ROI of Humans

Companies still struggle to measure the value of employees.
Laura CameronOctober 1, 2007

In a Harvard Business Review paper in the early 1990s, Peter Drucker, the most influential management thinker of the last century, wrote, “It is the individual, and especially the skilled and knowledgeable employee, who decides in large measure what he or she will contribute to the organisation and how great the yield from his or her knowledge will be.” Yet he also conceded that in traditional management systems, personnel usually came in only when there was a true crisis — and often not even then.

Things have moved on since then, but in this era of “human capital,” companies are still grappling with ways to really measure the return on “our greatest asset,” as the cliché has it.

In Talent Portfolio Management, a special report published in July by financial publisher IFR, the authors, human capital experts Philip Whiteley and Paul Aldrich, record a trend among investment banks towards trying to measure humans as investments rather than just costs.

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“[The banks] are beginning to introduce a range of metrics, such as attrition of top-quartile performers…and incorporate them into business planning, aided by significantly improved HR information technology,” Whiteley recounts.

Dawn Nicholson, managing director of human resources at Morgan Stanley, says the bank assesses human capital using a “360-degree review process in which everyone is reviewed by everyone else.” This method measures everything from employees’ management styles to their ability to generate revenue.

Royal Bank of Scotland, a case study in the Whiteley and Aldrich report, declared that “talent-related measures are as much a core part of the operational ‘dashboards’ as P&L for all managers across the group.”

But there is still some way to go. An unidentified investment bank in the study points out: “What’s not covered is a true understanding of the cost to the business of losing people, the drop in continuity. That’s not being modelled today.”

This bank is experimenting with ways to ally HR more closely with business objectives, such as paying bonuses if HR programmes genuinely add value.