Industrial and Commercial Training

Optimising human capital: measuring what really matters

Les Pickett

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Les Pickett, (2005),"Optimising human capital: measuring what really matters", Industrial and Commercial Training, Vol. 37 Iss 6 pp. 299 303
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Optimising human capital: measuring what

really matters

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Les Pickett

Les Pickett is Chief Executive of

Pacific Rim Consulting Group,
which has a strategic alliance
partnership with McBassi and
Company, headed up by Lauri
Bassi, former ASTD Vice
President and Director of
Research. E-mail:
lespickett@pacrimconsult.com

Abstract
Purpose Human capital strategies are frequently canvassed in corporate boardrooms and executive
suites but are not effectively implemented. This paper aims to identify core measures that senior
management can use to increase the effectiveness of their investment in their people and improve
organisational performance.
Design/methodology/approach An internationally researched framework for human capital
capability is used as the basis of the paper. This is complemented by an international benchmarking
initiative.
Findings Five key practices that effective organisations use to enhance performance are identified
and current human capital practices of 175 organisations are benchmarked against these critical core
indicators.
Research limitations/implications While the international benchmarking sample does not represent
a large number of participants, the pilot project provides significant feedback and identifies areas in
which the management of human capital can be enhanced. Scope for further research into the
relationship between organisational investment in human capital, future earnings and stock market
pricing.
Practical implications The framework provides a basis for identifying areas for improving the
relationship between an organisations workforce investment and its overall business performance. It
also facilitates the development of a road-map for the human agenda that will have the greatest impact
on the enterprise.
Originality/value An international human capital framework that has been extensively researched and
developed over a number of years in consultation with business leaders to assist senior corporate
executives to increase the return on their investment in people and enhance corporate performance and
profitability.
Keywords Human capital, Leadership, Employees, Optimization techniques
Paper type Research paper

lthough we live and work in the knowledge era we still have industrial era accounting
and reporting systems resulting in many firms playing a knowledge era game by
industrial era rules. One of the more serious long-term implications of this historic
focus is a chronic pressure to under-invest in the development and management of people.

Stock market and shareholder pressure for short-term corporate profits frequently penalises
firms that invest in the development of their people.

This article includes extracts from a

presentation by Les Pickett on
Optimizing human capital: human
resource and people management in
action, Adelaide Graduate School of
Business, 27 April 2005.

DOI 10.1108/00197850510617578

The market tends to regard investment in people as a diversion of profit and does not reward
forward thinking executive teams which invest resources in the development of people to
ensure that the organisation has the ongoing capabilities for future growth and success,
Sustainable profitability, particularly in high cost developed nations, requires a strong focus
on human capital as people provide the only enduring source of wealth creation in the
knowledge era.

VOL. 37 NO. 6 2005, pp. 299-303, Q Emerald Group Publishing Limited, ISSN 0019-7858

INDUSTRIAL AND COMMERCIAL TRAINING

PAGE 299

Consistently effective organisations are those that:

B

have superior strategies for managing and developing people;

focus on both individual capability and organisational capability;

have learned to measure people as assets as well as costs; and

are able to resist the short-run pressures that cause chronic under-investment in people.

The payoff is superior financial performance.

A national study carried out last year in the USA for the American Bankers Association by
McBassi & Company explored the relationship between an organisations investment in
human capital and its overall business performance.
A number of Americas leading banks participated and the study concluded that those
institutions that demonstrate the greatest commitment to human capital enjoy the greatest
financial returns.
The results of our initial study show that a banks increased focus on, and commitment to,
human capital factors should be expected to improve future financial performance,
according to Laurie Bassi, chief executive officer of McBassi & Company.

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A further study of 750 large publicly traded forms found that organisations with the best
human capital practices provide returns to shareholders that are three times greater than
those companies with weak human capital practices (Pfau and Kay, 2002).
A common cause of corporate mal-function when reviewing current enterprise performance
and developing a roadmap for the future is the failure to properly integrate the many diverse
activities that combine to enable the organisation to function,
Many serious problems are caused by busy executives looking at critical factors (including
future plans) in isolation rather than reviewing them in the overall context of business
effectiveness.
The integration of corporate strategies and human capital programmes and initiatives is
frequently canvassed in the boardrooms and executive suites but not very often
implemented.
The human capital capability framework (Figure 1) provides an integrated approach that has
three complementary tiers covering organisational results (both financial and non-financial),
human capital outcomes and human capital foundations enablers, resources, operations
and systems.

Figure 1 Human capital capability framework

PAGE 300 INDUSTRIAL AND COMMERCIAL TRAINING VOL. 37 NO. 6 2005

 The integration of corporate strategies and human capital

programmes and initiatives is frequently canvassed in the
boardrooms and executive suites but not very often
implemented.

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Extensive research has shown that the following categories of human capital management
factors (the middle tier in Figure 1) provides a core set of measures that senior management
can use to increase the effectiveness of their investment in people and improve overall
corporate performance:
B

Leadership practices. Managers and leaders communication, performance feedback,

supervisory skills, demonstration of key organisational values, efforts and ability to instil
confidence.

Employee engagement. The organisations capacity to engage, retain, and optimise the
value of its employees hinges on how well jobs are designed, how employees time is
used, and the commitment and support that is shown to employees.

Knowledge accessibility. The extent of the organisations collaborativeness and its

capacity for making knowledge and ideas widely available to employees.

Workforce optimisation. The organisations success in optimising the performance of its

workforce by establishing essential processes for getting work done, providing good
working conditions, establishing accountability and making good hiring choices.

Learning capacity. The organisations overall ability to learn, change, innovate and
continually improve.

By focusing on and measuring these key attributes organisations are able to:
B

link human capital to their business results;

pin point with considerable precision the specific aspects of the work and learning
environment that drive business results both for good and bad;

create road maps for the human agenda the development and management of people
that will have the biggest impact on their business;

shift their focus from cost cutting to value creation; and

become stronger organisations and better places to work.

Benchmarking the human capital framework

During November last year 175 organisations around the world participated in an
international human capital management benchmarking initiative carried out by McBassi &
Company.
Participating organisations provided information using a self-assessment tool on five key
human capital indicators: managerial effectiveness/leadership practices; employee
engagement/talent retention; knowledge accessibility/optimisation; workforce optimisation
and learning effectiveness/capacity.
A total of 12 Australian organisations submitted data. Although the sample is small, the
outcomes provide a basis for a review of current practices by highlighting areas in which
improvements can be made.
Participating organisations provided information using a self-assessment tool on five key
human capital indicators: managerial effectiveness/leadership practices; employee

VOL. 37 NO. 6 2005 INDUSTRIAL AND COMMERCIAL TRAINING PAGE 301

engagement/talent retention; knowledge accessibility/optimisation; workforce optimisation

and learning effectiveness/capacity.
The survey indicates how Australian organisations compare with the overall average of all
participating organisations and against best practice organisations (those who scored in the
top 20 per cent of all respondents) for each category.
On a scale of one (the lowest) to five (the highest), Australian organisations scored 3.1 in
overall human capital management.
The global average was 3.3, while best practice organisations scored 4.1. Specific
categories included leadership practices, employee engagement, knowledge accessibility,
workforce optimisation and learning capacity.

Human capital management

Includes leadership practices, employee engagement, knowledge accessibility, workforce
optimisation and learning capacity.
Leadership practices

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What it is. Leadership practices include managers and leaders communications and
inclusiveness, performance feedback, supervisory skills, demonstration of key
organisational values, and ability to instil confidence.
Leadership is the foundation for ensuring that human capital is developed, sustained, and
deployed successfully. Leadership practices thus lay the foundation for the achievement of
all organisational goals.
Many researchers have concluded that this category is the most important driver of an
organizations ability to retain its top performing people.
Why it matters. Low scores in leadership practices are associated with difficulties in
motivating employees and problems in retaining top performing employees.
Employee engagement
What it is. Employee engagement is an organisations capacity to engage, retain, and
optimise the value of its employees. It hinges on how well jobs are designed, how
employees time is used, and the commitment shown to employees.
The most successful organisations are those proactively managing talent retention by
creating desirable work environments, including designing jobs purposefully, ensuring that
employees time is well used, recognising and valuing employees and their work, and
providing opportunities for employee advancement.
Why it matters. Low scores in employee engagement reflect an environment where
employees are unlikely to contribute their best efforts, causing problems in the important
area of customer satisfaction and loyalty.
Knowledge accessibility
What it is. Knowledge accessibility is the extent of an organisations collaborativeness and
its capacity for making knowledge and ideas widely available to employees. Organisations
that capture, apply, and re-use knowledge and best practices among departments and

Knowledge accessibility is the extent of an organisations

collaborativeness and its capacity for making knowledge and
ideas widely available to employees.

PAGE 302 INDUSTRIAL AND COMMERCIAL TRAINING VOL. 37 NO. 6 2005

divisions and have successful, collaborative team structures are best able to leverage their
knowledge and talent for business results.
Why it matters. Low scores in knowledge accessibility are associated with redundancies
within and across departments and reflect factors that cause difficulties in getting
cross-functional work completed in a timely and effective manner.
Workforce optimisation
What it is. Workforce optimization is the organisations success in optimizing the
performance of its employees by establishing essential processes for getting work done,
providing good working conditions, establishing accountability, and making good hiring
choices. Since human capital represents a major portion of most organisations total
operating costs, the quality of the practices, systems, and processes for ensuring that
employees are effective is a foundational determinant of business results.
Why it matters. Low scores in workforce optimisation reflect inefficiencies and unnecessarily
high costs.

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Learning capacity
What it is. Learning capacity is an organisations overall ability to learn and innovate and
ultimately, to achieve a continual level of improvement. Hence, training, development, and
innovation must be valued and supported in order for an organisation to have the capacity to
respond to changing conditions and consistently achieve strategic goals.
Why it matters. Low scores in learning capacity reflect an organisation that has failed to take
the steps necessary to enable learning and innovation. Such organisations are poorly
equipped to respond effectively to constantly (and inevitably) changing conditions in the
market and the economy.

Reference
Pfau, B. and Kay, I. (2002), In The Human Capital Edge: 21 People Management Practices Your
Company Must Implement (or Avoid) to Maximize Shareholder Value, McGraw-Hill, New York, NY.

VOL. 37 NO. 6 2005 INDUSTRIAL AND COMMERCIAL TRAINING PAGE 303

This article has been cited by:

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1. Sladjana Cabrilo, Leposava Grubic Nesic, Slavica Mitrovic. 2014. Study on human capital gaps for effective innovation
strategies in the knowledge era. Journal of Intellectual Capital 15:3, 411-429. [Abstract] [Full Text] [PDF]
2. References 147-176. [CrossRef]