In January a major report was published in the UK, by leading management organisations, and with the enthusiastic support of the Government. Its subject is not a new one, and the title is explanatory: Human Capital Reporting: Investing for Sustainable Growth. It covers the development of ways of reporting on employees and how they contribute to the effectiveness of the organisation. For many years, many executives, investors, think tanks and others have sought effective ways of measuring this contribution as a complement to the accounts, which are limited to historic and financial information.
It marks a major step forward. Quite sensibly, the authors focus on four key metrics as a start for mandatory reporting: Cost of workforce employed; Recruitment and turnover costs; Training investment, and Employee engagement. These are basic indicators, but can be the building blocks for developing more sophisticated intelligence on the relationship between investment in people and performance.
More encouraging still, the Business Secretary Vince Cable gave a strong endorsement: ‘[This]report is a very interesting contribution to the debate on where to go next, focusing on reporting standards around people-led performance to ensure that business investment is maximised and productivity is improved upon year after year.’
The report also comments on the relative lack of progress since a similar report, published 11 years earlier, called Accounting for People, by the Kingsmill Task Force, also supported by the Government:
‘Given the value of such [human capital] data in illustrating the potential for future … performance, it is surprising that uptake of improved human capital reporting standards has been so slow.’
The report points to issues relating to the consistency, transparency and commercial relevance of the human capital reports that do exist, and to difficulties for investors in deciding which model to use, or whether to trust the data.
My research causes me to conclude, however, that there is another dimension to be addressed. One possible explanation for the slowness in progress is that we have insufficiently challenged ourselves on mindsets – cultural narratives that often rest on unconscious biases.
Many, perhaps most, human capital reports are presented in a form that assumes that human capital is just one of the assets a company can deploy, alongside others. This misses the crucial dimension that it is the human asset that creates and deploys all the others.
In my latest book The Management Shift, I put forward the concept of the organisation as a living system. Human capital creates and sustains this dynamic entity.
My own research and consulting work informed the 6 Box Leadership Model that I have now used effectively at 20 organisations. This is a form of human capital reporting, integrated with company analysis. It coversCulture, Relationships and Individuals; as well as Strategy Systems and Resources. We apply it in conjunction with analysis to assess the engagement levels of teams and units, categorized as five levels, from Level 1 (apathetic) to Level 5 (passionate and unbounded).
All through the development and application of this model, I have learned that it is essential to attend to mindsets and beliefs, not just structures and reporting systems. A company is not like a ship or an aircraft, where you can just read the dials, adjust the steering and set a new course. Human beings are intelligent, emotional beings who, collectively, behave in unpredictable ways.
Whether the 6 Box Leadership Model is ‘better’ than others is not for me to judge. But one claim that I can make is that when it is implemented, we place our analysis at the centre of organisational renewal, based on an understanding of the organisation as a dynamic, living entity.
Such a different mindset can amplify the effectiveness of human capital metrics.