‘‘The human dimension is crucial to an organisation’s sustainable success’’

Estate agents are well known for stressing the key factor affecting property value: location, location, location. But, when it comes to addressing what determines a business’s value, few corporate leaders cite the importance of people, people, people.

Many recent business crises can be traced back to failures in corporate culture that could have been picked up much more quickly had longer-term people-related indicators been given more weight.

CIMA has long argued that greater emphasis should be placed on measuring the value of non-financial assets including a workforce’s skills, experience and motivation.

Employees are key stakeholders in any business. They are also a key asset. It seems out of place, therefore, that investors assessing a company do not always have access to data about the people power behind the business’s outputs and financial achievements.

The report that marked the launch of our CGMA designation in early 2012, “Rebooting business: valuing the human dimension”, highlighted this need.

It predicted that business leaders would focus increasingly on the value afforded by factors such as customer relationships and the knowledge and human capital represented by employees.

Nearly 200 of the 280 global CEOs we spoke to agreed that these non-financial factors were crucial value drivers. So the consensus is very much that the human dimension is central to an organisation’s sustainable success.

To accelerate the development of “accounting for people”, CIMA has engaged in several new collaborations. Our recent survey with the Economist Intelligence Unit, for instance, showed that inadequacies in human capital management had led more than 40 per cent of the firms covered in the research to experience problems affecting their ability to innovate or hit key financial targets.

More worrying still, only 12 per cent of CEOs in the sample told us that they were confident about the quality of the management information they were receiving on human capital.

Together with the AICPA, we are designing resources in the area of human capital and workforce analytics.

For example, organisations need to know the underlying cost and impact of losing and replacing talent. As a result, we are developing Cost of Losing Talent (COLT) and Cost of Replacing Talent (CORT).

These tools are intended to help an organisation’s HR and finance teams assess the value of its employees.

CIMA also recently joined forces with the Chartered Institute of Personnel and Development to strengthen expertise in this field. This collaboration aims to foster closer working links between the finance and HR professions.

It will focus initially on transforming how organisations understand, measure and report information about their people to drive business success.

One of our first projects will focus on human capital measurement. This is designed to address a shared concern that organisations are consistently failing to cost the contribution of people to their performance or worth – and that they seldom assess the risk to their success posed by poor people management.

Measuring human capital means that businesses can assess quantitative data to track the success of initiatives such as recruitment or training campaigns and respond quickly to the findings.

HR directors are increasingly being asked to act as business partners alongside CEOs and CFOs to inform business strategy. This is a positive development that should be encouraged.

Without accurate and relevant information in this area, businesses will not be able to optimise the return on their investment in human capital or plan effectively.

Management accountants are ideally skilled to help at this intersection by helping to analyse both financial and non-financial data and putting it to good use.

Now, that’s what I’d call smart, smart, smart.

The COLT and CORT tools can be found at www.cgma.org/talent

Illustration: Jörn Kaspuhl/Dutch Uncle

22/08/2013

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