Human Capital Versus Financial Capital 0

Human Capital Versus Financial Capital

The knowledge capital story of your organization is your IP. Investors are eager to hear the human capital holistic stories. Publish your data-driven Human Capital story as a competitive advantage.” We need to change the approach from ‘pull’ to ‘push,’ to demonstrate the power of the Human Capital of our organization.

BY MANOJ KUMAR

“Great vision without great people is irrelevant.” – Jim Collins, Good to Great

A little more than a month ago, I was invited to London as a participant for a round-table discussion that comprised of investors, experts from the Human Capital Analytics industry, Human Resource practitioners, and a few C-Suite members. The learnings from the conversation were immense. In an investor’s current frame of mind, why is Human Capital measurement yet to gain any significance, what are their anticipations from companies and start-ups, and, more importantly, what should CEOs/CHROs be doing to create an appetite for Human Capital in their minds?

Let us take a quick look at an industry research on investment patterns in intangible assets.  NESTA in its research (Goodridge et al. 2014) estimates that between 1990 and 2011, the value of intangible assets grew from £50.2 billion to £137.5 billion in the UK, while at the same time, the value of tangible, physical assets has increased at a very gradual level from £72.1 billion to £89.8 billion. Among the intangible investments, Workforce training (£33.6 bn), organizational change (£25.5 bn), and software (£24.3 bn) were categories that were most sought after in 2011.

From the above research, the importance of intangible assets is evident, especially in the knowledge economy. However, investors have still not been reaching out to obtain human capital performance reports as much as they have been reaching out to procure finance capital reports. Alternatively, why are the CEOs/Founders uncomfortable to share their Human Capital performance reports in a more proactive manner, as compared to their keen willingness to share financial results. There are two key problems: –

1. Chicken and Egg: While organizations have begun to understand and articulate the importance of human capital and measurement, investors are yet to catch up with the tempo. Their current objective is primarily restricted to employee related productivity, cost, and attrition. To be precise, it is not the lack of interest in Human Capital, but limited awareness and accessibility to information pertaining to human Capital – what to ask, and the uncertainty about the company’s ability to produce and sustain that ask. They are currently consuming what they receive from the CEOs/CHROs – a limited set of common human capital metrics, and hence have a limited appetite for it. Both are stuck between ‘push’ and ‘pull.’

2. The Annual Report- single version of the truth -: Investors currently occupy themselves with only one document published by the company i.e. the Annual Report. Now, organizations are posting their people asset statistics in their annual reports, but are not doing so in great detail, as they do in other publications such as ‘sustainability reports,’ human capital reports, etc. Investors do not classify these documents as ‘essential’ for themselves, and hence do not engage their time in asking for these reports.

Why is Human Capital performance not attracting investor eyeballs?

  1. Chicken and Egg: With limited awareness and accessibility to standard human capital information, the investor is unable to access or gather data to question and think about human asset.
  2. The Annual Report: With this single version of the truth, investors are only shown the people asset statistics and not a human capital report.

Ways To Convey The Importance Of Human Capital

As the CEO of the company/startup, if you wish to demonstrate the value of your human capital as an asset to your investors, you need to take the following steps:

1. Push the Information:

All human capital statistics should be pushed and be seen as one among the competitive advantages of your organization. The more you help them understand the human capital value (push), more is the investment attracted by your organization.

2. Human capital statement:

Create a detailed section for the human capital statement in the annual report, similar to the finance capital statement. The KPIs of the company under this statement should be well thought out, agreed, measured, and not just limited to reporting headcount, diversity, attrition, cost of staff, etc. However, in the absence of sophisticated KPIs, the above could be a good starting point.

3. Content is the King (Value):

The key human capital metrics that investors may be interested in learning include:

  1. Leadership Index– The ability to cope with the changing economic situation and fierce competition while executing the organization’s strategy.
  2. Culture & Values Index– The ability to demonstrate the brand value of the company to attract and retain talent, customers and investors.
  3. Learning & Development– Workforce planning – Buy vs Build – whether the workforce is future-ready to implement strategies.
  4. Governance– Sustainability of Human Capital.

Human Capital metrics that Investors are all ears for

  • Leadership Index
  • Culture and Value Index
  • Learning & Development
  • Governance

4. Narrative:

Most importantly, investors are interested in learning your inter-connected human capital stories, and not just metrics. You, along with your CHRO, should talk about your human capital performance with the same passion as you do for the financial results. The knowledge capital story of your organization is not accessible to anyone else outside of your organization, hence treat that as your IP. Your investors want to hear your holistic, interconnected story more often than you think. Publish your data-driven human capital story as a competitive advantage. So, it is you (CEOs/CHROs) who need to change the approach from ‘pull’ to ‘push,’ to demonstrate the power of the human capital of your organization. The question that we need to ask ourselves is – Are you telling the investors what they wish to know about your Human Capital value, which would attract their confidence in the company’s capability to produce sustainable profit, year over year?

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Manoj Kumar is a globally recognized influencer in the area of delivering sustainable business impact using people analytics. He is a speaker, guest faculty, and blogger. The opinion expressed in this article is solely of his own.
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