Value Creation, Reporting, and Signaling for Human Capital and Human Assets

Building the Foundation for a Multi-Disciplinary, Multi-Level Theory

M. Russ

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137472069
• Topic: Economía
• Subtopic: Economía laboral

The issues discussed in this book are the building blocks needed for an interdisciplinary theoretical framework that will allow for value creation and reporting by the most important assets organizations have, its human capital.

PART I

Value Creation

CHAPTER 1

A Measurement Approach to Human Potential in the Context of a Sustainable Corporate Management

Regina Osranek and Klaus J. Zink

Introduction

The idea that the success of an organization is to a large degree determined by its employees and their engagement and performance is something that continues to be emphasized by scientific publications and lessons learned alike (e.g., Bonet, Armengot, & Martín, 2011, p. 79; Boudreau, 1996; Sims, 2002, p. 2). The expression “the human success factor” has become such a standard introduction that most readers will not think twice about its meaning. It is remarkable that this wording is not yet exploited and is still in use. Probably it is because its correctness can be assumed furthermore and because societal, ecological, and economic developments (so-called mega trends such as globalization, dynamics of markets, demographic development, change of values, technological progress, and urbanization, see Zink, 2010, p. 50; Zink, 2013, p. 38) continue to demand placing employees as key performers at the center of business processes.

Of course, many developments such as the demographic change or the shortage of skilled workers are not limited to particular countries, such as Germany (European Union, 2013). They even take place outside of Europe and demand the long-term construction and preservation of human resources or human capital, respectively (e.g., Bloom & Canning, 2004; Magnus, 2009)

The goal of retaining a company’s future viability while developing human capital in the long term is part of the so-called sustainable corporate management. The normative requirements of sustainable corporate management demand that companies as key players contribute their share to society. In recent years, the companies have been increasingly held responsible for that. However, in order for those companies to be able to develop, retain, and promote human capital, they will have to be given appropriate instruments to work with.

Numerous approaches and actions in the context of occupational health promotion or life-phase–oriented human resource development as a promotional tool for employee retention are already in place. But it is to be assumed that the introductory phrase of the “human success factor” does not only stay in use because of its validity, but also because the search for conceptual solutions will remain ongoing for some time to come.

A systematic, holistic approach to the implementation of this goal (obtaining corporate sustainability and establishing human capital in the long term) can be brought about by management tools that include the measuring and managing of human capital.

This requires a clear understanding of the term “human capital,” which will be dealt in the next section. After the definition of human capital, the chapter will explain why it is important to extend the approach to human capital to a broader understanding (according to human potential). This extension provides the basis for an appropriate measurement, which will be stated later. The implementation of a measurement approach into existing management structures of an organization can be understood as a challenge, the approach of a corporate sustainability management can support this process. This will be part of further explanations at the end of this chapter.

Human Potential Instead of Corporate Human Capital

The term “human capital” has been defined and described numerous times within the literature of the economic field (see Barney, 2011; Becker, 1964; Becker, 2008; Mincer, 1993; Hatch & Dyer, 2004; Johnson, 2005; Schultz, 1961; Stewart, 1997). When looking at the various definitions, three components of those definitions can be identified (Osranek & Zink, 2013, pp. 107–108):

1. “Human capital refers to all individual social, professional and methodical skills in an organization.

2. This HC is specified by integrating the relationship between individual skills and organizational objectives as such they have to be useful or valuable for the organization. [ . . . ]

3. Measurement of the organizational context conditions and their adequacy to facilitate the use of individual skills for the organization (including the individual parameters outlined above).”

Looking at the existing approaches to measuring human capital (HC) in organizations, it becomes clear that those generally are a pure measurement of result-based variables—for example, Skandia Navigator by Leif Edvinsson (Edvinsson & Malone, 1998), CELEMI Intangible Assets Monitor by Karl Erik Sveiby (Sveiby, 2001), Saarbruecken formula by Christian Scholz and colleagues (Scholz, Stein, & Bechtel, 2011), Workonomics and Real Asset Value Enhancer by Boston Consulting Group (Strack & Villis, 2002), Intellectual Capital Statement by The Danish Agency for Trade and Industry (Danish Agency for Trade and Industry, 2000). Most of the existing measurement approaches fall short when organizations look to them for directly derived suggestions for the long-term implementation and promotion of human capital. This is because most evaluation tools concentrate on result-based variables and neglect the promotional conditions that make the generating of human capital possible. Only a few measurement approaches take these conditions into account. This, for example, applies to a small degree and in the form of value drivers to the approach by Wucknitz (2009, p. 62 f., translated by the authors):

1. Organizational environment

2. Organizational structure

3. Team processes

4. Leadership

5. Human Resource Management

6. Personnel Legal Structure (workforce-related law)

7. Personnel Finance Structure (personnel expenses)

8. Personnel Organizational Structure (structure of the workforce)

9. Key Employees

10. Corporate Culture

One approach that incorporates the conditions favorable for human capital much more broadly is the so-called human potential index (HPI).

With respect to this broader view, it becomes necessary to replace the measurement of human capital with that of a so-called human potential (HP) measurement such as the HPI (Große-Jäger, Friedrichs, & Schubert, 2009) conceived in Germany. Besides the result-based variables, the human potential measurement also gathers data concerning the conditions that makes the generating of human capital possible.

In addition to the general conditions that arise from the organization itself (sector, company size, legal form as general conditions), special emphasis is placed on those conditions that exert an influence through value drivers. These value drivers are being grouped into value-adding processes and instruments of sustainability. The value-adding processes include HR strategy and management, planning and selection, compensation and benefits, leadership, communication and information, HR development, and change management. The instruments of sustainability refer to the following topics: corporate values, workplace responsibility, demography, work–life balance, employee retention, equal opportunities and diversity, and health promotion. Result-based variables for economic success (as indicated by the balance sheet: EBIT qualified by turnover, specific evaluation by the management) or employee-oriented factors such as indicators of commitment (motivation, employee retention, innovations) reflect the degree of human potential in the form of indicators and, in so doing, they are result-based variables of human potential (Große-Jäger, Friederichs and Schubert, 2009, p. 22).

Given that the extent of the result-based variables is largely determined by the value drivers, management can now be given clear topics to pursue in order to facilitate human potential: for example, compensation and benefits, personnel development, leadership, work–life balance, employee retention, or health promotion.

Besides the breadth of the approach, it is also noteworthy that the model is not solely founded on the evaluation by management; but, as part of the “indicators of commitment,” it also takes into account the evaluation of employees (indicators of commitment). In addition, almost no other measurement approach of HC integrates such a range of employee factors including workplace responsibility, work–life balance, employee retention, equal opportunities, diversity, health promotion, and demography.

The model was developed and tested in practice by the Federal Ministry of Labour and Social Affairs and representatives of science and practice (i.e., Human Capital Club e.V.) in 2009. The objective was to identify the human capital of companies on the basis of the indicator model described earlier, to evaluate and gather suggestions for the improvement of the value drivers. Until the present moment, the model is not being promoted further—perhaps because of political reasons (a change of the political party in government and ministry) or because of the criticism the model faced. One of the most serious points of criticism is the fact that up until now the causal connection between the value drivers and the result variables is not yet verified. Undoubtedly, the merit of HPI lies therein that it integrates the significance of organizational and employee-orientated goals with a short- and long-term outlooks in a model meant to generate human capital.

Extending the measurement approach from an exclusive collection of result-based variables toward the integration of potential framework conditions is a first step to adequate measurement of human capital. The corresponding framework model is made apparent by the following chart:

Crucial to the described integrative framework (figure 1.1) is the consideration of corporate sustainability. Generating and promoting human potential should be adjusted with corporate sustainability strategy because corporate sustainability can be understood as a prior concept that is able to develop human potential in the long term. The link will be explained later.

Possible criteria that can be seen as relevant for generating human potential are listed in table 1.1.

This extension is not sufficient when it comes to concrete recommendations for the preservation or construction of HC, however. The measurement approach also has to be augmented by a second level: the measurement of target behavior that shows how an organization can reach the desired result-based variables. Measuring behavior means defining target behavior and showing the path to achieving it. According to various companies, this path can look different. For example, if the existence of strategy-promoting competencies within the company is part of the HC measurement, then it is merely a result variable. It does not explain if suitable organizational conditions are in place or which individual behavior and by whom is needed to reach a high manifestation of this result variable. On the contrary, if this result variable shows a low value, an organization will have to adjust the corrective measures depending on whether the low value was a result of management negligence (e.g., an inadequate search for personnel) or deficiencies on part of the employees, such as a low willingness for self-improvement. Only then can the assertions of the result variables be interpreted and managed correctly.

A general approach concerning the measurement of human potential as intended here does not limit itself to establishing the HP-promoting criteria, the aimed-for status per criterion (“result variable”) and the measurement in and of itself (status quo). Instead, this initial phase is followed by an analysis of the status quo in regard to promoting and inhibiting factors, the identification of the required framework and description of the target-orientated behavior and “behavior carrier.” Analysis of the status quo is meant to show how the respective target values have been exceeded or have fallen short (or could be kept that way). In doing so, it provides hints to effective measures to reach or retain the target values. With regard to these different analytical elements, concrete behavioral patterns that individuals or entities ought to display in order to facilitate or support target value achievement can be described.

Figure 1.1 An integrative measurement framework of human potent...

Table of contents

• Cover
• Title
• Introduction Homo Sustainabiliticus and the “New Gold”
• Part I  Value Creation
• Part II  Reporting and Signaling
• Appendix A  Content Analysis Protocol
• Appendix B  Definition of Human Capital Items and Indicators
• List of Contributors
• Index