HR should take a leadership role by embracing human capital measures and bring together different parts of the business to meet challenges and drive business results

In linking human capital to business performance HR should:

  • Pay attention to the composition of the analytics team, having in addition to a skilled analyst  leading the team, statisticians, econometricians, demographers, computer scientists, and business intelligence experts that can share different viewpoints, experiences and best practices.
  • Build a close relationship between HR and IT  and equip analysts with HR technology, performance management insights, and project management skills.
  • Use meaningful data to meet business units challenges: consider which types of data might help solve the challenge and agree on deliverables, reports, and expectations.

This research report from the Human Capital Management Institute, offers a critique of common metrics such as revenue or profit-per-full-time-employee and total-cost-of-workforce, as inadequate.

It is proposed that the fundamental metric is Total Cost of Workforce (TCOW).

How well a company is managing its human capital costs can be tracked through TCOW as a percentage of revenue and profit.

Return on human capital investment (HCI) can be calculated as net operating profit (NOP) relative to TCOW.

Shifts in TCOW relative to market conditions and business models are shown to be related to the productivity, growth and share price performance of 22,000 companies tracked over a 15 year period.

Companies showing a higher return on HCI and more effective management of TCOW achieved a 4% compound annual growth rate (CAGR) in share price, compared to a -1.1% CAGR for companies showing a lower return on HCI.

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