Do You Know Your Human Capital ROI? If Not, Your Company May Be Leaving Money on the Table
A growing number of investors and board directors now believe that human capital is an asset with a return-on-investment that merits clear strategies, metrics, and tactics aligned with goals. As a result, more companies are publishing human capital reports, in many cases without necessarily addressing the fundamental issues required to have a measurable, successful, and sustainable financial and experiential results for stakeholders. This internal audit can be conducted by any reflective CEO, CFO, or other manager to determine if your organization has an opportunity to enhance sustainable financial performance and better stakeholder experiences through a more strategic approach to human capital management and ROI of engagement.
If you now believe that there is a link between your human capital—the proactive involvement of all your customers, employees, distribution and supply chain partners, and communities—this quick internal exercise will help you determine if your organization is leaving money on the table and potentially how much. What companies track internally and report externally are usually different based on regulatory requirements and competitive considerations. This process is designed for internal use only and as a means to identifying the best strategy for public disclosures.
A quick way to determine if your organization or clients have a strategic and systematic approach to people management is to ask some simple questions, starting with: does the company know it’s Human Capital Return on Investment (HCROI)—the contribution of employees to the bottom line. (If not, click here for a free tool to calculate the company’s HCROI if you have access to basic financial information.) Does it have a formal Human Capital Management plan with clear metrics built into the operating system of the company and into the business plans of every manager, i.e., sales, marketing, human resources, operations, research and development, finance, etc. If the answer is no, it’s highly likely that the organization is leaving money on the table, because there is compelling research and empirical evidence demonstrating the return-on-investment of a strategic and systematic management of people to achieve organizational goals.
Because so few organizations have a formal human capital strategic plan with clear metrics, the Enterprise Engagement Alliance’s Engagement Agency division is increasingly asked to help organizations objectively and confidentially audit their internal practices; establish relevant metrics; conduct a gap analysis of effective practices, and help develop a formal plan supported by a consensus-based process that gets baked into the job and incentives of every manager. The goal is to apply a strategic, systematic, measurable approach designed to support the organization’s mission as well as financial goals. In the cases of public- or private-equity financed, or other organizations, the strategy can be used both for internal management purposes and, with appropriate information shared with their stakeholders through Human Capital Reports as part of overall Corporate Sustainability Reporting.
The idea of applying a strategic and systematic approach to the management of all stakeholders, or “interested parties,” is based on the same principles that transformed quality manufacturing in the 1990s. The transformation of quality manufacturing in the US was propelled in part by the effectiveness of ISO (International Organization for Standardization) 9000 quality management starts as a roadmap to address the significant quality management challenges in the US at the time. (The standards are now called ISO 9001.)
The state of quality management in manufacturing in the 1980s largely mirrors the state of quality people management today: enormous amounts were spent on conferences, quality circles, and other bright shiny objectives to improve quality, but efforts were generally reactive with ineffective metrics or incentives. Today, there are far fewer complaints about quality in manufacturing than in the 1980s, but many would say that customer experience is no better today, and maybe even worse, than it was two decades ago.
The internal audit process below is based on three related frameworks developed independently of one another:
• The first by the Enterprise Engagement Alliance in 2009 is based on extensive research conducted by multiple parties finding a clear correlation between organizational performance and the degree of stakeholder engagement—customers, employees, channel partners, and communities.
• In 2012, the International Organization for Standardization (ISO) ANNEX SL, published in 2012, a framework now required in over 60 ISO standards including the current ISO 9001 quality management standard. It requires a CEO led, systematic approach to achieving goals by addressing the interests and needs of all stakeholders.
• The framework below also draws from the more recent ISO 10018 People Engagement and ISO 30414 Human Capital reporting standards.
The fundamental principle is that a strategic, systematic, proactive, and measurable system that addresses the needs of all stakeholders will provide more sustainable results than a reactive, ad hoc, bright-shiny-object approach with few measures. The premise is supported by the success of applying a strategic and systematic approach to quality management in manufacturing and is based on common principles.
In evaluating your organization’s Human Capital plan, here are some key considerations, assuming that the goal is to enhance both organizational performance and experiences for all stakeholders.
• The human capital plan must intentionally support organizational financial and other goals related to a clearly defined purpose.
• The best results are achieved by addressing the interests of all stakeholders—shareholders, customers, employees, channel and supply chain partners, communities, etc.—in a consistent manner.
• CEO leadership and consistent management at all levels is required to drive sustainable results.
• The process needs to be baked into the organization’s operating system, not yet another bureaucracy.
• There is clarity of organizational purpose and definition of the specific stakeholders; how they can contribute to success, and their needs.
• There is specificity as to the metrics tracked related to the goals, and the methods of calculation, with comparisons from year to year.
• Accountability—it is clear who oversees the process and how the plan is baked into the operating system.
• There is a clear external and internal human capital reporting strategy with a plan to make sure information is consistently acted upon.
The process begins with an internal champion or a CFO and/or CEO interested enough to conduct his or her own informal audit, as most can answer the questions below in 10 minutes or less. If the rough audit identifies an opportunity for improvement, the next step would be to determine the potential benefits and return on investment of implementing or enhancing the organization’s human capital management and measurement plan. Based on determining the potential benefits, a formal internal audit is conducted by an impartial expert who has no stake in the outcome other than to achieve your organization’s objectives and who has a firm grasp of potential solutions based on the gaps, if any, identified. The expert needs to be familiar with the processes to translate human capital strategies into measurable results leveraging, whenever possible, whatever your organization is already doing. In addition, the expert should be able to help develop a strategy for both internal and external reporting based on your organization’s needs.
To benefit from this process, ask yourself whether the organization has a clear ROI on all the money it spends on employees. If not, calculate your Human Capital ROI and other metrics that can affect your bottom line and ballpark the potential return on investment of increasing the productivity of your workforce and profitability of your customers. Calculate the benefits of reducing employee and customer turnover and increasing the willingness of stakeholders to refer; enhancing resilience of your organization by crowdsourcing innovation from engaged communities; enhancing the wellness and safety of your employees; and publishing meaningful human capital reports that enhance the trust of your shareholders, employees, customers, supply and distribution partners, and communities.
To score your company, answer the questions and apply a score.
• Methodology Point Score—0 points are assigned for no formal plan; 1 point is assigned if there is “sort of” a plan or it’s “understood”; 2 points for having a formal plan linked to the strategic human capital management and measurement plan.
• Metrics Point Score--0 points are assigned for no metrics available; 1 point is assigned for basic metrics (input data related to costs or basic demographic or related information); 2 points for advanced metrics related to outcomes or alignment with organizational objectives.
• A Perfect Score is 56.
| Category | Methodologies | Metrics | |
| 1. Leadership | Yes/No |
• The CEO is fully engaged in an enterprise approach to people management and actively leads and/or supports the development of a formal plan with support of the C-suite and other management.
• There is a clear mission statement and values are consistently communicated and rewarded throughout the organization to all stakeholders.
• A review of internal and external communications and recognition would reveal a consistent message aligned across stakeholders.
Score:
|
• The degree to which stakeholders can define the overall mission, vision, and values of the organization in focus groups or surveys.
• Engagement scores of employees related to their managers.
• Turnover; turnover by category.
Score:
|
| 2. Compliance | Yes/No |
• To what degree does the organization have a strategic approach and tactical plan for compliance.
• Is there a clear accounting for all disclosure requirements and a method to audit their accuracy and relevance to current circumstances.
• Is there a handbook for employees that provides the information they need to know about their benefits and rights.
Score:
|
• Can the organization produce a written document, however concise, that outlines the compliance plan; the premises behind it; and number of compliance issues or complaints compared with previous years.
• Compliance issues by stakeholder category.
Score:
|
| 3. Costs | Yes/No |
• Does the organization have and readily make available to relevant internal management key costs related to stakeholders, such as revenues and costs per customer, employee, distribution partner, etc.
• To what extent does your organization have in place a strategy to manage human capital, including external and internal marketing costs, through appropriate use of technology?
Score:
|
• What is the cost and revenues per employee, customer, distribution partner, and how has it changed from previous years.
• What are the primary costs by category; ie., recruiting, leadership development, communications, training, incentives, etc. and how have they changed.
• Analysis of costs by category.
Score:
|
| 4. Diversity, Equity, Inclusion | Yes/No |
• Does the organization have a DEI strategy baked into its mission, vision and values in order to benefit from the widest possible marketplace for talent, customers, supply chain and distribution partners, and community support?
• Do individual managers have a DEI strategy and tactics baked into their own goals, objectives, and incentive plan?
Score:
|
• Stakeholder composition compared with its marketplace and goals.
• The level of engagement of various stakeholders in the efforts used to engage them.
• Willingness to refer by category.
Score:
|
| 5. Occupational Health and Safety | Yes/No |
• Does the organization have a strategic plan and tactics to encourage health and safety in the organization with clear accountability and comparable metrics?
• Do the practices focus on encouraging positive behaviors and accurate reporting?
Score:
|
• Number of, hours, and/or costs of accidents, and percent change.
• Number of and cost of litigation.
• Hours lost due to accident.
• Hours lost to sickness.
• Rates by category.
Score:
|
| 6. Organizational Culture | Yes/No |
• Does your organization have a clearly defined brand, story, culture, values, and mission, including a process for keeping it up to date.
• Does your organization have a strategic process for making sure that all stakeholders, including customers, employees, supply chain and distribution partners, and communities have an idea of what the organization stands for.
• What steps does the organizations take to bake the culture into all aspects of employees, customers, supply chain and distribution partners in recruitment and ongoing engagement.
Score:
|
• Ability of stakeholders in a random survey to accurately explain the mission, values, and/or purpose of the organization emphasized in communications.
• Turnover of employees, customers, distribution partners, etc.
• Willingness to recommend of employees, customers, distribution partners.
• Percentage of positive to negative social media mentions, if accurately trackable and comparable.
• Reports should be by category.
Score:
|
| 7. Productivity | Yes/No |
• Does your organization have a formal metric for measuring productivity, including Human Capital ROI, Value Add, or revenues and costs per customer, employee, supply chain or distribution partner.
Score: |
• Human Capital Return on Investment.
• Revenues and costs per stakeholder.
• Cycle time, budget compliance, or other internal measure, by category.
Score:
|
| 8. Recruitment, Mobility and Turnover | Yes/No |
• Does your organization have a formal recruitment strategy, including a clear talent brand consistent with the experience employees will encounter?
• Does it have a formal or informal policy for employee advancement and job sharing?
• Does it have a clear strategy related to retaining talent or for finding the right position for talented people?
Score:
|
• Cost per recruited employee and average cycle time.
• Percentage of internally referred employees.
• Percentage of voluntary and involuntary turnover.
• Number and percentage of voluntary and involuntary job changes.
• Above tracked by category.
Score:
|
| 9. Employee Bench Strength | Yes/No |
Does the organization have a formal plan for insuring it has people available to fill in for people involuntarily or voluntarily absent or who/ leave the company?
Score:
|
Percentage of employees with a designated internal replacement.
Score: |
| 10. Skills and Capabilities | Yes/No |
• Does the organization have a formal strategy for determining the types of technical, leadership, or other skills that talent, supply chain and distribution partners, and even customers, may need to best benefit from the organization’s products or services.
• Are the training efforts across the organization consistent with the overall needs of the organization and relevant stakeholders.
• Are their measures demonstrating their effectiveness to supporting organizational goals.
• Are the training efforts consistently communicated and recognized or rewarded.
Score:
|
• What is the participation and results in the training program by stakeholder classification, including, when possible, gender, race, ethnicity, age, region, department.
Score:
|
| 11. Workforce Availability | Yes/No |
• An annually updated plan on the sources, availability, and costs of employable talent.
• The organization’s assessment of the cost, and time required to fill positions in its marketplaces.
Score:
|
An estimate of the number of potential candidates available for specific types of jobs and the cost.
Score:
|
| 12. Customer Engagement | Yes/No |
• To what extent does the organization have an overall customer engagement strategy with clear metrics that align your external and internal marketing messaging toward common goals.
• To what extent do siloes divide efforts to engage customers, if at all.
• To what extent does your external and internal marketing management cooperate to ensure consistently aligned messages and deliver on mutually supporting metrics.
• How does the organization measure referrals, through surveys and/or a referral program.
Score:
|
• Number and diversity of customers.
• Revenues and costs per customers and willingness to refer, by category.
• Level of engagement in various efforts used to engage them; i.e., events, promotions, digital efforts, etc. by category and region.
Score:
|
| 13. Supply Chain Engagement (Distributors and/or suppliers). | Yes/No |
• To what extent does the organization have an overall distribution and/or supply strategy with clear metrics that align external and internal marketing toward common goals.
• To what extent do siloes divide efforts to engage external partners, if at all.
• To what extent does the external and internal marketing management for those outside partners cooperate to ensure consistently aligned messages and deliver on mutually supporting metrics.
• How does the organization measure referrals, through surveys and/or a referral program.
Score:
|
• Number and diversity of customers.
• Revenues and costs per customers and willingness to refer, by category.
• Level of engagement in various efforts used to engage them; i.e., events, promotions, digital efforts, etc., by category and region.
Score:
|
| 14. Community Engagement | Yes/No |
• To what extent does your organization have an overall strategy for engaging with its community consistent with its own purpose, mission, and objectives?
• To what extent are community engagement efforts related to organizational development, i.e., source of employee motivation, talent development, or source of talent, such as in school related causes.
• To what extent does your external and internal marketing management for those outside partners cooperate to ensure consistently aligned messages and deliver on mutually supporting metrics.
• How does the organization measure referrals, through surveys and/or a referral program.
Score:
|
• Number and diversity of customers.
• Revenues and costs per customers and willingness to refer, by category.
• Level of engagement in various efforts used to engage them; i.e., events, promotions, digital efforts, etc., by category and region.
Score:
|
Master the Principles of Stakeholder Capitalism And Implementation Through Enterprise Engagement
Education, Certifications, and Information to Activate
Stakeholder Capitalism Available Nowhere Else
A complete learning, certification, and information program and a course syllabus for educators.
Training and Certification
Enterprise Engagement Alliance Education: Certified Engagement Practitioner; Advanced Engaged Practitioner, and Certified Engagement Solution Provider learning and certification programs on how to implement Stakeholder Capitalism principles at the tactical level.
International Center for Enterprise Engagement: The only training and certification program for ISO 30414 human capital reporting and ISO 10018 quality people management certification.
The EEA offers a complimentary course syllabus for educators.
Join the EEA to begin your certification process or see our other resources below.
Or contact Bruce Bolger; Bolger@TheICEE.org; 914-591-7600, ext. 230 to learn more.
THE ONLY BOOKS ON STAKEHOLDER CAPITALISM IMPLEMENTATION
Enterprise Engagement for CEOs:The Little Blue Book for People-Centric Capitalists
This is the definitive implementation guide to Stakeholder Capitalism, written specifically to provide CEOs and their leadership teams a concise overview of the framework, economics, and implementation process of a CEO-led strategic and systematic approach to achieving success through people. (123 pages, $15.99)
This is the definitive implementation guide to Stakeholder Capitalism, written specifically to provide CEOs and their leadership teams a concise overview of the framework, economics, and implementation process of a CEO-led strategic and systematic approach to achieving success through people. (123 pages, $15.99)
Enterprise Engagement: The Roadmap 5th Edition
The first and most comprehensive book on Enterprise Engagement and the new ISO 9001 and ISO 10018 quality people management standards. Includes 36 chapters detailing how to better integrate and align engagement efforts across the enterprise. (312 pages, $36.)
OTHER RESOURCES TO ACTUALIZE STAKEHOLDER CAPITALISM
Communities: The Enterprise Engagement Alliance and Advocate and the Brand Media Coalition free resource centers offering access to the latest research, news, and case studies; discounts, promotions, referrals, and commissions, when appropriate to third-party solution providers from participating coalition solution provider members.
Enterprise Engagement Resources: EEXAdvisors.com provides the only curated online marketplace to access hundreds of solution providers in all areas of human capital management and enterprise engagement throughout the world. The first and most comprehensive book on Enterprise Engagement and the new ISO 9001 and ISO 10018 quality people management standards. Includes 36 chapters detailing how to better integrate and align engagement efforts across the enterprise. (312 pages, $36.)
OTHER RESOURCES TO ACTUALIZE STAKEHOLDER CAPITALISM
Communities: The Enterprise Engagement Alliance and Advocate and the Brand Media Coalition free resource centers offering access to the latest research, news, and case studies; discounts, promotions, referrals, and commissions, when appropriate to third-party solution providers from participating coalition solution provider members.
Online Overview:
10-minute short course: click here for a 10-minute introduction to Enterprise Engagement and ISO standards from the Coggno.com learning platform.
Services:
• The Engagement Agency at EngagementAgency.net, offering: complete support services for employers, solution providers, and technology firms seeking to profit from formal engagement practices for themselves or their clients, including Brand and Capability audits for solution providers to make sure their products and services are up to date.
• C-Suite Advisory Service—Education of boards, investors, and C-suite executives on the economics, framework, and implementation processes of Enterprise Engagement.
• Speakers Bureau—Select the right speaker on any aspect of engagement for your next event.
• Mergers and Acquisitions. The Engagement Agency’s Mergers and Acquisition group is aware of multiple companies seeking to purchase firms in the engagement field. Contact Michael Mazer in confidence if your company is potentially for sale at 303-320-3777.
Enterprise Engagement Benchmark Tools: The Enterprise Engagement Alliance offers three tools to help organizations profit from Engagement. Click here to access the tools.
• ROI of Engagement Calculator. Use this tool to determine the potential return-on-investment of an engagement strategy.
• EE Benchmark Indicator. Confidentially benchmark your organization’s Enterprise Engagement practices against organizations and best practices.
• Compare Your Company’s Level of Engagement. Quickly compare your organization’s level of engagement to those of others based on the same criteria as the EEA’s Engaged Company Stock Index.
• Gauge Your Personal Level of Engagement. This survey, donated by Horsepower, enables individuals to gauge their own personal levels of engagement.
For more information, contact Bruce Bolger at Bolger@TheEEA.org, 914-591-7600, ext. 230.
