WEST LONDON BRANCH
So what’s the Difference between Human
Capital and Human Resources?
Andrew Mayo, Professor of Human Capital at
Middlesex University,President of the HR Society
and
Director, Mayo Learning International Ltd
January 15 2008
Developing Human Capital
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© Andrew Mayo 2008
Are people
our greatest
asset?
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© Andrew Mayo 2008
THE VALUE OF THE
ORGANISATION
“INTELLECTUAL CAPITAL”
(intangible assets)
FINANCIAL AND PHYSICAL CAPITAL
(tangible assets)
CUSTOMER
or “Relationship”)
CAPITAL
Developing Human Capital
STRUCTURAL
(or “Organisational”
CAPITAL
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HUMAN
(or “Competence”)
CAPITAL
© Andrew Mayo 2008
But not all people
a) have the same opportunity to
add value
b) within the same job add the
same amount of value
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© Andrew Mayo 2008
SHOULD WE BE MORE SOPHISTICATED WHEN WE
LOOK AT OUR HUMAN RESOURCES?
Cat
Type of resource
Indicators
1
A means of production – a “machine-substitute” Cost per unit
Productivity
2
A “maintenance worker” – keeping things going #: direct#
Cost:unit of value
3
Direct provider of value to a stakeholder
Value yield/cost
4
Creator of more/different future value
RoI over a period
Note: some roles combine these contributions
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© Andrew Mayo 2008
Another way of dividing our Human Capital
Difficult to Replace
Difficult to Replace
Low Value Added
High Value Added
MOTIVATE
RETAIN
Easy to Replace
Easy to Replace
Low Value Added
High Value Added
OUTSOURCE
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SUBCONTRACT?
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© Andrew Mayo 2008
PEOPLE…
Human Resources
•
•
•
•
•
•
Human Capital
•
•
•
•
•
•
costs
headcount
labour resource
need regulation
need management
need satisfaction
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assets with value
diverse individuals
value creating
need guidance
need objectives
need engagement
© Andrew Mayo 2008
PEOPLE RELATED MEASURES
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© Andrew Mayo 2008
FOUR MEASUREMENT AGENDAS FOR HR
(often confused)
The HR Function
The effectiveness and contribution of the HR function
The RoI of specific HR initiatives
Human Capital
Statistics and ratios about the workforce
(and any financial implications)
Linking the value, motivation and contribution of people
The latter is not dependant on an HR function. But a prime
focus of HR’s strategic contribution should be to maximise it.
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© Andrew Mayo 2008
Some 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
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© Andrew Mayo 2008
“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.........
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© Andrew Mayo 2008
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
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© Andrew Mayo 2008
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?
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A NEW BUSINESS MODEL
Where we Have Been
££
Where we are Now
Budget statement
Balance Sheet
Profit and Loss Account
Assets and Liabilities
Balance Sheet
People Plan Report
People Monitor
Developing Human Capital
Assets and Liabilities
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© Andrew Mayo 2008
ORGANISATIONS ONLY EXIST
TO CREATE VALUE FOR THEIR
STAKEHOLDERS
This is the only true measure
of performance
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© Andrew Mayo 2008
THE VALUE CHAIN
Leadership
Policy and Strategy
OUTCOME
INPUT
Money
Tools
People
Processes
Technology
Systems
Measure of
Value In?
Developing Human Capital
Values
Culture
Efficiency?
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Value
Provided
To
Stakeholders
Measure of
Value Out?
© Andrew Mayo 2008
How can we connect the key measures
that relate to human capital?
Performance =
f( human capital value) x (engagement)
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© Andrew Mayo 2008
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
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© Andrew Mayo 2008
OUR PEOPLE - TWO KEY QUESTIONS
People are a cost, BUT they also have value in themselves:
– their capability,experience, motivation, effort
How do we (Management + HR) maximise the value
of the people available to us?
They use this to add value to other stakeholders of
the organisation, - owners, customers, suppliers,
Governments, communities, and so on
How do we (Management + HR) help to maximise the
value that people add to our other stakeholders?
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© Andrew Mayo 2008
But there’s a third set of
questions…..
What is it about the working
environment itself that will
optimise this value chain?
And how do we “measure” that?
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© Andrew Mayo 2008
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
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© Andrew Mayo 2008
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”
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© Andrew Mayo 2008
“Human Capital Index” - Example
Component
Contribution
Potential
Capability
Values Alignment
Factor
value
Weighting
Weighted
value
1.7
1.0
1.5
1.5
0.35
0.20
0.30
0.15
0.595
0.200
0.450
0.225
“Human Capital Index” =
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1.470
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© Andrew Mayo 2008
The Value in a Group
Employee
Capability
Personal
factor(20%)
attitudes(20%)
Contribution
factor (30%)
Values
factor (15%)
Potential
factor(15%)
“HC“ Index
(100%)
A
1.7
1.6
1.8
1.6
1.9
1.725
B
0.7
1.0
0.8
0.8
0.7
0.805
C
1.4
1.1
0.8
1.6
0.9
1.115
D
1.6
1.7
1.5
1.0
1.5
1.485
E
1.0
0.8
0.9
1.1
1.0
0.945
Average per
employee
1.28
1.24
1.19
1.22
1.20
1.215
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© Andrew Mayo 2008
THE “HUMAN CAPITAL SUMMARY” ENABLES US
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
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© Andrew Mayo 2008
Maximising Human Capital Value
(= talent management)
For the four key processes of:
acquisition
retention
growth
exiting
 what are the indicators of being successful? (“outputs”)
 what are the “drivers” of being successful? (“inputs”)
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© Andrew Mayo 2008
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
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© Andrew Mayo 2008
The Towers Perrin model of engagement
Rational Engagement
Emotional Engagement
I understand how my unit
contributes to the success of
my company
I would recommend my
company to a friend as a
good place to work
I understand how my role is related
to my company’s overall goals,
objectives, and direction
My company inspires
me to do my best work
I am proud to tell others
I work for my company
I am willing to put in a great deal
of effort beyond what is normally
expected to help my company
succeed
My job provides me with
a sense of personal
accomplishment
I really care about the future
of my company
Developing Human Capital
I am personally motivated to help
my company be successful
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© Andrew Mayo 2008
An environment which maximises engagement -
output and input indicators
• leadership
• nature of the workplace
• management style
INDICATORS OF
COMMITMENT/
ENGAGEMENT
• the challenge of
the work itself
• sickness and reasons
• attrition and reasons
• opinion surveys
• nature of the workgroup
Developing Human Capital
• rewards and
recognition
• investment in learning
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© Andrew Mayo 2008
12 Questions needing a positive answer
1.
2.
3.
4.
5.
6
7.
8.
9.
10.
11.
12.
Do I know what is expected of me at work?
Do I have the materials and equipment I need to do my work right?
At work, do I have the opportunity to do what I do best every day?
In the last seven days have I received recognition or praise for good work?
Does my supervisor, or someone at work, seem to care about me as a
person?
Is there someone at work who encourages my development?
At work, do my opinions count?
Does the mission/purpose of my company make me feel like my work
is important?
Are my co-workers committed to doing quality work?
Do I have a best friend at work?
In the last six months have I talked to someone about my progress?
At work, have I had opportunities to learn and grow?
Buckingham “First Break All the Rules”…from a million pieces of Gallup data
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© Andrew Mayo 2008
Having decided on our measures
we now need to integrate them,
correlate them, and understand
cause and effect
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© Andrew Mayo 2008
The People Monitor – Group XX
Commitment
and engagement
People as Assets
“GREAT PEOPLE”
The value of the
people we have,
using our chosen
index
Contribution to
added value
IN A “GREAT
PLACETO WORK”
GREAT RESULTS
Input measures
x
The factors that
lead to engagement
of this group
=
The measures of
value for
stakeholders
or of
productivity
Maximising the value
Measures of human
capital management
processes – both inputs
and success indicators
Developing Human Capital
Success indicators
The measures of
commitment and
engagement
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© Andrew Mayo 2008
The People Monitor – Group XX
Commitment
and engagement
People as Assets
“GREAT PEOPLE”
The value of the
people we have,
using our chosen
index
Contribution to
added value
IN A “GREAT
PLACETO WORK”
GREAT RESULTS
Input measures
x
The factors that
lead to engagement
of this group
=
The measures of
value for
stakeholders
or of
productivity
Maximising the value
Measures of human
capital management
processes – both inputs
and success indicators
Developing Human Capital
Success indicators
The measures of
commitment and
engagement
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© Andrew Mayo 2008
The Monitor is like an “Human Capital Operating Statement” we can also have:
THE HUMAN CAPITAL BALANCE SHEET
ASSETS
Factors on the
Operating Statement
that are at or ABOVE
target
OUR PEOPLE
•
•
MOTIVATION/ENVIRONMENT
•
•
VALUE ADDED
•
•
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LIABILITIES
Factors on the
Operating Statement
that are BELOW target
OUR PEOPLE
•
•
MOTIVATION/ENVIRONMENT
•
•
VALUE ADDED
•
•
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© Andrew Mayo 2008
Assessing the Value of Customer Service Officers at Lloyds TSB
CSOs as Assets
CSO Motivation
Drivers
CSO Contributions
to Added Value
 Business
capabilities
 Competencies
and behaviours
 Performance




 Change in CSO
performance leading
to….
 Improved service
delivery on scorecard
+
MEASURES
 Set benchmarks
 Quarterly PM
assessments
 Specific HR data
 Review
 Use interventions
Task achievement
Team/workgroup
Customer service
Recognition
MEASURES
 Set benchmarks
 Quarterly CSO
surveys
 Specific HR data
 Review
 Use interventions
=
MEASURES
 CARE
surveys/complaints
 Observations of CSOs
 Mystery shoppers
 Review
HR Team-Manager Interventions
•Work on perception versus reality of good service
•Improve People Development focus of scorecard
•Improve management capability through coaching
Improves CSO
Performance
Taken from Evaluating the Role & Contribution of HR, Careers Research Forum, 2004
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© Andrew Mayo 2008
STANDARD CHARTERED BANK
Hong Kong: Profit margin
Ghana: Deposit growth
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16% higher profit margin
growth
17
16
15.4
15
14
Bottom quartile
branches
100%
60%
40
31
30
20
Bottom quartile
branches
Top quartile
branches
Zambia: Customer fraud
5000
91%
1.9x more likely to
stay
3900
4000
49%
40%
36x higher loss in less engaged
branches
3000
2000
1000
20%
0%
50
0
Top quartile
branches
$ per annum
80%
54
74% higher deposits
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Kenya: Intention to stay
% ‘strongly agree’
60
18
Deposit growth (%)
% Profit margin increase
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Developing Human Capital
Bottom quartile
branches
Top quartile
branches
0
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© Andrew Mayo 2008
Bottom quartile
branches
Top quartile
branches
Higher Employee Engagement Results in
Less Shrinkage – Higher Profit at B&Q
Average monthly shrinkage
by employee engagement groups
(per square foot, Feb ‘01 to Jan ‘02)
Employee Engagement Groups
LOWER THREE QUARTILES
BEST QUARTILE
A difference of
£35million a year
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© Andrew Mayo 2008
Thanks for listening!
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www.mayolearning.com
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© Andrew Mayo 2008