Home Future-Proof Business HRM Effectiveness Capturing Value: People knowledge and skills (article+video)

Capturing Value: People knowledge and skills (article+video)

If people are our most important asset, why are their skills and knowledge so poorly measured and reported by organisations?

It happens regularly all over the world and in every company. The CEO addresses his collaborators: “You are the most important resource at this company”.

He believes it, and he is right.

His collaborators listen politely but are skeptical. They are not wrong. They know that during the slightest economic downturn the “most important resource of the company” will immediately pay the price for it.

Stéphane Garelli, Professor Emeritus at IMD and founder of the World Competitiveness Centre.


If people are our most important asset, why are their skills and knowledge so poorly measured and reported by organisations?

According to Peter Cheese is chief executive of the Chartered Institute of Personnel and Development (CIPD), productivity in the UK is still below its pre-recession level and low in comparison to international benchmarks. Youth unemployment remains worryingly high, and a recent OECD Skills Survey has brought the importance of improving the country’s skills base into sharp focus.

At the same time, concerns about corporate cultures and leadership behaviours, improving employee engagement and productivity, and taking advantage of diversity to build more sustainable and innovative businesses are all recognised as critical challenges that affect the success of the organisations and societies in which we work and live.

We cannot overcome these challenges without more insight into how organisations are managing and developing their people, and building the cultures and operating models that ensure they are getting the best out of their human capital.

HR should capture relevant data to share with stakeholders, as to provide the right focus and support for the performance improvement interventions that make the difference, be this in staff development and training, performance management, reward or other HR processes and practices.

However, , despite efforts in the past, such as the Accounting for People initiative, there is little consistency of measurement and reporting practice around our people and organisations, and no agreed frameworks to help organisations or stakeholders when they ask the questions.

This is not just an HR agenda, it is increasingly an agenda shared by the finance and management professions, by business leaders, external stakeholders, and even regulators and governments as more focus is brought to bear on how organisations are developing their workforces, their leadership, and their culture and values.

It is about how leading organisations are understanding, analysing and reporting on their people and organisational metrics and what value and insights this brings to better decision making and focus in building successful and sustainable organisations.

This video from the RSA asks why current systems fail to capture the value that people’s knowledge and skills bring to organisations and the economy.

According to professor Stéphane Garelli, employees are on the wrong side of the balance sheet. The heart of the problem is an accounting peculiarity. The employees of a company appear in the balance sheet as a cost and not as an investment. In other words, they are on the wrong side of the balance sheet.If a company employs 100 geniuses or 100 fools, they are accounted in the same way, namely as a cost. Such an approach completely underestimates the investments made in the know-how as well as the professional and individual development of a person. It also ignores the loss of experience and skills when that person leaves the company.
Could it be done otherwise? From an accounting point of view, the approach is based on two assumptions. In the first place, employees are excessively mobile. The company’s most important resource leaves the company in the evening at six o’clock to, perhaps, return the following morning at eight o’clock. How can you give an accounting value to a “company’s most valuable asset” when it wanders the obscure streets of your city at night? Historically, this was why employees were paid on a weekly, then a monthly basis; it was to make sure they came back.In addition, and this is the central idea, employees do not belong to a company. Therefore, they cannot be accounted for as an asset in the same way as a machine or a building. It is certainly correct, but it cultivates a deep ambiguity regarding the value of people. Several economists prefer to use the term “human capital”. But it is not the way employees are accounted for in the valuation of companies. Stock exchanges always favor companies with the least employees compared to turnover.For example, Google has a market capitalization of USD $576 billion and employs 72,000 people. Facebook is worth USD $390 billion for a workforce of 15,700 employees. In comparison, General Motors who employs 215,000 people is worth $56 billion, and Ford who employs 99,000 people is valued at only $49 billion. It is not only the size but also the competence which counts.

Bill Gates pointed out:

“What would Microsoft be worth if it was sold without its collaborators;

one dollar?”

Nevertheless, accounting standards prevail. When a company downsizes its workforce, the market considers that it reduces its costs and therefore the share price goes up. It is absurd because in fact the company loses management competencies and personal skills, and should be less valuable.

The monetary aspect is not the only one to consider.

There is a value which stems from a shared culture between the company and the collaborators: attitudes, written or unwritten rules and a sense of mutual respect.

To have value, we must feel valued.

It implies a sense of intellectual affinity and even emotional closeness which must permeate every level of the company.

As Franklin D. Roosevelt once said: “A good leader cannot go too far from followers”.