HUMAN CAPITAL MEASUREMENT

As Becker et al (2001) emphasize: ‘The most potent action HR managers can take to ensure their strategic contribution is to develop a measurement system that convincingly showcases HR’s impact on business performance.’ They must ‘understand how the firm creates value and how to measure the value creation process’. This means getting involved in human capital measurement as defined and described below.

Human Capital Measurement Defined 

Human capital measurement has been defined by IDS (2004) as being ‘about finding links, correlations and, ideally, causation, between different sets of (HR) data, using statistical techniques’. The CIPD (2004a) emphasizes that it deals with the analysis of ‘the actual experience of employees, rather than stated HR programmes and policies’.

The need for Human Capital Measurement

There is an overwhelming case for evolving methods of valuing human capital as an aid to decision-making. This may mean identifying the key people management drivers and modelling the effect of varying them. The issue is to develop a framework within which reliable information can be collected and analysed such as added value per employee, productivity and measures of employee behaviour (attrition and absenteeism rates, the frequency/severity rate of accidents, and cost savings resulting from suggestion schemes). 

Becker et al (2001) refer to the need to develop a ‘high-performance perspective’ in which HR and other executives view HR as a system embedded within the larger system of the firm’s strategy implementation. They state that: ‘The firm manages and measures the relationship between these two systems and firm performance.’ Ahighperformance work system is a crucial part of this approach in that it.