital internally and externally to the organization, yet the term remains subject to debate and its implementation varies widely. This is coupled with the preoccupation of whether human capital is a fad or the future of Human Resource Management (HRM). In reality, it does not supersede HRM, nor is it purely a measurement-based approach to HRM - they are entirely complementary.

The prevalence of human capital is set to increase as organizations become more focused on managing intangible assets, as senior management becomes more interested in the impact on bottom line results, as technology evolves and analysts and investors demand improved information relating to the management of people as a contributor to shareholder value. Standard Chartered is considered to be one of the UK's leaders in the practice of human capital measurement. Following a brief introduction to the organization, this article will detail the successful implementation of human capital and the application of data to add real strategic value.

Standard Chartered Bank

Standard Chartered employs almost 60,000 people in 1,500 branches and offices across 56 countries and territories in Asia, Africa and the Middle East. Headquartered in London, the Bank provides consumer and wholesale banking services dating back to the 1850s. The Bank is listed on both the London and Hong Kong stock exchanges, and is a Financial Times Stock Exchange (FTSE) 25 organization by market capitalization in the UK. The Bank has doubled both revenue and headcount in the last three years and aspires to continue this momentum, both through organic growth and selective acquisitions in key growth markets.